INTRODUCTORY SPECIAL INTRODUCTORY ... - PHOTON Info

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Politics to federal income tax. Also, tax credits are received during the following tax year, or are spread out over a succession of tax years. Don’t fret if the cap on your state’s tax credit or rebate is smaller than other states. There may be additional incentives in your state or other factors – such as low electricity prices – that contribute to a better return on investment. 30 Homeowners in all 50 states also qual- ify for the Federal Investment Tax Credit, which pays 30 percent of system costs. Be- fore January 1, 2009, there was a $2,000 cap on that tax credit, but that cap has been removed, providing homeowners with a major boost for their investment. A third incentive type common in the 13 solar colonies is the use of solar renewable energy credits (SRECs), a tradable environmental commodity on the open market. Many states have renewable port- folio standards (RPS), which mandate that utilities sell their customers a minimum amount of solar electricity in a certain timeframe. To comply with a state RPS, utilities build their own solar power plants, or purchase a required number of SRECs from homeowners or businesses with PV installations – or else pay a penalty called the Alternative Compliance Payment. Ho- meowners are credited with SRECs based on the amount of electricity that their PV systems produce over time. They can sell their SRECs on the open market, or bro- ker contracts with »aggregator« companies who in turn sell them to the utilities. By selling SRECs, customers accrue value over the lifetime of their PV system, helping to finance their long-term investment. New Jersey, New Mexico, Pennsylva- nia, Maryland, Delaware, Connecticut, and Massachusetts all have SREC markets associated with RPS compliance. SREC prices vary widely from state to state. Be- cause they are sold and traded on the open market, the prices adjust according to market conditions, and are difficult to predict over the long-term. That means that while SREC prices in some states are currently quite high, customers may not have the long-term guarantee of a revenue stream. Rapid growth in a state’s solar market could result in a glut of SRECs and a significant decline in prices. As part of our internal rate of return calculations for the 13 solar colonies, we made conservative assump- tions about long-term SREC prices. Keep in mind that the high price uncertainty means that the rate of return could significantly change in your state. Some utilities are beginning to offer SREC purchase programs that guarantee Internal Rate of Return (Percentage on an annual basis) New Jersey California - Southern California Edison California - San Diego Gas & Electric Delaware California - Pacific Gas & Electric Maryland Massachusetts Hawaii New York New Mexico Pennsylvania Connecticut Vermont Arizona Colorado 1.0 4.3 4.0 4.0 3.3 5.2 5.0 6.1 6.0 7.6 7.0 9.0 13.3 10.1 0 3 6 9 12 15 A good investment: PHOTON calculated potential 14.4 return on investment for a residential PV system in 13 states with a favorable mix of electricity prices, solar financial incentives, and sunlight. Results show that it makes sense to invest in PV in these »solar colonies,« especially during the current economic downturn when other investments have less rosy outlooks. long-term payments. The utility Public Service Co. of New Mexico offers customers contracts to purchase SRECs at a rate of $0.13 per kWh for 12 years, and credits payments on the monthly bill. In New Jersey, utility companies JCP&L, Atlantic City Electric, and Rockland Electric offer Source: PHOTON USA ten-year contracts averaging $0.41 per kWh. Once the contract periods end, customers may continue to receive SREC payments, but it is difficult to forecast prices beyond the contract period. Rather than making SREC payments to customers over a period of time, some utilities, like Xcel and Black Hills Energy in Colorado, offer an up-front SREC incentive for 20 years worth of production – like a rebate – based on a system sized at $1.50 per W. A fourth incentive type that is growing in popularity in the US, albeit slowly, is the feed-in tariff. This mechanism mandates utilities to guarantee premium-priced payments for each kWh produced by a PV system through multi-year contracts, usu- ally 15 or 20 years. Well-designed feed-in tariffs pay enough to customers to recover costs of the PV system and turn a reason- able profit. In 2004, Germany implement- ed a feed-in tariff that helped that country become the world’s largest PV market. Earlier this year, Vermont passed a law creating a feed-in tariff policy. The state es- tablished an interim price level of 30 cents per kWh for PV systems – about double the average price for retail electricity in the state – and in January 2010 will issue final rules. Thus a homeowner consider- ing the purchase of a PV system now could potentially take advantage of this incentive by the time the system is installed. What makes the feed-in tariff attractive to homeowners is the state’s guarantee of a revenue stream in the form of a 25-year payment contract. In our rate of return calculation for Vermont, we assumed that the $0.30 per kWh price would remain in the final rules. Here today, gone tomorrow Homeowners should be aware that an incentive program offered by a state or utility today can disappear quickly. Ac- cording to solar financial analyst Andy Black, cash incentives are »highly visible« and »can and do come and go depend- ing on the political winds.« Because of funding cuts, New Jersey’s state rebate has dropped from $5.30 per W in 2005 to its current level of $1.55 per W. That’s a loss in savings of nearly $19,000 for a 5 kW sys- November 2009
