One of the chief economic benefits of going solar is the 30% Investment Tax Credit (the “ITC"), but it is scheduled to go away at the end of next year. Here is what you need to know now if you hope to save yourself some serious coin on your solar system.
There are three economic benefits from going solar: rebates from the utility, savings on your utility bill, and the ITC. For clients in the Run on Sun service area, only PWP and LADWP are presently offering rebates (sorry SCE folks) but at 40¢ and 30¢ per AC Watt installed, these rebates top out at roughly 10% of your cost. Monthly savings from solar will vary depending on how big a user you are and what rate structure you are under. Typically, SCE customers save more with solar because their rates are that much higher.
But the one dominant factor that has helped to make solar more affordable, particularly as rebates have gone away, is the ITC. A true tax credit (as opposed to an income deduction), the ITC is valued at 30% of the total cost of the system (less any rebate that might have been available). For example, a 5 kW solar system in SCE territory that costs $4.00/Watt will see $1.20/Watt coming back as a credit on the system owner’s taxes. (Oh, yeah, you have to own the system to capture the ITC - part of our #1 Reason to avoid a Solar Lease!) That’s a $6,000 credit - pretty sweet! And commercial clients not only get the ITC, they also get accelerated depreciation, making the tax advantages of solar even more attractive.
And yet, unless Congress acts (and really, does anyone have confidence in the ability of this Congress to do much of anything?), this will all end come December 31, 2016. (Ok, small caveat - commercial projects will continue to get 10%, but for residential clients it will be nada, nothing, zilch.)
I can hear you already saying, come on, that’s over a year away - why are you raising this issue now? Well aside from the old warning: “Caution - dates on the calendar are closer than they appear!” – it is important to understand what is likely to happen next year. Every solar company out there will start advertising about the need to “act now” only this time they will be right. As more and more people realize that they are about to leave a whole bunch of money on the table, the crush to get projects in the pipeline and completed before the deadline will mean more demands on already understaffed city building departments (many of whom routinely take six weeks or more now to approve even the simplest solar project), inspectors, and utility staff to process an unprecedented flood of applications.
As we move through next Spring, many solar companies will already be booked so completely that homeowners who are just waking up to the problem, might find themselves in a pipeline with no guarantee that their project will be completed in time to qualify for the ITC.
So what to do?
Well, for the good of the solar industry as a whole you should contact your Member of Congress and urge him/her to support the extension of the ITC. If you have friends and family who live in more conservative areas, be sure to urge them to do the same.
But as for your own solar project, the time to get started is now! Don’t be the sad-sack who gets shut out of affordable solar because they waited too long.
Levelized Cost of Energy (LCoE) — The cost of energy from a solar power system, over the lifetime of that system, measured in $/kWh. LCoE is calculated by taking the total cost of the system minus incentives but plus any equipment replacement or other maintenance expenses, and divided by the total energy produced by the system over its lifetime.
Return on Investment (ROI) – Return on Investment is a calculation that determines how soon a particular investment will be paid back (the “payback period") based on a series of anticipated cash flows, specifically, the initial expense, any maintenance expense, rebates, tax incentives, and savings from the energy produced by the solar system.
Internal Rate of Return (IRR) – A common measure of the relative value of competing investments. Technically it is the interest rate for which the present value of all of the future cash flows associated with a given project is equal to the cost of the project. The higher the IRR the more desirable the investment.
Payback – This is the time when you “break even". Meaning it is the point when the total cost of the solar system (including any maintenance costs) is paid back from savings on avoided energy purchases, rebates, and tax incentives.
Annual Solar Savings — The annual solar savings is the energy savings attributable to a solar system relative to the energy requirements of the same building without solar.
Solar Investment Tax Credit (ITC) – The ITC is a federal tax credit for solar systems commissioned on residential and commercial properties before December 31, 2016. The ITC is a dollar-for-dollar credit worth 30% of the cost of a solar power system applied to the system owner’s income taxes. The ITC will reduce to 10% for commercial and ZERO for residential solar come January 2017 unless Congress extends this deadline.
Solar Lease – A contractual agreement by which the property owner agrees to let a third party install and own a solar electrical system on your property and you pay rent for this privilege. If you’ve been paying attention at all, you are aware that this is a horrible idea. We even wrote an entire blog about why you should avoid solar leases.
