INCENTIVES AND SOLAR

A turning point in the solar energy industry: Short-term, limited tax credits are expiring and long-term, expanded tax credits begin January 1, 2009.

In Arizona, solar system installers are struggling through the transition as buyers wait for this year’s credits to expire.

In California, the idea of incentives inspired a buyer’s desires.

Susan Carpenter, L.A. Times writer: “…in this fragile and declining housing market, I won't be buying a different home any time soon. I want to make the most of the property I've got. I want to turn it into the most efficient, self-sustaining and worry-free space I possibly can…To do that, part of my plan was to go solar…the incentives today have never been more alluring. Through a combination of federal, state and city programs, many California residents are eligible to recoup as much as 75% of their solar installation costs, which average about $35,000 to $40,000.”

The temporary Arizona downturn exemplifies the problem with short-term incentives. Congress passed the new incentives after fighting over them for 18 months. Until they slipped through with the financial bailout package, they were expected to expire. Now, waiting out the transition is hurting the solar industry and people who thought they were being wise buying solar systems before the old credits expired are angry.

The new tax credit eliminates the previous $2,000 cap, covers 30% of the system cost and runs through 2016.

An Arizona resident that installed a $38,000 system this year got incentives from the state and Arizona Public Service Co. worth more than $18,000, and the maximum federal tax credit of $2,000. In 2009, the federal credit on the same system will be $11,400, cutting the out-of-pocket expense from $18,000 to $8,600.

Hurrying to take advantage of incentives that will decline as more Californians take advantage of the state’s Million Solar Roofs subsidy, Susan Carpenter found the old tax credit, even with the state program, disappointing.

Carpenter, on her use of the California Public Utility Commission calculator: “After typing in my ZIP Code (90042), the site instantly spat out the size (5,034 kilowatt hours per year) and net cost of the system it thought I would need…The calculator allowed me to correct some of the assumptions it had made…Typing in the specifics about how much I actually spend for electricity per month (less than $20), the size of the system I actually needed and how I intended to pay for my system (half cash, half loan), I learned it would take me 55.4 years for my investment to pay off…”

This constitutes a disincentive to efficiency and conservation.

Carpenter: “I'm an extremely low user of energy. While the average Los Angeles household uses about 17 kilowatt hours of electricity per day, I use about four. I'm just one of those maniacs who's swapped out all my incandescent light bulbs for compact fluorescents and bought the Energy Star appliances. I air-dry my laundry and turn off lights and unplug my TV, cellphone charger and other electronics even after I've switched the power settings to off.”

Carpenter discovered other obstacles to installation, including discouraging amounts of paperwork, long waiting periods for multiple approvals and siting issues that make many homes bad bets for solar energy. (Her roof is not south facing and trees shade it.) Multiple estimates showed a system would be unaffordable for Carpenter.

The good news: (1) Other people are installing solar panels, creating economies of scale and bringing down the price of solar for everyone; (2) more affordable technologies and finance plans are coming; and (3) the utilities are developing financing programs.

Footnote: Californians need to double check Carpenter’s discouraging report. She admitted her 55-year payoff period might be significantly shortened with the new 30% tax credit stripped of the $2,000 cap. And a solar system would be much more practical for the average energy hog or a family of energy hogs.

Finally: There really is very little doubt, despite temporary turmoil in Arizona and one idiosyncratic writer's experience in LA, that solar energy is on a course to affordability.

In another decade, a discussion about the cost of a home solar system will be as nonsensical as a discussion today about the cost of a home electrical system.

New technologies will bring costs down. (click to enlarge)

Home solar energy systems on hold for better incentives
Ryan Randazzo, November 1, 2008 (Arizona Republic via USA Today)
and
Solar power incentives make it easier to switch
Susan Carpenter, November 1, 2008 (LA Times)

WHO
PerfectPower Inc., solar system installer (Matt Kelly, sales engineer); Dru Bacon, 2008 solar system pyurchaser, Goodyear, Ariz.; Sun Systems Inc., solar hot water heater seller (Tom Bohner, President); Southwest Windpower Inc., small wind turbine seller (Miriam Robbins, marketing manager);Susan Carpenter, writer, L.A. Times; Los Angeles Department of Water and Power (LA DWP), the biggest Southern California utility

WHAT
New solar system incentives are creating some short term problems in the solar industry but the old incentives were inadequate for some who aspire to own systems.

Cost parity is still a few years away. (click to enlarge)

WHEN
- January 1, 2009: The new federal tax credits begin.
- LA DWP will implement a new fee structure in summer 2009 and projects electricity prices to rise about 9% for the year.
- Despite problems like those described, New Energy is expected to generated 35% of L.A. electricity by 2020

WHERE
- PerfectPower Inc. is in Scottsdale, Ariz.
- Sun Systems Inc. is in Phoenix.
- Southwest Windpower Inc. is in Flagstaff.
- In California, the federal tax credit is supplemented by rebates from municipal utilities required by the 2007 Million Solar Roofs law.

WHY
- The new tax credit will cut $7,000+ more from the cost of a solar system. It will cut $4,000 more from the cost of a household wind turbine.
- PerfectPower Inc. has already heard from customers with pending projects who want to push them into next year to get bigger tax credits.
- The new tax credit is not different for solar water heaters ($2,000 cap), which cost less than $6,500.
- The small wind turbine market is expected to grow as a result of the bigger tax credit.
- LA DWP leads all utilities in solar capacity but LA gets less than 1% of its electricity from solar power. 44% of LA's electricity comes from coal.
- The CPUC website is an excellent resource. It provides a database of registered installers who can be searched by name, area code, city or ZIP Code.
- LA DWP pays ~ 35% of the cost of a residential solar-power installation via rebates. A typical system (6,800 kilowatt-hours/year) would return $17,000. The same system would earn a $14,000 rebate from the Pasadena Water & Power Solar Initiative. Southern California Edison – a $8,800 rebate.
- Some of investor-owned utilities are covered through the California Public Utility Commission's California Solar Initiative.

click to enlarge

QUOTES
- Dru Bacon, 2008 solar system pyurchaser, Goodyear, Ariz.: "People I influenced to do it in '08 are probably a little discouraged in me…But the credit could have gone away, and it looked like it was going to. I think what spurred it was the financial disaster we are all living through."
- Matt Kelly, sales engineer, PerfectPower Inc.: "We've notified our customers, and given them that option…There were some folks where it was already in place, and everybody opted to wait to have their system turned on."
- Tom Bohner, President, Sun Systems Inc.: "On one hand, I'm kind of glad the cap did not get raised…The current cap allows me to sell a water heater in the mid-$6,000 range and get the full credit. If they raised the cap, I guarantee some fly-by-nights would be in here selling $9,000 and $10,000 systems."
- Miriam Robbins, marketing manager, Southwest Windpower Inc.: "This is a first for wind projects under 100 kilowatts…Suddenly, wind is becoming more mainstream just like solar because there are a lot more systems available to the average consumer."
- LA Times: “I was hoping to be convinced to Do the Right Thing, if only from a purely environmental standpoint, but both installers confirmed that solar just wasn't in the cards for me.”