Solar Tax Credits, Rebates, Loans, Leasing & PPA's

In recent years, new financing options and tax deductions have made it easier to pay for a solar electric system. While the cost of PV panels and other equipment has decreased dramatically, credits and rebates from government agencies are still available. An installation may set you back $15,000 or more, but with those incentives, you can eliminate a third or more of that debt in the first year.

Blue Pacific Solar

In particular, the 30 percent renewable energy tax credit filed on your IRS return remains in force through 2016. There's no upper limit on the amount of reimbursement, either, so all related work on your roof or electrical system may qualify. State and local rebates, meanwhile may cut your out-of-pocket expense another 10-20 percent . However, many of these incentive programs are now winding down. Eligibility depends primarily on where you live, your utility company, and how much money remains in the agency's program budget.

So how long can it take to break even on your purchase? If, for example, you pay $15,000 (after tax credits) for a 5-kilowatt system that cancels out $100 per month worth of utility charges, you can theoretically recover your purchase price in about 7 years. (This assumes you use the federal tax credit to cover 30% of the cost, and an average 2% utility rate increase each year.) After that, you would begin earning $100 cash each month in avoided utility charges. As in the case of owning a house, the unbilled kilowatt hours translate into skipped rent payments because you own your power supply. Finally, you'll earn more money on your solar electric system when you move, simply by adding its value to your home's listing price.

To achieve a shorter payback period, most homeowners opt for something less than a 100% offset of their grid electricity usage. This means buyng a less expensive PV array with fewer modules. It turns out that sizing your PV system to knock out only the higher tiers or peak electricity rates - while still paying for grid kilowatt hours at the cheaper baseline rate - yields a much higher return on your investment. Under this scenario, your solar kilowatt hours are worth more money.

Conversely, homeowners who think they might relocate 2-3 years down the road are generally discouraged from going solar. Whatever investment is outstanding at that time can be added to the home's listing price, but a $15,000 increase over the market rate may deter potential buyers.

CalFinder

Before going into more detail about various incentives and financing options, here are the main developments in solar financing introduced in the past decade:

Net Metering - This allows homeowners to get paid for their solar electricity at the same retail rate that the utililty company charges, even if it's a higher-tiered or peak-period rate. Understandably, the utilities object to net metering and in some states are lobbying the legisature to eliminate the program post haste.

Power Purchasing Agreement (PPA) - This arrangement allows banking institutions and other capitalized enterprises (like Google) to become your PV utility company. The third party pays for the equipment and installation service. Consequently, you must pay it for the solar kilowatt hours generated each month. PPA solar utilities insist their rates are less than your traditional utility company. However, on occasion the door-to-door PPA pitch tends to inflate the future cost of grid electricity. If you decide to go this route, the federal tax credit and state rebate (if any) will be collected by the company, not you. You'll find more info about PPA's on Page 2.

Energy Efficient Mortgage (EEM) - While low-interest loans for homeowners who undertake conservation measures (in effect, "going green") have been around a long time, banks now make larger sums available to cover PV installations. A conventional EEM is offered by banks and other lenders with a little help from Fannie Mae and Freddie Mac. You can borrow up to 15% of the home’s appraised value for improvements. The Federal Housing Authority (FHA) and Veteran's Administration offer a low-interest version of the EEM to applicants who meet their eligibility requirements.

Powersmart
The South Pacific island territory of Tokelau went 100% solar in November, 2012, courtesy of a soft loan from New Zealand Aid. The one-megawatt system is backed up on cloudy days by coconut oil-fed diesel generators.

Here's a closer look at tax credits, loans and programs. Along with a short description are links to follow to get further details (or access an application).

Federal HomeownerTax Credits

Solar Panels (Photovoltaic Systems)

Tax credit is 30% of cost with no upper limit. Unless Congress renews the credit, it's set to expire on December 31, 2016. If your tax liability is less than your potential reimbursement the year you buy the system, you can carry the credit forward to subsequent tax years (i.e. through the 2016 tax filing).

Existing homes & new construction qualify. Both principal residences and second homes qualify. Rentals do not qualify. Photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirements. More info: IRS 2013 tax form and instructions...

Other Renewable Energy Systems

Tax credit is 30% of cost with an upper limit in some cases. Expires December 31, 2016. These systems include Solar Water Heating, Wind, Fuel Cells, Geothermal Heat Pumps, Other Solar Electric Technologies, Fuel Cells using Renewable Fuels. More info...

Federally Guaranteed Loans

A website called RESNET introduces mortgage-lending programs for homeowners who want to take advantage of solar, photovoltaics or other renewable energy sources. Here's the main source of financing available:

FHA Energy-Efficient Mortgages (EEM)

These mortgages can be used either for energy efficiency improvements of up to $4,000 or 5% of the appraised value (whichever is greater) up to a maximum of $8,000 to existing homes, or up to $25,000 when purchasing a new energy-efficient home. The loans are insured through Fannie Mae and Freddie Mac, the Federal Housing Authority (FHA) and the Veterans Administration (VA). More details...

Anyone who qualifies for a regular mortgage will generally be eligible for an EEM. However, one big difference is that the energy improvements must really be efficient -- in other words, cost effective. For example, a double-paned window that costs $250 must be worth more than that amount in projected utility savings over the window it's replacing. An EEM also differs from a traditional loan in that a professional energy auditor must visit the home and make an assessment. After the evaluation, the auditor issues a rating in the form of what's called a HERS report (home energy rating system). The audit, covers, among other things;

It's best to have a HERS energy audit done as early in the loan process as possible. The inspection and report cost between $300 and $800, which is pretty expensive. The cost may be paid for by the buyer, seller, lender, real estate agent, or included in the mortgage amount. For eligibility requirements and other information, visit the FHA EEM website.

