NREL is a national laboratory of the U.S. Department of Energy, Office of Energy 

Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Contract No. DE-AC36-08GO28308

Break-even Cost for Residential 

Solar Water Heating in the 

United States: Key Drivers and 

Sensitivities

Hannah Cassard, Paul Denholm, and Sean Ong

Technical Report

NREL/TP-6A20-48986

February 2011
NREL is a national laboratory of the U.S. Department of Energy, Office of Energy 

Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

National Renewable Energy Laboratory

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303-275-3000 • www.nrel.gov

Contract No. DE-AC36-08GO28308

Break-even Cost for Residential 

Solar Water Heating in the 

United States: Key Drivers and 

Sensitivities

Hannah Cassard, Paul Denholm, and Sean Ong

Prepared under Task No. SS10.2110

Technical Report

NREL/TP-6A20-48986

February 2011
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Acknowledgments

The authors wish to thank the following people for their review and other contributions: 

Jay Burch, Billy Roberts, Craig Christensen, Anthony Lopez, Tim Merrigan, and Les 

Nelson.
iv

Executive Summary

This paper examines the break-even cost for residential rooftop solar water heating 

(SWH) technology, defined as the point where the cost of the energy saved with a SWH 

system equals the cost of a conventional heating fuel purchased from the grid (either 

electricity or natural gas). We examine the break-even cost for the largest 1,000 electric 

and natural gas utilities serving residential customers in the United States as of 2008. 

Currently, the break-even cost of SWH in the United States varies by more than a factor 

of five for both electricity and natural gas (from less than $2,250/system to over 

$10,000/system for electric and from less than $1,000/system to approximately

$5,000/system for natural gas, excluding Hawaii and Alaska), despite a much smaller 

variation in the amount of energy saved by the systems (a factor of approximately one 

and a half). The break-even price for natural gas is lower than that for electricity due to a 

lower fuel cost. It was found that for a $7,000 SWH system capital cost (electric auxiliary 

heater), break-even conditions currently exist in 73 electric utility service territories 

(serving 16% of all residential customers). To see similar economics for SWH systems 

with natural gas backup, the SWH system capital cost would have to drop to $2,500. We 

also consider the relationship between SWH price and solar fraction (percent of daily 

energy requirements supplied by the SWH system) and examine the key drivers behind 

break-even costs. Overall, the key drivers of the break-even cost of SWH are a 

combination of fuel price, local incentives, and technical factors including the solar 

resource location, system size, and hot water draw.
v

Table of Contents

List of Figures.............................................................................................................................................vi

List of Tables..............................................................................................................................................vii

1 Introduction ...........................................................................................................................................1

2 Base Case Residential SWH Break-even Costs.................................................................................3

3 Market Sensitivities of Break-even Costs.........................................................................................20

4 Conclusions.........................................................................................................................................27

References .................................................................................................................................................28

Appendix A: Regional Variation in Water Heating Fuel by U.S. Census Region................................29

Appendix B: Base Energy Savings, Fuel Price, Energy Value, and Solar Fraction for the 

Largest Utility in Each Region...........................................................................................................30

Appendix C: Seasonal Variation in Solar Fraction.................................................................................35

Appendix D: Calculation of Break-even Cost.........................................................................................37

Appendix E: Incentives Used in this Study ............................................................................................38

Appendix F: Break-even Results by System Size..................................................................................40

Appendix G: Sample Break-even Interpolation Calculation .................................................................42

Appendix H: Drivers of the System Performance Sensitivity Category ..............................................43
vi

List of Figures

Figure 1. Regional distribution (by U.S. census region) of the number of houses using 

a particular water heating fuel type ................................................................. 4

Figure 2. Regional variation in hot water heating energy demand (kWh) for a singlefamily residence with a constant load profile.................................................. 5

Figure 3. Variation in annual energy savings (kWh/year) for the base case SWH 

system with an electric auxiliary water heater ................................................ 7

Figure 4. Variation in annual solar fraction (percent of daily load met by the SWH 

system) for the base case SWH with an electric auxiliary water heater.......... 8

Figure 5. Annual value of energy saved ($) for the base case SWH system with 

an electric auxiliary water heater for the top 1,000 residential electric 

utilities........................................................................................................... 10

Figure 6. Annual value of energy saved ($) for the base case SWH system with a 

natural gas auxiliary water heater for the top 1,000 natural gas utilities 

serving residential customers ........................................................................ 11

Figure 7. Residential SWH break-even cost ($/system) for the top 1,000 electric 

utilities (as of 2008) for a SWH with an electric auxiliary water heater and 

using all incentives........................................................................................ 13

Figure 8. Residential SWH break-even cost ($/system) for the top 1,000 natural gas 

utilities (as of 2008) for a SWH with a natural gas auxiliary water heater 

and using all incentives ................................................................................. 15

Figure 9. Increase in electricity price required for the base case residential SWH 

break-even at $7,000/system......................................................................... 16

Figure 10. Components of the electric break-even value and range in break-even value 

for each region (as of June 14, 2010)............................................................ 18

Figure 11. Range in SWH break-even cost and solar fraction for select states for a 

SWH with an electric auxiliary water heater................................................. 20

Figure 12. Range of SWH break-even costs: Top 26 regions—electric......................... 24

Figure 13. Range of SWH break-even costs: Bottom 26 regions—electric ................... 25

Figure B-1. Largest utility service territory by state with corresponding TMY3 site ...... 30

Figure H-1. Drivers of the system performance sensitivity category ............................... 44

Figure H-2. Drivers of the system performance sensitivity category ............................... 45
vii

List of Tables

Table 1. SWH Sensitivity Cases................................................................................... 22

Table A-1.Regional Variation in the Number of Houses Using a Particular Fuel Type by 

U.S. Census Region ........................................................................................ 29

Table B-1. Results of the Base Case Scenario for a SWH System with an Electric

Auxiliary Water Heater................................................................................... 31

Table B-2. Results of the Base Case Scenario for a SWH System with a Natural Gas 

Auxiliary Water Heater................................................................................... 33

Table C-1. Solar Fractions in January and July for the Largest Electric Utility in Each 

State................................................................................................................. 35

Table E-1. Statewide Incentives in the Form of Tax Credits or Rebates.......................... 38

Table E-2. Utility-based Incentives.................................................................................. 39

Table F-1. Break-even SWH Cost and Solar Fraction for the Base Case (40 ft2), Low 

Performing (20 ft2

), and High Performing (60 ft2) Solar Collector................ 40
1

1 Introduction

Water heating accounts for approximately 20% of all household energy use in the United 

States and 16% of all household energy expenditures (EIA 2005). This corresponds to a 

national annual consumption of 2.11 quadrillion BTU, or $32 billion, spent each year for 

water heating (assuming 2005 fuel prices). 

Solar water heating (SWH) technology has the potential to reduce household energy 

consumption by 50% or more. Solar water heaters make use of freely available solar 

energy to preheat water before it enters a conventional water heater, thereby substantially 

reducing energy usage, expenditures, and carbon dioxide emissions. Additionally, SWH 

helps reduce our dependence on uncertain foreign energy supplies. 

Market adoption of SWH in the United States remains minimal, with only 100 MWth 

added in 2007, as compared to 16,000 MWth added in China and 2,000 MWth added in 

Europe (REN21 2009). A number of reasons for this low penetration include limited 

retailer presence and associated lack of product offerings and support. In addition, 

perceived or real issues with aesthetics and reliability and a lack of familiarity and 

knowledge about the technology have combined to limit consumer adoption, and many 

people are not aware that SWH is a viable option to reduce energy expenditures. 

However, a primary driver remains the high initial cost—the life-cycle benefits often do 

not greatly exceed the capital cost of the system, and benefits such as reduced reliance on 

fossil fuels and reduced carbon dioxide emissions are external to the consumer and 

difficult to quantify. This paper attempts to evaluate the economic potential of SWH in 

the United States in terms of a break-even cost. 

The break-even cost for SWH technology is defined as the point where the value of the 

energy saved with a SWH system equals the cost of the electricity or natural gas required

to run an equivalent conventional water heating system. This is essentially the point at 

which the net present cost (NPC) of the system—installation plus maintenance—is equal 

to its net present benefits (NPB)—the value of reduced fuel expenditures plus any 

incentives.

1 This target may be expressed in $/system or $/square foot of collector area.2

In this report, we provide an analysis of SWH break-even costs for residential customers 

in the United States, and we evaluate some of the key drivers of SWH break-even costs

on a regional basis. This study begins by considering a base case scenario evaluating the 

break-even cost for residential SWH for both an electric and natural gas auxiliary water 

heater. We consider break-even for the largest 1,000 electric and natural gas utilities in 

the United States (serving 97% of the total residential demand for electricity and 99% of 

The break-even cost is a function of many variables, including the solar resource, local 

electricity or gas prices, hot water usage, and available incentives. As a result, for a 

country like the United States where these factors vary regionally, there can be 

considerable variation in break-even cost.

