Thoughts on Solar by Run on Sun's Founder & CEO, Jim Jenal

(Editor’s Note: Part 1 of this series - Understanding Your Bill can be found here.)

Commercial solar power systems are economical now - and in the first part of our series we explained how understanding your bill is the key to understanding what is currently driving your costs and how much you will be able to save.

Now we turn to the next step in preparing to install a commercial solar power system - understanding the applicable rebates and tax incentives.  We have written at great length before about these topics, including a blog post summarizing the year-end state of all solar power rebates in the Run on Sun service area and our solar tax incentives page provides great detail into this topic for all types of system owners - commercial, residential and non-profit.  In this post we will analyze just those rebates and incentives that are applicable to commercial solar power installations.

PBI vs EPBB Rebates for Commercial Solar Power Systems

Rebates for commercial solar power systems come in two flavors - Performance Based Incentives (PBI) and Expected Performance-Based Buydown (EPBB) - but PBI rebates are by far the more common for commercial systems above 30 kW.  EPBB rebates are lump-sum payments made based on the expected performance of the system.  The rebate rate is denoted in dollars per Watt based on the calculated AC Watts for the system.  EPBB rebates are nice for the consumer as the money is paid as soon as the system is approved, but for larger systems, they represent too much upfront risk for the utility.  Since there is usually no requirement to monitor the performance of the system, the utility ends up putting out its money with little guarantee of reaping the expected benefit.

PBI rebates, on the other hand, are paid out over five years based on the actual performance of the solar power system as verified by monitoring devices attached to the system inverter(s).  PBI rebates are denoted in cents per kilowatt hour generated.  Since the utility only pays for power actually provided, rebate dollars are guaranteed of providing the bargained for benefit. However, because of the need to provide the utility with verified performance data, PBI rebates increase the Operations & Maintenance expense of a commercial solar power system - at least for the five years of the rebate.  On the other hand, if your system is well maintained and conservatively designed, you may actually receive more in rebate payments than originally projected.

Each utility will have a threshold system size beyond which the system owner must take a PBI rebate.

Regional Rebate Amounts for Commercial Solar Power Systems

Of late there has been a great deal of turmoil among the local municipal utilities regarding their rebates.  This has lead to uncertainty and delays.  As of this writing, here is the landscape for commercial solar rebates in the Run on Sun service area:

This means that as of this writing, only SCE and PWP are paying rebates on commercial solar power systems greater than 30 kW. While LADWP is expected to come back online this summer, in what form remains to be seen.

We believe that these suspensions have come about because the lobby for commercial solar rebates is small and too often silent.  Of course, when no public discussion occurs before the decision is made to suspend rebates - as happened in both Glendale and Burbank - it is pretty hard to organize solar supporters.  Indeed, in Los Angeles, where the plans to severely limit solar rebates were publicly debated, the solar community came out in numbers to argue for those rebates - which resulted in LADWP only suspending their program for a comparatively short time.

The conclusion in inescapable - until there is a statewide feed-in tariff at a reasonable rate that offers predictability along with economic viability, the market for commercial solar in this state will continue to be subject to the caprice of unaccountable bureaucrats.

Tax Incentives for Commercial Solar Power Systems

While the news regarding rebates remains murky, the news on the tax front is - at least for this year - very good.

One caveat before we begin - while we believe this information to be accurate as of the date that it is written, you must always consult with your tax professional as to the applicability of these incentives to your tax situation.  Accountants shouldn’t design solar power systems and we don’t give tax advice.

Commercial solar power systems qualify for a federal Investment Tax Credit of a full 30% on the direct cost of the system.  (By “direct cost” we mean those costs directly associated with installing the solar power system.  The applicability of the Credit to indirect costs - such as deciding to re-roof your building before adding solar - must be decided on a case-by-case basis - see why that tax pro gets paid the big bucks?)  That Credit can be taken over two years and is a substantial incentive if you have the tax liability to offset.  Fortunately for systems that are put in service in 2011, commercial solar power system owners can elect to receive a Grant directly from the Treasury for the full 30%, regardless of their tax appetite.  Moreover, that Grant is paid out typically within 60 days of project completion, as opposed to being credited in the next tax payment cycle.  This provision in the tax code is subject to expiration at the end of this year, and there is no telling whether a more conservative Congress will renew it.  (The tax Credit, however, continues through 2016.)

