Here’s why Solar PV systems make cents.
by Patrick Prince and Brian Kuhn
Patrick Prince
Solar photovoltaic (PV) systems seem to be going up everywhere today. What is driving this market? The answer is economics, and it is something that every building owner and facilities manager should explore before the window of opportunity closes at the end of 2016. Buildings with large, flat, or south-facing roofs are ideal for solar PV, as they receive the most sunlight. Innovation in the industry has not only brought down the price of PV components, but solar panels have become more efficient every year. Factor in the expensive electric rates here in the Northeast, and it is no wonder that building owners are seeing value in putting PV systems on their roofs.
From a technical perspective, solar PV panels simply turn sunlight into direct current (DC) electricity. Each panel puts out about 250 to 300 watts per hour. Although the wiring arrangements can vary, this electricity is put into an inverter where it is changed to AC electricity, which is then hooked up to your building’s electric system and meter. Depending on the number of panels you install and your current demand at any time, you might need more power from the grid, or, you might be making more power than you need. If you generate more power than you are using, the excess flows back into the grid, running your meter in reverse. Assuming you are signed up for what is called net-metering, at the end of the month you will pay for the net amount your meter has recorded from running forwards and backwards.
Because solar energy is environmentally friendly, the Renewable Energy Portfolios of many states, like Massachusetts, have created a market where this green value of those electrons can be rewarded and turned into cash. So-called Solar Renewable Energy Credits (SRECS), accrue to the system owner for every megawatt-hour you produce. In Massachusetts, these SRECs can be sold on the SREC market, and get this: They are currently trading at more than the retail value of the electrons themselves in Massachusetts. SRECs today typically sell for $.22 to $.24 per kWh. While this article focuses on the incentives in Massachusetts, several other states participate in a similar SREC program. Depending on which state your building is located, there are other incentives that reward business owners for making the investment in renewable energy.
Besides net metering, businesses that install PV get two different tax incentives. The first is called the Investment Tax Credit (ITC). The ITC give you a 30% federal tax credit, which can be carried over for five years. The second tax incentive is a rapid depreciation write-off, referred to as MACRS depreciation. This allows you to write off the entire cost of the system over the course of five years. The ITC and MACRS will do a number on your tax appetite while the solar panels will do a number on your electric bill.
Be advised that a window of opportunity exists. The ITC is scheduled to disappear at the end of 2016, making a system cost, in essence, 30% more. Although the economics of the system make sense even without the ITC, why wait and miss out on that 30%?
There are many details, however, and the savvy business person may wish to have a solar appraisal done on their property before making the big investment to spotlight any red flags. This will answer 99% of the questions upfront, and most of the work needs to be done in order to install the system anyway, so it’s money well spent. Some companies will rebate the cost of the appraisal if you go forward with the project.
Patrick Prince is a sales associate at Associated Energy Developers of Plymouth, Mass. Brian Kuhn is founder of AED and a 40-year veteran of the solar industry.
