I’m updating this diary to add the video of Jamie Eldrige’s remarks at Kate Donaghue’s place in Westboro, showing off her new solar panels:
For the purpose of this post, we’ll use a typical residential solar power system, which consists of 22 solar panels generating 230 watts of DC power each (total installed capacity is 5,060 watts, or 5.06 kW), one 5 kilowatt inverter (converts DC power to household AC) and an online monitoring system. The entire system is costed on a price per watt basis, usually between $6.00 and $7.00 per watt, so we’ll use $6.50 per watt for our example. System cost will be $32,890.00 (5,060 watts x $6.50 per watt) plus $1,000.00 for the monitoring system, for a total cost of $33,890.00.
Next, to calculate the payback period and return on investment, we’ll start with the rebates available from Commonwealth Solar, a program managed by a public/private partnership, the Massachusetts Clean Energy Center. On a quarterly basis, the Clean Energy Center releases funds for rebates to Massachusetts utility customers – once the funds are used up, the program closes until the next quarter. The funds from Q4 2010 ran out in mid-November, so the current round has been closed since then. Around mid-January, the next round will open – there are three rebates available:
1.) The base rebate for the next block is $0.75 per watt of installed capacity, up to 5,000 watts, for a maximum of $3,750.00 ($0.75 x 5,000 = $3,750). Installed capacity is the number of watts your system will produce under ideal conditions, e.g. a system employing 22 panels rated at 230 watts each would have an installed capacity of 5,060 watts (22 x 230 = 5,060).2.) Using components manufactured in Massachusetts will earn another rebate of $0.10 per watt of installed capacity, up to 5,000 watts, for a maximum of $500.00 ($.010 x 5,000 = $500). We typically use an inverter made by Solectria Renewables LLC – based in Lawrence, MA, their inverters qualify our customers for this second rebate.
3.) The Moderate Home Value/Moderate Income Adder rebate is the third rebate available from the CEC – this is the most generous of the rebates at $0.85 per watt of installed capacity, up to 5,000 watts, for a maximum of $4,250.00 ($0.85 x 5,000 = $4,250). Home values are set by county as follows:
County Home Value Berkshire, Franklin, Hampden, and Hampshire ≤ $300,000 Bristol, Suffolk, and Worcester ≤ $350,000 Barnstable, Duke, Essex, Middlesex,
Nantucket, Norfolk, and Plymouth≤ $400,000 If the system owner doesn’t qualify for the moderate home value adder, they may qualify for the moderate income adder – single income households making less than $75,810 or multiple income households making less than $95,420 will qualify for this rebate. System owners may qualify for either the moderate home value adder, or the moderate income adder, but they are not allowed to get both.
Assuming the system owner qualifies for all three rebates from the CEC, we’ll subtract $8,500.00 from the original price of $33,890.00, bringing our new total to $25,490.00. Since the rebates are paid directly to the installer, this is the amount of cash the system owner must pay for their system. Federal and state tax incentives now kick in on this amount – there’s a 30% federal tax credit with no upper cap, and a 15% state tax credit with an upper cap of $1,000.00. 30% of $25,490.00 is $7,647.00, and the system owner will max out their state tax credit at $1,000.00, for a total tax credit of $8,647.00, bringing our system cost down to $16,843.00. Between rebates and tax credits, a little over 50% of the total system cost has been paid back to the system owner in the first year!
Now, how quickly can the system owner recoup that $16,843.00? There are two ways this money is paid back: avoided cost of electricity, and sales of Solar Renewable Energy Certificates, or SRECs. We can estimate how much electricity the system will produce, based on the direction the panels are facing and the angle of the roof where they are mounted. A 5 kW system like the one we’ve been discussing will typically produce between 5 and 6 megawatthours of electricity per year, reducing the system owner’s electrical bill by $600 to $700 annually.
However, SRECs are the key to the shortened payback period – the system owner will earn one SREC for each megawatthour of power produced, so they’ll usually get between 5 and 6 SRECs per year. SRECs are “minted” by unbundling the power from the manner in which it was produced – the power has been consumed by the system owner, but the fact that it was generated by solar panels can still be sold to utilities on the SREC market. Utilities purchase SRECs and retire them in order to satisfy the renewable portion of their energy portfolio. Right now, there’s an excess of demand for SRECs – the utilities want more of them than there are available, so they are trading at a high price. By law, there’s a floor price of $300 per SREC, and a ceiling price of $600. A recent SREC sale brought in $538 per SREC – after paying a 5% commission to the aggregating company (who sold the SRECs to the utility), system owners received $511 per SREC.
