solar tax credit

Purchased a home and want to add solar panels? Five considerations to ponder

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This week, we have been engaged by three new homeowners to help them evaluate solar. Thereby, we begin with a simple, open-ended question: Why solar, why now? Responses vary, but generally their motive is twofold: Why not, since I just bought my home; and, PG&E’s rates are only going to go up. While we agree with the latter, we believe the former warrants consideration.

Before adding solar to your recently purchased home, here are five considerations:

1. The condition of your roof. Since new homebuyers have recently had their roof inspected, they have an objective evaluation regarding the condition and remaining life of their roof. In simple terms, if your roof has less than 10 years of remaining/warrantied life, you do not want to install solar (on such roof planes); if your roof has 10+ years, you’re in good shape.

2. Historical/future electricity use. Since new homeowners have limited (or zero) electricity use data, we recommend one of four approaches (to forecast future use and accurately size and model their prospective solar system):

  • Live in your home for 12 months and, thereby, quantify how much electricity you will use.

  • Wait until you have occupied your home for six months -- particularly 1-2 months of summer use, when electricity demand peaks. (Thereby, we can model 12 months of electricity demand based on your use pattern and comparable homes).

  • Employ comparable homes’ electricity use (based on their vintage, neighborhood, size, occupancy, etcetera) to model your home’s future electricity use. Fortunately, we have several hundred data sets — electricity use patterns for homes in all neighborhoods in our community — to approximate future use.

  • If it’s not too late, request 12 months of PG&E data from the home seller. Oftentimes, this is a futile effort, but it’s worth trying.

3. Home improvements. Stating the obvious: Many new homeowners improve their homes. Adding a pool and/or hot tub will increase your electricity use, as would replacing your furnace with an electric heat pump (an increasingly common practice for Repower homeowners). Conversely, replacing windows, adding insulation, or installing a variable speed pool pump reduces your electricity use. In all cases, we model the impact vis-a-vis solar system sizing.

4. Electric vehicle. If you own — or intend to purchase, in the next 12-24 months — an eV, you’d  want to factor future charging of your car into the sizing of your solar system. We find that eVs travel 4 miles per kWh of electricity. The math is simple: Take the number of miles/year you anticipate driving and multiply it by the percentage of charging you believe will be done at home (versus your workplace, public chargers, etc.). Then, divide the number by 4 to quantify additional electricity use (in kWh). For example, if you intend to drive 10,000 miles per year and charge your car 80% of the time at home (fueling 8,000 miles), you will consume 2,000 kWh of electricity.

5. Your electrical panel. Though adding solar does not increase your electrical demand, we need to ensure your electrical panel has sufficient capacity (or space) to accommodate the solar inverter. Furthermore, we will evaluate non-solar changes to your electrical demand — car charger, spa, swimming pool, heat pump, etcetera — to determine your panel’s amenability. (We perform load calculations and review your future electricity use with the city or county to ensure solar will work.)

 Net-net, going solar is simple, but there are a few nuances worthy of consideration … particularly if you recently purchased a home. Feel free to contact us to learn more and receive a free solar assessment.

PG&E burns, solar rises

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It goes without saying — but, here we say it — that last week was a really bad week for PG&E. Surprising? No, it was a runaway train wreck apt to happen, particularly as PG&E’s liabilities for the San Bruno gas line explosions and wildfires over the past two years amplified. A few months ago — pre-PGE bankruptcy — California PUC Chairman Michael Picker opined, “PG&E is too big to succeed.”

What’s next for PG&E? Myriad opinions have been tendered over the past week. While there’s no consensus, one thing is clear: PG&E’s rates are going to increase; we, the ratepayers, will bear part of the burden.

There’s also consensus that those of us who have solar (300,000+ net-metering customers in PG&E territory) are safe. PG&E cannot arbitrarily change current net-metering rules, as established by the PUC. Furthermore, solar/distributed generation is part of the solution, not an element of the problem. When property owners generate electricity via solar panels, energy use is centralized and the burden on the grid is mitigated. Solar is safe and secure.