Solar PPA – A power purchase agreement (PPA) is a long term contract to purchase energy from a third-party owner of a solar power system at a defined cost which may rise over time. In a PPA, the homeowner pays a fee per kWh of energy produced as opposed to a flat monthly fee in a lease agreement. Here’s the kicker, if the system produces more energy than you consume…and is going back to the grid…you get a credit from the utility for this excess energy but you also are paying for this excess energy to the third party owner of the system. Whether those fees cancel each other out or not varies.
Congratulations! You’ve passed Solar Terminology 101,102, and 103! You’re officially an expert on solar concepts! Hopefully the “Greek” terms you’ve been reading as you do your research into going solar will make a lot more sense. If you do decide solar is right for you you’ll have a better understanding of how the big electronic system you purchased and installed on your property really works. Lastly, we hope that this information will help prevent homeowners from being taken advantage of by unethical solar salesmen who really don’t know the first thing about solar! After all, knowledge is power!
Click here if you missed Solar Terminology 101: The Wonderful Magic of Electricity.
Solar Energy — Electromagnetic energy transmitted from the sun (solar radiation).
Photovoltaic (PV) – The direct conversion of light into electricity. Photo means “light”, and voltaic means “electric”.
Solar (PV) Cell — The smallest semiconductor element within a PV module which converts light (photons) into electricity. Also called a solar cell.
Solar (PV) Module — Also referred to as a solar panel, an integrated electronic device consisting of multiple Solar Cells, arranged in an interconnected grid, encapsulated against moisture and other environmental agents,and held together by a rigid frame for mounting. A typical PV module that we use is roughly 65 inches by 40 inches and contains 60 cells.
Solar (PV) Array — An interconnected collection of PV modules that function as a single electricity-producing unit. The modules are assembled with common support or mounting, common pitch and azimuth (direction).
Solar (PV) System — A complete set of components for converting sunlight into electricity by the photovoltaic process, including the array and balance of system components (e.g., switches, subpanels, etc.).
Grid-Tied - A grid-connected solar electric system generates its own electricity and feeds its excess power into the utility grid for later use. Grid-tied solar electric systems are eligible for incentives and rebates as opposed to “off-grid” systems which are not.
Net-Metering - Net metering is a billing arrangement between a solar customer and their utility which allows the solar system to send excess electricity back to the grid through the customer’s electric meter. The meter actually runs backwards! Your utility then bills you for the net (kWh used – kWh generated). While most utilities will pay you a small rate if you generate more than you use, many opt to carry forward a credit toward your next bill.
Direct current (DC) — Direct current refers to power that never changes polarity. DC power flows in one direction through the conductor. To be used for typical 120 volt or 220 volt household appliances, DC output such as from a solar panel or battery must be converted to alternating current.
Alternating current (AC) — Alternating current refers to power that constantly changes polarity between positive and negative over time. Power produced in the United States moves in current that changes polarity at a rate of 60 times per second. Electricity transmission networks use AC because voltage can be “stepped-up” to high voltage (for long-distance transmission) or “stepped-down” to low voltage (for local distribution) with relative ease. This is the current that your household devices use.
Inverter- An electronic device that converts DC power from solar modules into AC power for using in your home and feeding back to the grid.
String Inverters – A string inverter is designed to handle multiple strings of solar modules wired together in series. These are the oldest type of inverter for residential and small commercial PV systems.
Microinverters- A Microinverter (like the Enphase inverter to the right) is an inverter designed to handle small amounts of power and is paired with each solar module. They provide many advantages over string inverters such as eliminating a single point of failure, individual module monitoring, and avoiding string degradation from minor shading.
Central Inverters – These are only used to handle very large PV systems, 1 MegaWatt or more, often only in the largest utility-owned solar power systems.
Click here to continue to Solar Terminology 103: Show Me the Money!
So you’ve decided to go solar (congratulations!) and you are about to sign on the dotted line. Before you do, please take a moment and follow these three simple rules to avoid getting burned.
It goes without saying that for a project as elaborate as a solar installation, a written contract is required. But a written contract will do you no good, and could do you a great deal of harm, if you don’t take the time to read it!
I know, I know, contracts are boring. But lawsuits are not, and the best way to avoid such excitement is to spend a little tedious time now laboring over the fine print.
