Pennsylvania Economic Incentives to Go Solar

In our continuing coverage of the solar incentives each state is offering to help their citizens become more environmentally friendly, we now turn our attention to Pennsylvania, whose green beginning started back in the 1970s and 1980s when solar thermal started popping up in the form of solar hot water heating systems. Since then, Pennsylvania has made slow but steady progress and the state presently has a growing solar infrastructure.

In a report by the National Renewable Energy Laboratory, Pennsylvania led the nation alongside California in “green power penetration” at an estimated 1.6% of the total Pennsylvania residential load being supplied by green power at the end of 2000. Solar has made significant progress since then but we can see there is still a lot of room for green energy to grow in Pennsylvania and the United States in general. Our hope is that through a more educated public and continued federal and state incentives, solar, and all renewables, will continue to grow to become one of our staple power sources. Pennsylvania’s incentive programs have helped to make it a forerunner in switching over to green energy sources and we hope to see continued progress in the Keystone State.

This post outlines the incentives available for solar in Pennsylvania. For a quick overview and a sample PV system installation costs and payback period analysis for Pennsylvania, see our example at the end of this post.

Economic Incentives

Economic incentives put into place by the federal and state governments are crucial to the continuing growth of the solar industry. Incentives help to make going solar an economically sensible thing to do and we expect to see increased effort made at the government level to help in financing the growth of the solar industry in the United States.

As we go through the economic incentives that Pennsylvania has created to help those wishing to develop a solar energy system, please keep in mind that there are also incentives available from the federal government that can be found at the DSIRE website. If you want to learn more about what a specific term we talk about means, check out our November 6, 2009 entry that explains and defines solar installation incentives. Also take note that DSIRE has a glossary of economic incentive terms to help you learn how to get the most out of your solar power system.

Pennsylvania’s Alternative Energy Portfolio Standard

Pennsylvania formally created what is commonly referred to as a Renewables Portfolio Standard, or RPS, in November of 2004. This standard mandates that each electric distribution company and electric generation supplier in Pennsylvania supply 18% of its electricity using alternative-energy resources by 2020. This means that electricity utilities must purchase power or renewable energy credits (RECs) from renewable energy generating systems. The best news is that the standard includes a solar carve-out, or mandated percentage of the total 18%, that requires that 0.5% percent of total electricity sales must come from electricity generated by photovoltaics. Other than the required 0.5% through photovoltaics, solar water heat, solar space heat, solar thermal electric and solar thermal process heat are also count toward the 18% threshold needed.

Statewide Incentives

Pennsylvania has several programs set up at the state level that help to lower the costs of going solar. We will cover the major ones here and include comments and advice from people who have gone through the installation and application processes all ready.

Solar Alternative Energy Credits

In order to encourage utilities to comply with its renewables standard, Pennsylvania also instituted a mandate that requires electricity suppliers to purchase solar alternative energy credits (SAECs) from their customers who generate power from solar energy systems. Under Pennsylvania law, a SAEC (usually called an SREC in other states) represents proof that 1 megawatt-hour of electricity was generated by a qualifying solar photovoltaic (PV) facility. Electricity suppliers who chose not to purchase SAECs in order to meet their compliance obligations must pay a Solar Alternative Compliance Payment for any shortfalls in SAEC purchases.

This is good news for solar in the Keystone state. Directing utilities to purchase energy credits will allow those who own, or want to install, solar power systems to have a guaranteed return on their investment. This will open the door for many more people to go solar who aren’t able to do so otherwise.

There are no system size limitations for those applying so all sizes of PV systems are eligible. SAEC prices vary on market conditions but are approximately $0.40/kW. A generator must apply for certification and be equipped with a production meter, if the system capacity is more than 15 kW, before they become an eligible generator.

To learn more about Pennsylvania’s alternative energy portfolio standard or about its SAECs program, visit the Pennsylvania Alternative Energy Portfolio Standard Program website.

Net Metering

Net metering is what its name implies. It uses the power generated by your solar system to offset the energy you use, zeroing out your meter’s energy reading. In Pennsylvania, you can even get refunded for any extra power you contribute to the grid above your energy usage.

Pennsylvania requires its investor-owned utilities to offer net metering to its customers. Residential customers with solar thermal electric or photovoltaic systems up to 50 kilowatts in capacity qualify to be net metered, while nonresidential customers can have similar systems with up to three megawatts of capacity. Customers with solar thermal electric or photovoltaic systems greater than 3 MW but no more than 5 MW can qualify if they make their systems available to the grid during emergencies. Net excess generation, the amount of power generated that exceeds the customer’s needs, is carried forward and credited to the customer’s next bill at the full retail rate and customers are compensated for any remaining excess generation at end of the year.