Over the past week, we’ve chatted with a dozen or so prospective solar homeowners. Why solar, why now? we ask. Almost verbatim responses: Now that PG&E is going into bankruptcy and rates are destined to rise, the time seems right. (Secondarily, several homeowners have shared they view solar as a sage investment vis-a-vis volatile financial markets; solar generates a ~15% annual yield.)

While PG&E’s future is unknown, solar provides certainty for homeowners. Today, PG&E’s baseline (“Tier 1”) electricity rate is 22 cents per kWh. For Repower homeowners, the amortized cost to generate solar electricity is ~8 cents per kWh. With PG&E, you are at risk of (and have no control over) future rate increases. When you go solar, you lock in your price of electricity for 25 years.

And, the sun always rises :)

I am going solar. Now.

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We have the fortune of exploring solar with dozens of homeowners each month. No two conversations are the same, but common themes prevail. We normally commence with a simple question: Why solar, why now (in terms of the homeowner’s interest)?

Solar is not a panacea and it does not make sense for all homeowners. Further, there is no single, silver bullet that prompts people to pull the trigger; here are a selection of “why solar, why now” anecdotes from homeowners:

1. PG&E: Opinions sway from virtual venom to distrust to steady rate inflation to I’m sick of paying PG&E so much every month. As you may have noticed, PG&E raised residential electricity rates ~42% over the past three years, and there’s more to come …

2. Climate change: Everyone wants to do their part, and solar is a the most impactful measure a homeowner can employ to reduce their carbon footprint. Furthermore, our state is burning (no-duh) and homeowners acknowledge the latent liabilities PG&E is accruing for the Santa Rosa, Redding and other fires; there’s a general belief (we agree) that ratepayers will bear financial responsibility for PG&E’s liabilities. Hence, going solar insulates you from future rate increases.

3. Donald Tariff Trump: Regardless of your political stripes, nobody likes to pay more for something. President Trump’s first two tariffs were applied to washing machines and solar panels. (Washing machines?) Fortunately, the quantity of solar panels imported into the U.S. in the fourth quarter of 2017 increased 1900% (versus Q4-2016); the solar industry has been working through a surplus of stockpiled, pre-tariff solar panels. However, supply is dwindling — prices have most likely bottomed — and the solar industry foresees tariffs in the next few months.

4. Donald Tax Credit Trump: There’s much concern among homeowners that the POTUS will eliminate the 30% federal tax credit (for solar, wind and other forms of renewable energy). For now, the tax credit is galvanized into the tax code, at the full 30%, through the end of 2019. We believe it is unlikely Congress (and then Trump) will abort the credit; perhaps we’re being overly naive! The safe bet, of course, is to lock it in in 2018.

5. Investment accounts: This one’s common … if I’m making less than 1% in my checking/money market account and I’m nervous about the stock market and my 401K, solar is an investment vehicle where I can confidently generate 12%+ annual returns. We agree, and the math is quite simple. 

6. I need a new roof: We are currently helping six homeowners who are replacing their roof and, in concert, installing solar panels. The timing is perfect to maximize and optimize warranties from the roof material and solar panel manufacturers (minimum of 25 years) and the roof and solar installation contractors (25 years). Importantly, we orchestrate the process (roof + solar) on behalf of homeowners.

7. Electric vehicle: This one’s a no-brainer, particularly if you plan to own your home for at least five years. Leveraging PG&E’s electric vehicle rate schedule (EV-A), our typical eV + solar homeowner only needs their solar system to generate ~80% of the electricity they use to offset 100% of their electricity costs. (Simple math: Your amortized cost to generate solar electricity is in the 8 cents per kWh range, and you will garner ~4 miles of charger per kWh … so, your cost to drive is ~2 cents per mile.)

Are we missing any obvious motivations (to go solar)? If so, please advise, or feel free to contact us if you’d like to amplify any (or all) of the above.

