Solar: Is it Worth It?

(Welcome to the second post in the series for our solar energy project.
 Click here to start at the beginning! )
 

Source:  SolarPros, a great site for solar information!

If you don't like paying the electric company, then the answer to whether solar is worth it is yes.

But let's tackle the affordability issue, since solar has suffered from a "bad rap" that it's way too expensive for us Average Joe's.  I certainly thought that and you can see the numbers on the graphic up there.  But the proverbial planets have aligned and now is actually a really great time to get solar installed for free or somewhere close to it.  In fact, the window is closing and we may not see this opportunity again in our lifetime. 

Federal Tax Incentives of 30%

If there's anything good that came out of the American Recovery and Reinvestment Act in 2009, it was the extension of the Residential Renewable Energy Tax Credit and removal of the $2,000 limit.  Through 2016, any taxpayer can claim a credit of 30% of the installed costs of renewable energy systems and there is no limit on how much you can get back.  You can claim this credit on any property that you own (not just your primary home) as long as it's installed before December 31, 2016. 

So....right off the bat, you can get 30% of the cost back.  But there are some gotchas here:

1. You have to pay the money for the installation up front.
2. You have to have enough tax liability. In other words, if your 30% of the install comes to $4,000, then your total tax liability would have to at least be that.  That's not what you owe or are getting - it's the total tax you have paid over the year PLUS whatever you still owe.
3. You don't get your money back until after you file your taxes.   

But don't despair...there are other ways to get this paid for.

State and Local Utility Incentives

 

Many states and utilities also offer incentives that can be taken in conjunction with federal incentives.  The website www.dsireusa.org has an up-to-date database of all the available incentives and it's searchable by state.  That's how I found out that our local utility, Kansas City Power & Light, is offering a $2.00 per installed watt rebate for up to 25kW.  There are usually stipulations on how the system operates so make sure you read all the fine print and click the links for your own state\utility. 

 

Unfortunately, Missouri doesn't offer any rebates that will help us here in Kansas City. However, they do have a program called REAP that is a great program for anyone in a rural area running a small business from their property. 

Question:  Are state or utility rebates considered taxable income by the federal government?

Answer:  No! However, the amount you can claim back from the federal government is reduced by the amount of the state\utility rebates.  In other words, if the total solar cost is $30,000 and you get $22,000 back from the utility, then you can only claim the 30% federal credit on the difference ($8,000).  So this is truly free money to help with your installation.

Solar Renewable Energy Credits (SRECs)

This doesn't apply to Missouri, but many states have adopted standards that require a portion of the state’s electricity mix to come from solar energy.  Illinois and Michigan are just two examples. In states with SRECs, you can get paid above and beyond just the value of the power generated.  Again, check the dsireusa.org website for information specific to your state.

Can I earn money from the power generated by a solar system on my home?

The answer is "it depends on your utility".  Many utilities provide a service called "net metering" where any excess electricity generated by a customer's grid-tied solar system is credited back on the customer's electricity bill. Check the DSire site I mentioned above to find out information about your local utility and whether or not they support this and how it works.

 

Here in Missouri, it's paid back at the "avoided cost rate" and then any credit that isn't used at the end of the year is forfeited.  Other states allows you to carry the credit and pay you back at the retail rate. I have no idea what KCPL's avoided cost rate is and can't find any info on the web, so I'm going to have to call them and find out. 

 

The point here is that you don't want to install too big of a system because you'll just lose money.

 

What if I don't have the up-front money?

 

The money required to install a decent solar array can easily exceed $15,000. Even with rebates and tax credits, that can be a huge hurdle and that's where leasing comes in.  Solar installers are now offering a "zero down" option where they install the system for you at zero cost (some require a $500 deposit here in KC) and then you make low monthly payments to them for the electricity that is generated.  One neighbor of ours just had a 25kWH system installed for free, it powers his entire house and aquaponics operation and he pays only $25 per month for his electricity.  Not bad!

 

But when you start looking deeper, things start to fall apart:

 

• You sign over all rights to your federal, state and utility rebates to the installer.
• You're still paying for electricity! 

 

In my neighbor's case, that system is way bigger than what they need so they're generating electricity and selling it back to the utility. But they're not getting paid for it - the installers are.  And they're still paying $25 per month and will have to do so for the 15-year life of the contract.  Here's how their leased system would compare with one that was purchased:

 

 

I used $150 as the average monthly electrical bill because it's pretty close to our average.  So while our neighbors are paying $25 per month, we'd be keeping that $150 in the bank because the solar panels provide 100% of our electricity.  Over the 15 year life of the lease agreement, our neighbors would be out of pocket for $4,500 when they could have bought the system and been $27,000 richer over the same time period. 

 

Which would you choose?  It's a no-brainer.

 

But we're still back to how to fund solar if you don't have the money.  I'd like to offer some creative solutions:

 

1. Install it yourself.  Labor is about half the cost of the system and, if you're at all handy, you can do this yourself.  I'm going to be sharing lots of resources that will help out DIYers and I'll be documenting our own DIY installation as well.
2. Take out a home equity loan to cover the cost.  You'll get back most, if not all, of the cost and can pay off the loan quickly.
3. Check with local banks, your city or your state.  Many of them offer grants or special short-term loans just for solar installations.
4. Consider buying a smaller solar system and adding on as you have the funds.

Okay, we've established that going solar is worth it and some options for how to pay for it.  In our next post in this series, we'll talk about how to decrease your energy usage to save money on the electrical bill (and buy a smaller solar system!)

Click here to go to my next post about our solar project.