Solar Electricity Economics

Although investing in a solar energy system can seem expensive up front, there are many ways to make it affordable. Below you will find information on rebates, tax incentives, and loans. When combined, these financial incentives can help shorten the payback period of your new renewable energy investment.

Rebates

California Energy Commission’s (CEC)
Emerging Renewables Program
Through the Emerging Renewables Program, the CEC is offering cash rebates that may significantly reduce the cost of your solar electric system. Grid-connected photovoltaic (PV) systems less than 30kW (AC) are eligible for the rebate. Rebate levels vary according to the system size, technology, and installation method, and are scheduled to decrease at regular intervals. For current rebate levels, detailed information and application forms, and information about a new pilot “performance-based” program, please see the CEC Consumer Energy Center website or call the Renewable Energy Call Center at 800-555-7794 (toll-free in California).

PG&E’s Self Generation Incentive Program
The Self Generation Incentive Program provides rebates for grid-connected solar electric systems larger than 30kW in size, and less than 5MW (the rebate is capped at 1 MW). The program is designed primarily with business and large institutional customers in mind. To qualify, a solar electric system must be grid-connected, and meet other criteria established by the California Public Utilities Commission. For more information about the incentive levels and the application process visit PG&E's website, call PG&E at (415) 973-6436, or send an e-mail to selfgen [at] pge [dot] com.

Tax Incentives

Federal and State tax incentives are available for certain residential and commercial solar systems. For more information consult your accountant and visit the IRS website or the California Taxes Information Center.

Residential

California Solar Energy Tax Credit—Form 3508
Residential and commercial solar electric system applications (on- and off-grid) are eligible for a tax credit of 15% of the total installed cost minus any cash incentives or other tax credits. The system must not be more than 200 kW (AC); the credit may be taken for as long as 7 years after the initial filing year.

Commercial

California Solar Energy Tax Credit—Form 3508 (see above)

California Depreciation Schedule
The California Depreciation Schedule is part of a business tax return. The basis is adjusted by deducting the cash incentives and state tax credit. Non-corporate business taxpayers follow the Federal 5-year Modified Accelerated Cost Recovery System (MACRS) process. Corporate taxpayers use a 12-year life and either a 200% Double Declining Balance or Straight-line Method for taking deductions.

Federal Business Energy Tax Credit—Form 3468
Commercial solar electric system applications (on- and off-grid) are eligible for a tax credit of 10% of the total installed cost minus any cash incentives.

Federal Depreciation—Form 4562
Business use of solar electric systems qualifies for 5-year MACRS depreciation deductions. The basis for depreciation is the cost minus all cash incentives and one-half of the Federal Business Energy Tax Credit. The cash value of the deduction is the adjusted basis amount times the federal tax rate.

Financing for Solar Electric Systems

There is nothing especially difficult about financing the cost of purchasing and installing your solar electric system. Most of the options will be familiar to you.

The best way to finance solar electric systems for homes is through a mortgage loan. Mortgage financing options include your primary mortgage, a second mortgage, or a home-equity loan that is secured by your property. There are three advantages to mortgage financing. First, mortgage financing usually provides longer terms and lower interest rates than other loans, such as conventional bank loans. Second, the interest paid on a mortgage loan is generally deductible on your federal taxes (subject to certain conditions). If you buy the solar electric system at the same time that you build, buy, or refinance, adding the cost of the solar PV system to your mortgage loan is likely to be relatively simple and may help you avoid additional loan application forms or fees. Third, energy savings from photovoltaic production will likely offset additional mortgage payments.

If mortgage financing is not available, look for other sources of financing, such as conventional bank loans, or a special energy loan. Remember to look for the best possible combination of low rate and long term. This will allow you to amortize your solar electric system as inexpensively as possible. Because your solar electric system is a long-term investment, the terms and conditions of your solar financing are likely to be the most important factors in determining the effective price of your solar electric generated power.

Solar electric systems purchased for business applications are probably best financed through a company’s existing sources of funds for capital purchases—usually Small Business Administration loans or conventional bank loans. The CEC maintains a list of financing options for solar energy systems, including special energy loans. The RCEA will work with you to find a strategy to finance energy efficiency and solar energy projects.

Payback Economics for Your Solar System

The “payback period”, or time it will take for you to recoup the money invested in a solar system, is influenced by many factors, including: rebate levels, current and future energy costs, electricity produced by the system, and the energy usage at the home or business. In all cases, the economics are improved by energy conservation measures and investments in energy efficiency, both of which reduce energy demand.