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
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: firstname.lastname@example.org
Thanks for reading!