A primary “income” stream is avoided electricity costs, since electricity you produce and consume on site is electricity you don’t have to buy from the utility. Depending upon the jurisdiction, your income stream could be structured in various ways.
Net metering is the most common program that’s available in most states. The utility grid takes all of your excess energy production, and credits this at retail electricity rates. When you consume more electricity than your PV system produces, you “buy back” those kilowatt-hours using the credit. One electric meter monitors the inputs and draws.
Feed-in tariff (FIT) programs pay a high price for your PV-produced electricity over a set number of years, as specified in a contract. Your PV system’s production is monitored separately from your household’s electricity consumption. FITs can convince a lender to finance your PV system by showing a guaranteed income stream. If you participate in a FIT, however, you may not be eligible for other subsidies and incentives.
Solar renewable energy credits (SRECs) provide income by selling the environmental attributes (including avoided carbon emissions) associated with that electricity, not by selling the actual solar-produced electricity. SRECs, in the states that allow them, also show a guaranteed income stream to a lenders. See “SRECs Can Turn PV Generation into Profits”.
Your utility may offer time of use (TOU) metering that prices your electricity differently at different times of the day. When electricity demand is high, rates are higher; when overall grid demand is low, rates are lower. In many locations, high TOU rates are designed to reduce peak demand caused by air conditioning. They may also coincide with times of high production from your PV system, earning you net-billing credit or, in some cases, FIT payments, at higher rates.
Most property insurance covers residential PV systems without additional charge, since they are typically permanently affixed to your dwelling or business. Check with your insurance agent to be sure.
And don’t forget taxes—the plan is for your PV system to make income for you, either by selling the energy or offsetting the energy you would otherwise have to buy. While income is taxable, there may be some offsetting business deductions, such as depreciation, that reduce your tax liability. Depreciation means that you can deduct the cost of acquiring your PV system. What you can deduct, you don’t have to pay income tax on.
Many jurisdictions exempt PV systems from property taxes. Check with your local assessor’s office.
After you determine the system cost and available incentives, refine your plan and prepare a benefit-cost analysis. Profit only occurs if benefits exceed costs. As you develop a spreadsheet, decide if you are going to determine accounting profit—which tallies the benefits and subtracts the costs—or economic profit, which factors in opportunity costs, such as if you could make more by spending your money and time doing something else. If you are investing in PV solely as a commercial enterprise, you should be concerned more with economic profit.
This article has concentrated on the financial benefits to individuals (investors) of developing PV systems. There are also benefits to society in terms of a cleaner and healthier environment. Those benefits accrue to society as a whole, rather than individual PV investors. The good news is that these societal benefits don’t have to directly accrue to the individual to make investing in a PV system a rational act for an individual investor. Investing in a PV system can mean not only doing well for one’s self, but doing good for society and the Earth.
Andy Kerr writes and consults on nature conservation and renewable energy issues through The Larch Company. He’s developed four residential photovoltaic installations and five solar hot water installations.
Related Home Power articles:
“Grid-Tied Solar in Small Town, USA” in HP101
“Mixing Business & Pleasure” in HP101
“Making PV Pay—It’s Just Good Business Sense” in HP117
“Building a Solar Business” in HP135
SREC Brokers & Aggregators:
Astrum Solar • astrumsolar.com/astrumsrecs
Flett Exchange • flettexchange.com
Sol Systems • solsystemscompany.com
Solarrus REC Trade • solarrusrectrade.com
SRECTrade • srectrade.com