More than just about anywhere in the United States, Sacramento has what it takes as a place to live. It’s got the entertainment and leisure options, the history, the culture, the opportunities and the climate. What more could you want? Now, Sacramento can offer you another great incentive: clean, green solar power alternatives.
The Swanson Effect was first observed by the founder of a solar panel manufacturing company, Richard Swanson; the cost of solar photovoltaic modules drops 20% for every doubling of global manufacturing. Between 1977 and 2014, the cost of a crystalline silicon photovoltaic cell fell from $76.67 per watt to $0.36 per watt. The upshot, as seen in the graph, is that the modules which are used to make up solar-power plants typically do not even cost as much as a dollar for each watt of capacity. Once your home constructed solar power station has been completed, the “fuel” is free. You couldn’t ask for better than that.
This graph compares the return on investment for three different options for going solar, using a typical 5kW system as an example. Over a 25 year period, the greatest return is the outright purchase option, but each option has its own individual benefits and whichever you choose, you know that you are helping to keep the planet just a little bit cleaner and greener as well as paying less for your electricity.
For those who don’t have the cash for a purchase, the home equity line of credit (HELOC) option is a good one. Of course, like all loans, you have to pay the loan back with interest, but because you own the installation, you get the tax credit and the SMUD payment as well as the energy savings, out of which you can make the loan repayments over time, leaving you owning the solar panels and the savings they bring outright.
Finally, the easiest for those who don’t qualify for tax credits and don’t wish to get too tied up in loans or purchases, is the lease or power payment option. You lease the installation from the solar power company. They take the tax break, the SREC payments (if you supply to the grid) and own the installation. You either pay a monthly payment to the installer or a payment for the electricity the panels produce.
A 5 kW solar installation at today’s prices costs around $19,000. This is quite an investment, and like many investments it takes some time to see the financial return. It’s not such a good option if you are not likely to live for long where your solar roof is installed, even though the value of your home, if you do decide to sell up, should have been raised by the value of the panels you installed. But, as you can see from the graph, in a few years your system will pay for itself and then go on saving you money for years to come.
To offset the initial capital, there is the one-off SMUD payment of $500 which you collect. The federal government is offering a 30% rebate in tax credits on the capital minus the SMUD payment i.e. you can claim 30% of $18,500 over the next two years in your federal tax bills. That cuts the cost down right away by $5,500. That takes the price of your solar roof down to around $13,000. Next, you start getting free electricity straight away so save on the payments you would have made from paying the bills for all that energy. Obviously, this depends on your individual household power needs, so the math becomes a little complicated. On average, say you would normally pay $1,300 annually for electricity, this is what you save. You will have paid back your initial investment after 10 years (10 x 1,300 = $13,000).
The next few years are where you really benefit financially as the longer you keep your roof, the greater the return. Of course, you are responsible for paying for any maintenance or repairs to your own system, but modern solar installations require very little maintenance overall and the 25 year warranty that is typical is usually well exceeded. All in all, the return on your initial investment could easily top 14% – that’s hard to beat!
Even if you have the available cash to make an outright purchase, this is still a very worthwhile option, even if for you the final financial gains are not as high. It means that the cash you have can go on something else. It’s a superb option if you don’t have the money to buy the panels outright or even just prefer to use someone else’s money with very little risk.
A typical loan agreement is the HELOC already mentioned. This is a home equity line of credit. This option assumes, of course that you can get a line of credit on your own home, say a 15 year fixed repayment loan at 5% on the capital value of your installation, which is around $19,000 for a typical 5kW solar panel system.
Because the panels are yours, you benefit right away from the SMUD payment and the federal tax credit of 30%. In the first year of your solar roof you might save, say $1,300 on energy bills (that’s an estimate – it all depends on your individual household power usage, of course). Add it all up and that means that you are $6,800 better off than you were at the start of the year, out of which you have to make a repayment for the loan.
The loan repayments are going to be a little more than the savings you make on not having to pay energy bills, but this only lasts for the first 15 years of your solar roof. In fact, because your loan repayments are fixed and energy prices are rising by an average of around 3.4% a year, you will find that the savings you make exceed your loan repayments after only ten years. The next five years you make a profit after repayments are calculated and in the next 10 years of the typical 25 year life span after that, the savings are all yours and the installation is all yours, too which means that the value of your house has gone up by.
This option is simply the best when it comes to the financial return as a percentage of your initial outlay (which was nothing!).
This is a great option for those who can’t or don’t wish to make the commitment of owning their own solar roof. It means having cheap electricity without the risks attached to purchasing solar panels or borrowing the money to buy them.
The lease arrangement is readily available in Sacramento. All it takes is to make the agreement (usually a 20 year lease) with a solar installer to provide the installation for your home. They do all the work and provide all the materials. They also take responsibility for the upkeep of the installation, although this is typically quite minimal. The panels remain the property of the installers and they also charge you a monthly rental to use them. This is typically, at the start, around the same as the cost of the electricity you would have paid out to the utility company for the solar energy you receive. The monthly repayments tend to go up annually by around 1 to 1.5%, which is less than the average increase in power bills of around 3.5%. That means that as time goes on, you start to benefit financially from your solar panel roof, don’t have to worry about fixing it if thing go wrong and get the feel-good factor about doing the right thing about the environment.
The incentive scheme – the federal tax credits and any payments made because you have fed surplus energy to the grid – go to the installer, which is why this option is not the best in terms of your financial return compared to the two options above.
But, if you don’t have the money or are not prepared to take the long term risk of buying or taking out a loan, it gets you cheap electricity quickly and easily.
The PPA arrangement works slightly differently from the lease, but basically it is very similar. The installation is owned, installed and maintained by the providing company and you pay them for whatever power the panels produce. Typically, this is significantly less than what you would pay the utility company, so that’s where you make the gain.
Another advantage of the lease option is that it is able to be transferred if you wish to sell the house, so you are not tied down to it in any way.
An RPS, or Renewables Portfolio Standard law, stipulated how much of a state’s energy has to be generated from clean renewables by a certain date. California’s RPS calls for 33% by 2020, with an interim goal of 25% by the end of 2016. Utilities that don’t meet the standard must pay hefty fines. Basically, your electric company really wants you to go solar and will offer you some nice incentives to help you do it.
California as a whole gets good marks for its support of solar power. It has a strong RPS and the entire value that solar adds to property is tax-exempt. Thanks to its net metering and interconnectedness policies, you can connect your system to the grid and get paid for all the surplus electricity you generate. The state’s high electricity prices mean that you save big when you go solar.
California is not perfect. It has no solar tax credit and no solar carve-out, for example. Fortunately, Sacramento does better than California as a whole, by offering additional incentive payments (though availability may be limited), with a special rebate for solar for families earning 80% or less of the city’s median income.
Sacramento is a great city for going solar, and you can do your part to keep the momentum going in the right direction.