Are you tired of using natural gas to heat your water? Have you considered switching to clean solar power? If you are an SDG&E customer, there are generous rebates and tax incentives available for solar water heating systems.

Here’s a comparison of two popular options for solar water heating: solar thermal systems, or an electric heat pump water heater, fully powered by solar panels. Ten years ago, solar thermal systems used to be the least expensive option. Since then, the cost of solar panels have decreased. Today’s best choice is an electric heat pump water heater, powered by solar panels.

I will also explain why I don’t love on-demand (tankless) water heaters.

Solar Water Heating – Solar Thermal Systems

Solar thermal systems have been around for over a century. They are a partial solar water heating system: they only heat your water when the sun is shining. You don’t need to replace your existing water heater to install a solar thermal system. You can use any type of water heater as a backup: natural gas, electric, or propane. You can even use this system with a tankless water heater.

Solar thermal systems have copper tubes on the roof that are filled with water. One or two solar thermal collectors on the roof take up about 30-80 square feet of roof surface. Copper is an excellent conductor. When sun shines on the copper tubes, and the water heats up. The heated water goes to a Solar Storage Tank with a Heat Exchanger, that is connected to the water supply of your existing water heater.

Rebates and Incentives

The California Solar Initiative – Thermal Program will help you pay for a solar thermal system.  The average rebate is $3,300 for San Diego Gas & Electric customers. The maximum rebate is $4,366. You don’t need to pay the rebate amount up front. You can pay the solar thermal contractor the cost of the installation, minus the expected rebate. The rebate check will then be sent to the contractor as final payment.

UPDATE: On October 4, 2017, Governor Jerry Brown signed AB-979 into law, extending the California Solar Initiative Thermal Program for an additional two years, until the end of 2019.

There is also a federal tax incentive for solar thermal programs. You receive a 30% federal tax credit. This credit is based on your cost after rebatesFor questions regarding the federal tax credit, you should speak with your tax professional.

COST: The average cost of a solar thermal system is $7,300. With an average rebate of $3,300, you pay $4,000. To add to that savings, you also receive a 30% federal tax credit of $1,200, which makes your final cost only $2,800. That’s a savings of $4,500This cost includes the solar collectors, heat transfer fluid pump, and solar storage tank. It does not include the actual water heater.

To find a solar thermal contractor, go to the Center for Sustainable Energy website. You will need to use one of the contractors on this website to be eligible for the California Solar Initiative Rebate.

A solar thermal contractor should possess one of the following contractor licenses: A, B, C4, C36, or C46.

Solar Water Heating – Electric Water Heater and Solar Panels

Instead of a solar thermal system, you can buy an electric heat pump water heater, and power it with solar panels. Better yet, install a solar photovoltaic system large enough to power your household, and simply add on some extra panels to power the electric heat pump water heater.

UPDATE: Since I wrote this article in 2016, I wrote a follow-up article about heat pump water heaters – read this for more information.

Electric heat pump water heaters use only one-third the power of a standard electric water heater. Electric heat pump water hearts are also more efficient than traditional natural gas water heaters.

Electric heat pumps work like a refrigerator, only backwards. Energy is extracted from the air to heat a pressurized refrigerant, which is then passed through condenser coils running through the water tank, which heat the water. While the pump extracts energy from the air, it also dehumidifies the space, which can help maintain better air quality for humid climates or moist basements.

The low cost of solar panel systems makes this setup the best long-term solution. The solar panels you use to heat your water are the same panels you use to power the rest of your home. You don’t need a separate system on your roof to use the sun to heat your water. Solar panel arrays don’t have moving parts, and require very little maintenance.

One of the biggest reasons I prefer this alternative to solar thermal systems is that solar thermal systems have a greater chance of breaking down. They can leak, they can overheat, and they can even develop air bubbles that interfere with the circulation of fluid. Solar thermal systems have moving parts: pumps and solenoid valves. Solar thermal systems require regular maintenance, including antifreeze replacement. On the other hand, solar panel arrays have none of these problems.

Note: An electric heat pump water heater requires a 220V circuit. You may need to hire an electrician to install this connection before buying an electric heat pump water heater. These water heaters have a similar lifespan to traditional gas-powered water heaters – about 10-15 years.

Rebates and Incentives

You can receive money to help pay for both the electric heat pump water heater and the solar panels.

SDG&E offers $250 rebates for electric heat pump water heaters.

Federal tax code allows for a one-time 30% Residential Energy Credit to purchase home solar photovoltaic systems. The credit may include any repairs necessary to install the panels, including roofing repairs. Check with your tax professional. This 30% incentive will be available through December 31, 2019, before tapering to 10% in 2022.

The 30% Residential Energy Credit is the only solar panel incentive available to most SDG&E customers. Solar panel funding from the California Solar Initiative was exhausted in 2014.

COST: According to current hot water usage estimates, an American household requires less than 1 kW of solar panels to power a hot water heater. Any excess energy can be used to power the rest of the home. With the 30% tax incentive, a 1 kW solar panel system costs about $3,000. An electric heat pump water heater with installation costs about $1,500 – $2,000. The total cost for this type of solar water heating system is approximately $4,500 – $5,000, which includes the water heater and the solar panels. You also benefit from additional electricity produced by the solar panels.

What About On-Demand Water Heaters?

On-demand (tankless) water heaters cost up to $3000, save about 30% on energy costs, and use natural gas. The expense isn’t worth the minimal cost savings. If you have any future plans to switch to solar, it doesn’t make sense to purchase a natural gas appliance.

The Bottom Line

We use energy to heat water every day. The average American household spends 18% of its utility bill on water heating. Most of us rely on natural gas to heat our water. If you’re against fracking, or just want to reduce your utility bill, consider a solar hot water heating system. You can reduce your carbon footprint with either a solar thermal system, or an electric heat pump water heater powered by solar panels.

The past decade has brought us lower costs for solar photovoltaic systems. Either choice is more affordable now, thanks to rebate and incentive programs.

If you are thinking about buying solar, read my Solar for Homeowners article series. For more information about appliance rebates, read my article about Energy Saving Rebate Programs. You can also read about 7 Ways to Finance Energy Efficient Upgrades.

Any other questions about energy-efficient upgrades? Contact me anytime.

Thank you for contributing to this article:

Mark PulisMark M. Pulis is the owner of Residential Raters LLC, an energy efficiency firm for homes and small buildings. Mark provides consultations regarding HVAC systems, solar panel installations, energy consumption, energy efficient mortgages, and more. He is a certified Home Energy Rating System (HERS) rater by California Home Efficiency Rating Services, and is certified by the Building Performance Institute (BPI) as a Building Analyst and Envelope Specialist. Contact him at (858) 869-9412 or via his website.
Mylene Merlo is a licensed REALTOR® with Allison James Estates & Homes in Carlsbad, California. As a Carlsbad Real Estate Agent, I specialize in residential North County San Diego real estate. I have earned the Green designation and the Short Sales and Foreclosure Resource certification from the National Association of REALTORS®. If you have any questions about real estate in Carlsbad, Cardiff-by-the-Sea, Encinitas, Escondido, Oceanside, San Marcos, Solana Beach, or Vista, call or text me at (760) 637-7231 or send me a message.

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