Back in the day, folks installed PV systems usually for one of two reasons—they were living remotely or because they wanted clean energy. Today, if your house or business is already connected to the grid, there’s another reason to have a PV system installed—it can be a rational financial investment with very competitive returns, and part of a diversified investment strategy.
Every jurisdiction has different energy prices and specific incentive options, but let’s take Washington, DC, as an example: Here, investing $25,000 in a rooftop PV system that will likely last well beyond 25 years can result in a 14% return on investment. With savings accounts paying less than 1% interest and certificates of deposit not much better, and with the volatile stock and bond markets, where else can you make a very safe 14% return?
The opportunities in your state may be even better—or much worse. If you have low electricity rates and few local solar incentives, a PV system may not be a rational economic investment. You won’t really know until you do “due diligence,” which is a fancy way of saying do your homework before investing.
If you are intrigued about developing a small PV “business” on your roof that generates some income, hedges against increasing electricity rates, and adds value to a home or business, you need to survey the opportunities and put together a workable business plan. The plan’s success relies on the details. First, specify the most cost-effective system. Second, take advantage of available incentives. Third, if you need to, borrow money as inexpensively as possible.
Get several bids from various installers, and make sure you understand what you are getting for the price. One installer’s system sizing approach may differ widely from another’s, and the lowest bid may not be the most cost-effective when you factor in installation and the system’s production, efficiency, and reliability. Developing a spreadsheet to compare these factors can help you make an informed decision. You may also be able to tap into a local PV buying cooperative to take advantage of volume pricing.
Once you have the estimate you want (the gross system cost), determine the net system cost by subtracting available incentives. You may be eligible for federal, state, local, utility, and private incentives. Beyond the federal tax credit, the other incentives vary by location, so you’ll have to research your own circumstance. Search the Database for State Incentives for Renewables and Efficiency (dsireusa.org) to determine what available incentives are offered in your area and apply to your specific situation (i.e., residential, small business, etc.). DSIRE catalogs incentives by tax (personal, corporate, sales, and property), rebates, grants, loans, industry support, bonds, and performance-based incentives.
If you have federal tax liability, 30% of the system cost can be taken as a tax credit on a federal income tax return. A credit is a dollar-for-dollar reduction in the tax you owe, and is better than a tax deduction, which reduces the amount of income that you have to pay tax on. If not used up in the first year, the federal tax credit can be applied in succeeding years if your system is installed before the end of 2016. If you or your business doesn’t have enough tax liability to offset the tax credits, you may be able to sell your tax credits to some entity that does—known as a “pass-through.” Your PV installer or your banker may be able to help you in this regard.