State Solar Rebate

The Keystone State’s rebate program is focused on the solar industry and includes solar water heat, solar space heat and photovoltaic technologies. As with many of the solar incentive programs offered in Pennsylvania and nationwide, the sooner you take advantage of the Pennsylvania Sunshine Program the better because it is limited to $100 million and is estimated to only be available through 2011 before it runs out of funding.

The program offers rebates to residential and small commercial residents that purchase systems and have them installed by approved installers (It is actually the installer who must submit the application to receive the rebate). It was authorized in July 2008 by the state legislature is under the administration of the Pennsylvania Department of Environmental Protection. Only systems installed after the date of program opening are eligible for rebates, so only new systems may apply. 
 
All residential applicants must be Pennsylvania residents, own the home upon which the system is installed, and use it as a primary residence, so vacation homes and investment properties are excluded. Small business applicants must be for-profit entities located within the state of Pennsylvania with no more than 100 full-time employees. Low-income residents who make 60% or less of the median state income are eligible for higher incentives than other applicants.  
 
Households are eligible for only one PV and one solar thermal rebate. Small businesses may receive multiple rebates, but are only permitted to submit one PV application and one solar thermal application at a time and must complete the project and rebate process prior to submitting another application.  

The list below describes incentive levels and other program rules as of June 15, 2010. To get an estimate of your rebate, first choose the type of system you have/want and then find the system size to get an idea of the incentive you are eligible to receive.

• Residential PV: $1.75/W for systems of 1-10 kilowatts (kW). Systems larger than 10 kW are eligible, but incentives are limited to first 10 kW  
• Small Business PV: $0.75/W for systems of 3-10 kW; $0.50/W for next 90 kW; and $0.25/W for next 100 kW. Systems larger than 200 kW are eligible, but incentives are limited to first 200 kW   
• Solar Thermal: 25% of installed system cost, with maximums of $2,000 for residences and $20,000 for small businesses  
• Low-Income (PV and Solar Thermal): 35% of installed costs, which is the maximum rebate authorized by the enabling legislation

 For example, if you are installing a 5 kW system on your home, you would multiply 5000 W by $1.75/W to come up with $8750 as your rebate. That’s a lot of money that can go to diffusing the upfront costs of installing your solar system.

State Tax Incentives

Pennsylvania currently does not have any state tax incentives focused on the solar community that is growing in the state but we hope that as solar continues to grow in popularity, the government will initiate legislation to help further stimulate the solar industry.

Utility-sponsored Incentives

In addition to the incentives provided by the state, Pennsylvania’s PPL Electric Utilities also provide an incentive to go solar.

Utility Rebate Program

PPL Electric Utilities is offering rebates to its non-profit and government customers, including schools, colleges or universities and all levels of government in any rate class, that install PV systems. Sorry but residential systems are not eligible for this one. Rebates for PV installations are set at $2.00 per watt (DC) up to a maximum of $500,000 per non-profit or government customer/parent organization. The program is set to expire on May 31, 2011, so if you are a qualifying entity you better hurry as this is the last application period for this rebate.

Just FYI, the Pennsylvania Department of Environmental Protection, which administers the state Pennsylvania Sunshine solar rebate program, has issued a policy statement stating that projects which receive a solar rebate from the PPL program described below are generally not eligible for the Pennsylvania Sunshine program. However, the DEP has also identified certain circumstances where participation in both programs would be permitted.

Local Grants and Loans

There are also grant and loan programs available at the local level in some areas. If you live in the FirstEnergy, PECO, PPL or West Penn Power territories you may be eligible to receive additional help in funding your solar project. Many of these funds are geared toward commercial applications or larger-scale projects, so you will need to know the specifics on your project before applying for aid.

FirstEnergy

The Metropolitan Edison Company Sustainable Energy Fund was established by FirstEnergy in 2000 and is administered by the Berks County Community Foundation. The majority of this $8.2 million funding available from the SEF takes the form of investments made in businesses pursuing one or more of the fund’s objectives, which are aimed at developing renewable energy and clean-tech technologies as well as other objectives. Examples of projects funded in the past are available on the program website, along with details of the grant guidelines. 

Also established by FirstEnergy in 2000, the Penelec Sustainable Energy Fund, which is administered by the Community Foundation for the Alleghenies in Johnstown, Pennsylvania, has assets of approximately $9.1 million. The fund is divided into two parts with 2/3 of the fund being used on venture capital and business lending and the remaining 1/3 as an endowment fund focused on environmental grant making.

If you live within the correct jurisdiction, make sure to look into these local programs. Both of the funds established by FirstEnergy are highly geared toward solar installations and include passive solar space heating, solar water heating, solar space heating, solar thermal electric, solar thermal process heating and photovoltaics as eligible technologies.