To apply for an FHA EEM, you can perform an online search of the FHA approved lender database, then contact a lender directly. More information about VA EEMs can be obtained by contacting a regional loan centers.

If for some reason you don't qualify for an EEM, you can always apply for a home equity loan from a bank. Because these loans are secured by the value of your property, the interest rates are lower than other types of bank loans. And the interest you pay may be tax deductible.

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For more info on all federal programs, read the Guide to Financing a Grid-Connected to a Solar Electric System published by the U.S. Dept. of Energy.

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State Initiatives

You can check for tax credits, rebates and other incentives for a particular state with a free online website called DSIRE. Click on your state to see what's available. SolarEstimate.org also provides a database of state incentives.

Here's a sampling of current incentives in California:

California Solar Initiative (CSI)

The California Solar Initiative offers monetary incentives to homeowners served by investor-owned utility territories in California. The CSI Program has a goal to install 1,940 megawatts of new solar by 2017. You can download their 200-page handbook here. However, there is a limit to the number of recipients annually, since the state legislature has earmarked a finite amount of money for the program. On last check, the standard rebate amount was 20-25 cents per installed watt. (The watt in question, incidentally, is determined by the California Energy Commission, and is not the same as the usual STC watt.)

Here are some specific programs under CSI that may have a countepart in other states:

Single-family Affordable Solar Homes (SASH): Offers fully or highly subsidized solar systems to qualified low-income homeowners whose utility company is one of the following: Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric. To qualify, your household income must be at or below half the area median income. More info...

Multi-family Affordable Solar Homes (MASH): Provides solar incentives on qualifying affordable housing multifamily dwellings. Note: This program closed its waitlist April 10, 2014 . At this time, there are plenty of waitlisted applications to backfill existing projects that may yet withdraw or cancel. More info...

CSI-Thermal: Offers rebates of up to $1,875 for a solar water heating system that displaces natural gas (or $1,250 for electric water heating), available to customers of the same utility companies cited above. More info...

CSI-Thermal Low-Income: Provides rebates to utility customers who install solar water heating systems that displace natural gas usage. Maximum award in rebates is $3,750. To qualify, you must live in a low-income residential housing area OR be participating in the Public Utility Commission's Energy Savings Assistance Program (ESAP). More info...

Reneable Energy Rebate: CSI is currently offering a rebate to some customers of investor-owned utilities for installing solar PV, solar heating, wind turbines and other renewable forms of energy. The program is administered in part by the California Energy Commission (CEC), which has specific eligibility criteria. This includes a list of approved PV modules and inverters, and requirements concerning the placement, orientation and potential shading of the PV array. So it's important to read the program guide carefully.

Pacific Gas & Electric customers can apply for CSI tax rebates or credits using an online tool on PG&E's website. Generally, utility companies work in concert with the state to administer this program, so you should be able to call your utility customer service line and find out what's available.

Property Tax Exemption: Under California tax law, solar water heaters, solar space heat, solar thermal electric, solar thermal process heat, PV and solar mechanical energy are all exempt from property taxes. 100% of the system value added to a home is exempt, 75% of which for dual-use equipment. The exemption also includes systems added by a builder during new construction. As of right now, the tax incentive expires at the end of 2016.

CHF Residential Energy Retrofit Loan: Eligible homeowners in 44 counties (here's the list) can apply for a 6.5% fixed interest rate loan, up to $50,000, to make energy efficiency home improvements. More info...

Some public power companies, like the Sacramento Muncipal Utility District (SMUD) also offer rebates and loan assistance which are not part of the CSI program. If you get your electricity through a public utility, log on to their website or contact the customer service department for more information

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See also: Income-Based Energy Efficiency Programs at fypower.org.

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Utility Rebate Programs

Depending on which state and city you live in, the local utility company may be offering a rebate (and sometimes even a loan program) to help customers go solar. Curiously, it can sometimes be hard to find information on the utility's website, so you may to dig a little to uncover the details.

The company may provide a rebate based on the size of your system. PG&E, for example, will pay $0.35 per watt (assuming the program is available in your city). For a typical 4K PV system, that's a $1,400 reimbursement. The company may also offer a Time-of-Use (T.O.U.) meter, which allows you to sell your excess weekday solar power back to PG&E for as much as 60 cents per kWh. At the same time,you can buy power on nights and weekends for less than 10 cents/kWh. More info...

Utility companies may offer additional rebates for eligible product purchases, usually major appliances, solar water heaters, light bulbs and weatherizing material.

Property Assessed Clean Energy (PACE)

Introduced back in 2008, today 28 states and the District of Columbia have adopted legislation that enables local governments to offer PACE benefits. Interested property owners can receive up to 100% financing, repaid as a property tax assessment for up to 20 years. PACE eliminates upfront costs of a solar installation, provides low-cost long-term financing and makes it easy to transfer repayment obligations to a new owner. Note: Although touted as a program to help homeowners, most PACE funding is now adays reserved for developers and other commercial interests. Be sure to check the criteria of the program sponsors where you live. More info: PaceNow.org.

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Continued on Page 2 (PPA's and Solar Leasing)

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