CHAPTER 4: Solar Photovoltaic (PV) Systems

What They Are and How They Work

Photovoltaic (PV) systems consist of solar modules or panels that convert sunlight directly into electricity.  Each module consists of solar cells made of semiconducting materials like silicon which release electrons when struck by sunlight creating an electric current.  Multiple modules are connected in series to an inverter which converts the direct current produced by the modules into the alternating current that is identical to the power we receive from the electrical grid. 

Since sunlight is an intermittent resource, most systems in Maryland are grid-connected, net-metered systems. When the sun is shining and the system is producing more energy than the building and its occupants are using, the excess energy flows back onto the grid for use by other utility customers. In this situation, the systems owner’s meter “runs backwards” providing a net credit to the homeowner at the same rate being paid for grid-supplied power.  When the system is not generating enough electricity to meet the needs of the building load, the homeowner can utilize regular grid-supplied power as needed.  This process is completely undetectable to the building owner and occupants who can only tell whether they are using solar energy or grid-supplied energy by looking at their utility meter.

Graphic courtesy of

(1) Solar Electric or PV modules convert sunlight to electricity. The PV modules generate DC electricity - or direct current - sending it to the inverter. (2) The inverter transforms the DC power into AC electricity for ordinary household needs. (3) Existing electrical panel distributes solar electricity and utility power to (4) loads (appliances). A valuable feature of photovoltaic systems is the ability to connect with the existing power grid which allows owners to sell excessive electricity back to the utility with a plan known as (5) Net Metering. At times when you are not using all of the electricity produced by your system, your meter will spin backwards selling the electricity back to the (6) utility power grid at retail rate.

Due to safety regulations, grid-tied PV systems automatically shut down during power outages. If continued power is essential for your household, consider investing in an uninterruptible power supply (UPS) or generator. You can also install a grid-tied system with a battery backup; this will, however, increase installation costs and maintenance while decreasing overall performance efficiency (Source).

Solar PV systems are sized by a design capacity measured in kilowatts (kW or 1,000 watts). A system’s capacity is equivalent to the number of solar panels multiplied by the maximum design wattage of each panel.  Most residential-scale panels range from 150 watts to over 300 watts and the number of panels is limited only by the roof or available mounting area.  Generally, a system should be facing south or southwest with little or no shading from trees or other obstructions and placed to receive as much direct sunlight as possible over the course of a year.

Solar panels generally include warranties for power production and include a guarantee that the panels will be producing at least 80% of their design capacity for 25 years.  The modules themselves have no moving parts and may continue to produce significant amounts of electricity for 30 years or more.  The long-life of the panels, as well as labor cost to install them, also means that they should generally not be installed on a roof that is likely to need replacing in the near future.

The inverter is the only major element of the system that is likely to need replacing at some point.  Inverter warranties of 10-15 years are common but generally are not expected to last for the useful life of the system.

The first step in determining how large of a system to install is to look at the historical usage of a home or building as shown on previous electric bills.  Although the capacity of a system is measured in kilowatts, the actual electricity generated and used is measured in kilowatt-hours (kWh,) which are a measure of the flow of electricity and a function of the amount of sunlight that actually strikes the panels.  In the mid-Atlantic, one kW of solar capacity will generate about 1,200 kWh of solar electricity in an average year.  So a home that uses 12,000 kWh per year according to its electric bills would need about 10 kW of solar modules to generate 100% of its electricity needs over the course of a year.

