Are Solar Panels Cost Effective in Massachusetts - Research Paper Example

These incentives include tax credits, improvements in household asset valuation, cost reductions stemming from higher demand and supply capabilities by licensed installers, and even rebates that provide instant cost recovery on solar photovoltaic system installation. Because of Massachusetts’ total basket of potential incentives, solar panels are not only cost effective, but can provide long-term financial benefits for consumers and businesses that can relatively quickly recoup the initial costs of installation.

Why Solar Panels are Cost Effective in Massachusetts Solar photovoltaic cells are installed either on the rooftops of homes and businesses or as ground-level panels depending on the wattage required by the user and their available square footage or acreage. Most consumers install five kilowatt-capable solar panels which will require 500 square feet of available space in order to install this efficient system (Boston Solar, 2011). Typically, this type of solar energy system will completely remove dependency on standard electric utilities which allows the consumer to be 100% self-reliant in electric energy production.

Such a system ranges, in general, between $20,000 and $27,500 before considering any incentive enhancements. There are, however, less efficient solar packages that produce significantly less energy output and will force the consumer to be partially reliant on power production from their local utility companies to supplement solar-produced output. Despite this initial high cost of installation, it is estimated that a five kilowatt solar photovoltaic system will generate enough electricity to power the entire home and be equivalent to $2,200 in savings on annual electricity costs (Local Solar Panels, 2009).

Thus, in one year, a $20,000 system provides a return on investment, before considering incentives, at 11 percent. Now, many consumers are turned away from installing a solar panel system due to the initial expenditure required. Not many consumers can readily afford such a high price for solar panel installation and will be forced to procure financing options (e.g. second mortgage or home mortgage refinancing) in order to have the system installed. Despite this, there are significant long-run advantages for having their own solar energy production system that are provided by the Federal government and Massachusetts government that enhance the initial 11 percent return on investment.

The state of Massachusetts has created a Commonwealth State Rebate that provides consumers with up to $8,500 in repayments when installing a solar system with higher output levels. This rebate system was established in 2010 in order to entice consumers to consider installation. In fact, demand for the program was so very high that the program ran out of its initial funding capabilities, requiring Massachusetts government to provide an additional $222 million in funding over the initial budget of just $108 million (Boston Solar, 2011).

With potential rebates of up to $8,500, the Commonwealth Rebate System now maintains the capability to increase return on investment from 11 percent to 53.5 percent, thus recapturing over half of the initial installation costs for the system. In 2008, the Federal gover