Solar homes: A hot market that’s slowly rising

Solar systems don't come cheap and if they do, then consumers risk investing in equipment that is probably not the most reliable. Solar systems don’t come cheap and if they do, then consumers risk investing in equipment that is probably not the most reliable.

Solar power is red-hot these days. Yet this clean, dependable and economical energy source still has plenty of room to grow in Puerto Rico where solar homes are few.

The high cost of electricity on the island — more than double the average in the U.S. — is fueling growing awareness of the benefits of alternative energy and spurring well-off consumers to purchase solar energy systems to reduce their electric bills, according to industry players who also pointed to growing environmental awareness and lack of confidence in the government’s ability to lower the cost of energy as potent motivators in the search for alternatives.

Decades ago, renewable energy used to be “a marginal discussion. Now, everyone is conscious at the institutional, governmental, commercial, industrial and residential level,” said Fernando Abruña, whose architectural firm Abruña & Musgrave is dedicated to sustainable design.

With only a few thousand solar homes in all of Puerto Rico, this is a market ready to take off, if only there were financing options tailored to this area, according to conversations with half a dozen industry players.

“This is one of the places where solar power makes the most sense,” said Jorge Donato, whose company, 2B Eco-Efficient Engineering, supplies photovoltaic (PV) systems, better known as solar systems, and other energy-related products. According to this 35-year veteran in the island’s solar energy field, there may be as many as 80 companies competing in the local marketplace but only seven or eight are top-of-the-line.

Solar systems don’t come cheap and if they do, then consumers risk investing in equipment that is probably not the most reliable. Donato said he will not have anything to do with equipment made in China, preferring to handle brands from Germany, the U.S., and Canada.

With prices ranging between $20,000 and $50,000, this is a hefty investment for any homeowner. But, as solar players pointed out, most people are unaware they can lower the cost of solar system by reducing energy consumption through more efficient home appliances and equipment.

The more energy efficient the home, the less solar panels you need. Also, you can start with a small system and build from that, thus making the purchase more affordable, solar players said.

Federal and local incentives are another tool helping make these investments possible. Moreover, they also narrow the investment payback timeline: it typically takes from seven to nine years for a homeowner to recoup their investment in a solar system but with a subsidy, the homeowner can reach break even in five or six years, said Gabriel Ferrer, who runs the Ferrer Electrical Group.

One popular program is the Green Energy Fund, which provides two levels of incentives for renewable energy projects: Tier 1, geared to homes and small businesses (projects under 100kW) and Tier 2, for large scale renewable energy projects by government, businesses and industry (100 kW to 1 MW).

Created in 2010, the program plans to invest $290 million in renewable energy through 2020. Tier 1 incentives reimburse 40 percent of the cost of a PV system (such a system encompasses various components, including solar panels and a power converter.)

Out of 1,068 applications received to date, the Fund has approved 803 requests for a total investment of $105 million. These included 197 residential alternative-power systems.

The use of solar heaters is expected to become even more pervasive now that the government has made it mandatory to include them in all new housing construction. The use of solar heaters is expected to become even more pervasive now that the government has made it mandatory to include them in all new housing construction.

The ubiquitous solar heater
The more common solar power product sold on the island is the solar heater.

First introduced in Puerto Rico in the early 70s, “a solar water heater is the most common application because it is more economical,” its price ranging between $1,800 and $2,600, said Donato, who estimated that 25 percent to 30 percent of homes in Puerto Rico have them.

The use of solar heaters is expected to become even more pervasive now that the government has made it mandatory to include them in all new housing construction.

It’s a different story for solar homes. With less than 5 percent of homes on the island with solar energy systems, “this is a budding market,” said Donato.

Solar energy systems come in two types:  there’s the grid-tie, which connects to the local utility grid, and the off-grid, a stand-alone system with a battery backup to provide power when solar energy is unavailable, or in case of a blackout. Because these battery backups add to the total cost of investment, consumers usually opt for the former.

An advantage of grid-tie systems is that consumers, through net metering contracts, benefit from any excess energy produced. Under these contracts, the energy meter runs forward and backward to measure the net power the customer ultimately pays. Thus, excess energy is sent over to the grid during the day and at night, consumers draw power from the grid. If power usage is less than the excess contributed, the consumer gets a credit.

The Puerto Rico Electric Power Authority notes there are currently 1,235 renewable energy systems hooked up to its grid. (In addition to individual homes, this number includes four large-scale projects that are providing renewable energy to PREPA as part of the government’s drive to lower the cost of electricity. Another seven renewable energy companies contracted by PREPA earlier this year are scheduled to join the grid.)

That’s less than 1 percent of the agency’s total clientele of 1,485,150 homes, businesses and industries.

There are no numbers for illegal solar energy systems installed in homes without the required permitting. As for stand-alone, off-grid systems, Donato estimated that there are probably about 1,000 or so in place islandwide.