A rule of thumb is that approximately 100 square feet (SF) of roof space is required for enough panels to equal 1 kilowatt of solar capacity, so a 10 kW system would require 1,000 SF of unshaded south or southwestern facing roof space.   Although, solar systems can be installed facing east or west, the reduced performance may limit the cost-effectiveness of such systems.

           solar home

Photo Credit: By Positivefootprint (gary chamberlain) [CC-BY-SA-3.0 (
licenses/by-sa/3.0) or GFDL (], via Wikimedia Commons

Photo Credit: By Positivefootprint (gary chamberlain) [CC-BY-SA-3.0 ( or GFDL (], via Wikimedia Commons

Costs of a Solar PV System

Many people choose to install solar PV systems because of the environmental benefits, but the financial payback is also critical to many.  Although the cost of solar electricity has been declining rapidly, the cost of installing a solar system continues to be a barrier for many people.  However, local, state and federal incentives can reduce the upfront costs significantly and some installation companies are now offering leases and power purchase agreements that reduce or eliminate the upfront costs.

The cost to install a solar PV system declined dramatically over the last several years as the price of solar modules has fallen.  Installed costs and components are usually expressed as dollars per watt of DC capacity.  PV modules that cost a solar contractor $4.00 per watt a few years ago were frequently available at prices under $1.00 per watt in 2012.  Unfortunately, solar modules only represent a portion of the costs of installation.  The costs for labor, permits, incentive paperwork, administration and overhead have not significantly declined (and in some cases increased).  Nevertheless, installed systems which might have cost $8.00 per watt in 2008 and $6.00 per watt in early 2010 were available for less than $5.00 per watt in 2012.  Generally speaking, larger systems cost less per watt than smaller systems because the fixed costs represent a relatively high percentage of the cost of smaller systems.

In addition to the declining installation costs, the available local, state and federal incentives often bridge the gap between the costs of solar electricity and conventional power.  These incentives are generally designed to accelerate the adoption of solar in the short-term and are expected to decline and phase out as the realization of grid-parity approaches.

Financial Incentives for Maryland Residential Photovoltaic Systems

The Information below on incentives is current as of January 2013. For the most up to date information on incentives, visit

  1. State Grant:  The Maryland Residential Clean Energy Grant Program offers a solar grant of $1,000 for the installation of a solar system on a residence and up to $6,000 on a business property at the rate of $60 per kW for systems under 100 kW and $30 per kW for systems from 100-200kW.
  2. Federal Investment Tax Credit: Under current law, solar PV systems installed on residences or businesses prior to December 31, 2016 are eligible for a 30% federal tax credit. A homeowner or business owner who installs a $30,000 solar PV system can reduce their tax obligation by $9,000 for the tax year in which the system is installed.  If the credit is larger than their tax bill in the year of installation, the remainder of the credit can be carried forward to future years.
  3. Solar Renewable Energy Credits (SRECs): A Solar Renewable Energy Credit (SREC) is a tradable commodity representing the non-polluting value of 1,000 kWh of electricity produced by a solar system.  The SREC is separate from the value of the electricity itself and permits the owner or purchaser to claim the benefits of the clean energy production by effectively subsidizing the cost of the installed system.  Any company in Maryland that sells electricity must produce the required amount of solar electricity from its own assets. If it cannot, it can purchase SRECs from PV system owners, or pay an Alternative Compliance Fee (ACP) into a fund that will be used to support the construction of solar systems in the state.

Maryland’s solar requirement took effect in 2008 requiring approximately 2,500-megawatt hours of solar electric production or 2,500 SRECs.  In 2013, the requirement is approximately 150,000 SRECs (Source). The amount of solar electricity required to be produced will increase steadily each year until 2020 at which time solar electricity should account for a full 2% of all the electricity consumed in Maryland—representing more than 1 million MWh (and SRECs) per year. 

While it is hard to predict changes in the prices of SRECs, a five kW system could be expected to earn approximately six SRECs per year which may be worth $600 to $1,200 per year for the next several years based on recent values $100-$200. Prices could, however, increase or decrease substantially depending on what the legislature does or if installation costs continue to fall, among other variables. For more in depth explanation of RECs, refer to Chapter 2.

