This article is re-published with the consent of Dragonfly Solar and it’s Author.
Can We Change?
August 30, 2011
A CNN radio reporter named Jim Roope wrote an article today that was published on the CNN site focusing on a homeowner in Los Angeles California.
He starts out: If you’ve ever thought, “One day, I’m going to put in a solar energy system,” today might be the day.
Economic issues across the nation are contributing to the early demise of solar incentives such as tax breaks, grants and rebates. “We’ve been thinking about this for several years,” said California homeowner Jim Adams. “The cost wasn’t really coming down, so we went to the bank, asked for a loan and decided to get it done.”
So Adams had a 16-panel system installed on his roof in La Crescenta, California, about 15 miles north of Los Angeles. He received a 30% tax credit from the federal government and a 10% cash rebate from the state. It cost him $16,000 — a savings of $10,000.
This year, a federal 30% cash rebate through the U.S. Treasury Department comes to an end. And the 30% federal tax credit program will conclude at the end of 2016. These incentives, created as part of the federal stimulus package a few years ago, were designed to create a vibrant solar energy market. Along with the federal program, 29 states offered incentives. Many of those state programs are also becoming victims of budget cuts.
In addition, some utilities in parts of the country offer additional incentives up to a certain size limitation. For example, Xcel Energy, the largest utility in Minnesota, offered a $2.25 per kw one time cash rebate for all systems under 40 KW in size. Like many of these programs, the calendar allotment of funds (3 million), was exhausted in August as the demand far outstripped allotted funds. This even after the intentional 40 kw cap (SMALL commercial).
Roope goes on to write:
Sales of rooftop solar panel installations jumped 67% last year, compared with 2009, according to the Solar Energies Industry Association.
The solar industry is lobbying the federal government to continue the 30% cash rebate program that’s ending this year. But there’s not much hope for an extension, considering the current political climate in Washington, where lawmakers are focused on trimming the budget.
Although much of his article was focused on residential installations, the larger commercial implementations have a lot to lose. Most of these installations start in the $250,000 range and easily climb into the 3 to 5 million arena. The 30% cash payment was implemented in 2011 in an attempt to spur investment, create jobs and move away from carbon producing fuels and the hold they have on our country by many who have an abundance of it, but little appreciation for the US’s stand on freedom and human rights. The 30% in question was switched from a tax credit spread over time to a cash rebate returned to the solar system owners often in as little as a month or two after the system goes into production. For a 3 million dollar project (small to medium in the commercial market), that is an instant rebate of $900,000 dollars set to move out of the equation. Without it, much of the momentum being generated in the industry will subside. A homeowner may decide to spend an extra $10,000 to do the right thing, but businesses and investors dance to a different tune or they end up not dancing at all. Although the metrics in these offerings are as solid as they come, they still need to meet investment grade financial hurdles.
To put a different light on it, take churches or schools for example. Most of the incentives offered in the past for solar as well as most all other government incentives come in the form of tax incentives. Churches, schools, some hospitals, cities and other non profit organizations have been kept out of the market for these technologies until this last year because they obviously have no use for any tax incentives. With the 30% tax incentives that is due to continue into 2016, they will continue to be kept out of it. These entities then will continue to be supported by other tax or charitable giving means. With the deprecation schedules allowed for renewable energy systems, along with the 30% cash rebate, investors were stepping forward to fund these systems for these organizations and others who either did not qualify or do not have the available funds to pay for it themselves.
In our previous example, that 3 million dollar system cost returned $900,000 only weeks after going live to the investor. They now have $2.1 million into the $3 million dollar system. With the price of electricity likely to continue to rise, the money they save from the energy the systems produce, along with the accelerated depreciation schedules make it a serious contender for investors with money to invest and an interest in helping the country move to a more free and clean America at the same time.
A case in point, our company Dragonfly Solar is working with a couple of large tax exempt institutions. The investor “package” as it exists today has a number of interested parties at the table to help fund the system for these institutions. The intent of these agreements is often that at the end of the 7 years necessary to satisfy the investor tax credits and depreciation, the institution usually ends up owning the system for the rest of its life at a deeply discounted price. Additionally, they are guaranteed a better price for the electricity the system produces over this same term than they would have to pay for the same amount of energy from their utility. Since these systems have a useful life of 30 years or more…the savings can add up to a substantial amount. This lowers overhead and the more the price for electricity rises, the more the new owners save. It is a good plan.
The market for these products and services have been increasing…R&D and better manufacturing processes driven by increased competition in a growing market have been steadily driving prices down…that is exactly how it should be…and once again, the landscape is due to change.
I know quite well the condition of almost all western economies – I wrote a book about it. We – they all have a spending problem. I also know the amount of money still being funneled into unnecessary tax incentives for the oil, gas and coal – all carbon producing industries as well as nuclear. I am not un-biased. I think those incentives all ought to go to carbon-less energy production solutions…they are in much of the developed world; and I have not yet even mentioned what people might have to say about this who live on and off of the Gulf of Mexico, or Japan… Instead here we are again in America – one foot in, then one foot out…
Our immediate job now is to try and talk these institutions into moving quicker than they are comfortable moving so they don’t end up at the table with no-one else there. Based on previous experience, I am sad to say that there is a strong likelihood that it will end exactly like that. It is a great opportunity for all parties. It is a good plan, and you need to move fast if you plan on taking advantage of it.