Solar tax credit: Is death on the horizon?

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This happened Monday at the Kentucky Farm Bureau:

“I would do away with these incentives that we give to wind and solar."

So opined Scott Pruitt, Director of the Environmental Protection Agency. (Operative word: Protection.)

Anybody with half a pulse and a room-temperature-plus IQ could have seen it coming. After all, it’s written into the Koch Brothers’ playbook, and the Trump Administration is hell bent on aborting anything created or supported by the Obama Administration.

As we expressed a few weeks ago, it would defy logic, economics and common sense if the Republic Congress (rubber-stamped by President Trump) killed the clean energy tax credit. Why deter the fastest growing industry and most vibrant job creation engine in the U.S.? To spite the previous administration? To appease petroleum companies?

I’ve been accused of being overly optimistic, an ignoramus, by colleagues who have seen this coming. No chance, I’d pout, they can’t be that stupid (to dis-incentivize property owners from going solar). Pollutin’ Pruitt’s gonna do it, my environmental friends bemoaned.

I hope they’re wrong. I hope logic prevails, common sense is applied, job creation and environmental protection trump ideology.

But, my posture that there’s no financial urgency to go solar — net-metering is here to stay; the tax credit is written in to the tax code through 2020; PG&E rates continue to escalate — holds less weight. Any property owner who is contemplating solar, and wants to ensure they earn the 30% federal tax credit, should act soon. Before it’s too late.

Is there urgency to go solar? The times they are a-changin'

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Over the past few years, we have stressed — STRESSED — to property owners that there is NO urgency to go solar. Here’s a blog post elaborating our perspective on the lack of urgency, and the importance of doing your homework, when evaluating solar.

To quote Bobby Dylan, the times they are a-changin’.

Retrospective

We posited there was no urgency to go solar based on the three-to-four year windows (until expiration) of the 30% federal tax credit and PG&E’s Net-Metering program. Furthermore, solar panel prices eased a bit over the past few years, while PG&E’s rates continued to inflate (22% in 2016; another 8.5% increase this year). The tax credit is locked in, PG&E’s net-metering is galvanized, and the economics of going solar are improving. Take your time, we counseled.

Contemporary perspective

Regardless of your partisanship, solar is in the political cross hairs. Drill baby drill. Climate change is a hoax. Coal is our future. Political chestnuts and hyperbole voiced to rouse the base, but defying logic and economics: Solar is the fastest growing industry in the U.S. (adding jobs at 20x the rate of the economy), and solar has created more jobs than any industry in the country over the past 4-5 years. Furthermore, it’s quite libertarian to enable property owners to create their own energy, hence the bi-partisan extension of the federal tax credit at the end of 2015.

Over the past few months, domestic politics and the macro economy have defied logic and contemporary history:

1. Demand for Tier 1 (investment-grade) solar panels has exploded in China and India, thus constraining supply in the United States (and thereby slighting increasing solar panel prices for the first time).

2. On Friday, the US International Trade Agency (ITC) ruled in favor of two US-based, now insolvent solar panel manufacturers, Suniva and Solar World, agreeing their businesses were harmed due to the supply of lower cost, internationally-manufactured solar panels. The companies are seeking a 40-cent per watt tariff and a floor price of 78 cents per watt on imported solar modules. (In today’s market, such taxes would increase the cost of solar panels by 50-65%, with no viable US-made alternative.) President Trump is expected to issue a final ruling by year’s end. In the interim, large-scale solar project developers are hoarding supply of solar panels, thus increasing the cost (demand > supply) of solar modules for the entire industry.

3. Daily, there are rumblings that a Republican-inspired tax or budget bill will axe the clean energy tax credit, thus dis-incentivizing those who want to transition to clean energy. (Fact: The oil and gas industry receives more than 10X the tax credits/incentives as the clean energy industry. Another fact: Facts don’t matter.)

