Thoughts on Solar

(Editor’s Note: Part 1 of this series - Understanding Your Bill can be found here.)

Commercial solar power systems are economical now - and in the first part of our series we explained how understanding your bill is the key to understanding what is currently driving your costs and how much you will be able to save.

Now we turn to the next step in preparing to install a commercial solar power system - understanding the applicable rebates and tax incentives.  We have written at great length before about these topics, including a blog post summarizing the year-end state of all solar power rebates in the Run on Sun service area and our solar tax incentives page provides great detail into this topic for all types of system owners - commercial, residential and non-profit.  In this post we will analyze just those rebates and incentives that are applicable to commercial solar power installations.

PBI vs EPBB Rebates for Commercial Solar Power Systems

Rebates for commercial solar power systems come in two flavors - Performance Based Incentives (PBI) and Expected Performance-Based Buydown (EPBB) - but PBI rebates are by far the more common for commercial systems above 30 kW.  EPBB rebates are lump-sum payments made based on the expected performance of the system.  The rebate rate is denoted in dollars per Watt based on the calculated AC Watts for the system.  EPBB rebates are nice for the consumer as the money is paid as soon as the system is approved, but for larger systems, they represent too much upfront risk for the utility.  Since there is usually no requirement to monitor the performance of the system, the utility ends up putting out its money with little guarantee of reaping the expected benefit.

PBI rebates, on the other hand, are paid out over five years based on the actual performance of the solar power system as verified by monitoring devices attached to the system inverter(s).  PBI rebates are denoted in cents per kilowatt hour generated.  Since the utility only pays for power actually provided, rebate dollars are guaranteed of providing the bargained for benefit. However, because of the need to provide the utility with verified performance data, PBI rebates increase the Operations & Maintenance expense of a commercial solar power system - at least for the five years of the rebate.  On the other hand, if your system is well maintained and conservatively designed, you may actually receive more in rebate payments than originally projected.

Each utility will have a threshold system size beyond which the system owner must take a PBI rebate.

Regional Rebate Amounts for Commercial Solar Power Systems

Of late there has been a great deal of turmoil among the local municipal utilities regarding their rebates.  This has lead to uncertainty and delays.  As of this writing, here is the landscape for commercial solar rebates in the Run on Sun service area:

This means that as of this writing, only SCE and PWP are paying rebates on commercial solar power systems greater than 30 kW. While LADWP is expected to come back online this summer, in what form remains to be seen.

We believe that these suspensions have come about because the lobby for commercial solar rebates is small and too often silent.  Of course, when no public discussion occurs before the decision is made to suspend rebates - as happened in both Glendale and Burbank - it is pretty hard to organize solar supporters.  Indeed, in Los Angeles, where the plans to severely limit solar rebates were publicly debated, the solar community came out in numbers to argue for those rebates - which resulted in LADWP only suspending their program for a comparatively short time.

The conclusion in inescapable - until there is a statewide feed-in tariff at a reasonable rate that offers predictability along with economic viability, the market for commercial solar in this state will continue to be subject to the caprice of unaccountable bureaucrats.

Tax Incentives for Commercial Solar Power Systems

While the news regarding rebates remains murky, the news on the tax front is - at least for this year - very good.

One caveat before we begin - while we believe this information to be accurate as of the date that it is written, you must always consult with your tax professional as to the applicability of these incentives to your tax situation.  Accountants shouldn’t design solar power systems and we don’t give tax advice.

Commercial solar power systems qualify for a federal Investment Tax Credit of a full 30% on the direct cost of the system.  (By “direct cost” we mean those costs directly associated with installing the solar power system.  The applicability of the Credit to indirect costs - such as deciding to re-roof your building before adding solar - must be decided on a case-by-case basis - see why that tax pro gets paid the big bucks?)  That Credit can be taken over two years and is a substantial incentive if you have the tax liability to offset.  Fortunately for systems that are put in service in 2011, commercial solar power system owners can elect to receive a Grant directly from the Treasury for the full 30%, regardless of their tax appetite.  Moreover, that Grant is paid out typically within 60 days of project completion, as opposed to being credited in the next tax payment cycle.  This provision in the tax code is subject to expiration at the end of this year, and there is no telling whether a more conservative Congress will renew it.  (The tax Credit, however, continues through 2016.)

Commercial solar power systems also qualify for accelerated depreciation.  For the past several years, that was a five year period with 50% in Year 1 and the remaining 50% divided evenly over the next four years.  (California offers a similar depreciation schedule.)  However, once again 2011 is special.  This year alone, that depreciation is 100% in Year 1, meaning that system owners may realize more of their savings sooner.

Collectively, rebates and tax incentives can reduce the cost of a commercial solar power system by 50% or more.  When combined with the savings from the energy generated, it is easy to see why a commercial solar power system is one of the best investments a building or business owner can make.

Up Next - Part 3 of Our Series: Understanding Your Bid for a Commercial Solar Power System