 1 This is also equivalent to the point at which the net present value (NPV) of the system is zero. 2 $/system refers to the initial installed cost of all SWH system components; $/square foot of collector area 

refers to the initial installed system cost divided by the area of the collecting surface.
2

the total residential demand for natural gas as of 2008). The base case includes a single 

set of assumptions for financing, system performance, hot water usage, and several other 

factors. While we evaluate a base case for both gas and electric backup heaters, the 

primary focus of this paper is on households with electric water heating (as of 2005, 39% 

of residential water heaters in the United States were electric with an average water 

heating demand of 2,814 kWh per house per year, and 54% were natural gas with an 

average water heating demand of 236 therms per house per year) (EIA 2005). We 

examine SWH with electric backup in more detail primarily because the economics of 

these systems are significantly better than those for households using natural gas due to 

the difference in fuel prices. Currently, the break-even cost of SWH for electric systems 

in the United States is typically more than double the break-even cost of SWH for natural 

gas systems. Follow-on studies will examine the potential of SWH for supplementing 

natural gas in more detail.

We also examine the individual components of break-even cost, including various 

incentive structures, and analyze the relationship between SWH price and solar fraction

(percent of daily energy requirement supplied by the SWH system). Finally, we examine 

the sensitivity of the break-even cost to five major drivers: system performance, hot water 

usage, financing parameters, fuel prices, and policies. Currently, federal, state, and local 

incentives are an important driver of break-even cost, as are technical factors such as 

system size, hot water usage, and solar resource. It should also be noted that prices 

charged by different contractors for essentially the same product can vary significantly in 

a given marketplace. This analysis of the break-even cost of SWH represents neither an 

estimate of market size nor an estimate of the rate of consumer adoption, but it does 

provide insight about the potential viability of SWH markets. 
3

2 Base Case Residential SWH Break-even Costs

The break-even cost of a SWH system is influenced by a number of factors, including 

auxiliary fuel type, available solar irradiation, system performance, hot water usage, fuel

price, and local incentives. For the base case scenario, break-even SWH system costs 

were determined for the solar resource and fuel price location corresponding to the 

largest electric utility and the largest natural gas utility in each state, using a single set of 

assumptions for financing, system orientation, hot water usage, and incentives. The 

following sections describe the base case assumptions and discuss the technical and 

economic performance of the SWH system. Section 2.1 describes the regional variation 

in water heating fuel, Section 2.2 the variation in energy demand for water heating, 

Section 2.3 the technical performance of the system, Section 2.4 the variation in fuel cost 

and energy value by utility, Section 2.5 the break-even costs and required fuel price 

increases, and Section 2.6 the breakdown in break-even cost. Sensitivities to these 

assumptions are evaluated in Section 3. 

2.1 Regional Variation in Water Heating Fuel

Of the 110 million households in the United States that require fuel for water heating, 

39% use electricity and 54% use natural gas (EIA 2005). Figure 1 illustrates the regional 

distribution of residential water heating fuel type for each of the nine census regions, as 

derived from the Energy Information Administration’s (EIA’s) Residential Energy 

Consumption Survey (RECS) (DOE 2005). Additionally, specific values are listed for the 

four most populous states (California, Texas, Florida, and New York).3

 3 Where a census region includes one of these large states, two pie charts are shown: one for the specific 

state, and another for the rest of the states in that region. 

The pie charts 

indicate the percentage of households in each region that use a given fuel type. A list of 

region-specific values is provided in Appendix A. 
4

Mountain

West North Central

East South Central

East North Central

New England

NY

FL

TX

CA

US Average

Electric Natural Gas Other

Pacific

West South Central

South Atlantic

Middle Atlantic

Figure 1. Regional distribution (by U.S. census region) of the number of houses using a 

particular water heating fuel type

Source: EIA 2005

As shown in Figure 1, a majority of all households utilize either electricity or natural gas 

for water heating. With the exception of the Northeast, where a quarter to a third of the

residences use fuel oil (primarily in older residences), electricity and natural gas account 

for 90% of all water heating fuel consumption in the United States. Natural gas is the 

most common fuel type for most of the country, most notably in the Mountain region and 

California, where natural gas accounts for 68% and 85% of all water heating fuel 

consumption, respectively. It should be noted that the only regions where electricity is the 

most common fuel type is in the Pacific Northwest (California excluded) and the South. 

In Florida, for example, 90% of water heating is electric, primarily due to limited space 

heating requirements, and therefore, a lack of residential natural gas infrastructure. The 

low cost of electricity in the Pacific Northwest is one reason why 64% of houses use

electric water heating. This paper does not represent a depth of market analysis, but 

rather, a regional assessment of the viability of SWH systems with either an electric or

natural gas auxiliary system.

4

2.2 Regional Variation in Water Heating Energy Demand

Energy demand for hot water heating is a function of climate, inlet water temperature, 

house size, and usage patterns of the residents. To determine energy requirements, 

climate data from the 1991–2005 National Solar Radiation Database (NSRDB) was used 

(NREL 2007). Referred to as typical meteorological year (TMY3) data, climate info is 

 4 It is assumed that the SWH system will use the same auxiliary fuel as the current water heating system.
5

complied for 1,020 stations throughout the United States (Wilcox 2008). Given these 

climate parameters and assuming a constant load profile for a single-family house, Figure 

2 shows the variation in hot water energy demand for the United States. 

Figure 2. Regional variation in hot water heating energy demand (kWh) for a single-family 

residence with a constant load profile

As illustrated in Figure 2, the energy required to heat water in warmer climates is 

significantly less than in colder climates. For the United States, this energy demand 

ranges from less than 2,400 kWh (in southern California, Texas, and Florida) to over 

3,800 kWh (in North Dakota, northern Minnesota, and northern Maine). The Rocky 

Mountain region generally has a higher water heating energy demand due to cooler inlet 

water temperatures. The solar fraction and energy savings of a SWH system is influenced 

by the energy demand. A complete list of the energy demand for the largest utility in each 

state is included in Appendix B.

2.3 System Performance and Energy Generation

To determine the annual amount of energy saved by the SWH system, we used the Solar 

Advisor Model (SAM), an analysis tool for solar energy systems developed by the 

National Renewable Energy Laboratory (NREL). SAM converts solar insolation values 

to solar energy savings by simulating a two-tank glycol active SWH system with an 

auxiliary electric heater and storage tank, a typical hot water load profile, 40 ft2 of 
6

collector area,

5 60 gal of storage volume, a water heater set temperature of 120°F, a water 

heater energy factor of 90% for electric and 60% for gas, and a burn efficiency of 80% 

for natural gas (NREL 2010). The base case assumptions include a south-facing system 

with panels tilted at 26.5°,

6 an annual degradation of 0.5% per year,7

For the specified system, SAM calculates the thermal energy savings. In order to convert 

this value to a fossil fuel input (for natural gas backup), external calculations and the burn 

efficiency are required. For systems with electric backup, parasitic pumping energy is 

automatically deducted from the useful output of the system,

and all collector and 

tank loss parameters given in SAM. For consistency, the same system type was simulated 

for all locations. Active indirect systems are common throughout most of the United 

States; however, in warmer climates (notably Hawaii and southern Florida) this system is 

not representative of what might actually be installed. Direct systems are much more 

common in areas where only occasional freeze protection is required; however, it should 

be noted that some state incentive programs restrict the use of direct systems (California 

and Oregon, for example).

8 while for systems with 

natural gas, backup pumping energy is assumed to be electric and is deducted from the 

annual value of the energy savings.9

For each of the top 1,000 electric and natural gas utilities, a solar resource location 

(TMY3 station) was selected by choosing the location closest to the population-weighted 

center of the service territory in each state. A complete list and map of the largest utilities 

in each state and the corresponding TMY3 site is provided in Appendix B. 

The electric energy savings of the base case SWH system across the United States is 

presented in Figure 3. 

 5 Although 40 ft2 is a common collector size, actual system sizes will vary regionally based on available 

solar resource, hot water usage, and required solar fraction. It is possible that the selected collection area 

will be oversized in states with a high solar resource (primarily in the southwestern United States) and 

undersized in regions with a low solar resource (such as the Pacific Northwest). Sensitivities to collector 

area will be analyzed in Section 3.

6 26.5° corresponds to a roof pitch angle of about 6/12 or roughly midway between the most common roof 

ranges of 4/12 to 8/12.

7 This is likely an overly conservative assumption.

8 This lowers the actual amount of energy produced by approximately 10 kWh per month for an electric 

system. 

9 The amount of energy required for pumping was computed with SAM, and then the electric price for the 

largest utility in each state was used to determine how much pumping energy would cost for each natural 

gas utility. 
7

Figure 3. Variation in annual energy savings (kWh/year) for the base case SWH system 

with an electric auxiliary water heater

As shown in Figure 3, New Mexico and Colorado have the highest energy savings, 

exceeding 2,400 kWh per year. Except for southwestern Arizona and northern Montana, 

all states in the Mountain region save over 2,000 kWh annually, as do many in the 

Midwest. States in the Middle Atlantic and Pacific Northwest generally have lower 

energy savings, dropping below 1,800 kWh annually. The amount of energy saved is 

primarily driven by climate factors such as solar resource, cloud cover, precipitation, and 

inlet water temperature. The higher the inlet water temperature (as in Arizona), the less 

energy required for water heating, and the lower the quantity of energy saved. Areas with 

high amounts of annual precipitation and cloud cover (such as Oregon, Washington, and 

Ohio) have less solar energy available for water heating. States with year-round good 

solar resource and cooler inlet water temperatures (such as Colorado) will have high 

energy savings.

