Category: "Solar Tax Incentives"

08/02/11

  04:12:00 pm, by Jim Jenal - Founder & CEO   , 334 words  
Categories: Solar Economics, Solar Tax Incentives

Will Debt Deal Derail Solar?

The just signed debt deal is about to create the greatest competition for federal budget dollars ever seen. How will that impact renewable energy in general and solar power in particular? The exact answer is still anyone’s guess, but if the predictions in a recent Politico article are accurate, the future is far from rosy for solar tax credits.

will commercial solar projects lose their tax credits due to debt deal?As most folks know, Congress approved and President Obama signed a debt deal that raised the so-called debt “ceiling” - thereby preventing the federal government from defaulting on its obligations - but requiring off-setting spending cuts.  In the short term solar tax credits came through unscathed.  That’s the good news, and that will likely last through the end of this year.  But a “Super Committee” will be created to put forward a host of new measures to cut the deficit by an additional $1.5 trillion over the next ten years.  Since Republicans refuse to consider revenue increases, where will the necessary cuts fall?

The Politico article quotes Republican strategist Mike McKenna who says:

“They’ve set up a structure in which the Republicans are going to have maximum incentive to blow up loopholes and credits because the other choice is to cut defense,” he said. “So this is where all the mayhem on energy tax credits is going to get done.”

Oil and gas subsidies would also be potentially on the chopping block - but there can be no doubt that those industries will have much more money to spend to preserve their decades-old tax favors.

President Obama and Energy Secretary Chu have previously voiced strong support for federal incentives to spur on renewable energy sources, including solar.  The question is, when push comes to shove, will they and the other supporters of renewables have the political will to save those programs from the budget axe?  Given that Spring has turned into Summer which is headed rapidly toward Fall with no sign of a promised solar power system showing up on the White House, solar fans are apprehensive, at best.

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07/01/11

  12:07:00 pm, by Jim Jenal - Founder & CEO   , 130 words  
Categories: Solar Economics, Solar Tax Incentives

California Solar Just Got Cheaper!

As the summer season starts to heat up, one thing has just occurred which is very cool - the cost of installing a solar power system has gotten cheaper!  Effective today, July 1, the baseline sales tax rate charged throughout the State of California just dropped by 1%.  For example, here in Pasadena, the combined sales tax rate fell from 9.75% to 8.75%.  (You can determine the sales tax rate for any city in California by looking it up at the Board of Equalization’s website.)

For small residential systems, this is not a huge deal but for larger systems - and especially for commercial systems - this is a real boon.  But you shouldn’t wait - given how cash strapped California is, to say nothing of local governments, these reduced sales tax rates may not last for long!

06/19/11

  07:03:00 pm, by Jim Jenal - Founder & CEO   , 813 words  
Categories: All About Solar Power, Solar Economics, Solar Rebates, Solar Tax Incentives, Solar News, Commercial Solar

Does Solar Have a PR Problem?

A recent article in USA Today/CNBC online asks the question, “Does the solar industry have a PR problem?"  Yes, concludes the article, and that bad press is well justified because “solar technology is not quite ready for prime time".  Well, if the USA Today article is any indication, the solar industry clearly does have a PR problem, but it is not because of any failure in existing technology.  The failure, rather, is in media reporting that allows interested parties to speak as experts who denigrate existing solutions, without ever bothering to disclose the expert’s inherent conflict of interest, or even to report on the facts as they pertain to actual solar clients.

There can be little doubt that those of us who believe in the benefits of solar power systems have done a poor job of informing the public about the value of solar today.  (This blog, and the writings of folks like Tor “SolarFred” Valenza notwithstanding, there is a great deal of work to be done on this front.)  So it is hard to argue with the general proposition that solar has a PR problem - as in not nearly enough PR to counter the spin coming from the naysayers and the apologists for the status quo.

But the article takes a different tack.  It quotes at length from someone named Jim Nelson, the CEO of solar start-up Solar3D, to explain why solar has earned its bad rap:

The problem, says Nelson, is that solar is generally still not price competitive with fossil fuels for energy generation, says Nelson [sic]. Paradoxically, government efforts to subsidize the purchase of solar panels actually slow down the adoption of innovation that should ultimately make renewable energy more affordable.

By encouraging consumers to buy immature and inferior solar technology right now, government subsidies risk locking people into solar systems that are inefficient, expensive, and may or may not ultimately pay off to the consumer. “They’re encouraging people to use things that don’t work,” he says.

At current kilowatt-per-hour rates, solar energy costs about 4 times more than power drawn from the grid, says Nelson.

Wow.  Lots of troublesome statements in that blockquote.  Let’s break this down and see what’s what.