PECO

The Sustainable Development Fund was created by the Pennsylvania Public Utility Commission and provides funding for solar photovoltaic and various other renewables projects. In total, the fund has received approximately $31.8 million over its lifetime and provides financial assistance to companies, ventures, manufacturers, distributors, installers and end users in the form of commercial loans, subordinated debt, royalty financing, business loans and equity financing.

PPL

The Sustainable Energy Fund was created in 1999 under the direction of the Pennsylvania Public Utility Commission and is administered by PPL Electric Utilities Corporation. It promotes and invests in renewable energy projects including solar water heating, solar space heating and photovoltaics, among other initiatives. Financial incentives are offered as loans to promote clean energy technologies and for projects where energy savings are measurable. The fund has collected slightly more than $25 million since opening through a rate surcharge on PPL ratepayers. The surcharge expired and was not renewed at the end of 2006, so the funding for this fund has been extinguished and the fund may not last much longer.

West Penn Power

The West Penn Power Sustainable Energy Fund (WPPSEF) promotes the use of renewable energy and clean energy among commercial, industrial, institutional and residential customers in the West Penn market region. This includes solar water heating, solar space heating, solar thermal electric, solar thermal process heating and photovoltaic technologies.

The WPPSEF’s 2010 Activities Update indicates an intention to focus future activities on single-family and multi-family residential energy efficiency and mid- to large-size commercial and industrial PV projects. Funding for eligible projects may include commercial loans, equity investment, subordinated debt and royalty financing. Commercial loans are available to manufacturers, distributors, retailers and service companies involved in renewable and advanced clean energy technologies, as well as energy efficiency and conservation products and services to end-user companies and community-based organizations.

An Example Pennsylvania Solar PV Installation

 So say you’ve decided you want to put a 5 kW solar PV system up on your roof. You call up an installer you know and he tells you that it’s going to cost you $30,000! Don’t close out of your browser just yet though—that is BEFORE all the incentives and rebates we’ve been talking about. Most solar installers will charge by the watt capacity of your system. This will run you about $6/watt, plus or minus a buck or so depending on where you live. Upfront it looks like a lot, but that’s why it’s so important to take advantage of the incentives that are available.

The following is a generic example of what a typical 5kW solar PV system would cost AFTER the incentives and rebates. Keep in mind that your system size may need to be more or less depending on your energy usage and how much of your electric bill you want to offset with your system. You’re final cost will definitely be different than what we get depending on what incentives you qualify for, but this should give you a good estimate.

We are going to assume your installed price is around the national average of about $6/watt, which again could vary on several factors like the angle of your roof and even what kind of roof you have.

• $6/watt x 5000 watts (5kW) = $30,000 cost before rebates and incentives
• Subtract from that the $8,750 state rebate ($1.75/watt x 5000 watts) = $21,250 remaining

(If you qualify for low income status, your rebate would be $10,500)

• Subtract the Federal Tax Credit of $6,375 (30% of the remaining $21,250) that offsets your taxes

The remaining $14,875 is the net cost of installing your 5kW system, which could shift around a bit because of tax consequences.

According to the EIA, the average residential monthly electric bill is $95.66. Your payback period, or the time your solar energy system would take to pay for itself, in this example investment would be 15 days short of 13 years. After that, every dollar you save from not having to pay an energy bill is money in the bank for you. Remember that solar energy systems usually last for 30 years or more, so that could mean that at the end of the solar energy system’s life, you would be a little over $19,500 richer than if you hadn’t installed it (Assuming a 30 year system life and constant energy prices).

How we see it, there has never been a better time to go solar. With the shaky future of traditional energy sources on the horizon and energy prices steadily rising, the peace of mind from being energy independent is just the cherry on the top of your new solar energy system.

Maryland Makes All of the Solar Incentives Add Up

The Mid-Atlantic States are becoming an important region of the country for solar energy. Maryland has joined many of its sister states in the region by providing significant incentives to those who want to go solar. Maryland is only one of a few states that has a solar carve out to its renewable portfolio standard, unwire which electric utilities must purchase a minimum percentage of their electricity from solar sources.  Maryland has a lot  of catching up to do, but with the new incentives in place, look for it to break into the top ten in the next couple of years. 

Maryland’s Commitment to Renewable Energy

Maryland began to address climate change with the passage of the Healthy Air Act of 2006 through which the state joined the Regional Greenhouse Gas Initiative (RGGI)  — the cooperative effort between Maryland, Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont to reduce carbon dioxide (CO2) emissions from electricity generating plants.  

As the first step in fulfilling its RGGI commitment, the state passed the EmPOWER Maryland legislation, which calls for a 15 percent reduction in overall energy usage statewide by 2015, and an increase in the percentage of energy from renewable sources to 20 percent by 2022. To realize these ambitious goals, the state is encouraging solar energy installation as an important piece of achieving a “Smart, Green and Growing Maryland.” So what exactly are the economic incentives now available to home and business owners to make Maryland’s green vision a reality?

