If you’ve been thinking about solar for your residence or business, the time is right. The economics of installing solar have never been better. Whether it is residential or commercial, the costs have come down dramatically over the last few years while the technology has continued to improve. Solar energy seems to be getting a lot of press these days and solar electric systems are showing up on homes and businesses all over the place. Sonoma County is one of the busiest solar markets in the United States. With rising electric rates and more to come, the energy produced from a solar power plant investment continues to increase in value.
People are more and more interested in the potential attractive ROI from a solar energy investment. Rebates and tax credits have lowered the barrier to entry. A dollar-for-dollar federal tax credit of 30% of the cost of the solar system is in place through 2016. Your local utility offers a cash rebate based on energy produced. For businesses, accelerated depreciation schedules further drive down net costs. Ask your accountant about these tax and balance sheet incentives. In Sonoma County, traditional financing is directly available through the Energy Independence Program (SCEIP). If you lease your system or pursue other ownership options, your gains could include enhanced property value, perceived environmental attributes, business marketing opportunities and technological appeal. Ask your tax professional what option is right for you, or contact us to point you in the right direction.
If you own or lease a residential or business property, key decisions to make are:
- What the real economic value of my solar investment? and
- How can I rest assured of quality construction at the right price.
What do solar investment decisions look like?
Initially, think about this. Does the property or building have clear open sky to the south? The solar electric system itself, once paid for, gets free fuel for the life of the system (25-30 years). Open southern sky is key to getting maximum fuel and therefore energy return. Also, look at your annual energy costs. If they exceed $4,000/year, this investment may make sense. As these energy costs go up and larger solar power plants are created, economies of scale will lower the per-unit cost of each plant. Larger commercial sites paying several hundred thousand dollars a year in electric costs, with good solar access (clear southern skies) have found solar to be an excellent investment.
When you get a proposal for a solar system, it should specify the actual size: the number of solar panels/inverters, annual energy produced, dollar return on the energy bill, gross costs and net costs after incentives. You should have some understanding of these variables to make an informed decision. The actual ROI will accrue over time, based on energy produced and your net cost. Give it a thorough look; we’ll happily walk you through every detail.
If you understand car horsepower, this will help: Horsepower under the hood versus at the rear wheels are two distinct things. The ‘STC’ rating of a system (measured in kw-AC) is merely an industry convention to compare solar module output, just like horsepower under the hood. A solar system’s –AC rating is like horsepower to the wheels. It takes into account the real-world performance of solar panels and inverters as measured and rated by the California Energy Commission. While this –AC rating is important (HP to the wheels), we still need to look at actual expected performance. Continuing with the car analogy, a car with four flat tires, bad spark plugs and shoddy gas doesn’t realize very high actual performance. With a solar energy system, actual performance over time will depend on the quality of the equipment and design. Solar modules and inverters vary in quality. Real-world conditions like shade, panel orientation, wiring quality and system failure can significantly impact the actual return on investment. Consider a system with moderate shading, poorly predicted module tilt and orientation, substandard wire size and inverters that fail and have lengthy repair schedules. That system would not return the energy dollars represented in the original proposal, making your actual ROI take a hit. A proper, high-value proposal accurately forecasts energy production. A credible installation firm is there to stand behind equipment warranties and service needs. (Link to testimonials or Google ratings here?) Your solar energy investment should be like the high-performance car with good horsepower to the rear wheels, tuned properly, with a high quality shop available for any service needs to ensure continued peak performance over time. The energy produced by the solar power plant is energy not purchased from the utility. This solar energy is tabulated in real dollars and, therefore, peak performance in energy directly equates to peak performance in dollars.
Finally, net cost of the system (gross cost less incentives), is like your actual expected energy output. The net cost in dollars ($) per annual kilowatt hours (kwh) will give you a sense of comparative value of the proposal(s). As we just learned, it’s imperative to be confident in the actual performance of the proposed system over time to ensure understanding of the return on investment. The proposal will predict your ROI, so it should be carefully written.
As electric utility rates rise, current solar electricity costs are made even lower with available incentives. Property and business owners with suitable sites and energy needs can make informed decisions that are good for your bottom line. Purchasing a solar electric system can be a viable, cash flow positive investment. Working with your accountant and a solar energy professional can ensure maximum return on your energy investment dollar.
It is important to understand the proposal process and the credibility of the proposing firm to ensure that a well-designed and intelligently constructed system delivers the maximum value over its lifetime. Once you’ve determined that you’re properly setup for a solar investment, it’s time to engage solar contractors to propose a “power plant” specific to your property. (We use the term “power plant” on small residential properties too, and if you stick around, there’ll be more on this topic.)
Until next time… enjoy your time in the sun.