So a system owner can expect to save between $600 and $700 annually on their electrical bill, and they can expect an income of somewhere between $2,500 and $3,000 annually from SREC sales. Somewhere between $3,100 and $3,700 per year will wipe out the remaining investment in 4 to 5 years, after which the system owner will get a small income stream from the sale of SRECs.
Over time, we expect electricity rates to rise, so the savings will become more significant – at the same time, we expect SRECs to drop in price as more become available, and SRECs are only available to the system owner for the first ten years of ownership. There may be tax implications to the CEC rebates and the SREC sales, so we encourage our customers to discuss this with a tax attorney or accountant.
I’ll be around to answer questions in the comments – if anyone wants a free site analysis, email me here: jtehan@sgegroup.com
Thanks for reading!
Believe it or not, no one’s ever called me a wonk before – I’ve been called lots of things, especially by my ex-wife, but wonk is a new one!
John,
thanks so much for posting a discussion of this important topic. Here is a PDF of outgoing Secretary of Energy and Environmental Affairs Ian Bowles comments to the “restructuring round table”. The entire 11 pages are worth a read, but here is the best news about solar (from pages 3 and 4 of the secretary’s remarks).
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p>Ben Wright
Environment Massachusetts
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p>p.s. LONG time lurker, hope to become more a part of the discussion.
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I know it’s a big leap to begin participating – I lurked for quite a while before I dove in! Thanks for the PDF, I’m off to a meeting of Metrowest Democrats, will check it out later.
I just read the whole thing – inspirational! I highly recommend it to anyone reading this thread.
Also, I am going to “shout” this one on facebook & Tweeter.
I hadn’t thought to use Facebook – duh! Email me any time, talk soon!
John, funny you should mention this. I don’t know if you saw my Facebook post this AM, but I decided to post the video made at the fundraiser that I did for Jamie Eldridge. The details of my installation were posted on BMG. The story has the details but John put me in touch with Mark Durrenberger’s company. Mark is a friend through Dem politics and also blogs on BMG. My husband had picked him as our first choice before we realized that the owner was a friend of mine.
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p>Here’s the video of Jamie and the installation. There are a number of BMGers in the video, but at least one is not out.
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p>My plan had been to write a post and embed the video, but since you’re on the front page, I thought that I would add this comment now. Never had to embed video before. I’ll leave that for another day.
I had a 5.5kW system put in just a couple of months ago, and the rebate for ‘moderate’-valued homes then was $10,500, which I got (actually, the installer got it). Homes assessed at more than the county median got $5,500. Did that rebate expire?
…for the next round of rebates, yes. The CEC hopes to fund more projects for the same amount of money this way.
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p>And it’s not as bad as it looks on its face, since a $2,000 reduction in the rebate amount means you get $600 more from the federal tax credit, for a net loss of $1,400 in the rebate. At the end of the day, the project still pays for itself quickly.
Or a swimming pool?
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p>It’s good that there are tax incentives and rebates to make solar (and wind) competitive with gas, coal, and nuclear generated electricity, which got absolutely, positively no significant tax incentives from the government ever in all of history but made it to the marketplace based upon pure free market economics.
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p>Lots of reasons to go solar and only some of them are purely economic.
Yes, there’s plenty of reasons other than economic – but note the title of this post!
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p>You might want to add a snark tag to your comment, or some of our differently winged brethren might mistake you for one of their own…
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p>I don’t plan to leave my current home, but if I change my mind, I’d bet the solar array would be a big selling point.
…and by law, it’s exempt from property tax assessment for the first 20 years it’s in service! Exempt from taxes? Even our differently winged brethren have to love that…
Like the trained pony that I am, I immediately went off to find cites of “significant tax incentives from the government” to support a scathing response to your comment — such as the 2006 Coal Tax Credit Program:
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p>Excellent snark, you caught me hook, line and sinker.