State Solar Energy Grant Program Reopens

In October 2009, the Maryland Energy Administration (MEA) reopened the Solar Energy Grant Program thanks to funds made possible by the American Recovery and Reinvestment Act of 2009.  Funding is available to Maryland residents and small businesses to install solar photovoltaic, or solar hot water systems.

The grants are awarded based on a $/watt basis according to the following terms:

1) Solar Photovoltaic systems under 20kW (A Mid-Size Solar Energy Grant Program exists for larger systems):

• $1.25/ watt for the first 2,000 watts of capacity
• $0.75/ watt for watts 2,001 – 8,000
• $0.25/ watt for watts 8,001 – 20,000
• Maximum grant amount is $10,000.
• Minimum residential system size is 500 watts; minimum school, government and church system size is 1 kW; minimum commercial system size is 2 kW

 2) Solar Hot Water:

• 30% of the installed cost
• Maximum grant amount is $2,000.

Grant applications are posted on the Maryland Energy Administration website: http://energy.maryland.gov/incentives/residential/solargrants/index.asp

Federal Tax Credits

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.

State and Local Property Tax Exemption

Solar photovoltaic (PV) and solar hot water systems are exempt from state and local property taxes. Maryland’s property tax code enables local governments to offer a property tax credit for buildings equipped with solar energy systems used to generate electricity, heat or cool, or provide hot water. Counties determine the credit amount, define the devices that qualify, and determine the length of time that a credit may be available (not to exceed three years). As of 2009, five counties offer a tax credit under this section of the state code: Anne Arundel County, Harford County, Howard County, Montgomery County and Prince George’s County.

Anne Arundel County: Anne Arundel County offers home/building owners a one-time property tax credit equal to the total cost of the solar system and installation, minus any federal or state tax credits. The total exemption cannot exceed the total annual property taxes. Eligible systems include those used for electricity generation, heating and cooling, and water heating (not including pool heating).

The credit is equal to either 50 percent of the cost of solar energy equipment and installation (minus any federal grants, state grants or state solar energy tax credits) or $2,500 — whichever is less. Web Site:  http://www.co.anne-arundel.md.us/Finance/index.cfm

Harford County: Hartford County offers a one-time, flat property tax credit for solar or geothermal devices used for generating electricity, heating or cooling. The credit is equal to one year of property taxes or $2,500 — whichever is less.

Howard County: In Howard County, property owners can take advantage of a tax credit equal to 50 percent of the total cost of either a solar PV or geothermal heating system up to $5,000 and 50 percent of the total cost up to $1,500 for solar water heat. 

The total credit applied may not exceed the total annual property tax. However,  any credit amount not taken may be carried over for an additional two years. http://www.howardcountymd.gov/DOF/DOF_RealPropertyTaxInformation.htm

Montgomery County: Montgomery County residential property owners can take advantage of a 50 percent tax credit for the total system cost for solar systems used for electricity generation, heating, cooling (up to $5,000) and hot water (up to $1,500). The amount of the credit cannot exceed the total annual property taxes. However, any excess credit amount can be carried forward for up to two years.

Only costs incurred during the 12-month period prior to applying for the credit are eligible for a tax credit, and residents can only submit an application for one solar energy or geothermal system per year. Website:  http://www.montgomerycountymd.gov/govtmpl.asp?url=/content/finance/index.asp

Prince George’s County:  Prince George’s County offers a tax credit for solar-electric PV, heating, cooling and hot water systems. The tax credit is equal to 50 percent of the total system cost, including installation. Currently, a credit limit has not been defined for PV systems. The limit for heating and cooling systems is $5,000 and for water heating systems is $1,500.  The credit amount may not exceed the total property tax, however excess credits may be carried forward for up to two years. Eligible costs must have been incurred during the 12 months preceding the application. Website:  http://www.co.pg.md.us/Government/AgencyIndex/Finance/index.asp

Sales Tax Exemption

Solar equipment used to generate electricity, heat or cool a building, or provide hot water for a structure are exempt from Maryland state sales tax.

Solar-Renewable Energy Credits (SRECs)

Maryland residents and businesses that install solar PV systems are able to earn and sell Solar Renewable Energy Credits (SRECs). One SREC is equivalent to 1,000 kilowatt-hours of solar power.

Utilities operating in the state of Maryland are required to generate a certain percentage of their electricity from renewable sources. Purchasing SRECs from residents and businesses that are generating solar electricity is one means by which they are able to meet this requirement.