System owners can qualify to earn and then sell their SRECs; they have several options for selling their SRECS: 

  • A system installer may refer new owners of solar thermal systems to an SREC aggregator/broker who may process required paperwork and trade SRECs on their behalf. This may be the simplest option for homeowners who do not want to be directly involved with extra paperwork and the selling of SRECs.
  • System owners may register and sell their SRECs themselves by applying for certification through the Public Services Commission’s website and by setting up an account and registering their system with the Generation Attribute Tracking System (GATS). GATS is where SRECs are created, tracked, and transferred to buyers when sold. GATS allows users to report generation data and collect and advertise credits for sale via the GATS Bulletin Board.
  • System owners may register their system with an auction platform, such as SREC Trade, Inc., which provides public listings of SREC pricing and hosts monthly auctions for SRECs. Alternatively they can register with a trading platform, such as Flett Exchange; it also tracks the kilowatt hour generation of its customers’ systems, and pays customers the current rate for the annual SRECs their systems produce.

Keep in mind that if you decide to sell your SRECs, your household has also “sold” the right to say that your home is being powered by the non-polluting solar PV system on your property. This may matter to some people, but not others.

  1. Electricity Savings:  The electricity produced by a solar PV system will reduce the amount of electricity required from the grid.  In a net-metered system, any production not directly consumed will be transferred to the grid at the full retail value.  In calculating the value of the electricity a system will produce over its lifetime, consideration must be given to the expected increases in electricity costs over time.  In effect, installing a PV system functions as a pre-purchase of electricity the system will produce over its lifetime. 
  2. Increased Resale Value:  Although many factors other than energy use affect resale value, recent studies suggest that a solar PV system can directly increase the value of a property.  One rule of thumb is that a PV system can add 20 times the value of the electricity the system produces on an annual basis. Also note, Maryland Statutes and Codes prevent any increase in real property taxes due the installation of solar PV systems.

Pro-Formas – Costs and Payback over 7 Years

The following table compares the costs and the impact of incentives on different sized systems:

Pro-Formas*: 2 kW 4 kW 8 kW 10 kW
Installed Cost of System $13,000  $20,000  $32,000  $39,000 
Maryland State Grant $1,000  $1,000  $1,000  $1,000 
Federal Tax Credit $3,900  $6,000  $6,000  $11,700 
Sale of Renewable Energy Credits (RECs)** $320  $800  $1,600  $1,920 
Electricity Savings (Year 1)*** $270  $541  $1,082  $1,352 
Total Grants, Credits, and Savings (Year 1)  $5,490  $8,341  $13,282  $15,972 
Net Cost to System Owner at end of Year 1 $7,510  $11,659  $18,718  $23,028 
Years 2-7 Electricity Savings and REC Revenues $3,359  $6,718  $13,437  $16,796 
Net Cost to System Owner at end of Year 7  $4,151  $4,941  $5,281  $6,232
Increased Property Resale Value**** $5,400  $10,820  $21,640  $27,040

* For illustrative purposes only.  A Pro-forma is assumed, forecasted, or informal information. It gives an idea of how the actual finances may look if underlying assumptions hold true.  Actual costs and incentives depend upon site conditions and programs that may or may not be applicable to your situation.  These pro-formas are not guaranteed and are subject to change without notice. Pro-formas provided by U.S. Photovoltaics, Inc.

** Assumes annual sale at 50% of ACP (Alternative Compliance Payment in the Renewable Portfolio Standards law39).

*** Assumes $0.11/ kWh in Year 1 and annual increases of 3.5%.

**** Assumes resale value of 20x annual energy savings. 

Over the expected 30 year life of the system an owner can expect to save more than $13,000 (2 kW), $27,000 (4.kW) or $55,000 (8 kW) on their electric bill if the cost of electricity increases just 3.5% per year.

The pro-formas above illustrate that the payback period for solar thermal systems may be approximately 10 years based on stated SREC and electricity cost rates.  Both the payback period and the return-on-investment (ROI) will vary depending on the cost of the system and the actual price of electricity and value of SRECs over time. If you do not plan to live in your home for the life of your system, you should be careful to calculate payback periods and ROIs using best and worst case scenarios. Your installer may be able to assist with this.