The solar fraction is a performance metric that indicates how much of the energy demand 

is supplied by the SWH system. It is typically expressed in terms of percent of total load 

met and varies between 0% (no SWH system) and 100% (all energy supplied by the 

SWH system). On winter days or days with inclement weather, the SWH system may 

meet none of the daily hot water demands, whereas on sunny, summer days, the system 

may save more energy than is required to satisfy 100% of the hot water needs. This 

parameter will vary geographically and with time based on hot water usage and solar 
8

resource. Assuming a constant load profile for a single-family home, Figure 4 illustrates 

the solar fraction of the base case SWH system over the contiguous United States.

Figure 4. Variation in annual solar fraction (percent of daily load met by the SWH system) 

for the base case SWH with an electric auxiliary water heater 

As shown in Figure 4, the solar fraction is highest in the Southwest and southern Florida 

and decreases toward the north and east of the country. Arizona and Florida have the 

highest solar fractions, exceeding 85%, while in northern Washington, Minnesota, and 

Michigan, the solar fraction drops below 45%. A complete list of state-specific energy 

savings and solar fraction values is provided in Appendix B.

Seasonal variations in the solar fraction are also significant. Depending on the amount 

and consistency of the solar resource over the course of a year, there may be considerable 

variation in the solar fraction for a given location from month to month. For example, 

Arizona and Florida have a relatively constant solar fraction (corresponding to little 

seasonal variation in annual solar resource), while in Oregon and Washington, the solar 

fraction varies from less than 40% between October and February to more than 70% 

between May and September. A complete list of winter/summer solar fractions for the 

largest electric utility in each state is included in Appendix C. Factors that contribute to 

this seasonal variation in solar fraction include cloud cover, precipitation, and ambient 

temperature. Oregon and Washington have a relatively cloudy winter, which significantly 

decreases the solar fraction during these months. Additionally, cooler ambient 

temperatures yield lower inlet water temperatures and require more energy for heating. A 
9

system that has a solar fraction of 100% during any time of the year is oversized and 

curtailment occurs, indicating that more solar energy is available than can be utilized by 

the system. A smaller system size reduces the amount of energy curtailed. The 

relationship between break-even SWH system cost and solar fraction is discussed in 

Section 3.

2.4 Fuel Prices and Value of Energy Saved

The net present benefit (NPB) realized to the consumer is based on the discounted 

cumulative benefits of reduced electricity or natural gas bills over the evaluated period, 

driven by the local SWH system performance, hot water usage, and electricity or gas rate.

The NPB is highly sensitive to the price of the fuel used and the daily hot water draw. In 

this analysis, we considered only flat rates for both electricity and natural gas—due to the 

high level of variability in hot water usage, it is difficult to estimate the impact of timeof-use rates. 

The break-even cost for SWH was calculated for the top 1,000 electric and natural gas 

utilities in the United States, which represent about 97% of the total residential load for 

electricity (based on annual revenue) and 99% of the total residential load for natural gas.

For both electricity and gas rates, the EIA utility data for 2008 were used (EIA 2010a; 

2010b; 2010c). Form EIA-861 data provides the average monthly and annual retail 

electric price for the residential sector by state in addition to the average annual 

residential electric price by utility. Form EIA-176 data provides the average retail natural 

gas price by utility, while form EIA-857 data provides the average monthly and annual 

retail natural gas prices for the residential sector by state. Using the state average monthly 

and annual data, a scaling parameter was generated by dividing the monthly fuel price by 

the annual fuel price to determine what percentage of the annual average fuel price occurs 

in each month. This parameter was then used to generate monthly utility price data from 

the annual average prices for each utility. These values provide no insight into the actual 

rate structure because they average over a month and include fixed billing charges and 

other components that would not be offset by customer-sited SWH. Since the EIA fuel 

price data includes components such as fixed charges that would not be offset by the 

addition of a SWH system, an adjustment factor was generated to establish the relative 

difference between the reported monthly fuel prices and the actual value of SWH. 

Information from the current tariff sheet for the largest electric or gas utility in each state 

was used to generate this adjustment factor.

10

Using monthly simulation data from SAM, we multiplied the output of the SWH system 

by the monthly electric or gas price and summed over a year to determine the weighted 

annual average value of the energy saved ($). The first year values for the largest utility 

in each state are presented in Figure 5 and Figure 6 for electricity and natural gas.

 10 There is no known single database for all utility tariff sheets. Tariff sheets were gathered from each 

utility’s website. Because the base tariff sheets often do not include additional costs such as fuel adjustment 

clauses, the tariff sheets should be read with care. Also, rates from utilities in states that offer customer 

choice programs may only provide delivery charges with energy costs added separately.
10

Figure 5. Annual value of energy saved ($) for the base case SWH system with an electric 

auxiliary water heater for the top 1,000 residential electric utilities

As illustrated in Figure 5, locations with a combination of high energy production and 

high electric prices have a high value of the NPB. Currently 10% of residential electricity 

sales are in utilities that have energy savings greater than $300/year, while all but 3% of

residential electricity sales are in utilities that have energy savings greater than $100/year. 

A complete list of energy savings for the largest electric utility in each state is presented 

in Appendix B.
11

Figure 6. Annual value of energy saved ($) for the base case SWH system with a natural 

gas auxiliary water heater for the top 1,000 natural gas utilities serving residential 

customers

The value of the energy savings from SWH systems with natural gas auxiliary is 

significantly less than for those with electric auxiliary. As the energy production of the 

systems is approximately the same, this difference in value is primarily driven by low gas 

prices. As shown in Figure 6, 41% of residential natural gas sales are in utilities that have 

energy savings of less than $100/year. Almost all (99.9%) residential sales occur in 

utilities that save less than $200/year. Again, a complete list of energy savings for the 

largest natural gas utility in each state is presented in Appendix B. 

2.5 Break-even Costs

We define the break-even cost of SWH as the point at which the net present cost (NPC) 

of the SWH system equals the NPB realized to its owner—the difference between the 

NPB and NPC yields the net present value (NPV) of the system. This can be used to find 

the installed system cost ($/system) required for a given fuel price or the price of fuel 

(cents/kWh or $/therm) required for a given installed system cost. By definition, a SWH 

system is at break-even or better when its installed cost falls below the break-even value 

or when no increase in fuel price is required. For example, in an area with a break-even 

cost of $7,000, all SWH systems that have an installed cost of less than $7,000 are at 

break-even (and the fuel price increase would be zero or negative). The break-even 

system cost was calculated by iteratively varying the price of SWH until the NPC equaled 
12

the NPB. Alternately, the break-even fuel price was calculated by iteratively varying the 

cost of electricity or natural gas until the NPB equaled the NPC. A review of the methods 

used to calculate NPC and NPBs is provided in Appendix D. 

The NPC of the system includes all financing and incentives, while the NPB is the 

cumulative discounted benefits of reduced electric or gas bills (as described in Section 

2.3).

11 The NPC in our base case scenario assumes a system financed with a homeequity-type loan (with tax-deductible interest and a 28% marginal federal tax rate), a 20% 

down payment, a real interest rate and discount rate of 5%, and a loan term of 30 years.12

The evaluation period for the analysis was 30 years.13 Future price escalation is also 

considered in the cash-flow calculation. In the base case, we assume that both electricity 

and gas have a real price escalation of 0.5%/year.14

The analysis considered several incentive programs, including the 30% federal 

investment tax credit (ITC), as well as known state, local, and utility incentives derived 

from the DSIRE database.15 Where multiple incentive programs are available, they are 

assumed to be additive (this is the case for most but not all incentive programs). Tax 

credits were applied at the end of year one in the NPC calculation.16 When considering 

rebates, their taxability and effect on the federal ITC must be considered. In our base case 

assumption, we assume that the rebate is paid to the installer rather than the homeowner. 

This effectively reduces the installation price to the homeowner by the amount of the 

rebate and also reduces the basis for the federal ITC.17

 11 Again, it is assumed that the auxiliary fuel type is the same as that which would be in use if no SWH 

system were installed.

A list of the state and local 

incentives used in this analysis is provided in Appendix E.

12 Here and elsewhere, we use real interest rates as opposed to nominal interest rates. The relationship is 

real interest rate = nominal interest rate – inflation rate. To calculate the nominal interest rate, an average 

inflation rate must be assumed. Our assumption of a 5% real interest rate is based on the 2008–2009 

average home equity loan rate of about 8% and the average inflation rate of about 3% during this period. 

13 This implies an expected 30-year life of the system. 14 This is a real price escalation (before the effects of inflation). Estimates of future electricity prices are 

highly uncertain, and sensitivities to this assumption are provided in the next section. For reference, the 

EIA’s Annual Energy Outlook 2009 (EIA 2009) projects an annual real increase from 2008 to 2030 of 

0.4%. 15 Database of State Incentives for Renewables and Efficiency (DSIRE), http://www.dsireusa.org/. All 

incentives are as of June 14, 2010. 