What to do? We cannot control the macro economy, the president’s actions, or congressional politicking. Instead, we are controlling what we can by securing as many high-quality solar panels as possible, in wake of what’s going on. Prices may increase, tax credits may perish, but solar in PG&E territory will continue to generate attractive, risk-adjusted investment returns. Property owners will continue to transition away from carbon while insulating themselves against future electricity rate increases, most likely with a greater urgency now.

Dylan, circa 1963:

The line it is drawn

The curse it is cast

The slow one now

Will later be fast

As the present now

Will later be past

The order is rapidly fadin’

And the first one now will later be last

For the times they are a-changin’

President-elect Tump + the future of solar

So, it happened. President-elect Donald Trump. The ramifications are yet to be seen, but based on more than one-dozen conversations since the election with prospective solar investors (residential and commercial property owners), a valid concern has been floated: What will happen to the 30% federal solar (renewable energy) tax credit?

First, what we know: Mr. Trump has bemoaned climate change as a “hoax.” He has committed to revitalizing the coal industry and boosting national development of non-clean (read: natural gas and oil) energy sources. And, he has — for selfish reasons, given his on-the-coast golf course in the UK — denounced wind farms. Furthermore, he has floated climate science denier Myron Ebell as a potential director of the Environmental Protection Agency. Clean air, clean water, viable species, and solar tax credits be damned.

But, in my conversations with concerned folk, I’m trying to apply logic and common sense. First, the solar industry has created more jobs in the US over the past five years than any other industry, and it’s the fastest growing sector in the economy -- more than 200,000 patriots are employed in the solar industry. The solar industry is growing 12x faster than the overall economy. Solar creates jobs; republicans like job growth. Second, when property owners opt to invest in and create their own energy, they are exercising their (energy and investment) independence. Who’s to argue with an individual’s right to create their own energy? Decentralization of energy — creation, distribution, investment — is something both sides of the aisle should logically agree with. (Fact: 85% of Americans and 84% of republicans support solar.)

My fear: Uneducated idealism will trump logic, facts, statistics and applied common sense. The reality that the fossil fuels industry receives more than 10x the incentives (tax credits included) of renewable energy will be cast aside by powerful coal and gas industries. 

My hope: Renewable energy (and solar in particular) is a roaring bonfire in our country that ideologues and industrialists can’t stop. Our economy and our environment benefit every time a property owner opts to invest in clean energy. It’s their choice, and it makes sense; if it did not, they would not do it.

The reality: Those of us who believe in and champion clean energy investment cannot simply apply logic and common sense. We will need to fight, use facts, and trumpet the job-percolating, economic-resonating virtues of our profession and passion. Solar is now and it is happening … we cannot allow the momentum to become no-mentum.

SAS: Solar Acronym Soup

All industries are plagued with too many acronyms; the solar industry could top the charts, cluttering myriad technical, utility and financial acronyms into confusing babble-babble. Here are but a few solar sugar plums, from the basic to the sublime:

- BoS: Balance of System (the soft costs — aside from equipment and installation labor — that complete the cost of your solar system).

- CCA/CCE: Community Choice Aggregation/Community Choice Energy (an alternative form of cleaner energy supply … coming to Yolo County in 2017!).

- CPUC: California Public Utilities Commission (the governing/regulatory body that oversees PG&E and other investor-owned utilities in California; aka, friends of solar and consumer choice).

- eV: Electric Vehicle (aka, peanut butter to solar’s jelly).

- GHG: Greenhouse Gas (a [horrible] gas in the atmosphere that absorbs and emits radiation within the thermal infrared range).

- IRR: Internal Rate of Return (the interest rate at which the net present value of all the cash flows [both positive and negative] from your solar investment equal zero).

- ITC: Investment Tax Credit (the 30%, one-time federal tax credit you receive when you own your solar system).

- kW: Kilowatt (1,000 watts of energy).

- kWh: Kilowatt Hour (a measure of electrical energy equivalent to a power consumption of 1,000 watts for 1 hour).

- NEM: Net-Energy Metering (the program/mechanism by which solar system owners are credited for the electricity they generate).

