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Where does solar power make financial sense?

If someone asked you to guess which states had the most solar power installed in the country, would you know where to start? I’d bet you’d probably think about California, but… then what? Where else in the country is sunny and warm? Arizona, New Mexico, Texas, Florida, Louisiana, or Utah? Interestingly, if you were to have guess any of these states aside from California, you wouldn’t even be in the top five of installed solar. Take a look below:

To make solar power a reasonable investment, you’ve got to have the right mix of incentives, electric rates and climate. That’s why states like New Jersey are on this list. It isn’t particularly sunny there, but the legislature got its act together and passed some very progressive solar legislation. Most people I speak with in Oregon ask the same types of questions of me when I discuss options for solar in the state.

Something like this is typical:

PORTLANDER: “Dan, is solar power really suited well to this type of climate? I mean, it is so rainy in here”

DAN: “Actually, there’s more sun here than there is in Germany. We’ve got very sunny summers that make up for the relatively dreary winter”

PORTLANDER: “Why should I care about Germany?”

DAN: “There’s more solar installed per capita in Germany than anywhere else in the world.”

PORTLANDER: “Really? Huh. I didn’t know that. Why would they install so much solar there?”

DAN: “They had a very aggressive feed-in tariff program which created a solar boom over the past 15 years.”

PORTLANDER: “Feed-in tariff?”

DAN: “Yeah, click on the link of the words I just spoke and learn all about how that works”

PORTLANDER: “I can click on the words you’re saying right now?”

DAN: “Sure you can click on any of them, but only those highlighted in green will actually take you to where you want to go”

PORTLANDER: “That’s amazing”

DAN: “Anyways, you’ve heard of that giant solar company that just moved into Hillsboro, right?”

PORTLANDER: “Yeah.. Solar-something? Solar World.”

DAN: “Right. Solar World. German company. One of the reasons they got moving was that German feed-in tariff. Now, they’re building panels in our backyard and sending the profits back home.”

PORTLANDER: “Wow, no kidding.”

DAN: “Solar makes sense in Oregon because the legislature recently approved of incentives and tax credits to shorten the payback period enough for the investment to make sense.”

PORTLANDER: “Really? So, let’s say I have a 3000 square foot home, and..”

DAN: “Hang on there.”

PORTLANDER: “What?”

DAN: “Well, it really doesn’t matter how big your home is. It’s more about how much energy you use. I’ve seen people with really big houses who look at art on their walls all day, and others who live in small houses, but have 3 TVs on and run power tools the majority of the day.”

PORTLANDER: “Oh, that makes sense. Well, generally then, how much usage would the typical home be able to offset with solar panels and when will my investment pay for itself?”

DAN: “Well, we find a typical Oregon home uses about 900 kilowatt hours per month. That translates into roughly a eighty dollar monthly power bill. At the sweet spot of the Oregon incentives is about a 3 kilowatt system, since there is a residential tax credit cap of $6,000 per year. That will knock out about $40 of your power bill each month. Typical installs are for about 9 dollars a watt, so you’re looking at an initial cost of somewhere around $27,000.”

PORTLANDER: “Whoa. Wait… I’m gonna pay $27,000 for a solar system that knocks out only forty bucks off of my monthly bill? Why would I do that? I mean, I might move in a few years maybe… Sure it’s the right thing for the environment, and they look sexy, but really?”

DAN: “Consider the incentives here though. You’ve got an initial cost of $27,000, but the Energy Trust of Oregon kicks in $2.25 per watt if you’re a PGE customer. That amounts to 3,000 watts multiplied by $2.25 and you’re looking now at paying $6,750 less out of pocket. Your installer will probably float that for you, which is smart cause that big check is considered taxable income and you don’t want to worry about that. It also puts the onus on the installer to do a good job because the Energy Trust comes out, does a very intensive inspection before they release the funds.”

PORTLANDER: “Ok, that’s looking a little better, but come on Dan. $20,000 is still a lot of money”

DAN: “True. But now let’s take a look at the State Residential Energy Tax Credit which is 3 dollars per watt capped at $6,000. So, since we’re considering a 3,000 watt system, we’d be in line to max out that cap. You can take the credit for $1,500 a year for 4 years. Now we’re down to $14,000.

PORTLANDER: “Better, but still a lot of money Dan.”

DAN: “Ok, and there’s the 30% federal tax credit in place as well. So, that’s 30% of $27,000… which is $8,100. That can be taken all at once if you have that much tax liability, or it can be flexed out over many years. Now we’re at $5,900 net cost after 4 years.

PORTLANDER: “This is looking a lot more interesting”

DAN: “Yeah, it is isn’t it? But I haven’t gotten to one of the best parts.”

PORTLANDER: “What’s that?”

DAN: “Well, consider you have just installed a $27,000 system on your home. Your property value will increase the minute your panels get tied back into the grid.”

PORTLANDER: “Oh, right. I forgot about that, though that’s a given.”

DAN: “Well, the figure is twenty times your annual electricity savings.”

PORTLANDER: “Why twenty times? That seems high.”

DAN: “I think it’s actually a little conservative”

PORTLANDER: “Why?”

DAN: “Your panels are guaranteed to be producing at at least 80% of their capacity at year 25. In actuality, they’ll be working for 40 to 50 years. However, your utility prices aren’t going anywhere but up. The 20x multiplier doesn’t even take that into account. The more your electric rates go up, the more valuable your investment becomes because you’re offsetting that much more power with your own power. Regardless, let’s go back to our example.”

PORTLANDER: “Ok.”

DAN: “$40 monthly savings times 12 months in a year, and that equals $480 dollars saved annually. Now, multiply that by 20 and we’re at $9,600. So, your property will increase in value by roughly $10,000 and that’s a tax free property value increase.”