Paying For a Solar PV System

A solar PV system is a major investment and a number of alternative financing methods have been developed in recent years that may be appealing to homeowners interested in a solar system but who prefer not to purchase a system outright.

Many installers provide up to 12 months of interest-free financing to permit the homeowner to secure some of the state and federal incentives to reduce the out-of-pocket requirements. Alternatively, homeowners may obtain financing through a bank, credit union, home equity loan, or the Maryland Be SMART Home Complete loan program. The Maryland Be SMART Home Complete loan program offers up to $15,000 in unsecured loans at an interest rate of 4.99%. This program includes a home energy audit and does require using the program’s approved contractors. They have a limited number of contractors for renewable energy systems; however, contractors can be added on a rolling basis. In addition, the FHA's PowerSaver Program allows eligible owners to borrow up to $25,000 at fixed rates to finance energy efficiency projects and renewable energy projects like solar PV systems. Enter “FHA PowerSaver Program” into your internet browser to learn more.

In addition, alternatives to purchasing have been developed in recent years that attempt to permit homeowners to gain the benefits of having a solar system without actually buying the system. The most common alternatives to purchasing a system are a lease or a PPA (Power Purchase Agreement).  A PPA is very similar to a lease but allows a buy-out option. In both cases, a third-party actually owns the system, pays for its initial installation, retains most or all of the incentives, and is responsible for any maintenance of the system during the term of the agreement. 

Traditional leases requiring no upfront payments are available but generally have required payments that exceed the value of grid-delivered electricity at today’s prices.  Other versions require a significant up-front payment that effectively pre-pays for the electricity the system will produce over the life of the agreement. Paying an entire lease up front will eliminate future payments and allow a homeowner to effectively lock-in the cost of a portion of their future electricity needs at an attractive fixed cost.

There may be several options for the homeowner to pay for the electricity the system produces: (1) paying the entire fixed lease payment for 15 or 20 years, (2) paying one-half of the entire lease payment, or (3) making a regular monthly lease payment based on the actual amount of electricity produced at a specified rate per kWh.

Aside from reducing the amount of capital a homeowner would need to install a solar system, a lease or PPA can provide a more certain payback that is not dependent on the availability and value of some of the incentives which become the property and responsibility of the third-party owner.  On the other hand, depending on the specific provisions of the lease or PPA, the bulk of the financial benefits may accrue to the third-party owner, leaving fewer advantages to the homeowner. 

Leases and PPAs are generally available only to homeowners with high credit scores and do contain some provisions that may create issues if the homeowner sells the property during the term of the agreement to a buyer that does not meet the criteria required by the third-party owner.  Moving leased solar panels to a new home may be an option if the homeowner is willing to pay for the cost of moving and reinstalling the system. Leases and PPAs are still relatively new approaches and it is difficult to know what, if any, effect these provisions will actually have in the future.

Deciding if Solar PV is Right for You

A solar system makes the most sense if you can answer yes to the following questions:

  1. Do you own your house and expect to remain there for a long time (more than 7 – 10 years)?

  2. Is your roof in good condition or do you have an area suitable for a ground-mount system near the house?

  3. Does the location of your solar system provide for good exposure to sunlight in a southerly direction?

  4. Will the solar modules not be significantly affected by shading from trees or other obstructions?

Although a negative answer to one or more of these questions does not necessarily mean that a solar PV system is inappropriate for a property, it does suggest that it may be more difficult to maximize the value of the system or limit the financial benefits.

Should I Buy or Lease (or sign a PPA)?

Buying a solar system makes the most sense if:

  1. You have cash available or are willing to apply for a loan.
  2. You are willing to be responsible for maintenance and repair.
  3. You want to maximize the financial benefits through tax credits and SREC sales.
  4. You are willing to assume the risks of incentives, such as the value of SRECs, being worth less than expected.
  5. You want to be able to claim that your home is powered by your own non-polluting solar PV system (in which case you would not sell your SRECs for the financial benefits).