- PTO: Permission to Operate (notification from your utility that your solar system is connected to the grid, thus commencing monetary credits).

- PPA: Power Purchase Agreement (an agreement to purchase electricity generated by a solar system [on your roof] that is owned by a third-party, tax equity fund … aka, a bad deal for homeowners vis-a-vis solar ownership).

- PV: Photovoltaic (PV cells in your solar panels are specialized semiconductor diodes that convert visible light into direct current electricity).

- TOU: Time of Use (a utility rate schedule whereby you are credited [for solar] and debited [for electricity use] based on the time of generation/use).

 

And, finally:

- PG&E: Our favorite utility (though they fight solar at every juncture :)

There is no urgency to go solar, except …

It happens too many times each week: Homeowners relay stories about aggravating and misleading solar sales tactics. Three common examples:

1. I was told I have to go solar now because the tax credit’s gonna expire.

Erroneous. Next time you flip on the radio, there’s a good chance you’ll hear an ad exerting that Uncle Sam’s gonna stop giving away free money. First, not true. Second, nothing’s free. Importantly, the 30% solar tax credit was extended through 2021. The tax credit’s not going away.

2. Sam the solar sales guy said PG&E’s net-metering program is about to go away.

Rubbish. As we’ve shared, on January 28, 2016, the California Public Utilities Commission — against the wish of PG&E — expanded the solar net-metering program. The cap was doubled from 5% (of PG&E’s peak demand energy coming from net-metered solar) to 10%. Net metering is not going away.

3. If I go solar by (fill in the blank with a date), I will get a (fill in the blank with a dollar amount) discount.

Insulting. The money has to come from somewhere — the customer, ya think? — and it’s a common psychological sales tactic to employ discounts (buried in the price you pay) to create urgency. Don’t buy in to it.

RepowerYolo has had the fortune of helping more homeowners in our community invest in solar than any other solar company over the past few years. In so doing, we have not spent a dime on sales, marketing, advertising, etcetera … instead, the savings are passed on to homeowners via our group buy program.

So, there’s no urgency — i.e., soon-to-perish financial incentives -- to go solar? Not necessarily. The urgency we see is very straightforward: Once a homeowner is comfortable with the efficacy and reliability of the solar system, the quality of the installation contractor and their workmanship warranty, and the economics (investment and future energy savings), they proceed. After all — to quote many Repower homeowners — why continue writing checks to PG&E when solar is the right and prudent thing to do?

Frequently Asked Questions About Solar

[Originally posted February 26, 2015]

How much does a solar system cost?

In the first nine months of 2013, the average per-watt cost of residential solar systems installed in Yolo County was $4.90. Through RepowerYolo’s group purchase program, you will receive the same or higher-quality system at a significant discount, generally 15-25% less than average market prices. For example, a typical home will have a 6 kW (DC) system with a turnkey investment of $24,000 (or less). Your system’s size and cost will depend on your home’s energy use and how much of your PG&E bill you would like to offset.

We are able to offer you a significant discount by aggregating the purchasing power of Yolo County residents and, frankly, by significantly reducing sales and marketing expenses (and the profit we generate).

 

Are PG&E’s rates going to increase?

Over the past 30 years, PG&E’s electricity rates have increased an average of 5.7%; individual years were highly unpredictable, ranging from -3% to more than 8%. PG&E recently requested, in its California Public Utilities Commission rate case, an increase of $5.33 billion in rates over the next three years. If PG&E’s request is approved, electricity rates will, on average, increase 18.8% in 2014, and 6% per year in 2015 and 2016. To be conservative, our analysis for your solar system assumes only 3% annual PG&E cost increases.

PG&E puts you in a tough position: They operate a regulated monopoly (as the only provider of electricity), and you have no say over rate increases. Your bill simply increases. However, with solar you will benefit from PG&E rate increases. Generating your own power locks in the rate you pay for the next 25 years … as PG&E increases its rates, your savings magnify.

