A long held theory of most people that live outside the southwestern portion of the United States, is that solar photo voltaic (Solar PV) technology (using solar panels to generate energy), is neither viable nor economic. This is simply no longer the case. As a result of recent developments, the installation of solar panels in most northern states is both viable and can be economically justified. The major factors that have led to this are tax credits, solar panel costs, net metering and depreciation.
As a result of legislation passed a few years ago, both business and homeowners are entitled to a 30% federal tax credit on the installation of solar panels to generate electricity. This current tax credit remains in effect to 2016, and allows the taxpayer who installs the solar panels, to reduce their tax burden by 30% of the total capital investment of the solar installation. In addition, several states have also enacted tax savings through different methods. These can be referenced via a database on the website-www.dsireusa.org.
Solar Panel Costs
Due to some improvements in manufacturing processes, some advances in productivity in producing them, as well as global competition, solar panel prices have steadily declined over the past several years. Most recently, they have seen a steep decline in price, in the past twelve months. As a result of this, solar installations have become even more economically justifiable in the past year.
Commercial and industrial customers installing solar panels can fully depreciate the capital investment of the solar panels, up to $500,000 in the first year. Depending on the tax rate, this allows the owner of the installation to recover an additional 15-356% of the initial investment, during the first year. This, coupled with the 30% tax credit, allows a recovery of 45-65% of the total capital investment of a solar installation during its first year of operation.
The energy that is generated by solar panels comes in the form of DC (direct current). Solar panels act somewhat like batteries, but use the energy from the sun and convert it to direct current (DC). This DC must be converted to AC (alternating current) to be used. An inverter converts this energy into pure sine wired AC and interfaces the solar array to the utility system. This conversion allows the energy that is generated by solar panels to be either consumed to meet on-site electrical demands, or be pushed back into the power grid. Nearly all state utility commissions have enacted what is known as "net metering" which allows this to transpire. When excess energy is pushed back into the power grid, the generator gets a credit. This credit is used to offset the current or successive month's bill, to reduce the purchased power cost. Some utilities have elected to reimburse the generator, rather than issue a credit. In either case, the energy that is generated by the solar installation essentially returns the full retail value of the electricity that would be purchased from the electric utility.
SREC's (Solar Renewable Energy Credits)
Many states have mandated that a portion of the electrical generation in their areas be transitioned to solar. These requirements are usually put in place through legislation creating what is known as Renewable Portfolio Standards, or RPSs. These RPSs set the guidelines and the schedule for the transition from conventional generation to either alternative or renewable. Some states, like MD, OH and PA, have mandated that a portion of the renewable energy come from solar installations. As this schedule is being implemented, many utilities have elected to buy energy generated by the private sector, rather than install the solar installations themselves. This has created a market and an opportunity for non-utility generators using solar technology. These purchases are in the form of Solar Renewable Energy Credits (SRECs), which are equal to 1000 kilowatt-hours, or one megawatt hour of energy, generated by a solar installation. A system called GATS (Generation Attribute Tracking Systems) is used to handle these transactions. These SRECs are in addition to the retail value of the energy, and accumulate whether the energy is consumed or pushed back to the power grid. Currently, SRECs in MD, are selling for $125-140 each.