We see examples of solar contracts all the time, and some of them are pretty appalling. Written in tiny fonts, they just beg you to give up and simply ask, “Where do I sign?” Resist that temptation at all costs, less you discover the hard way that some unscrupulous contractor (or even worse, his unscrupulous lawyer) has snuck some awful prevision into your contract. Think I’m exaggerating? Take this beaut for example, from a section on Change Orders:
The change in the Contract Price caused by such Contract Change Order shall be as agreed to in writing, or if the parties are not in agreement as to the change in Contract Price, the Contractor’s actual cost of all labor, equipment, subcontracts and materials, plus a Contractors fee of 12% shall be the change in Contract Price…
Holy smokes! According to this, if the parties disagree as to the cost of a Change Order (more on this in a moment), then the cost is whatever the contractor says he has spent, plus 12%! What thinking person would agree to sign such a contract - or choose to do business with someone who is presenting it? Someone who didn’t take the time to read it, that’s who!
A contract is formed when someone - a contractor in our example - offers to do something - in this case install solar on someone’s home - and a second person - the homeowner here - accepts the offer and agrees to pay to have the work done. In order for a contract to be binding, the parties must actually agree on all of this, which is to say that the homeowner must know certain essential terms. For example:
Finally, if you are feeling rushed by the contractor (or his sales agent) to “just go ahead and sign already!” - then it is time to take a break. A legitimate contractor wants you to be comfortable with what you are signing. After all, a legit contractor doesn’t want there to be any confusion about what is going to be done or how much it will cost. So the legit contractor will be happy to answer your questions before you sign, knowing that creating understanding now, will help eliminate disputes later on. But the shady contractor just wants you to sign now - and give them a check! (Oh, and a word about initial payments - for a residential project, California law prohibits a solar contractor from asking for more than $1,000. A contractor who asks for more before work is done is violating the law.)
Worst case, go full stop and tell the contractor you want more time to review the deal before you sign. If you have doubts, consult a lawyer - yeah, yeah, I know all about lawyers (I used to be one!) but a little time spent now may save you major aggravation down the road. And you don’t want to end up on the wrong end of a bad deal.
Solar leasing programs are very popular, driven, no doubt, by the allure of something for nothing. After all, the lease programs insist that for nothing out-of-pocket you can start saving today - an appealing pitch that is only rebutted when the homeowner does some serious homework. This is not a new topic for us, and our post pointing out the
Top 5 Reasons to Avoid a Solar Lease!, is one of our most popular posts ever. But an encounter with a potential client this past week highlighted yet another peril in the form of the deceptive salesman.
Don’t buy solar from this guy!
A couple of days ago we got a call from a woman who had been referred to us by one of our clients. She had been thinking about going solar and had in fact signed a lease agreement with another company before she spoke with our client. “Whoa,” said the client, “you better think twice about a lease. You should really talk to the folks at Run on Sun before you go forward with anybody else." The woman told us she had until Saturday to cancel her contract so could we please come and see her right away? Given that she was a referral and time was tight, we scheduled her site evaluation for the next day.
What we found when we got there was a two-story, blue tile roof, littered with roof vents! Once you allowed for clearances on all of those obstructions, as well as with the setbacks required by the local Fire officials, there was very little roof left for solar. (We estimated maybe 3 kW max.)
But the contract that she had signed said that this other solar company was going to put 5.7 kW on her roof! How on earth did that reach that conclusion? The answer was simple: the sales guy came to her home with a stock contract that contained a provision buried within the fine print that allowed them to “revise” what would be installed once the “engineering review” of the home had been completed!
In other words, the guy trying (and succeeding) in getting her to sign on the dotted line had no idea whether his repeated assertions of “30% savings off your present bill” were accurate or not, and he plainly did not care.
This unfortunate woman, who lives in a nice home in a nice neighborhood, had been preyed upon by the solar industry’s equivalent of the flim-flam man, and make no mistake about it - these disreputable representatives are a pox upon the entire industry.
Oh, and as to that right to cancel the contract? The lease agreement appeared to be speaking out of both sides of its mouth on this. One provision cited the California statutory requirement of three business days to cancel, whereas a second provision promised six calendar days. Yet the attached, Notice of Rescission, only referred to the three-day option, and it required that the document be delivered to an office in Texas to be effective! Good luck with that.
No one should end up in this woman’s position. Here are a few steps to protect yourself:
Caveat emptor, folks!