16 This analysis makes several assumptions that are generally favorable to SWH. First, it assumes that SWH 

systems are exempt from sales tax, which is true in some but not all states. In states where SWH systems 

are taxed, the break-even cost would be reduced by a percentage roughly equal to the sales tax rate. Second, 

the analysis assumes that SWH systems are exempt from property tax, which is also true for many but not 

all regions and states. For a list of states and localities that exempt SWH systems from sales and property 

tax, see DSIRE (http://www.dsireusa.org/). 17 The actual treatment of incentives varies depending on their type and source. The primary alternative 

treatment of incentive taxability occurs when the incentive acts as taxable income but does not decrease the

basis for the federal ITC. In reality, with our assumption of a marginal tax rate of 28%, the difference in 

break-even price is quite small.
13

When calculating the near-term break-even electricity or gas price (where the SWH 

system cost is fixed), we assumed a 2008 installed cost of $7,000/system and a tank and 

heat exchanger fluid replacement at 10 and 20 years.18

Overall, the combination of factors described above represents a customer with excellent 

home orientation and access to attractive financing but who places no additional value on 

locally produced renewable energy. Sensitivities to these assumptions will be evaluated 

in Section 3.

As discussed previously, the break-even point is found by iteratively increasing the cost 

of the SWH system or the fuel cost until the NPC equals the NPB over the evaluation 

period. A spreadsheet/Visual Basic for Applications tool (Denholm et al. 2009) was 

utilized to perform the financial calculations.

Figure 7 provides the break-even cost of SWH ($/system) needed in the base case electric 

rate scenario for the largest utility in each state. All assumptions are identical to those of 

the base case. A complete list of state-specific break-even values is given in Appendix F. 

Figure 7. Residential SWH break-even cost ($/system) for the top 1,000 electric utilities (as 

of 2008) for a SWH with an electric auxiliary water heater and using all incentives

 18 It is assumed that operation and maintenance costs are $1,000 every 10 years to cover tank and heat 

exchanger fluid replacement. 
14

When considering the results presented in Figure 7 and elsewhere, readers should note 

that this analysis represents a single point in time. Because incentives and fuel prices are 

constantly changing, results for any single area may be substantially different when 

evaluated later.

Figure 7 indicates that the only areas where a SWH system is at break-even or better is 

where there is a combination of high electricity prices (as in Hawaii and much of the east 

coast), good solar resource (as in Hawaii, Colorado, and New Mexico), and local 

incentives. At the base case assumption of $7,000/system, break-even conditions 

currently exist in 73 utility service territories (serving 16% of the total residential 

electricity demand). This means that in these service territories, the break-even cost is 

above the assumed SWH system cost of $7,000. If the cost of a SWH system were to 

drop to $5,000/system, break-even conditions would exist for 366 electric utilities (51% 

of the total residential demand). It is important to note that in practice, only a fraction of 

customers in these utility service territories are likely to meet all the criteria (good solar 

exposure, good incentives, and financing) to be at break-even, and the presence of breakeven conditions does not necessarily equate to large consumer adoption. Furthermore, 

there are budget caps for most current incentive programs.19

This basic methodology used to generate Figure 7 was repeated for the gas rate scenario. 

All assumptions are identical to the base case. The results of this analysis are shown in 

Figure 8.

 19 See DSIRE, http://www.dsireusa.org/.
15

Figure 8. Residential SWH break-even cost ($/system) for the top 1,000 natural gas utilities 

(as of 2008) for a SWH with a natural gas auxiliary water heater and using all incentives

There are significantly fewer states currently at break-even for a $7,000 system cost when 

deployed with natural gas. In general, gas prices tend to be lower than electricity, and 

annual savings are therefore less. A state-by-state comparison of annual energy savings is 

provided in Appendix B. At the base case assumption of $7,000/system, break-even 

conditions exist in less than eight utilities (0.04% of the total residential energy demand), 

whereas at a SWH system cost of $4,000/system, break-even conditions exist in just over 

200 utilities (serving 11% of the total residential energy demand). In order for break-even 

conditions to exist in half of the United States, the SWH system price would need to drop 

to $2,500/system. As noted before, actual adoption will be restricted by consumer 

adoption behavior and limits on incentives.

Figure 9 repeats the analysis in Figure 7 but illustrates the break-even electricity price 

increase (in cents/kWh) rather than the break-even SWH system price. In this case, the 

price of SWH is assumed to be $7,000/system, and the values on the chart represent the 

increase in retail electricity price relative to the assumed system price needed to breakeven. Values less than zero represent utilities for which break-even cost was achieved (or 

very nearly achieved) at $7,000/system with the base case assumptions. All other 

assumptions are identical to the base case.
16

Figure 9. Increase in electricity price required for the base case residential SWH breakeven at $7,000/system

Figure 9 shows the same trends as Figure 7. The areas indicated by a rate difference of 

less than zero cents/kWh are by definition at break-even and match the areas in Figure 7

where the break-even price is greater than $7,000/system. The break-even electric price is 

largely affected by solar resource and incentives. Figure 9 shows that some areas of the 

country are already at break-even, although a minor increase in the price of electricity is 

needed in about half the country to achieve break-even conditions, assuming no further 

decrease in the price of SWH. For example, if the price of electricity were to increase five

cents/kWh (from the baseline 2008 values) across the United States, break-even 

conditions would exist in over half of the country. Again, note that this is not a depth of 

market analysis and only a fraction of customers are likely to meet all the criteria for 

break-even.

A substantial increase in natural gas prices would need to occur in most of the United 

States to achieve break-even conditions. As an example, if natural gas prices doubled

(from the 2008 baseline), only 25% of the residential energy demand would be in utilities 

where break-even conditions exist for a $7,000 system.

20

 20 Over the past 10 years there has been considerable fluctuation in average residential natural gas prices, 

ranging from $0.78/therm in 2000 to $1.39/therm in 2008 (EIA 2010c). 

Since SWH has been shown to 
17

be more competitive with electricity than natural gas, this analysis will primarily focus on 

systems that replace electricity. 

2.6 Components of Break-even Costs

The total break-even cost in each location is the sum of the value of SWH from the fuel 

savings and the additional value derived from incentives. This is illustrated for electricity 

in Figure 10, which shows the break-even cost for the largest utility in each state along 

with a distribution of the break-even cost components, including the net value derived 

from the electricity savings [includes both operation and maintenance (O&M) expenses 

of the solar system and annual revenues in electricity savings], the effect of the homeequity-type loan, and federal and local incentives. The black line indicates the break-even 

cost without any federal or state incentives. Also included are error bars indicating the 

range in break-even values for the largest 1,000 utilities. California was divided into two 

sub-regions, northern and southern, due to its large size. New York was also divided into 

two regions due to the large differences between the New York City/Long Island region 

(together labeled “NYC”) and the remainder of the state (labeled “NY”). The scale is cut 

off at $13,000/system, which is estimated to be the maximum 2010 market price of 

residential SWH.
18 

Figure 10. Components of the electric break-even value and range in break-even value for 

each region (as of June 14, 2010) 
19

As shown in Figure 10, the break-even SWH price shows significant variability. In some 

cases, the break-even value for the most attractive utility is several thousand dollars more 

than the largest utility. However, these more attractive utilities tend to be significantly 

smaller than the largest utility, often providing less than a few percent of the state’s sales. 

For electricity, we see break-even prices above $7,000/system in only a few places 

without local incentives. In addition, without local incentives or the federal ITC, twothirds of the largest electric utilities in each state have a break-even cost of under 

$3,000/system. Three states, Kentucky, West Virginia, and Missouri, have a negative 

value for the net electricity savings. This indicates that the savings in electricity were not 

sufficient to cover the O&M expenses of the system. The factors affecting break-even 

cost are discussed in more detail in Section 3.
20 

3 Market Sensitivities of Break-even Costs 

The high break-even costs in many states that were noted in the previous section are 

driven primarily by state, utility, and federal incentive programs. Incentive programs are 

designed primarily to encourage the development of SWH markets; however, over time 

they are expected to be phased down as the cost of SWH systems decrease and SWH 

markets become self-sustaining. In this section, we consider the sensitivity of SWH 

break-even costs to a number of factors. 

In order to determine how much more (or less) a SWH system could potentially cost 

based on its solar fraction, relationships between SWH cost and solar fraction were 

developed for each state and are presented in Figure 11 (electric). For a given location, 

systems with large collector areas or improved performance (due to higher quality 

materials, glazings, and insulation, for example) will have higher solar fractions than 

systems with small collector areas or lower quality materials. To determine the 

relationship between SWH cost and solar fraction, the base case break-even SWH price 

was plotted against solar fraction for three typical system sizes: 20, 40, and 60 ft2

. The 

base case scenario utilizes a 40 ft2 collector area. The low value could represent either a 

system with a smaller collector area or decreased performance (unglazed, no cover), 

while the high value could represent a system with a larger collector area or improved 

performance (dual covers, improved glazing). It is important to note that an increased 

solar fraction may not necessarily correspond to an economic advantage. Oversized 

systems will be curtailed, and excess energy will not be utilized. For states with a high 

solar resource, Figure 11 may be utilized to determine how much less the SWH system 

could cost in order to maximize use of the energy collected. 

