Government economic incentives will lighten the financial burden. Now that your system is planned, you only need to figure out the financing alternatives and sources for your solar power system. There are also some standard legal issues, mainly to do with permits.
If you live in the United States, we recommend you visit a government organization known as the Database of State Incentives for Renewables & Efficiency (DSIRE) at www.dsireusa.org. This website has an up-to-date database of energy efficiency financial incentives. The United States government currently provides a 30 percent tax credit for eligible costs of your solar array, and you can find more grants, loans, and tax credits by consulting your state or local government. DSIRE also has information on utilities that will buy electricity back from you.
While you’re reviewing this material, keep in mind that some incentive programs are exclusive to PV solar systems installed by a certified installer. These aren’t available to DIYers who install their system themselves, so be clear on the eligibility requirements of these programs.
Now all you need to do is select a good solar energy installer. Even if you’re a handyman type, make sure to hire a licensed electrician for a safety inspection and for helping with wiring challenges. Electricians are licensed and can pull permits with your local building office. In principle, you can in-stall your system all the way into your breaker box, but it will need inspection. In many jurisdictions, you aren’t allowed to install a solar energy system without obtaining the permits required by your local government authority. Local laws may require safety measures, including building permits and compliance with national electrical codes, so be sure these requirements are met before you begin to install your PV system.
A very typical PV solar rooftop installation of (2 rows × 6 panels) = 12 poly panels that would qualify for optimal government incentives in most states of the United States.
Quite often, the greatest challenge is the inability of homeowners to obtain financing for the of-ten-hefty down payment on equipment and installation. In an effort to encourage the adoption of renewable energy systems and support the growth of the solar industry, federal, state, and many municipal governments, as well as some utility companies, offer cash rebates and/or other economic incentives to subsidize the cost of PV solar system installations.
The various incentives can be confusing at the beginning. In general, the most valuable economic incentives are federal tax credits and state and local rebates. I’ll summarize each of these programs below, and we’ll also discuss lesser-known incentives that may be valuable, especially as more states look for alternatives to up-front rebates.
Many states, municipalities, and utilities offer rebate programs or cash incentives. These rebates usually take the form of a per-watt cash rebate ranging from $1.50/watt to $5.00/watt. For example, a rebate for a 5kW system under a program offering $3/watt would equal $15,000. These cash rebates can offset the cost of a solar installation by as much as 45 percent. Most cash rebate programs have an upper limit to the refund, often set at 5kW, and PV systems bigger than that can only claim a rebate up to the specified limit.
In most locations, as the state’s renewable-energy targets are achieved, the available per-watt rebate ceiling may be reduced. That means a state may offer a $4/watt rebate today, but only a $2.50/watt rebate down the road, once a certain number of solar installations have been achieved statewide.
Normally, a finite amount of money is allocated for rebate programs. Due to high demand, the funds are often quickly exhausted. However, once the funds are gone, many programs offer waitlists until the next round of funds is made available. In addition to rebates, tax credits may also be available. At both the federal and state level, laws have been put in place to credit a percentage of the purchase price of a PV solar power system against a solar energy system owner’s annual tax bill. A tax credit is more valuable to the taxpayer than an equivalent tax deduction. That’s because a credit reduces your taxes dollar-for-dollar, while a deduction only lowers your taxable income before applying the corresponding tax rate that gives your “tax payable” amount.
At the federal level, the Federal Investment Tax Credit entitles owners of both commercial and residential renewable-energy systems to a credit of 30 percent of the net system cost, with no set limit, for all systems placed in service before December 31, 2016. The credit can be carried forward 15 years or back three years. It’s unknown if this deadline for federal solar investment tax credits will be extended. A number of states are also offering tax credits equaling a percentage of the installed cost of any PV solar energy system. The percentage varies from state-to-state.
I should note that if a customer receives a rebate, any tax credit is computed on the remaining balance, not the pre-credit total. For example, if the total solar energy system cost is $35,000, and a customer receives a $15,000 rebate, the credit of 30 percent is calculated only on the remaining system cost balance of $20,000, for a total credit of $6,000.
Most states and some municipalities can also provide some sort of property tax exemption for individuals and businesses that install PV solar energy systems. Even though a solar installation will normally increase your property value by tens of thousands of dollars, states that offer a property tax exemption do not increase your tax liability to match your property’s new value. This is a nice plus for the homeowner.
Some states offer a 100 percent exemption for the entire value of the system, while others offer a partial exemption (typically 75 percent or some other percentage of the total system’s value). Depending on the state, the exemption may apply for one of the following options: 1) the first year of a system’s installation; 2) a pre-set term that typically ranges from 10 to 20 years; or 3) for the lifetime of the solar energy system (no time limit). Usually, one of the last two options will apply.
Other states provide an exemption only for the added value of the renewable energy system above the value of a conventional energy system. For example, if a solar energy system costs $25,000 to install and a conventional system costs $14,000, the property tax will be assessed on an increased value of only $11,000.
When filing taxes, a customer may only be able to take full advantage of the exemption if the system was installed and operative throughout the 12-month period preceding December 31st of the tax year. If the system was operative for only some portion of the 12-month period, the exemption will likely be reduced proportionally.
Along with property tax exemption, many states don’t collect state sales tax on the cost of renewable energy equipment, which can significantly reduce the upfront costs of a solar installation.
Renewable Energy Credits, or RECs, are certificates issued by the state for the amount of clean solar energy that a grid-tied solar system produces. In some markets, RECs may also be called SRECs (Solar Renewable Energy Credits/Certificates) or Green Tags. Utility companies may purchase RECs from clean power generators as one way to meet the Renewable Portfolio Standards (RPSs) that have been put in place by state legislatures to mandate that utility companies obtain a percentage of their power from renewable sources. In addition, a company such as a manufacturer or coal plant may also buy RECs on the open market as a way to offset the greenhouse gases they emit. The value of a REC on the local market varies by state, and it fluctuates based on supply and demand. The means by which RECs can be sold also vary by state.
