Currently, the synergies of three factors—low panel prices, state rebates, and federal incentives—make going solar power systems a true capital investment. The conservative estimates project an unparalleled rate of return for many businesses.
Today, the price of solar panels is one quarter of what it was in 2008. Technological improvements coupled with generous global incentive packages enabled solar panel manufacturing capacity to increase and as a result have driven down the cost of installing these systems.
In 2006, the California Public Utilities Commission began the California Solar Initiative, providing more than three billion dollars in incentives in the form of rebates for renewable energy projects. Southern California Edison’s rebates for commercial solar projects is currently five cents a kilowatt hour, meaning businesses that install solar will be paid five cents for every kilowatt its solar system produces every hour. Over five years, a business can earn up to $35,000 from a one hundred kilowatt solar system.
The United States Department of Treasury administers a renewable energy grant program that began as part of the American Recovery and Reinvestment Act of 2009. When signed into law, the program was only supposed to last one year but was extended through 2011. For solar installations, the grant is equal to thirty percent of the system’s cost and solar system owners will get this amount regardless of their earnings and tax bill.
The Treasury Department’s renewable energy grant will become a tax credit on January 1st, 2012.
“With the credit, companies can’t reduce their tax liability by more than the value of their tax liability,” says Geoff Tomlinson CEO of Vaha Sustainable Energy. “While the grant will pay the full 30% of cost regardless of how much is owed in taxes.”
For a hundred kilowatt system that normally costs $450,000, the renewable energy tax grant expiring at the end of this year pays $135,000 to the buyer upon completion of the project—saving businesses thirty percent of the initial payment on a solar installation.
The Treasury Department also implements a one hundred percent depreciation rate for renewable energy projects after one year. The blended depreciations free businesses of $184,500 in taxes they would otherwise pay on a one hundred kilowatt solar system.
Low panel prices, state utility rebates, the federal tax grant and the one hundred percent depreciation rate cuts the cost of a one hundred kilowatt solar system from $450,000 to $107,750—only twenty percent of the original price. A one hundred kilowatt solar system can eliminate forty-five to fifty percent of a small to mid-size business’ electrical usage, which can save them around twenty thousand dollars in the system’s first year.
At a return-on-investment (ROI) rate of around twenty percent a year, the system’s full payback comes four years after purchase.
The United States installed 582.3 mega watts of new, grid-connected solar systems in the first two quarters of 2011—almost double the amount installed in the first two quarters of 2010. (US Solar Market Insight, SEIA) Many businesses have already taken advantage of the current renewable energy incentive structure that will expire on December 31st 2011. We recommend that business owners do not miss the opportunity to take advantage of this ideal investment scenario.
