Now is a great time to upgrade your house to use less energy -- and maybe even generate your own. By Jessica L. Anderson, Associate Editor and Pat Mertz Esswein, Associate Editor September 30, 2009 If Uncle Sam ran an infomercial plugging its new energy programs for homeowners, it might sound something like this: For a limited time only, get federal aid for home improvements that can help you reduce your tax and energy bills! Through 2010 you can cut your tax bill by 30% of the cost of certain projects, up to $1,500! And through 2016 you can get a credit for 30% of the cost -- with no limit -- of geothermal heat pumps, solar panels, solar water heaters, small wind-energy systems and fuel cells! RELATED LINKS Make Every Drop Count Plug Leaks and Replace Appliances Take Your Home’s Energy Pulse And that’s no hype. Washington is serious about energy efficiency, and will pay up to $1,500 for home improvements, such as windows and doors, certain insulation projects, roofs and high-efficiency water heaters (for more information, visit www.energystar.gov). The government has also slated $300 million for rebates on the purchase of Energy Star-qualified appliances (see www.dsireusa.org for details). The money should be available late this year or early next. With the federal government chipping in 30% of the cost, generating power at home makes economic sense for many Americans. In addition to the federal tax credit, 44 states offer renewable-energy tax incentives, ranging from property- and sales-tax discounts to income-tax credits. Rebates are available in 42 states from a variety of sources, including utility companies (see www.dsireusa.org for incentives in your state). Advertisement Lower prices combined with government incentives mean that a home power system should pay for itself -- but in most cases it’s a long-term proposition. One thing you can count on, though: Energy prices from your local utility will only go up, so your home power system will look like a smarter decision as time goes by. Solar electric. Most homes can be fitted with solar panels; all you need is enough space and not too much shade. And as material costs go down, solar power systems (also called photovoltaic, or PV, systems) are getting cheaper. As a result of the recession there’s an oversupply of panels right now, so prices for PV panels have dropped 20% to 30% from a year ago, says Brad Collins, executive director of the American Solar Energy Society. Again, the variables are key. For an idea of what a solar electric system might cost you, try the calculator at www.findsolar.com. A local solar-power contractor can help fine-tune the calculations (you can find contractors by zip code at the same site). In rough terms, here’s how the numbers break down: The average home’s electrical needs can be met by a 4-kilowatt solar power system. Figure the price, including installation, at $8,000 per kilowatt, so the total comes to $32,000. State tax incentives range from 15% in North Dakota and Massachusetts to 50% in Louisiana, with 25% the most common. Knocking that much off a $32,000 system brings the cost down to $24,000. The federal government’s 30% “discount” drops the total to $16,800. According to Collins, the break-even point ranges from 15 to 25 years. Advertisement The power from such a system can be “banked.” Forty-two states and the District of Columbia have net-metering agreements: If your system is tied to the power grid, the utility has to credit you the retail rate (the rate customers pay) for the power you contribute to the grid. If you feed more power in than you take out in a given month, you store up credits for future use. Solar hot water. A solar hot-water setup is relatively inexpensive and has a quick payback. How it works: Collector boxes (usually placed on your roof) trap solar heat and preheat cold water. On a sunny day, even in the winter, the fluid in the collectors can reach 150 degrees Fahrenheit. The heated water then flows either to your existing hot-water tank or to a special tank. A typical setup costs about $4,500; adding freeze protection to the roof unit could raise the price to between $7,000 and $9,000. On a $7,000 system, the federal credit drops the price to just $4,900. State and local incentives vary widely, but they can really add up. Tom and Martha Baxter of Columbia, Md., installed a solar hot-water heater in 2006 and, after state and federal credits, plus a county property-tax discount, they paid only one-third of the $5,400 total cost. Their system is nearing the four-year mark, and they’ll be breaking even any day now. Advertisement Geothermal. Also called ground-source heat pumps, geothermal systems use the constant temperature just beneath the earth’s surface to heat and cool your home more efficiently. (The ground temperature is warmer than the outside air in the winter and cooler in the summer.) Using water-filled pipes that run beneath your property, the heat pump extracts heat from the water in the winter and reverses the process in the summer. During the summer the system can also be used to help provide hot water. For a 2,000-square-foot house, a system runs $15,000 to $20,000, depending on the difficulty of installation -- how much digging or drilling is required. In the middle of that range, and accounting for the federal credit, your price would be about $12,250. Incentives vary here, too: Georgia offers a 35% tax credit up to $2,000, while Wisconsin offers only a $250 rebate. That didn’t stop Paula and Frank Lugar of Spring Valley, Wis., from installing a geothermal heat pump in their home in July. Before the 30% federal tax credit, which they’ll get when they file their taxes for this year, the system cost $18,600 (the price included $1,200 for an air filter and humidifier). Given that their propane use has been drastically reduced, they estimate that they’ll break even in about seven years if propane prices continue to rise at current rates. For more info on geothermal systems, go to www.igshpa.okstate.edu. Wind turbines. Space constraints, wind speeds and zoning dictate whether you can install a wind turbine. You generally need at least a half-acre of open land and average wind speeds of 12 mph. That effectively limits turbines to rural and some suburban areas, and zoning laws may prohibit turbines even if your land fits the bill. For turbine towers, taller is better. As a rule of thumb, you want your turbine to sit 30 feet above any obstacle within 500 feet. The average tower is 80 feet. Advertisement If you can clear those hurdles, the pricing breaks down like this: A 4-kilowatt system can power the average house, depending on the wind, according to Ron Stimmel, small-wind-systems advocate for the American Wind Energy Association. Per kilowatt, prices range from $3,000 to $6,000. That includes installation, which, along with tower height, is the biggest reason for the wide variation in cost. In the middle of the range, a 4-kilowatt system would run $18,000. After the federal credit, the cost drops to about $12,600. Incentives at the state and local level vary widely. For example, North Carolina has a 35% tax credit (up to $10,500), which would cut the cost of the system in our example to about $8,200. In Arizona, you don’t pay sales tax on the system, and the state has a 25% tax credit -- but only up to $1,000. Depending on your wind speeds, the break-even point could be as little as five years, says Stimmel. As with solar power systems, if you tie your wind system to the grid, you can benefit from net metering. For more info, go to www.awea.org/smallwind.