tem. Given the vulnerability of incentive programs to such cuts, the return calculations presented in this article represent a snapshot in time. If a state slashes funding for a rebate program, returns could decline significantly. Additionally, many rebate programs, such as the California Solar Initiative, step down their rebate amount over time as installed solar capac- ity increases. Another problem with some solar incentives is that their program budgets may be small relative to demand. Pro- grams can become oversubscribed, re- sulting in long waiting lists. Vermont’s feed-in tariff program is capped at 50 MW, so it is entirely possible that many homeowners itching to go solar won’t be able to reap its benefits. Not surprisingly, changes in solar incentive programs can have a major impact on return on investment – and thus the number of homeowners who decide to take the plunge. In Colorado, installers are worried that Xcel Energy’s plans to reduce its SolarRewards program rebate will result in the collapse of the local solar market and loss of industry infrastructure – what Blake Jones of Boulder-based installer Na- maste Solar calls the »Xcel cliff.« Electricity prices matter It may come as a surprise that the price you pay for electricity is a huge factor in determining your PV system’s rate of return. That’s because when you generate solar electricity, you avoid having to purchase electricity from the utility. The more electricity you produce, the less you have to purchase – and the lower your monthly utility bill. In this way, your PV system provides an ongoing financial value over the lifetime of the system. How much money you save each month depends on the price your utility company charges for your electricity, since that is the price you would have paid if you didn’t own a PV system. In Colorado, for instance, where the average price for electricity is less than 10 cents per kWh, a typical customer saves that 10 cents for ev- ery kWh of solar electricity she produces. Hawaii’s average electricity price is nearly 22 cents, so a customer in the Aloha state can save more than double the amount the Coloradoan saves per kWh of output. If you consider that US residential utility customers, on average, consume 936 kWh per month, those 12 extra cents in savings per kWh add up to a lot of money over a PV system’s 25-year lifespan. This is why Ha- waii has a higher IRR than Colorado, even Average Retail Price of Electricity (Cents per Kilowatthour) Hawaii Connecticut Massachusetts New York New Jersey Vermont Maryland California Delaware Pennsylvania Arizona New Mexico Colorado U.S. Total Avoided costs: the average retail price of electricity for residential customers in the 13 solar colonies is generally higher than in the rest of the US. Higher grid costs improve the economics of purchasing a PV system, since generating your own solar electricity allows you to avoid these costs. though the former state has less generous incentive programs. Nine of the 13 solar colonies have average residential electricity prices that are above the national average of 11.47 cents. For a homeowner to accrue the financial benefits of avoided utility electricity purchases in the US, she needs to take ad- November 2009 31 11.43 10.51 9.87 9.55 11.47 16.11 14.89 14.89 14.7 13.86 22.89 17.84 17.79 20.19 0 5 10 15 20 25 Source: Energy Information Administration » vantage of a special billing arrangement known as net metering. Under net metering, homeowners can feed their excess solar electricity production back into the grid, which causes their electric meters to turn backwards, and offsetts their electricity consumption on their monthly bill. Through this offsets, customers effectively receive the full retail value of the electricity they generate. A Hawaii ratepayer that produces 500 kWh per month could offset $110 of her electricity bill, assuming a retail electricity price of 22 cents per kWh. All 13 of the states surveyed in this article require net metering by law. In fact, 42 states in the US mandate net metering, although some of these laws only apply to investor-owned utilities, not munici- pal utilities. The good news is that many states are altering their net metering laws to make them more economically favorable to PV system owners. Future issues of PHOTON will examine these improve- ments in greater detail. Colorado and Arizona are good illustra- tions of how important electricity prices are. These states offer quite generous rebate programs at $3.50 and $3.00 per W, respectively, yet our IRR calculations re- veal that these states have returns of just 1 percent and 3.3 percent, respectively. The main reason for these less than spectacu- lar returns is those states’ lower electricity prices. It might be logical to assume that solar would be a better investment in Ari- zona than in Massachusetts, since Arizona has much higher irradiation levels. But in reality, the return is better in Massachu- setts because electricity prices matter as much as sunlight, and the variation in electricity prices between states is much greater: while Massachusetts electricity prices are 56 percent higher than in Arizo- na, Arizona receives just 41 percent more solar radiation than Massachusetts. The disparity in electricity prices from state to state may seem unfair, since PV systems yield a much better return for customers in states suffering from higher electricity prices. Homeowners consid- ering solar in states with low electricity prices may wonder if prices will ever increase to the point that it makes sense to
Page 1: A LONG, STRANGE TRIP SOUTHERN EXPOS
Page 4 and 5: 4 Under the Sun National Renewable
Page 6 and 7: 6 Photo of the month The garden of
Page 8 and 9: May we introduce ourselves? The PHO
Page 10 and 11: 10 Readers‘ letters PHOTON, welco
Page 12 and 13: 12 Readers‘ letters So why are so
Page 14 and 15: 14 Under the Sun History A long, No
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Page 28 and 29: 28 The 13 Solar Colonies PHOTON inv
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80 Architecture November 2009
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84 In Practice Proposals The perfec
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86 In Practice Is your proposal com
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Elkus’ golden trout pond is the l
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Events From system inspection to in
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November 19-20, 2009 Alternative En
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Who should exhibit? • Manufacture
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Education & Training Producer-indep
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Internships New internships in the
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Industry Registry Here is informati
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Preview The issue 12-2009 appears a
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