 

Will solar increase the value of my home?

Yes, if you own (versus lease) your solar system. The National Bureau of Economic Research (NBER) recently released an analysis that found solar panels add between 3 percent and 4 percent to the value of a home. Their conclusion is consistent with a 2013 Lawrence Berkeley National Laboratory study that found solar panels have a “sizeable effect” on home prices.

 

Can I finance my solar system?

Yes. We work with a number of community banks that provide competitive financing alternatives, and we can help you obtain and assess such options. Furthermore, your home may qualify for financing through Clean Energy Yolo PACE financing program. Clean Energy Yolo funds 100% of the solar system costs, with payments collected through your property taxes over a 20-year period. If you sell your home, the benefit of the solar system (along with the responsibility to make property tax payments) transfers to the new owner.

 

What rebates and incentives are available?

You will receive a Federal Investment Tax Credit of 30% of your total system cost – in essence, a 30% discount (since it’s a dollar-for-dollar tax credit) incentive to go solar. The Investment Tax Credit is available through the end of 2016 and may be carried back one year or forward for 20 years.

 

What are the warranties?

The solar panels and power inverter have standard, 10-year warranties. The panels have a 25-year production warranty, guaranteeing power generation.

 

How long will my solar system last?

Most solar systems outlast their 25-year production warranties; many of the first solar systems installed more than 30 years ago are still going strong. 

 

Is it difficult to switch to solar power?

No. Repowering your home with solar is simple and hassle free. We will get your solar system up and running as quickly and smoothly as possible so that you can start saving money and using clean energy. You won't experience any changes or disruptions inside your home. 

 

What determines how well my system generates electricity?

The efficiency of generating electricity is primarily governed by the amount of light (photons) striking your solar panels. Panels facing south and tilted at an angle equal to your latitude yield the best yields. Shade from trees, other obstructions, or even clouds reduce – but do not eliminate – electricity generation. Other factors influencing generation are related to the efficiency of panels, the inverter, and the quality of the installation (wiring, connections, heat-reducing construction). Optimally oriented, high quality, stationary panels and inverters installed with best practices convert 13-18% of sunlight into electricity.

 

How do I benefit from electricity generated but not used immediately, and do I need batteries?

PG&E’s grid acts as your battery. When you produce more than you use, you generate credits that are applied against what you use. You only pay for the power you use.

 

What happens when it’s cloudy, raining or at night?

Under PG&E’s Net Energy Metering program, you receive a credit for every kilowatt hour of electricity your solar system generates. You will maintain connection to PG&E’s grid and will thus continue to draw power from PG&E (regardless of whether your solar system is generating electricity).

 

How long does it take to install my solar system?

From start to finish, the process will take less than one month – our goal is to get your system up and running as quickly as possible. The length of installation depends on the complexity of your roof, the permitting process, and PG&E interconnection.

 

How am I credited for the electricity my system makes?

PG&E’s net-meter, replacing your current meter, will track the power moving both directions – that is, the electricity produced by the system and sent onto the grid and the power drawn from the grid. Every six months, PG&E will “true-up” your electricity use and solar electricity generation. With solar, there is no disruption to your electrical service. The only change is a reduction in your PG&E bill.

 

Should I wait for new technology?

No, now is really the best time to invest in a solar system with the combination of proven technology, reduced solar system costs, ever-increasing PG&E rates, and Federal tax incentives. The underling benefit of turning sunlight into electricity will not change for as long as we still use electricity to power our homes.

 

What about maintenance?

Your solar energy system requires very little maintenance, largely because it has no moving parts. There is no need to wash or dust photovoltaic panels, but it is important to keep them clear of shade and debris to maximize power generation. We suggest you keep an eye on trees that may shade your system and keep them trimmed. Fortunately, the rain serves as a natural cleaning agent, and occasionally you may want to hose down your panels during dry seasons. When you repower your home, you receive one year of free monitoring and maintenance to ensure your solar system is operating at peak efficiency.