PORTLANDER: “It is?”

DAN: “Yep. So, remember after year 4 you’re at a cost of $5,900, but we didn’t account for your property value increase of $10,000. Now, you’re ahead at year 4.”

PORTLANDER: “I suppose that’s worth considering”

DAN: “Absolutely it’s worth considering! We can even help you get special financing for this so you don’t have to go through with this large expense all at once.”

PORTLANDER: “How?”

DAN: “Fill out our form and we’ll start the process of hooking you up”.

PORTLANDER: “Oh, those words are in green. Thanks!”

DAN: “Even if you’re in another state, we’ve got friends nationwide who can break all this down for you and explain how things work. Just request to be connected with our solar experts!”

Last modified: June 4, 2018

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8 thoughts on “Where does solar power make financial sense?

  1. Anonymous says:

    In the first few sentences explains it all for me. I have been looking into solar energy for my home but can not justify the financing or parting of $30k. I could invest my $30k and have better retruns then break even. To quote “To make solar power a reasonable investment, you’ve got to have the right mix of incentives, electric rates and climate.” If your product needs to be subsidised by the govenrment to become relevant, then it is not relavent at all. Daily here in Southern California we are bombarded with solar sales teams knocking on the doors. The only people who make out are the solar companies. Does my bill go down? Sure it does, but it is offset by the new financing that was offered, or, I wll have to wait 20 years to get my money back. Let me get this right..the solar company takes our government money and puts it in their abank accounts, while I pay on a loan to save a few bucks? In the meantime I have to look at solar panels as I lounge by my pool! Retrofitting a home without government welfare makes no sense, and to take government welfare to sell a product seems a little shady to me. The solar panels do not make sense in California or anywhere else. The systems cost about $7,000 to run my 4,000 sq ft home, however I am being quoted in excess of $30k! Sure I get a 20 year warranty on the panles and a 5-10 year on the remaining equipment but in the meantime I save little money and now have to maintane solar equipment. When the loan is paid off I am left with outdated underperforming old solar panels that have be outdated fo some years and I will need to start all over again. How does this make sense at all? I really want to save money but I do not want to givve my money to greedy solar company, nor do I believe in the government assisted BS. To close, energy companies produce energy, so why are they so excited to rebate money on a product that takes sales from their bottom line? It is because everytime there is a rebate given, energy companies can increase their PPkw, which is why we are always getting our rates hiked. Furthermore, once there is a number of homes with solar panels, energy companies will be able to limit the amount of energy we sell back to the grid. Other than feeling good about the environment (which solar panels create a lot of greenhouse gases during production and shipment from China), I see no benefit YET. It is a good idea but it has a long way to go to be a real solution to anything.

  2. CelticSolar says:

    Murray,

    Would you agree that the math in the original blog entry is “Double Dipping” and should be corrected?

  3. Murray says:

    Sorry to report but the rules being drafted by the IRS will instruct you to subtract state and local rebates and credits before computing your federal tax credit. To not do this is what the IRS refers to as “Double Dipping” and the draft of the regulations which I saw were drafted to prevent this, so your comment is without merit. Enjoy the benefits of your Solar system as ETO actions will have no impact upon your final Federal Tax Credit.

  4. CelticSolar says:

    When I had my PV system installed, I called the Energy Trust of Oregon (ETO) and told them I did not like the way their incentive worked. Yes, they were paying thousands of dollars toward my PV system and I was complaining.

    The Energy Trust pays the contractor (rather than the home owner). This reduces the price I (the home owner) pays, but it also means that it reduces the amount of the federal incentive, since that incentive is 30% of my upfront cost.

    Why have a state incentive that reduces the amount of the federal incentive?

    The example above says that the federal incentive is 30% of $27000 = $8100. It really is 30% of YOUR COST $(27000 – 6750) or 30% of $20250 = $6070.

    If the ETO payed the home owner (rather than the installer) then the home owner would get the full federal incentive. In this example, the federal incentive was reduced by over $2000.

    The ETO’s justification was that they want to ensure that the contractors address issues that the ETO finds in their inspections and withholding that check makes the contractors listen. Maybe they should find another way to do that without increasing the system’s cost.

    One other thing, the installer does not have the option on the “float”. If you qualify and apply for the ETO incentive, they cannot (by OR law) charge you for the portion of the system that is being paid for by the ETO. So your contract automatically becomes a 3-way contract. The ETO agrees to pay their portion, the contractor agrees to pass the ETO inspection, and you agree that the ETO gets all the rights to your PV system’s RECs (green tags) after the first 5 years. That last bit is another can of worms for another day.

  5. Dan Hahn says:

    Hi John,

    By “float”, I mean the installer takes the amount of the expected rebate off of your invoice. They do not get paid that amount until the Energy Trust approves the installation. The rebate comes back to the installer instead of you, but your upfront cost is reduced by the amount of the rebate.

    Let’s pretend you’re about to buy a TV from me for $699. However, after a rebate, you can get it for $499. As the store, I would say, listen John, I’ll float that $200 for you, so just pay $499 now and I’ll do all the necessary paperwork to get the rebate, you don’t worry about anything.

    Most TV manufacturers wouldn’t like this very much because there’s a good chance the store will fill out all that paperwork, whereas consumers aren’t as likely to.

  6. john hillock says:

    what do you mean by float

  7. Dan Hahn says:

    Tom,

    That depends on your installer’s willingness to float any state or local rebate for you – thereby reducing your total out of pocket expense to the installer by the stated rebate amount.

    If the installer doesn’t float any state or local rebate for you, you qualify for 30% off the cost of the system for the FITC.

  8. Tom K says:

    My understanding is that the FITC can be taken on the NET amount after any state or local incentives are deducted from the full retail cost of installation.

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