Commercial solar power systems also qualify for accelerated depreciation.  For the past several years, that was a five year period with 50% in Year 1 and the remaining 50% divided evenly over the next four years.  (California offers a similar depreciation schedule.)  However, once again 2011 is special.  This year alone, that depreciation is 100% in Year 1, meaning that system owners may realize more of their savings sooner.

Collectively, rebates and tax incentives can reduce the cost of a commercial solar power system by 50% or more.  When combined with the savings from the energy generated, it is easy to see why a commercial solar power system is one of the best investments a building or business owner can make.

Up Next - Part 3 of Our Series: Understanding Your Bid for a Commercial Solar Power System

Back in September we wrote about the sorry state of affairs at Glendale Water & Power where solar rebates were being suspended until this coming July. We just received some additional information from the folks at GWP and we wanted to share that with you. In response to our inquiry about the status of the rebate program, we received the following response:

If the system size is greater than 30kw, we will not be accepting commercial applications for the next five years. If the system size is less then 30kw, customer’s application will be placed on our waiting list. Please be aware that our 2011 waiting list is full. We’re now accepting applications for our 2012 waiting list.

Yikes!

So a solar program that had previously provided some of the best rebates around, is now out of the commercial rebate business for the foreseeable future and no new system application below 30 kW, residential or commercial, will receive rebate funding for another 18 months!

Not exactly a recipe for solar jobs growth in Glendale!

(Editor’s Note: This is Part 2 of our end-of-the-year Solar Economics series. 
You can read Part 1 - Solar Tax Policies - here.)

One of the most important factors in the growth of the local solar industry has been the availability of utility-based rebates for solar power installations.  This year has seen a lot of developments in this area, and unlike the tax arena where the news is all good, the simple, sad truth is that rebates are declining throughout Southern California, with some utilities suspending their rebates altogether and others threatening to do so.  Will the defeat of Prop 23, assuring that AB 32 will go into effect after all, mean that there will be additional funds injected into solar rebates?  Will a feed-in-tarrif finally take hold in California?  And where are rebates now, anyhow?  We will try to answer some of those questions in this post.

Full story »

We posted the other day about the sudden suspension of residential solar rebates at GWP, effective July 27, 2010. Today we can report that the suspension goes much farther. According to Ani Zargaryan, Solar Solutions Program coordinator at GWP, rebates for commercial solar power projects are suspended for five years! Ms. Zargaryan confirmed that there were no press reports about this drastic change in GWP's solar program and there was no advance notice provided. Instead, an email was sent to solar contractors who had pending applications on file with GWP on August 5, after the cutoff had already been established.

Apparently, GWP looked at their budget, and the number of applications in hand and said, "Oops, we're out of money!" With all due respect to the good folks at GWP, how can that possibly happen with no advance notice?  GWP had previously published on their website their anticipated rebate amounts through 2012 and they were some of the highest in the State. Unlike most other utility rebate programs where incentive payments are stepped-down based on actual amounts installed (thereby allowing for reasonable planning predictions - if more gets installed faster, the rebate simply steps down sooner), the GWP program structure either had to count on low demand or an unlimited pot of money.  Turns out, neither was the case.

Lack of predictability is a terrible thing in any marketplace and GWP's abrupt suspension of its program is leaving customers - and installers - in the lurch. Odd that absolutely no one other than this blog is writing about this. As always, we will update this story if we learn anything more.

Every quarter we update our published information about solar power rebates in our service area. Much to our dismay, we came across the news that Glendale Water and Power has apparently suspended their solar rebate program until July 1, 2011! We have scoured the GWP website for additional information but found none.  However, placing a call to the solar coordinator’s office provided this additional information:

Unfortunately we are unable to offer you the solar rebate at this time due to program incentive limitations. Solar Solutions applications received before July 27, 2010 will be processed - all applications received after this date will be added to our waiting list. Incentives will be available July 1, 2011. Please be aware that 2011 funding will also be limited.

We do not know what has caused the change, but we will report back when we have learned more. We would welcome comments from anyone at GWP who would care to clarify the situation.