Figure 11. Range in SWH break-even cost and solar fraction for select states for a SWH 

with an electric auxiliary water heater 
21

Figure 11 shows the base case SWH break-even cost and solar fraction (represented by 

the blue and purple bars in Figure 11) for select states for a 40 ft2 collector area, in 

addition to error bars representing the break-even cost and solar fraction for both a 20 ft2

collector area (low end of error bars) and 60 ft2 collector area (high end of error bars). 

The SWH break-even cost varies linearly with solar fraction, indicating that for a given 

state, direct interpolation is possible between the two error bars to determine the SWH 

break-even cost corresponding to a system with a given solar fraction and vice versa. A 

sample interpolation calculation is provided in Appendix G. For a number of states, the 

base case system size already has a high solar fraction, which means that many of the 

error bars are skewed towards the lower value. This indicates that increasing the system 

size or performance does not yield a significant increase in the amount of energy 

produced. A complete list of state-specific break-even values and solar fractions for each 

of the three collector area sizes is provided in Appendix F. 

The results presented above may be utilized to determine if a more expensive system with 

a higher solar fraction is economical. For example, for a SWH system in Colorado, the 

base case break-even cost is $7,660 with a solar fraction of 70%. To determine what the 

SWH break-even cost should be for a system with a solar fraction of 80%, it is necessary 

to find the point along the error bar for solar fraction that corresponds to 80%. Since this 

point appears to lie nearly at the high end of the error bar, the break-even SWH system 

cost should also lie near the high end of the error bar, or at approximately $8,500. If a 

SWH system with an 80% solar fraction in Colorado is available for less than $8,500, 

then it would be at break-even. Solar fractions for all rated systems and a variety of 

locations may be found on the SRCC website (http://www.solar-rating.org/). 

Finally, we examined the sensitivity of the break-even cost for each state to a set of five

classes of impacts: financing, system performance, hot water usage,

21

Table 1

fuel cost, and 

policies. lists the base case and the five sensitivity cases evaluated. 

 21 Information on hot water usage in the United States was taken from the Energy Efficiency and 

Renewable Energy website 

(http://www.energysavers.gov/your_home/water_heating/index.cfm/mytopic=12850).
22

Table 1. SWH Sensitivity Cases a

Low High Low High Low High Low High Low High

Down 

Payment

20% 20% 0%

Federal Tax 

Bracket 28% 20% 35%

Discount Rate 5% 7% 4%

Interest Rate 5% 7% 4%

Loan Type 30-y home 

equity

15-y 

home 

equity

30-y 

home 

equity

Evaluation 

Period 30 y 20 y 30 y

Tilt 26.5° 15° 26.5°

Azimuth 360° (S) 45° (SW) 360° (S)

System Size 

(Collector 

Area, Volume)

40 ft2, 60 gal 32 ft2, 48 gal 64 ft2, 96 gal

Water Heater 

Energy Factor 

(Gas)

0.6 0.5 0.7

Water Heater 

Energy Factor 

(Elec)

0.9 0.8 0.98

Solar Resource 

Location

Largest 

Utility Lowest Highest

System 

Degradation

0.5% per 

year

0.5% 0%

O&M $1,000 per 

10 years $1,500 $500 

Hot Water 

Draw 60 gal/d 30 gal/d 100 gal/d

Water Heater 

Set Temp

120°F 120°F 140°F

Real Fuel Price 

Escalation

0.5% per 

year

0% 1.5%

Fuel Cost 

Location

Largest 

Utility Lowest Highest

CO2 Cost $0 $0 $25/ton

Incentives

DSIRE 

(6/14/10) None

DSIRE 

(6/14/10)

Hot Water Usage Fuel Price Policy Base Case Financial System Performance

Base

Base

Base

Base

Base

Base

Base

Base

a The values used in Table 1 are not intended to represent all possible scenarios but were chosen to provide 

a reasonable range of values for each parameter. 

Figure 12 and Figure 13 provide the results of the sensitivity analyses. In each state, a 

base case break-even cost based on the largest utility in the region is provided; five error 

bars show the range of break-even costs for the sensitivity cases. Each of the five drivers 

has a low case and a high case. The low case, which decreases the economic performance 

of SWH and moves the error bar left, represents a lower break-even cost. Examples 

include lower SWH output from non-optimal orientation or a premature elimination of

the federal ITC. The high case represents improved economic performance, increasing 
23

the break-even price. Examples include a higher solar fraction (perhaps corresponding to 

a larger system) or a larger effective cost of carbon.

The scenarios and error bars in the figures are partially additive. For example, both a 

more aggressive carbon policy and a high solar fraction could occur, increasing the 

break-even cost more than these factors individually. However, these factors are not 

completely additive; for example, the highest solar resource location in each state may 

not correspond to the highest price region.
24

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000

HI

NYC

CT

DE

RI

VT

CO

MD

NY

PA

MA

NJ

ME

LA

OH

CA So

MT

NH

CA No

SC

IL

UT

GA

TX

NV

NM

Top 26 Regions

Break-even SWH Cost ($/System) - Electric

Financial

System Performance

Hot Water Usage

Electric Price

Policy

Figure 12. Range of SWH break-even costs: Top 26 regions—electric
25

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000

WI

AZ

OR

DC

MI

FL

MN

NC

AR

AL

ID

MS

WV

SD

WY

VA

ND

IA

OK

IN

KS

TN

KY

NE

MO

WA

Bottom 26 Regions

Break-even SWH Cost ($/System) - Electric

Financial

System Performance

Hot Water Usage

Electric Price

Policy

Figure 13. Range of SWH break-even costs: Bottom 26 regions—electric

As shown in Figure 12 and Figure 13, the base case break-even price is between 

$2,200/system and $10,160/system (excluding Hawaii and Alaska). Figure 12 and Figure 

13 show that system performance (including solar resource location, system orientation,

and size) is the biggest driver of break-even price variation, followed generally by hot 

water usage, electricity price, policy issues, and finance factors. The variation in the solar 

system parameters is primarily due to the solar resource location and system size. The 

impact on break-even costs is large for all states; however, there is also a high level of 

variability from state to state, from about a ±40% to ±90% impact. The variation in the 

electricity prices is due more to the spread between utilities within a state than the 
26

variation in the price escalation assumed. Hot water usage assumptions result in a roughly 

symmetrical impact on break-even costs, also with a large range—from ±30% to ±60%

by state. The ITC is the single largest policy driver evaluated. Availability of system 

financing was the least important sensitivity case, generally only affecting the break-even 

SWH cost by ±20%.

Each of the five impact categories reported in Table 1 combines several drivers, 

obscuring the contribution from each. For example, the break-even cost is highly 

sensitive to the daily hot water draw and system size, both of which can have relatively 

large ranges, which increases the range of break-even costs due to these factors. While 

the water heater energy factor or system degradation may also have an impact on breakeven costs, these factors can only vary by a small amount and are difficult to separate out 

from the other highly variable factors in each category. Individual sensitivity charts for 

key factors are provided in Appendix H. It appears that the primary drivers of the system 

performance category are the system size and O&M. Solar resource location has a 

variable impact—for certain states the difference between solar resource locations is 

large (Arizona, Illinois, Wyoming, and Texas), whereas for other states (Delaware and

Vermont) the difference is quite small. 
27

4 Conclusions

We evaluated the break-even price for residential SWH customers in the United States

and found that the current break-even price varies by more than a factor of five even 

though the amount of energy produced varies by less than a factor of two. This difference 

is largely driven by incentives, which can exceed $3,000/system, and the difference in 

electricity or natural gas prices, which can vary by a factor of four. Even without 

incentives, large variations in break-even cost will remain given the range of hot water 

usage and solar energy available.

The general trend observed in this analysis is that SWH systems that replace conventional 

electric systems are more likely to achieve break-even costs than SWH systems replacing 

conventional natural gas systems. Break-even conditions appear first in the Southwest

where they are driven by resource and in the Northeast where they are driven by high 

electricity prices. As SWH system prices continue to decline, break-even conditions 

begin to occur in the Southeast and Midwest. Very low electricity and natural gas prices 

will preclude break-even conditions in certain areas in the Northwest and Midwest even 

with SWH prices at $3,000/system and a continuation of the federal ITC.

Overall, the scenarios evaluated represent a market entry point for SWH. However, the 

scenarios do not consider the potential for a deep, sustained market. Therefore, caution 

must be used when considering this analysis. SWH break-even does not imply that 

customers will necessarily adopt SWH, and only a fraction of customers in each utility 

will have the necessary combination of good solar access and attractive financing 

options. A true depth or market analysis is required to determine a “demand curve” for 

SWH at various price points. This must be combined with analysis of commercial 

buildings to provide an estimate for the market potential of rooftop SWH.
28 

References 

Database of State Incentives for Renewables and Efficiency (DSIRE). (2010). 

http://www.dsireusa.org/. Accessed June 14, 2010. 

Denholm, P.; Margolis, R.M.; Ong, S.; Roberts, B. (2009). Break-Even Cost for 

Residential Photovoltaics in the United States: Key Drivers and Sensitivities. NREL/TP6A2-46909. Golden, CO: National Renewable Energy Laboratory. 

