Washington’s solar policy attempts to spur on local manufacturers
If you’ve checked out our Washington state page recently, you’ve noticed that there’s a lot going on with those state Renewable Energy Credits (“REC/RECs”). Inverters and modules and multipliers – oh my! I’m a curious guy, and I do love me some solar power, so I decided to crunch a few numbers, chat with a few folks in the know, and see what’s up with all these various REC payment plans.
First the basics: Washington’s REC program will pay you for every kilowatt-hour (“kwh”) of solar energy you produce. The base pay rate starts at $0.15/kwh. If your solar system uses modules produced in the state of Washington, you qualify for a multiplier of 2.4 to the pay rate, or $0.36/kwh of solar energy produced. If your system’s inverter was manufactured in Washington, you qualify for a multiplier of 1.2, or $0.18/kwh. If both your inverter and modules are manufactured in Washington the multipliers combine for a maximum rate of $0.54/kwh. Payments are capped at a maximum of $5,000 per year.
$0.54 is a whole lot better than $0.15. There’s a catch though. Solar modules and inverters manufactured in Washington will cost you more than equivalent modules and inverters manufactured in say, China. We support local business, but we also support solar power, and getting off of fossil fuels. So frankly we’re in favor of whatever setup gets customers the best deals, and encourages the most people to switch to solar power.
But what setup is that, exactly?
Let’s crunch those numbers. I looked first at a system using the same setup that we have on most of the state pages – a 5 kilowatt system using the average market price of about $5.00/watt.
5kW Example Return on Investment –
Market Price Equipment
As you can see, it’s not a pretty picture. With no state rebate or tax credit to help offset the starting cost and only minimal $0.15/kwh REC payments, you’re relying almost entirely on the federal tax credit to reduce your upfront costs. That leaves you paying more than $16,000 in the first year.
Up front costs are high, REC payments are low, and bill savings are low because all that fossil fuel-based electricity is cheaper in Washington than almost anywhere else. That’s pretty much the perfect trifecta of bad if you want to encourage people to switch to renewable energy.
Payback timeframe is accordingly slow at an abysmal 18 years, and profits are likewise paltry over the 25-year time frame that most solar panels are under warranty for.
Hoping for better results, I looked next at a 5kw system using Washing equipment. I called a few local installers to get quotes; those installers told me that you should expect to pay about $7.50/watt for this system. You’re paying about 50% more upfront, but you’re getting almost 4 times the REC payments. How’s that all work out?
5kW Example Return on Investment –
OK. That’s a little better, but it’s still far from great … or even good really. We start out at $37,500, but we get a bigger REC payment and a bigger federal tax credit to offset a higher percentage of costs in year one, giving us a larger initial discount ($13,592 on the locally made system vs. $8,458 on the market price system) but also a larger year one cost ($23,908 local vs. $16,542 market). Those larger REC payments continue, shortening the payback timeframe to 15 years; 3 years less than our market-priced system. The shorter payback timeframe gives us a few more years of profits, raising our 25-year return to $11,123.
So what’s the better option? It really depends on your circumstances and your priorities. If you want or need smaller upfront costs, cheaper import panels will deliver it at the price of lower long-term returns. If you can afford the year 1 hit, the locally made system is clearly the better long-term investment.
If you buy local you are also encouraging the Washington solar industry, and that’s good for solar, not just the industry. One of the expert installers I spoke with told me that until recently he was charging more than $8.00/watt for solar systems with Washington-made equipment. Seems there was only one Washington manufacturer that had a monopoly on the market for those REC multipliers (lucky them). Some competition has recently sprung up and prices are starting to come down. They’re already down to $7.50/watt. That may not seem like a lot, but watts are pretty small, so it adds up.
As competition picks up prices will continue to decrease and your savings will go up:
|Price Per Watt||Cost After Year 1||Payback Timeframe||25-Year Profit|
Obviously it will take time for Washington equipment to come all the way down to market prices, but as you can see, even a couple more ticks down in price means big returns for your wallet.
What does this all add up to for you? Well, a couple of things. First off, even with the rest of the state’s renewable energy policies in shambles, a solar power system manages to pay for itself within the standard panel warranty period – regardless of whether you go local or market-priced. And oh yeah, it does so while quietly helping save the planet.
Second, if you’re scared off by the big upfront costs, or you just don’t want to wait all those years for the payback, you still need to keep an eye on the situation. As local competition drives prices down those $0.54 state RECS are going to make a solar power system too good of a deal to ignore.
If you still have questions about installing a solar power system, or what we like to call “saving money and the planet” -go check out our Washington page.
It will give you an overview some of the other issues in Washington’s solar scene. If you still have questions after that, feel free to ask them there, or here – wherever really. But your best bet would be to get one of our free solar quotes (or two, or three, or four … we said free, right?), and one of our expert partners on the ground can answer every question that brain of yours can spin up.
Last modified: February 28, 2018