First off - what do people actually pay for electricity from their utility versus from a solar power system?  In Run on Sun’s southern California service area, the actual loaded cost of electricity ranges from $0.15 to $0.29/kWh.  For a commercial solar client, the cost per kWh - after allowing for rebates, tax incentives and O&M costs - is around $0.11/kWh.  These are the real world costs and benefits for clients adding solar right now.  For a 50 kW commercial installation, that translates into payback occurring between years 4 and 5 with an internal rate of return over the 25 year lifetime of the system of 17% or more.  Moreover, every year the client’s savings will grow as the cost of electricity from the utility continues to rise while the cost for electricity from their solar power system remains constant.

Second - solar today is far from something that doesn’t work.  To the contrary, solar power systems work day in and day out with minimal maintenance beyond occasionally directing a hose at the panels to clean them off.  True, inverters will likely need to be replaced about halfway into the 25 year lifetime of the system (although newer designs like the Enphase M215 micro-inverter are now pushing inverter lifetime far beyond older products) but that cost is part of the O&M cost considered above.  While solar panels will degrade over time, modern panels are warrantied to produce 80% of their rated power after 25 years and even older designs are still operating just fine after 40 years.  What other major asset can a business owner purchase that will pay for itself within five years, require minimal maintenance over its entire lifetime, and still be working well after 25 years?  Oh, and save the business owner many times over the initial investment during those 25 years?

Too bad more things “don’t work” as well as a solar power system.

Finally, what is Mr. Nelson’s perspective on all of this?  The article describes his company as a “solar manufacturer” but manufacturers typically have products for sale.  Touring the Solar3D website reveals lots of PR, but no products.  Rather, Mr. Nelson’s company, “Solar3D, Inc. is developing a breakthrough 3-dimensional solar cell technology to maximize the conversion of sunlight into electricity."  The key phrase being, “is developing".

Now we are all for more efficient solar technologies being developed into real-world products that we can put on roofs. We sincerely wish Mr. Nelson well in his efforts to bring ever better products to market.  But it is just silly to tell the solar-buying public that present technology is “immature” and “doesn’t work” when Gigawatts of installed solar power systems prove just the opposite.  And it is sloppy journalism to quote him without revealing his true position in the industry.

04/18/11

  08:33:00 am, by Jim Jenal - Founder & CEO   , 328 words  
Categories: All About Solar Power, Solar Economics, Solar Rebates, Solar Tax Incentives

Are Solar-Powered Homes More Valuable? Yes!

While the value of having a solar-powered home might seem self-evident - after all, energy prices are only going up so your solar power system will save you more and more money every year - there has been an open question as to just how much a solar power system would increase a home’s value at resale time. A new study published by the Lawrence Berkeley National Laboratory titled, An Analysis of the Effects of Residential Photovoltaic Energy Systems on Home Sales Prices in California, is a significant step toward answering that question.

The report, funded by the U.S. Department of Energy, the National Renewable Energy Laboratory and the Clean Energy States Alliance, looked at the sale of some 72,000 homes in California of which approximately 2,000 had solar power systems installed at the time of sale.  The research found a substantial premium for solar-powered homes ranging from a low of $3.90/nameplate DC watt to as high as $6.40 with most model assumptions coalescing near $5.50/watt.  For existing homes, the premium was even higher - ranging from a low estimate of $6.00 to $7.70/watt.  (As all of our residential work involves existing homes, we found this conclusion particularly encouraging!)

Given that residential installation costs are currently running in the $6.00 - $7.50/watt range, this means that for the typical residential solar installation in the Run on Sun service area, the solar premium on home value more than exceeds the total cost of installing solar even before rebates and tax incentives are included.   There is no other home improvement that would provide such a 1-for-1 improvement in your home’s resale value while simultaneously resulting in thousands of dollars in savings over the years that you continue to own the home.

Whether it is to increase the value of your home at resale time, or to dramatically cut your energy costs, or to simply green your home and be more environmentally conscious, a residential solar power system continues to make more and more sense.  As in dollars and cents.

03/04/11

What You Need to Know About Commercial Solar Power in Three Easy Lessons - Part 2: Understanding Rebates and Tax Incentives

(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:

Utility PBI Rate EPBB Rate PBI/EPBB Threshold
SCE 3¢/kWh $0.25/W 50 kW
PWP 21.2¢/kWh $1.40/W 30 kW
BWP Suspended until August 2013 $2.07/W 30 kW
GWP Suspended until 2015 ??? ???
LADWP Suspended until July 2011 ??? ???
Commercial Solar Rebates as of March 2011

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

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Jim Jenal is the Founder & CEO of Run on Sun, Pasadena's premier installer and integrator of top-of-the-line solar power installations.
Run on Sun also offers solar consulting services, working with consumers, utilities, and municipalities to help them make solar power affordable and reliable.

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