Energy Information Administration (EIA). (2005). Office of Energy Markets and End 

Use, Forms EIA-457 A-G of the 2005 Residential Energy Consumption Survey.

Washington, DC: EIA. 

EIA. (2009). Annual Energy Outlook 2009. DOE/EIA-0383(2009). Washington, DC: 

EIA. 

EIA. (2010a). Electric Power Monthly. DOE/EIA-0225 (2010/06). Washington, DC: 

EIA. 

EIA. (2010b). “Electric Sales, Revenue, and Average Price 2008.” (2010/01). 

Washington, DC: EIA. 

EIA. (2010c). Natural Gas Monthly. DOE/EIA-0130 (2010/06). Washington, DC: EIA. 

National Renewable Energy Laboratory (NREL). (2007). National Solar Radiation 

Database 1991–2005 Update: User’s Manual. NREL/TP-581-41364. Golden, CO: 

National Renewable Energy Laboratory. 

NREL. (2010). “Solar Advisor Model: User Guide.” (2010/04). 

https://www.nrel.gov/analysis/sam/. Accessed January 2011. 

Renewable Energy Policy Network (REN21). (2009). “Renewables Global Status Report, 

2009 Update.” Paris: REN21 Secretariat, Deutsche Gesellschaft fur Technische 

Zusammenarbeit (GTZ GmbH). 

U.S. Department of Energy (DOE). (2005). Residential Energy Consumption Survey 

2005. Washington, DC: Energy Information Administration. 

http://www.eia.doe.gov/emeu/recs/. Accessed January 2011. 

Wilcox, S.; Marion, W. (2008). Users Manual for TMY3 Data Sets. NREL/TP-581-

43156. Golden, CO: National Renewable Energy Laboratory. 
29

Appendix A: Regional Variation in Water Heating Fuel by 

U.S. Census Region

Table A-1 shows the regional distribution (by U.S. census region) of the number of 

houses using a particular water heating fuel.22

Table A-1. Regional Variation in the Number of Houses Using a Particular Fuel Type by U.S.

Census Region

“Other” includes fuel oil, liquefied 

petroleum gas (LPG), and other fuels. Where data for a specific state is available (New 

York, Florida, Texas, and California), this data is excluded from the rest of the region 

(i.e., the Pacific region includes only Oregon and Washington). Data was taken from the 

RECS (DOE 2005b).

Region Electric Natural Gas Other

U.S. Average 39.4% 54.4% 9.5%

New England 26.4% 43.4% 30.2%

Middle Atlantic 25.6% 64.1% 11.5%

New York 11.9% 56.7% 31.3%

East North Central 29.5% 68.2% 5.1%

West North Central 29.5% 65.4% 9.0%

South Atlantic 63.3% 34.0% 0.0%

Florida 90.0% 12.9% 0.0%

East South Central 68.1% 30.4% 4.3%

West South Central 43.9% 53.7% 7.3%

Texas 43.0% 55.7% 6.3%

Mountain 26.7% 68.0% 10.7%

Pacific 64.4% 35.6% 2.2%

California 10.7% 85.1% 6.6%

Source: EIA 2005

 22 Since it is possible that some houses use multiple fuel types for water heating, the values in Table A-1 

may not necessarily sum to 100%.
30

Appendix B: Base Energy Savings, Fuel Price, Energy Value,

and Solar Fraction for the Largest Utility in Each Region

Figure B-1 shows the largest utility service territory in each state and the corresponding 

TMY site. California and New York were split into two regions due to large populations 

and discrepancy between electric utilities. Table B-1 and Table B-2 list the largest 

electric and natural gas utility in each state or region, along with the corresponding TMY

site, annual energy saved, fuel price, annual value of saved energy, and annual solar 

fraction. All assumptions are for the base case scenario. 

Figure B-1. Largest utility service territory by state with corresponding TMY3 site
31

Table B-1. Results of the Base Case Scenario for a SWH System with an Electric Auxiliary Water 

Heater

State Largest Electric Utility Name TMY3 Site 

Number

Annual 

Energy 

Demand 

(kWh)

Annual 

Energy 

Saved 

(kWh)

Electric Price 

(cents/kWh)

Annual Value 

of Electricity 

Saved ($)

Annual 

Solar 

Fraction

AL Alabama Power Co 722280 2,818 2,019 10.2 $206 0.72

AR Entergy Arkansas Inc 723415 2,862 1,752 9.4 $164 0.61

AZ Arizona Public Service Co 722784 2,285 1,995 10.0 $199 0.87

CA No Pacific Gas & Electric Co 722976 2,752 2,206 12.4 $274 0.80

CA So Southern California Edison Co 724926 2,822 2,050 14.0 $287 0.73

CO Public Service Co of Colorado 724695 3,458 2,431 9.7 $236 0.70

CT Connecticut Light & Power Co 725087 3,374 1,790 18.0 $322 0.53

DC Potomac Electric Power Co 724050 3,080 1,894 11.9 $226 0.62

DE Delmarva Power 724089 3,251 1,972 13.5 $267 0.61

FL Florida Power & Light Co 722020 2,120 1,835 10.9 $201 0.87

GA Georgia Power Co 722196 2,936 1,826 9.6 $175 0.62

HI Hawaiian Electric Co Inc 911760 2,076 1,819 27.2 $495 0.88

IA MidAmerican Energy Co 725460 3,437 2,083 8.0 $167 0.61

ID Idaho Power Co 726810 3,349 2,102 6.4 $135 0.63

IL Commonwealth Edison Co 725340 3,333 1,829 11.1 $202 0.55

IN Duke Energy Indiana Inc 724380 3,364 1,928 8.4 $163 0.57

KS Westar Energy Inc 724560 3,205 2,073 7.6 $158 0.65

KY Kentucky Utilities Co 724220 3,217 1,892 6.5 $123 0.59

LA Entergy Louisiana Inc 722310 2,498 1,866 10.6 $199 0.75

MA Massachusetts Electric Co 744904 3,444 1,767 16.0 $283 0.51

MD Baltimore Gas & Electric Co 724060 3,165 1,954 14.0 $273 0.62

ME Kennebunk Light & Power Dist 726064 3,711 1,954 14.0 $274 0.53

MI Detroit Edison Co 726375 3,439 1,660 10.1 $168 0.48

MN Northern States Power Co 726584 3,725 1,842 9.8 $180 0.49

MO Union Electric Co 724345 3,109 1,926 6.6 $127 0.62
32

MS Entergy Mississippi Inc 722350 2,748 2,019 9.7 $197 0.73

MT NorthWestern Corporation 726770 3,563 2,106 10.0 $210 0.59

NC Duke Energy Carolinas, LLC 723140 2,909 2,068 7.8 $161 0.71

ND Northern States Power Co 727530 3,897 2,066 8.1 $167 0.53

NE Omaha Public Power District 725500 3,357 1,935 7.6 $147 0.58

NH Public Service Co of NH 743945 3,479 1,796 14.3 $257 0.52

NJ Public Service Elec & Gas Co 725020 3,229 1,895 14.3 $271 0.59

NM Public Service Co of NM 723650 3,122 2,521 8.6 $216 0.81

NV Nevada Power Co 723860 2,557 2,135 11.2 $240 0.84

NY Niagara Mohawk Power Corp. 725030 3,129 1,892 14.6 $277 0.60

NYC Consolidated Edison Co-NY Inc 725235 3,661 1,658 23.2 $384 0.45

OH Ohio Edison Co 725210 3,478 1,717 10.7 $184 0.49

OK Oklahoma Gas & Electric Co 723540 2,970 2,038 8.0 $163 0.69

OR Portland General Electric Co 726986 3,329 1,745 9.1 $159 0.52

PA PECO Energy Co 724080 3,207 1,953 13.7 $268 0.61

RI The Narragansett Electric Co 725070 3,412 1,889 16.4 $311 0.55

SC South Carolina Electric&Gas Co 723100 2,789 2,003 10.9 $218 0.72

SD Northern States Power Co 726510 3,657 2,100 8.8 $186 0.57

TN Memphis City of 723340 2,812 1,940 8.1 $158 0.69

TX TXU Energy Retail Co LP 722590 2,657 1,992 12.5 $249 0.75

UT PacifiCorp 725720 3,289 2,111 7.8 $165 0.64

VA Virginia Electric & Power Co 724010 3,029 2,008 9.1 $183 0.66

VT Central Vermont Pub Serv Corp 725165 3,671 1,888 13.3 $251 0.51

WA Puget Sound Energy Inc 727934 3,288 1,621 8.9 $145 0.49

WI Wisconsin Electric Power Co 726400 3,635 1,919 11.1 $212 0.53

WV Appalachian Power Co 724140 3,210 1,882 6.5 $122 0.59

WY PacifiCorp 725690 3,668 2,309 7.8 $180 0.63

Source: Fuel prices are from the EIA 2010b
33

Table B-2. Results of the Base Case Scenario for a SWH System with a Natural Gas Auxiliary 

Water Heater

State Largest Natural Gas Utility Name TMY3 Site 

Number

Annual 

Energy 

Demand 

(therm)

Annual 

Energy 

Saved 

(therm)

Gas Price 

($/therm)

Annual 

Value of 

Gas 

Saved ($)