Residents and business must apply to have a completed PV system certified by the Maryland Public Service Commission as a “Solar Renewable Energy Facility,” register the system with PJM Environmental Information Services and create an account with PJM’s Generation Attribute Tracking System in order to sell SRECs.

Net Metering

Residents, businesses, educational institutions and government entities that generate solar electricity are eligible to participate in net metering. To qualify, systems must generate less than 2 MW of electricity annually.

In order to take part in net metering, customers must have their utility company install a bi-directional meter.  (This installation is by law done without charge.) The meter will track both the customers energy usage and energy generation – and will in fact run in reverse when the customer is generating more electricity than is being used. That surplus electricity is known as net excess generation (NEG), and is carried over month-to-month to the customer’s next utility bill. Each month, the utility subtracts the kilowatt-hours of electricity produced from the amount used.

If at the end of the year a customer has generated more electricity than has been used over the course of the 12-month period, the surplus goes to the utility company without any compensation to the customer. Customers who participate in net metering remain eligible to sell the SRECs generated by their system, as described above. The state’s net metering program will continue until the combined electricity generation of all net-metered systems reaches 1,500 MW.

To learn more about your utility’s net metering program: Pepco – Green Power Connection™ – http://www.pepco.com/home/choice/dc/greenpower/

Translating Incentives into Energy Solutions

According to Ken Stadlin, President of Millersville-based Kenergy Solar, though there are a lot of moving parts when it comes to solar incentives, home and business owners can rest assured that the economics of solar installations are ultimately going to work in their favor, no matter the system size.

“At Kenergy Solar, we work with many homeowners and business owners who are looking to lower their electricity bills, produce cleaner energy and reduce their energy footprint,” says Stadlin. “We focus on helping our customers understand the pieces and demonstrate for them how the combination of the 30 percent federal tax credit, Maryland state grants and county property tax credits typically offsets more than 50 percent of the upfront installation costs — making solar a viable option within almost any budget.”

Qualified solar installers also make sure customers understand how to realize significant savings over the long term, especially in the face of the escalating cost of traditional electricity. “In Maryland, we typically pay about $.15 per kilowatt hour of electricity. SRECs can be worth twice that, and net metering has the potential to dramatically cut utility bills, ” explains Stadlin. “Forecasting the energy savings over the lifetime of system is as important a consideration as the initial cost to install it.”

Stadlin also points out that there are more financing and leasing options than ever before. “Kenergy Solar and SolarTown are working together to provide customers with better options when it comes to paying for solar systems. Stay tuned in 2010 to learn more!”

If you have additional questions about installing solar in Maryland, visit www.solartown.com or www.kenergysolar.com.

Incentives in Arizona Make Solar Look Attractive

Originally posted July 30, 2009. Updated November 9, 2009.

In this blog entry, I will focus on the incentive structure offered by Arizona. Arizona is one of the leading states in solar installations, ranking seventh in 2008 in grid-tied PV installations with 6.4 megawatts. Arizona has provided significant incentives on top of the federal tax credits, which I will discuss in this blog entry.

Summary of Government Tax Incentives

 In Arizona, the state government offers a variety of incentives for building green (including wind, geothermal and of course solar energy), such as reimbursement of construction fees and expedited review of construction plans, making what is often a lengthy process of approval by state and local zoning authorities and planning commissions significantly shorter. To receive these incentives, developers have to meet guidelines for incorporating energy-efficient materials and practices into the methods in the design and construction of dwellings. This of course doesn’t apply to residential consumers but rather installation companies.

Property Tax Exemption

 Arizona also boasts a 100% property tax exemption for homes that consume the majority of their solar power on site where the solar equipment is considered to add no value to the property. Under the Solar Energy Property Tax Exemption Act, those who qualify must be using “a system or series of mechanisms designed primarily to provide heating, to provide cooling, to produce electrical power, to produce mechanical power, to provide solar day-lighting or to provide any combination of the foregoing by means of collecting and transferring solar generated energy into such uses either by active or passive mean.” Sales tax exemptions apply to retail sales of solar energy devices (PV panels included under Arizona legislation), and installations of such devices under the prime contracting classification, provided that the retail and installation companies are registered at the Arizona Department of Revenue.

In addition, for those who want to put their energy efficient, single family homes on the market, the state of Arizona will issue a 5% personal income tax reduction based on the selling price that adds to savings of up to $5,000. (Information found at: http://www.dsireusa.org/)

Summary of Utility Credit Rebates in Arizona

Depending on the region in Arizona in which you reside, different utility companies are offering various incentives. Most of the big incentives are offered to residents living in Central Arizona. Check below to see if your utility provider is mentioned.

