Monetizing Sunshine

Developing Your Own Green Power Station
Intermediate

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PV System as a financial investment
A PV system can be a rational financial investment with very competitive returns, and part of a diversified investment strategy.
Solar installers
Solar installers reviewing design plans.
Solar project advisors.
Solar project advisors.
Solar contractor with customers.
Solar contractor with customers.
PV System as a financial investment
Solar installers
Solar project advisors.
Solar contractor with customers.

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.

Driving Down Costs

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.

Comments (2)

schorert's picture

There is one very major factor that is not considered when viewing solar as an "investment". If you have money to invest in solar...you must then subtract utility costs from other investment returns you are considering. In other words...if you choose to invest instead in a mutual fund, you must subtract your utility cost from your mutual fund returns.
Solar array costs 15K out of pocket and returns 80k in savings, that's good.
The same 15k invested in a mutual fund returns 100k, but you'v.e still paid the $80k in utility.
Now consider what you DO with the savings. pay off your array in five years, then INVEST the savings in an IRA...well now you're talking. Because, work with me now, to pay a $100 electric bill, you have to EARN almost $150. Which means you can now save roughly 150% of your utility cost tax deferred. Your out-of-pocket is the same but you are paying YOURSELF $150 instead of $100 to utility and $50 to uncle sam.
There....I just blew your mind....

GUY T MARSDEN's picture

I can attest to the viability of the tax credits and incentives. Almost 50% of our (self-installed) solar installation was covered by the federal tax credit taken over 4 years, and the Maine state rebate of $2000. Details are on my blog: http://www.arttec.net/SolarPower/2_...

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