Leasing or signing a PPA for a solar system makes the most sense if:

  1. You have limited cash available or are unwilling to apply for a loan.
  2. You have a high credit score (generally >700).
  3. You want to minimize responsibility for maintenance and repair.
  4. You are willing to be obligated for the term of the Agreement (usually 15-20 years).
  5. You are willing to accept the risk that if you sell the house before the term expires, there may be complications or expenses.
  6. You are not concerned about the fact that you do not personally own the SRECs for your PV system, and therefore cannot claim, as your own, the non-polluting benefits of your system.

Installation and Maintenance:
Requirements and Expectations

It is a good idea to get quotes from more than one contractor. Read Contractor Selection Tips and Resources to find and assess prospective installers.  Make sure the bids are for comparable systems in size and type so it is easier to make cost and performance comparisons. The U.S. Department of Energy’s (DOE) web page on Installing and Maintaining a Home Solar Electric System provides some excellent questions to ask contractors.

Several permits and inspections are needed when a solar PV system is installed. Additional permits/inspections are needed for ground-mounted systems. Many installers will take care of these steps for you and roll the permit and inspection fees into their estimate and contract. Be sure to ask about this when you get cost estimates.

If your contractor does not handle these requirements for you, depending on where you live, you will need to check with your municipality or Frederick County Government about the permitting and inspection processes and fees. To learn about other considerations related to local codes and requirements, visit DOE’s web page on Planning for Home Renewable Energy System.

After your PV system is installed, it will also need to be inspected by your utility before it can be activated.  During 2012/2013, the time it took for Potomac Edison to schedule this inspection for Frederick County PV systems varied from less than two weeks to several weeks.

The actual installation of a solar PV system usually only takes a few days depending on the size of your system and whether or not any special modifications to your home or property are needed. From start to finish, however, the project may take several weeks to several months, depending on how busy your solar contractor is, and how long it takes Potomac Edison to inspect it. Be sure to ask your contractor about when they will be able to start the installation before you sign the contract.

PV systems will require routine, periodic maintenance and some components may need repair or replacement from time to time. Be sure to ask your solar contractor about warranties and maintenance options or services. If you are leasing your solar PV system, all maintenance and repairs will be taken care of by the company that owns the system.

There are a few more things to consider once your PV system is activated. Even though Potomac Edison must inspect the system before it is turned on, that does not necessarily mean that their billing department knows that you have a PV system. Because Potomac Edison frequently estimates monthly electricity usage, it is a good idea to call Customer Service and let the billing department know about your new system so they can adjust estimates accordingly.

 If you are on a “budget plan” with your utility or energy provider that evens out your monthly payments over the year, you may want to consider getting off of it so you can see the impact of your PV system on your monthly bills. Otherwise, it can take a long while for your bills to reflect cost savings as you will be paying about the same amount each month.

Potomac Edison will now need two meter readings to calculate your monthly electricity usage; you will therefore see an extra set of meter readings on your bill. The Channel 4 reading on your new meter records the total kWh your household received from the electric grid since your PV system was installed. The Channel 40 reading records the excess kWh that your system produced but your household did not use; this excess is sent back to the grid. The difference between these two numbers is the amount of electricity you used from the grid since your last meter reading, and it is the amount you will be billed for.

If you have been in the habit of calling in your meter reading, or submitting it online, you will not be able to do so in the way you are accustomed. As of early 2013, you will need to call the Business Account phone number (866.523.4081) even though you are a residential customer. 

Finally, once per year in the spring, if the total kWh your system has sent to the exceeds the total annual kWh your household has used from the grid, Potomac Edison will calculate your total banked kWh and credit your Potomac Edison account.


Contributor:  Fred Ugast, U.S. Photovoltaics, Inc.