The Arizona Public Service (APS) covers the Phoenix and surrounding metropolitan area. Click here to see the map. Through the Renewable Incentive Program, APS offers customers who install various renewable energy sources the opportunity to sell the credits associated with the system’s output (recorded in number of  kilowatt hours, kWh) to APS. Savings include utility rebates of $3/watt DC for grid-tied residential PV panels and $2/watt DC off-grid residential PV panels. The maximum incentive is 50% of the entire project’s cost with a maximum rebate of $75,000. Customers can apply for this incentive by filling out an online application which can be found at: http://www.aps.com/main/green/choice/choice_60.html.

Salt River Project provide utilities to central Arizona. The Salt River Project’s EarthWise Solar Energy Program offers an incentive of $2.70 per watt for residential PV systems, with a maximum payment of $13,500 per system. This program is only scheduled to run through April 30, 2010. In addition, there is an incentive of $0.50 per kilowatt-hour of first-year energy production for residential and commercial solar water-heating systems, although there are no similar incentives for pool solar water heating. This option would be more attractive to DC off-grid customers because it offers $0.70/watt increase in incentives compared to the APS program, which offers $2/watt DC off-grid residential PV panels.

The Sulpher Springs Valley Electric Cooperative, a non-profit, member-owned distribution cooperative providing electricity, provides service to southeastern Arizona. The Cooperative is offering a SunWatts rebate program providing grid-tied panel customers $4 per watt and a $1,500 homebuilder incentive for 2kW systems or larger installed on new homes for up to 50% of project costs. Tucson Electric Power and Unisource Energy Services (UES) offer similar rebate programs.

Goodyear Resident Talks about the Incentives He Received

To get a better idea of how some of these incentives work, I contacted a homeowner in Goodyear, Arizona, who recently had taken advantage of the incentives offered to install a 30 panel array providing about 6.3 kWh of power to his home. Richard lives in a 2 story, 3100 square foot house in Goodyear, Arizona.

Richard hired American Solar Electric, which does residential installation all over Arizona, to do the installation work. When I talked to Richard about his experience, he advised researching your utility company’s rate plan because most companies do not make the information readily available. At first, due to the lack of information on the different energy usage plans, he began initially with a 9-to-9 plan. This plan charges premium (higher) prices for the power he uses between 9 a.m. and 9 p.m. But, he noted that he used a lot of air conditioning during those peak times, offsetting the savings he received from solar power. Later, he switched to a flat rate plan, which he highly recommends for Arizona residents who have PV panels installed. This flat rate plan, charges one solid rate for power regardless of when during the day the power usage occurs. The lowest prices are for up to 400 kWh of power usage. There are higher prices when power usage is between 400-800 kWh, and the highest prices for energy usage of 800 kWh and up. With this second plan, there is one flat rate and it is based on energy usage, while the first (9 to 9) plan provides power used during 9am and 9pm (the peak hours) at a higher price. But since most of the power usage happens during those peak hours, it is more economical to go by the flat rate plan.

Richard says that his solar power covers approximately 70% of his energy bill usage. Before he installed solar, his energy bill was about $2,100, but now he has noticed that his energy bill has gone down to about $1,500, almost 30% savings for his 2 story, 3100 square-foot house. He says his system pay-off was estimated to take 6-7 years, but after observing his own energy savings, he estimates the system will be fully paid off in just 5 years!

Unfortunately, Richard does not live in central Arizona, which is the primary region in Arizona where the utility companies offer the incentives I previously mentioned. So he was not able to take advantage of any of the utility rebate programs. He was only able to take advantage of the state-wide property tax exemption and the 30% federal investment tax credit. And for the tax credit, he will have to wait until April when he files his taxes to claim the credit.

A Look at the Cost-Savings Trade-Off

To get a better idea of cost-savings let’s look at an average scenario in Arizona. Let’s say your utility bill indicates a use of 600 kWh per month, or about 20 kWh per day.

Size of Array: To obtain the size of the array to meet the entire needs of this household, we must divide the daily usage by the efficiency of the panels multiplied by the area (in square meters). The efficiency number for the panels can be obtained from solar panel specification sheets. Let’s assume the solar panel efficiency is 12%. In Arizona, the average full sun hours, otherwise known as insolation, is  5.  So, 20 / (.12 * 5) = 33.33 square meters, or roughly 360 square feet of panels to power your home.

System Output: To calculate the system output, multiply the efficiency by the area in square meters:

.12 x 33.33 square meters = 4 peak kWh.

Assuming that the panels were 185 watts per panel, this array would consist of roughly 22 panels. A system this powerful would retail for about $35,000, a rough estimate. . Each home will receive various quotes based on the size of the job and the installation company, but as a general rule installation costs are approximately equal to the cost of the materials.

State Tax In Arizona, sales tax is not charged on the PV panels or the installation cost.  

Federal Program: Under the federal program, the homeowner would receive a 30% tax credit net of the state and local rebates.