Annual 

Solar 

Fraction

AL Alabama Gas Co 722280 107.2 80.5 2.07 $154 0.75

AR Centerpoint Energy Arkansas 723403 108.3 80.3 1.82 $135 0.74

AZ Southwest Gas Corporation 722780 89.4 92.3 1.97 $170 1.03

CA No Pacific Gas 724945 112.6 91.4 1.36 $109 0.81

CA So Southern California Gas Co 747188 88.2 92.6 1.24 $97 1.05

CO Pub Service Co of Colorado 724695 125.2 92.6 1.10 $91 0.74

CT Yankee Gas Svc Co 725029 126.6 70.8 2.19 $134 0.56

DC Washington Gas Light Company 724050 114.6 74.1 1.83 $122 0.65

DE Delmarva Power 724089 119.4 76.3 1.76 $118 0.64

FL Peoples Gas Sys 722110 93.3 86.3 2.10 $168 0.92

GA Austell Nat Gas Sys 722270 113.3 75.9 1.87 $130 0.67

HI The Gas Company Llc 911760 86.1 78.6 4.32 $305 0.91

IA Midamerican Energy Co 722190 108.0 83.2 1.41 $108 0.77

ID Intermountain Gas Company 722250 109.5 80.7 1.04 $76 0.74

IL Nicor Gas 725300 125.3 72.0 1.36 $85 0.57

IN Northern Indiana Public Service Co 725470 131.0 72.5 1.62 $108 0.55

KS Kansas Gas Service Company 724463 113.1 73.1 1.72 $117 0.65

KY Louisville Gas And Electric Co 722180 106.3 84.8 1.62 $129 0.80

LA Atmos Energy Co 722250 109.5 80.7 1.78 $130 0.74

MA Boston Gas Co D B A Key Span Energy 725054 127.0 71.9 1.85 $115 0.57

MD Baltimore Gas & Electric Co 724060 117.0 76.3 1.85 $124 0.65

ME Northern Utilities Inc 725470 131.0 72.5 1.86 $119 0.55

MI Consumers Energy Company 724238 119.3 78.7 1.35 $94 0.66

MN Centerpoint Energy 723403 108.3 80.3 1.26 $90 0.74

MO Laclede Gas Company 725314 116.4 75.8 1.85 $133 0.65
34

MS Atmos Energy Corporation 722250 109.5 80.7 1.53 $112 0.74

MT Northwestern Corporation 725484 123.9 76.3 1.37 $93 0.62

NC Piedmont Natural Gas 722285 110.8 78.0 1.90 $138 0.70

ND Montana Dakota Utilities Co 727478 138.2 69.3 1.30 $81 0.50

NE Metropolitan Utilities Dist Of Omaha 725500 122.4 75.2 1.27 $87 0.61

NH Energynorth Nat Gas Inc 743945 125.8 68.3 1.68 $98 0.54

NJ Public Service Elec & Gas Co 724236 115.2 73.8 1.45 $90 0.64

NM Pnm Gas Services 723650 115.8 103.1 1.43 $137 0.89

NV Southwest Gas Corporation 722780 89.4 92.3 1.38 $113 1.03

NY Keyspan Energy Dba Natioal Grid Ny 744864 119.0 76.4 1.87 $126 0.64

NYC The Brooklyn Union Gas Co 744860 118.6 72.8 1.93 $113 0.61

OH Columbia Gas Dist Co 724220 118.4 73.1 1.70 $111 0.62

OK Oklahoma Natural Gas Co 723535 113.7 88.2 1.58 $130 0.78

OR Northwest Natural Gas Co 723235 108.3 66.5 1.36 $79 0.61

PA Philadelphia Gas Works 722250 109.5 80.7 2.02 $146 0.74

RI National Grid 725280 127.7 67.7 1.75 $99 0.53

SC South Carolina Electric & Gas Co 722230 101.3 78.9 2.16 $157 0.78

SD Midamerican Energy Company 725460 124.6 80.5 1.33 $96 0.65

TN Memphis Light Gas And Water 723340 107.0 80.1 1.69 $125 0.75

TX Atmos Energy Corporation 722250 109.5 80.7 1.56 $111 0.74

UT Questar Gas Company 724754 103.2 97.6 0.91 $80 0.95

VA Washington Gas Light Company 724050 114.6 74.1 1.82 $124 0.65

VT Vermont Gas Systems Inc 726170 130.7 68.5 2.02 $122 0.52

WA Puget Sound Energy Inc 727935 120.4 60.8 1.32 $70 0.50

WI Wisconsin Gas Company 725470 131.0 72.5 1.51 $97 0.55

WV Mountaineer Gas Co 724250 117.7 71.1 1.62 $108 0.60

WY Source Gas Distribution Llc 725690 131.0 88.5 1.23 $100 0.68

Source: Fuel prices are from the EIA 2010c
35

Appendix C: Seasonal Variation in Solar Fraction

The solar fraction of a SWH system varies from month to month for a given location. 

Table C-1 shows the solar fraction in January and July for the largest electric utility in 

each state.

Table C-1. Solar Fractions in January and July for the Largest Electric Utility in Each State

January July

AL 40% 92%

AR 41% 94%

AZ 78% 93%

CA No 67% 95%

CA So 25% 95%

CO 54% 89%

CT 37% 76%

DC 32% 87%

DE 32% 90%

FL 76% 93%

GA 36% 77%

HI 67% 93%

IA 32% 92%

ID 25% 96%

IL 23% 91%

IN 27% 87%

KS 40% 89%

KY 27% 86%

LA 49% 91%

MA 32% 75%

MD 34% 86%

ME 21% 82%

MI 20% 79%

MN 20% 74%

MO 24% 92%

Solar Fraction (%)

State
36

MS 44% 93%

MT 27% 93%

NC 44% 92%

ND 21% 85%

NE 26% 95%

NH 39% 75%

NJ 28% 82%

NM 58% 95%

NV 60% 93%

NY 33% 88%

NYC 23% 83%

OH 17% 82%

OK 54% 95%

OR 17% 91%

PA 33% 85%

RI 29% 81%

SC 42% 91%

SD 29% 90%

TN 41% 93%

TX 50% 94%

UT 30% 95%

VA 38% 87%

VT 27% 80%

WA 20% 86%

WI 26% 83%

WV 26% 86%

WY 34% 92%
37

Appendix D: Calculation of Break-even Cost

The break-even cost of a SWH system is defined as the point where the NPC of the 

system equals the NPB to its owner.

The NPC is the cumulative discounted cost of the system, including initial cost, 

financing, tax impacts, incentives, and O&M, equal to the sum of the cost in each year 

multiplied by the discount factor in that year.

The discount factor in year y = y (1 d)

1

+

where d is the discount rate.

The cost in each year is based on the system financing. At the beginning of the financing

period, a down payment and then a loan amount are established by: 

Loan Amount = SWH System Cost - Down Payment - Initial Rebates

The annual loan payment is then calculated by:

Loan Payment = Loan Amount * 

(1 ) 1

(1 )

+ −

+

n

n

i

i i

where i is the interest rate and n is the loan term in years. The tax savings on the loan 

interest in each year is given by: 

Interest Deductiony = Marginal Federal Tax Rate * i * Current System Balancey

where Current System Balancey is the loan amount that has not yet been paid off.

Some incentives (such as tax incentives) may not occur until a year or so after 

installation. These incentives are discounted by one year.

The NPB is the discounted cumulative benefits of reduced electricity bills over the 

evaluated period or the sum of the benefits in each year multiplied by the discount factor.
38

Appendix E: Incentives Used in this Study

Table E-1 and Table E-2 show the state- and utility-based incentives used in the base case 

break-even analysis. All values are current as of June 14, 2010 (DSIRE 2010).