While I am not aware of any government incentives aimed at consumers, the gas, coal and nuclear industries have gotten many incentives from the Government over time. For instance, does anyone believe that the Federal Government has gotten full value out of the various mining and drilling leases it has issued for public lands?
Great post, and a few comments:
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p>- First, I think the savings of $600-$700/year are a bit low for a 5kW system; my understanding is that electric rates are typically around 15 cents per kWh for residential use, so I’d put the savings more like $600-$900 a year. But that depends on what the utility’s net metering policies are; I’m only familiar with those of my own municipal utility’s.
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p>- I think payback period isn’t always a very captivating way to describe the economics. How about this: Benefits of the described system are $600-$900 a year (and those savings are tax-free vs., say, incremental income), and income of $2.5-3.0k/year (which may be taxable income; I don’t know). So, as the post summarizes, the benefits are in the $3k+ range.
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p>Say you finance the $17k system cost with a loan. Say you borrow at 7% (high these days) and finance it over 10 years (so it corresponds with the SREC duration). Annual loan payments would be about $2400.
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p>In other words, you’d be cash-flow positive from day 1. When the SREC income goes away, so do the loan payment, so you can coast cash-flow positive for another 10-15 years.
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p>- The critic will ask why the hell the taxpayer and other ratepayers (who end up footing the bill for SRECs) should be footing the bill for relatively expensive electricity. For me, the main answer is this (lifted from the 1366 Technologies website):
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p>The experience curve for solar is pretty robust. As the cumulative production of PV increases, costs decrease. The reasons why are many (Greg Nemet does good research on this), but the point is the faster we get down the curve, the sooner we get to the point where PV is cheap enough that mass (unsubsidized) adoption takes off.
…until it becomes self-sustaining. Given that we still give massive subsidies for exploration and mining/drilling to gas, oil and coal companies, no one should complain about subsidies for solar.
The company handling my SRECs needed my information so they can generate 1099s. That says to me that I’m going to be taxed for them.
…while the system is still being paid off, since you have an investment with which to offset the income. I’m not certain of that, which is why I urge my clients to consult an accountant or tax attorney about taxation issues, for SRECs and the CEC rebates.
The government can significantly accelerate this process by imposing a floor on the end-user BTU price of non-renewable energy sources, expressed as federal consumption taxes on gasoline, oil, and coal.
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p>Such a floor would provide funding for the massive investments needed to develop and deploy clean alternatives, while simultaneously providing the long-term price stability needed to justify those enormous and long-term investments in the private sector.
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p>Such a floor would reduce the impact on Americans by spreading it across a broad base. As painful as it will be, this impact is far less than the catastrophic results of continuing to simply consume these resources until they literally run out.
Syphax,
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p>In and ideal Massachusetts site, a 5000 watt solar array will make about 6,100 kilowatt-hours per year (System size in watts times 1.22). Actual sites typically produce less than this because of panel angle, azimuth (Compass heading) and Shade.
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p>To receive the Commonwealth solar grant, your system must produce 80% of the ideal site or at least 4880 kilowatt-hours per year (system size in watts times 0.976) Prior to installation, we are able to estimate site production with great accuracy using some pretty nifty tools).
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p>Assuming you have a “worst case” site (80%), in National Grid territory, that’s about $732 per year ($0.15/kwh). In NStar territory, that’s $927 per year ($0.19).
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p>The vast majority of our installations are above 90%
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p>The SRECs are MORE valuable than the electricity savings. Our customers are received ~$0.54 per kwh in their most recent trades. Naturally, this number will change as more solar comes on line and the states requirement for solar production escalate. While the numbers are hard to predict, our SREC buyers say that they should trade relatively high for the first 2-3 years.
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p>The floor price for SRECs is approximately $0.27 (still 80% above the electricity value!)
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p>Mark Durrenberger
President
New England Breeze Solar
I was wondering how much cash is attached to these SRECs. Turns out that in MA, one SREC is worth $500 to the owner of the solar array (me, for instance). What is one SREC? It’s 1,000 kW hours of generated power, and a 5 kW system can generate 6 kWh in a year. So – a 5 kW system is worth $3000 in SRECS to its owner.
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p>Explained here.
Potentially worth $3000 in SRECS to its owner, I should have said. Obviously, YMMV, due to non-ideal siting and other factors.