Utility Incentives:

1.) Arizona Renewable Incentives Program: This program provides $3/watt for grid tied systems. Under that program, consumers can claim up to $17,000 due to the up to 50% project cost (including installation cost) cap-off. This system should earn $17,500 (50% of the project cost).) but since the cap-off is $17,000, the customer’s rebate would be limited to that amount.

Under this program, assuming the system is grid-tied, I calculated a 14 year payback period. It is the least favorable program of the three.

2.) SRP’s EarthWise Solar Energy Program: This program offers $2.7/watt which would add up to $10,800 and $.5/kWh for the first year, so if you consume 600 kWh per month that would be 7,200 kWh/year which would be $3,600 in savings, with a total of $14,400 savings on the purchase price. Using this program, assuming the system is off-grid, I calculated a 11 years payback..

3.) Sun Watts Rebate: In addition to the Sun Watts rebate of $1,500 for systems 2 kWh or larger, which reduces the cost of the panels to $19,100. Using this program, assuming the system is grid-tied, the payback period is under 11 years to pay off the total system and installation costs. This is the most attractive offer to consumers and provides the most rebates.

Note: Depending on which utility company serves your area you may use one of the three incentives I previously mentioned (because you cannot be served by more than one utility company). If however, these utility companies do not serve your region in Arizona there are no other utility incentives in the state. Say in this example you are served by Arizona Public Service, you will be credited $17,000 in rebates lowering the cost of the system to $18,000.

Total Annual Savings

Tax Savings: Solar customers are exempt from property taxes in the state of Arizona.  Let’s say you live in a $200,000 house with an average tax rate of 1.3% per year. You would be saving $2,600 annually!

Utility Bill Savings: The average single family home’s utility bill averages $120 a month, and PV panel systems decrease utility bills up to70%. So monthly bills can go from $120 a month to around $36 a month so that adds up to $1,000 a year savings! The annual savings averages $3,600 per year, paying off the cost of the panels as illustrated in this example in just under 4 years, excluding installation costs.

Solar Installation Incentives

Everything About Rebates and Credits that You Were Afraid to Ask About

The greatest challenge to the solar movement is the inability of homeowners and businesses to obtain financing for the often-hefty down payment on equipment and installation of their solar energy systems. In an effort to encourage the adoption of renewable energy and jumpstart the solar industry, federal, state and many municipal governments as well as some utility companies are offering cash or other economic incentives to subsidize the cost of solar system installations.

This blog offers a general overview of the many types of incentives offered across the country. To learn more about what is going on in your community, stay tuned for more in our continuing blog series addressing activity in individual states, or visit the Database of State Incentives for Renewables and Efficiency at www.dsire.com for a state-by-state analysis.

In general, the most valuable economic incentives are federal tax credits and state and local rebates. We summarize each of these kinds of programs below and we also discuss lesser-known incentives that may also be valuable, especially as more states look for alternatives to up-front rebates.

Rebates

Many states, municipalities and utilities offer rebate programs or cash incentives. These rebates usually take the form of a per-watt rebate ranging from about $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 rebates can offset the cost of a solar installation by as much as 40 to 45 percent.

In most locations, as the state’s renewable-energy targets are achieved, the available per-watt rebate is reduced in size — i.e. 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.

Unfortunately, a finite amount of money is set for rebate programs, and due to high demand the funds are often quickly exhausted. Once the funds are gone, many programs offer waitlists until the next round of funds are made available.

Tax Credits  

At both the federal and state level, laws have been put in place to credit a percentage of the purchase price of the solar power system against a solar system owner’s annual tax bill. A tax credit is generally more valuable than an equivalent tax deduction because a tax credit reduces your taxes dollar-for-dollar, while a deduction only removes a percentage what is owed.

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..

A number of states are also offering tax credits equaling a percentage of the photovoltaic system’s installed cost. The percentage varies by location.

It is important to 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 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.

Property Tax Exemptions

On the exemption side of the equation, most states and some municipalities provide some sort of property tax exemption for individuals and businesses that install PV systems.

Though a solar installation has the potential to increase property value by tens of thousands of dollars, states that offer an exemption do not increase your tax liability to match your property’s new value.

Some states offer a 100 percent exemption for the value of the system, while others offer a partial exemption (typically 75 percent or some other percentage of the total system value). Depending on the state, the exemption may apply for 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 system.

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 $10,000 to install, and a conventional system costs $5,000, the property tax will be assessed on an increased value of only $5,000.

It’s important to note that 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 January 1 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.

Sales Tax Exemptions

Many states do not 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 (RECs)

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 fluctuates based on supply and demand. The means by which RECs can be sold also varies by state.