Lack of financing a hurdle
With costs of solar energy systems tumbling and solar energy providing a less expensive alternative to conventional, fossil-fuel energy, the outlook for solar couldn’t be brighter worldwide.

But in Puerto Rico, whose economy has been buffeted by a nearly uninterrupted eight-year recession, residential solar systems are out of reach for most consumers because of their high price tag.

Current buyers are middle class and wealthy retirees and professionals like lawyers, programmers and accountants who typically finance these purchases through second mortgages or by refinancing a home and using the extra money to buy a solar system, said Angel Zayas-Duchesne, of AZ Engineering and president of the 255-member strong Renewable Energy Consultants and Contractors Association of Puerto Rico (Aconer, by its Spanish acronym). Founded in 2007, its purpose is to advance the development of renewable energy on the island.

Lack of financing is generally viewed as the main obstacle to growing the residential solar sector. Companies that sell solar heaters can get around this snag by providing their own financing to customers, or a person may take out a regular collateral loan.

For buyers of rooftop solar systems, a much heftier investment, lack of financing is a limitation.

The problem is that banks don’t view the addition of solar energy equipment or any other energy-lowering feature as the kind of improvement that raises the value of a home.

Architect Ricardo Alvarez-Díaz Architect Ricardo Alvarez-Díaz

“Neither appraisers nor banks take into account the energy investment in the formula for qualifying home buyers,” said architect Ricardo Alvarez-Díaz, who is secretary of the Puerto Rico Homebuilders Association’s board of directors. His firm, Álvarez-Díaz & Villalón, a partnership with his interior designer wife Cristina Villalón, has worked on green initiatives.

Describing it as a “lack of vision regarding energy savings,” this posture limits financing options, he said, offering the example of a buyer who qualifies for a home priced at $115,000 but not for a $130,000 unit incorporating energy features that lower the electric bill.

Energy savings, Álvarez-Díaz said, should “function as a guaranty of the loan.”

Energy efficiency a must
There is more to solar energy that plunking down some solar panels on a rooftop.

This investment makes sense and becomes altogether more affordable when combined with energy conservation strategies in the home, said solar players.

There is no point investing in such costly equipment without considering a home’s energy use and reducing consumption through energy-efficient appliances, said Eduardo Chariez, vice president of 2B Eco-Efficient Engineering, also underscoring the importance of buying quality systems for safety reasons and longer equipment life (up to 40 years).

Already, consumers in Puerto Rico are moving in that direction.

They are chucking electric stoves in favor of gas stoves, buying inverter-equipped air conditioners, and switching over to drying machines and refrigerators that run on propane gas instead of electricity.

“The cost of energy makes you think how one can be more efficient,” Donato said.

To make the most of solar energy, a home should be energy efficient as is the case of this green home recently designed by Architect Fernando Abruna and available through his company, Verde Homes. To make the most of solar energy, a home should be energy efficient as is the case of this green home recently designed by Architect Fernando Abruna and available through his company, Verde Homes.

Energy efficiency ultimately requires rethinking the way homes are built in Puerto Rico, said Abruña whose firm Abruña & Musgrave recently designed Eco Hab, an affordable, energy-efficient house.

Priced at $100,000 (excluding land), Eco Hab can be bought from Verde Homes, a company Abruña started four years ago, with financing through the U.S. Department of Housing and Urban Development Home program, which subsidizes up to 40 percent of the cost of a home.

For Abruña, this involves things as basic as reducing the thermal load on a building for a cooler house through wall and roof insulation and facing the home’s longer sides to the south, rather than the north as is the traditional practice here.

Something as simple as painting a roof white can lower the amount of heat from the roof by 30 percent and placing windows closer to the ground maximizes ventilation, he said.

Still, the drive toward energy efficiency will raise the cost of housing at a time when consumers are still struggling financially.

“The cost of energy improvements (like solar heaters) will have to be passed on to consumers,” said Álvarez-Díaz.

And he worried that in today’s marketplace, “an extra $500 can price out a homebuyer.”

Industry faces limits
For all its potential, the growth of residential solar energy systems in Puerto Rico is not limitless, according to Zayas, of AZ Engineering.

Current limits on the amount of renewable energy that can be connected to PREPA’s main grid from all sources (namely residential, commercial and industrial) casts a shadow over the future growth of grid-tie systems.

The limit is 600 MW (or 600 million watts) and PREPA expects to reach 61 percent of renewable energy capacity with the recent addition of those large-projects previously mentioned in this story.

It is unclear when the 600 MW limit will be reached but Zayas warned it could happen in the next two years. Going over could destabilize the system.

To raise capacity, PREPA would have to improve its power grid, an investment that the financially ailing, debt-strapped government agency is ill equipped to handle right now. However, Zayas said there may be other options available.

What this means in terms of future sales of solar systems is unclear.

Buyers would probably have to turn to off grid systems but it remains to be seen if Puerto Rican consumers will be willing to plunk additional money for what is already a costly and hard to finance alternative energy system.

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