Table E-1. Statewide Incentives in the Form of Tax Credits or Rebates 

State Incentive

AR $1,221

AZ $1,000

CO $3,000

CT $1,765

DE $3,000

FL $500

GA $2,299

HI $2,850

ID $1,662

IL $1,800

KY $900

LA $3,000

MA $900

MD $1,800

ME $1,000

MI $1,500

MN $1,017

MO $500

MT $2,000

NC $1,400

NH $600

NJ $1,200

NM $600

NY $1,500

OH $3,000

OR $2,000

PA $1,500

RI $1,500

SC $1,500

UT $2,721

VT $3,000

WI $683

WV $1,800

WY $150

Source: DSIRE 6/14/2010
39

Table E-2. Utility-based Incentives

State Utility Name Incentive

AZ Arizona Public Service Co $1,000

AZ Salt River Project $1,000

AZ Sulphur Springs Valley E C Inc $1,500

AZ Trico Electric Cooperative Inc $1,500

AZ Tucson Electric Power Co $1,250

AZ UNS Electric, Inc $1,250

CA San Diego Gas & Electric Co $1,000

CA Sacramento Municipal Util Dist $1,500

CA City of Redding $1,750

FL Beaches Energy Services $500

FL City of Tallahassee $450

FL Clay Electric Cooperative, Inc $600

FL Gainesville Regional Utilities $500

FL Gulf Power Co $1,000

FL JEA $400

FL Orlando Utilities Comm $60

FL Progress Energy Florida Inc $450

GA Cobb Electric Membership Corp $450

GA GreyStone Power Corporation $500

GA Jackson Electric Member Corp $450

GA Walton Electric Member Corp $400

HI Kauai Island Utility Cooperative $800

IA Maquoketa City of $1,221

IA City of Independence $1,221

IA City of Preston $1,221

MI Alger-Delta Coop Electric Assn $1,221

MI City of Crystal Falls $1,221

MI City of Gladstone $1,221

MI City of Negaunee $1,221

MI City of Norway $1,221

MO City of Columbia $400

NC Piedmont Electric Member Corp $500

NC Progress Energy Carolinas Inc $1,000

NC South River Elec Member Corp $1,000

NH New Hampshire Elec Coop Inc $1,500

OR Central Electric Coop Inc $500

OR Consumers Power, Inc $500

OR Douglas Electric Coop, Inc $500

OR Emerald People's Utility Dist $600

OR Eugene City of $600

OR Salem Electric $600

SC Progress Energy Carolinas Inc $1,000

TX Austin Energy $1,500

TX City of Bryan $1,000

TX City of Denton $300

TX Guadalupe Valley Elec Coop Inc $1,000

TX San Antonio City of $1,200

WA PUD No 1 of Clallam County $500

WA PUD No 1 of Clark County $1,000

WA PUD No 1 of Franklin County $500

WA PUD No 1 of Grays Harbor Cnty $600

WA Snohomish County PUD No 1 $500

Source: DSIRE 6/14/2010
40

Appendix F: Break-even Results by System Size

Table F-1 shows the SWH break-even cost and solar fraction for the base SWH system 

(40 ft2 collection area) as well as for a low performance system (20 ft2) and high 

performance system (60 ft2

). These values may be used to determine the break-even value 

for a system with a different solar fraction than the base case (sample calculation 

provided in Appendix G). 

Table F-1. Break-even SWH Cost and Solar Fraction for the Base Case (40 ft2), Low Performing

(20 ft2), and High Performing (60 ft2) Solar Collector

Low 

Performance 

(20 ft2) 

Base 

Performance 

(40 ft2)

High 

Performance 

(60 ft2)

Low 

Performance 

(20 ft2) 

Base 

Performance 

(40 ft2)

High 

Performance 

(60 ft2)

AL 1,735 3,860 4,695 44% 72% 83%

AR 2,330 3,940 4,655 39% 61% 71%

AZ 3,465 4,670 4,965 67% 87% 93%

CA No 3,110 5,675 6,535 52% 80% 90%

CA So 3,765 6,045 6,775 51% 73% 80%

CO 5,160 7,660 8,705 43% 70% 82%

CT 5,210 8,750 10,665 31% 53% 65%

DC 2,000 4,395 5,515 37% 62% 73%

DE 5,635 8,495 9,830 37% 61% 72%

FL 2,395 4,220 4,625 57% 87% 93%

GA 3,420 5,325 6,285 37% 62% 75%

HI 9,870 14,495 15,100 57% 88% 92%

IA 1,045 2,800 3,580 37% 61% 71%

ID 2,315 3,605 4,115 40% 63% 72%

IL 3,405 5,560 6,630 33% 55% 66%

IN 965 2,690 3,535 35% 57% 68%

KS 955 2,560 3,305 40% 65% 76%

KY 1,185 2,510 3,150 35% 59% 70%

LA 4,705 6,655 7,340 47% 75% 85%

MA 3,685 6,825 8,755 30% 51% 64%

MD 4,565 7,455 8,840 37% 62% 74%

ME 3,695 6,700 8,510 31% 53% 66%

MI 2,505 4,345 5,390 29% 48% 60%

MN 2,230 4,180 5,330 30% 49% 61%

MO 910 2,225 2,805 38% 62% 73%

Break-even Cost ($/System) Solar Fraction (%)

State
41

MS 1,675 3,600 4,295 46% 73% 83%

MT 3,765 5,970 6,975 36% 59% 70%

NC 2,355 4,040 4,690 43% 71% 82%

ND 1,010 2,805 3,730 32% 53% 64%

NE 730 2,275 3,020 35% 58% 69%

NH 2,995 5,840 7,600 30% 52% 65%

NJ 3,880 6,795 8,220 35% 59% 70%

NM 2,745 4,715 5,370 53% 81% 90%

NV 3,075 4,775 5,385 62% 84% 91%

NY 4,320 7,265 8,670 36% 60% 72%

NYC 5,915 10,160 12,735 27% 45% 57%

OH 4,260 6,275 7,400 29% 49% 61%

OK 1,140 2,700 3,275 44% 69% 78%

OR 2,875 4,590 5,490 31% 52% 63%

PA 4,145 7,025 8,390 37% 61% 73%

RI 4,795 8,170 10,095 33% 55% 68%

SC 3,475 5,670 6,490 45% 72% 82%

SD 1,345 3,315 4,330 35% 57% 69%

TN 1,030 2,555 3,175 44% 69% 79%

TX 2,840 5,010 5,785 50% 75% 84%

UT 3,905 5,480 6,135 41% 64% 74%

VA 1,335 3,245 4,130 41% 66% 78%

VT 5,340 8,065 9,535 31% 51% 63%

WA 640 2,200 3,020 30% 49% 60%

WI 2,405 4,710 5,975 32% 53% 65%

WV 2,085 3,385 4,040 35% 59% 70%

WY 1,425 3,295 4,130 39% 63% 74%
42

Appendix G: Sample Break-even Interpolation Calculation

In order to calculate the new break-even cost for a SWH system with a different solar 

fraction, it is necessary to know the initial break-even cost and solar fraction for the base 

case (given in Appendix F). For southern California:

Base SWH Cost = $6,675

Base Solar Fraction = 0.80

A quote for a SWH cost may be obtained from an installer, and solar fractions are listed 

for a number of systems on the SRCC website (http://www.solar-rating.org/). To 

determine if a $7,500 system with a solar fraction of 0.85 is at break-even, it is necessary 

to interpolate between the high (60 ft2 collector area) and base case (40 ft2 collector area)

solar fraction values:

Interpolation: (0.85–0.80)/(0.90–0.80) = 0.5 or 50%

The total possible increase in SWH break-even cost is established by multiplying the 

range in SWH break-even values (listed in Appendix F) by the percentage calculated 

above:

Range in SWH Break-even: ($7,640–$6,675) = $965

Total possible Increase: 50% x $965 = $483 increase

Adding this increase onto the old SWH break-even value yields the new cost:

New SWH Cost = $6,675 + $483 = $7,158

Therefore, a $7,500 system would not be at break-even costs, while a $7,150 system 

would. 
43

Appendix H: Drivers of the System Performance Sensitivity 

Category

In order to determine the primary drivers of the system performance sensitivity bar, the 

category was broken down into five sub-categories, each assessing the impact of one or,

at most, two individual factors. The system orientation (collector tilt and azimuth) used in 

the base case was optimal, while the system degradation used was the least optimal. As 

shown in Figure H-1, size and O&M costs have the largest impact on the break-even cost. 

The impact of solar resource location varies by region. For states with a high level of 

variation in solar resource, the impact is large, while for states with a low level of 

variation, the impact is relatively small. 
44

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000

HI

NYC

CT

DE

RI

VT

CO

MD

NY

PA

MA

NJ

LA

CA So

OH

ME

TX

MT

GA

NH

CA No

SC

IL

UT

NV

WI

Top 26 Regions

Break-even SWH Cost ($/System) - Electric

Resource

Size

Orientation

O&M

Degradation

Figure H-1. Drivers of the system performance sensitivity category
45

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000

NM

AZ

MN

MI

AR

DC

FL

OR

NC

AL

MS

ID

WV

VA

SD

WY

IA

OK

IN

ND

KS

TN

KY

NE

MO

WA

Bottom 26 Regions

Break-even SWH Cost ($/System) - Electric

Resource

Size

Orientation

O&M

Degradation

Figure H-2. Drivers of the system performance sensitivity category
F1147-E(10/2008)

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Break-Even Cost for Residential Solar Water Heating in the United 

States: Key Drivers and Sensitivities

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DE-AC36-08-GO28308

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14. ABSTRACT (Maximum 200 Words)

This paper examines the break-even cost for residential rooftop solar water heating (SWH) technology, defined as 

the point where the cost of the energy saved with a SWH system equals the cost of a conventional heating fuel 

purchased from the grid (either electricity or natural gas). We examine the break-even cost for the largest 1,000 

electric and natural gas utilities serving residential customers in the United States as of 2008. Currently, the breakeven cost of SWH in the United States varies by more than a factor of five for both electricity and natural gas, despite 

a much smaller variation in the amount of energy saved by the systems (a factor of approximately one and a half). 

The break-even price for natural gas is lower than that for electricity due to a lower fuel cost. We also consider the 

relationship between SWH price and solar fraction and examine the key drivers behind break-even costs. Overall, the 

key drivers of the break-even cost of SWH are a combination of fuel price, local incentives, and technical factors 

including the solar resource location, system size, and hot water draw.

15. SUBJECT TERMS

solar water heating; SWH; electricity; natural gas; United States; break-even cost; solar fraction; water heater; SAM; 

utility

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