Net Metering

Net metering is the process some utility companies use to keep track of any extra power that a grid-tied solar system produces. During the summer months or during daylight hours, a household or business uses more electricity than at night or in winter. Therefore on a hot summer day, a household might use more energy than its solar system produces, and on a cold winter night it is likely to use less. In a net metering arrangement, the utility both keeps track of energy usage and stores any extra power the solar panels generate. During those times when a 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” between what the solar panels produced and the amount of electricity the household or business consumed beyond that. With net metering, annual electric costs could be less than $100.

It is important to note than in some states, a utility company will not pay the customer if the solar system generates more power than is used during the course of a year. 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 a household or business’ needs, not exceed them.

Feed in Tariff (FiT)

Having jumpstarted the solar industry in countries like Germany and Spain, Feed in Tariffs  (FiT) are now being introduced in the U.S. — with states like Vermont and California leading the way. A FiT is an incentive system in which a utility company sets a higher than normal kilowatt rate to compensate a person or business who is generating clean power. Typically the FiT agreement covers a time period of approximately 20 years. Under FiTs, a residence or business that installs solar panels essentially becomes a utility that generates as much power as possible for the grid. Each month, the utility company sends the system owner a check that more than compensates for the electric bill.

Most FiT programs are short term — serving as a quick way to increase solar installations and solar power generation. Currently in the U.S. most FiT programs are reserved for large-scale installations, not residential installations. In addition, FiT guidelines typically stipulate that a customer who participates in a FiT program is unable to participate in any other state incentive program.

Loans

Several states and utility companies are leading the way with innovative loan programs that provide low-interest loans to homeowners and businesses for solar installations.

In New Jersey, for example, utility company PSE&G has committed to provide approximately $105 million toward the financing of solar system installations over the next two years. 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 (often referred to as the Berkeley model after the city of Berkeley, California that introduced it). Loan balances are transferred to whoever owns the property if it is sold during the course of the loan repayment period.

Grants

Unlike loans, grants do not have to be repaid. Some states offer grant funding for residential and commercial properties for the installation of solar systems. Typically, grants are awarded on an agreed dollar value per watt up to a cap – i.e. $1.25/watt up to $10,000.

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With so many different types of incentives available, and so much variation state-to-state, it is essential for anyone contemplating a solar installation to do his or her homework to ensure all possible benefits are realized. SolarTown will continue to provide guidance through this series of blogs and we endorse the www.dsireusa.org database for its comprehensive, up-to-date watch on all federal, state and local activity.  In addition, our customer service experts and any qualified solar installer should be able to provide a run down of all applicable incentives as part of a qualified estimate.

Economics of Solar Energy for Homeowners: Case Studies

July 8, 2009 / Updated November 9, 2009

Hello to the SolarTown community! We are on a mission to find out the economic implications of solar PV installation for homeowners. The time to go solar is now, according to the Director of the Solar Energy Research Institute at George Washington University, Ken Zweibel. Companies are improving the solar technology and panels are getting more and more efficient and less costly. Most solar panels have an 11-13% efficiency. Efficiency is a measure that tells us how good a panel is at converting solar energy into energy you can use to do work. As technology gets more and more advanced, the more gap junctions are put in place to increase the amount of solar energy captured and converted into energy we can use. The practical cap off point for efficiency in the near future is around 30%, past that point technology would be too expensive to warrant the extra efficiency. It would be more economical and practical to get more panels than invest in high efficiency systems.

But we must also remember that as these technologies get better and better, the governmental and other financial incentives will get smaller and smaller. So if you’re interested in going solar there is no use in waiting for these cheaper technologies, the time has never been better, and will never get better to go solar.

We will unveil the financial incentives and benefits to going solar in the ten states with the best incentives for solar energy: Massachusetts, Arizona, New York, Colorado, Maryland, New Jersey, Oregon, Pennsylvania, Ohio, and California. In this introduction to this blog series, we will explain the current economic setting for converting to solar energy and we will be discussing the financial benefits to switching to solar energy. I will post each entry by state as I gather more and more information and actual customer testimonials on the subject.

Due to the increased demand in renewable energy and the political and economic incentives to lower our carbon footprint, there are now many economic incentives for using solar and solar thermal technology both from the government and non-profits. The incentives vary from state and they can be hard to find and are largely unknown to the general public but here in this blog we will present the information from the states with the top economic incentives. We will also present the cost breakdown of solar panels and demonstrate how long it will take for them to pay for themselves. In addition, we will be interviewing actual people in the various states who have had solar PVC panels installed in the past year to find out more about their experience throughout the process and which incentives as well as different methods of installation they used cut the cost of the panels.

The incentives we will be discussing are in addition to the recently passed 30% federal investment tax credit for both residential and commercial solar installations for 8 years offered by the national government. Check the Database of State Incentives for Renewables & Efficiency  for more information on the incentives to find more information or if your state is not mentioned.