As you now know, net metering is the process some utility companies use to keep track of any extra power that a grid-tied solar system produces as well as the amount of power that is fed back into the grid. During the summer months, or during daylight hours, a household or business uses more electricity than during winter or at night. On a hot summer day, therefore, a household PV solar system will likely produce more energy than is required by the home, and on a cold winter night it’s likely to use less. In a net metering arrangement, the utility keeps track of energy usage and stores any extra power your solar system generates. During those times when a solar energy system generates more power than is being used, the extra electricity makes the electric meter spin backwards. At the end of the month or the year (depending on the utility company), the customer receives a bill that reflects the net result of what the solar panels produced against the amount of electricity the household or business consumed. With net metering, the annual electricity bill could be, for some installations, as little as $100. In some states, a utility company will not pay the customer if the solar energy system generates more power than is used during the course of a year. In this case, the annual bill will be $0, but all excess power will be donated to the utility company. In other states, utilities will pay for the extra production at various rates. To optimally take advantage of net metering, a solar system should be sized to meet your home’s power requirements in periods or hours of maximum demand.
Having jumpstarted the solar industry in countries like Germany and Spain, feed-in tariff (FiT) schemes were introduced in the US, with states like Vermont and California leading the way. A FiT is an incentive system in which the utility company compensates a person who is generating clean power. Typically the FiT agreement covers a time period of up to 20 years. Under some FiT schemes, a residence or business that installs a grid-tied PV solar system essentially becomes a mini-utility that generates power both for the home and for the grid. Some months the utility company may send the system owner a check that may even be higher than the equivalent amount of the electric bill for that month, or the utility may credit the account each month under the net metering system up to a maximum of the total year’s power consumption of the PV system. Some state FiT programs are more short-term and serve as a quick way to increase solar installations and solar power generation. FiT programs in some jurisdictions may be reserved for large-scale installations, and they may exclude residential installations.
For homeowners who haven’t saved quite enough money to get started, taking out a loan might be a viable option. Several states and utility companies are leading the way with innovative pro-grams that provide low-interest loans to homeowners and businesses for PV solar installations. In New Jersey, for example, utility company PSE&G recently committed to provide more than $100 million toward the financing of solar system installations over a two-year period. New Jersey and many other states are firmly committed to financially assisting homeowners who wish to invest in a PV solar rooftop system for their home. In California, cities and counties are making loans available to consumers who are then able to repay the loans as part of their property taxes (this scheme is often referred to as the “Berkeley Model” after the city that introduced it: Berkeley, California). Loan balances are transferred to whoever owns the property if it’s sold during the course of the loan repayment period.
Before you make the commitment towards a loan, a grant may be available in your area to help fund your project. Unlike loans, grants do not have to be repaid. Some states offer grant funding for residential and commercial properties for the installation of PV solar systems. Typically, grants are awarded on an agreed-upon dollar value per watt up to a maximum, e.g., $1.25/watt up to $10,000.
With so many different types of incentives available and so much variation state-to-state, it’s essential for anyone contemplating a solar installation to do his or her homework to ensure that all possible benefits are realized.
Under various schemes, including the California Solar Initiative, individuals and companies can receive cash rebates for electricity provided to the grid from PV systems that are owned outright.
In the case of leased systems, residents of buildings with rooftop PV installed pay a third party leasing company to provide and install the system. The leasing company is also responsible for maintenance. The appeal for a householder of leasing a rooftop PV system is the simplicity of becoming involved in solar power generation and saving money on energy bills without facing the immediate capital outlay associated with installing and running a system by themselves. The benefits to a lease company include receiving the 30 percent tax credit (as long as the program stays in force) as well as receiving renewable energy credits against the amount of electricity generated and carbon dioxide offset of the leased PV solar system.
According to a recent CPI (Climate Policy Initiative) study, the number of leased rooftop PV installations in California compared to the number of total new solar installations grew from 10 percent of all new installations in 2007 to 56 percent of all new installations in 2011, jumping to 75 percent of all new installations in 2012. At present, leasing is allowed in most, but not all, states. In 2015, the state legislatures of Georgia and of South Carolina approved legislation allowing third-party ownership of PV solar systems. Florida and North Carolina are expected to approve similar legislation in late 2016 or 2017.
The solar leasing market in the United States received another positive boost recently with the announcement that global solar panel manufacturer SunPower and Bank of America Merrill Lynch have joined to provide the rooftop PV solar sector with $220 million in financing, which will assist US homeowners in financing solar power systems through solar leases provided by SunPower. An estimated 50,000 US households have already signed lease agreements under this program, which offers low monthly payments and includes one of the few direct-from-manufacturer performance guarantees for installers.
SolarCity, SunPower, Sungevity, and Solar3D are only a few of the major US PV solar system manufacturers and suppliers of rooftop systems offering leasing packages to homeowners. Of these companies, SolarCity is considered to be the most aggressive group in the PV solar system leasing sector, but SunPower is also very competitive, and the others are expanding their solar system leasing businesses.
In Europe, leasing PV solar rooftop systems has not yet been established because they do not have net metering systems. However, there are a few companies in Germany (including DZ-4) that are developing different business models for PV solar leasing, and many of these companies have initiated pilot projects. Likewise, several large German banks are studying leasing models for PV solar residential systems. These systems in Germany will normally incorporate a PV battery bank storage system. Feed-in tariff programs, on the other hand, have had amazing success in helping solar customers to invest in PV solar systems in Germany and throughout Europe.
