Solar power projects derive their value from a range of sources including the Federal 30% Investment Tax Credit, state rebates, accelerated depreciation values, state tax credits, energy savings and the sale of generated solar renewable energy credits (sRECs).
The aggregation of these significant values – in combination with a favorable public policy environment – makes solar power a reliably economic choice for both large and small enterprises in the Mid-Atlantic region.
In addition to tax and rebate benefits, state policies in the Mid-Atlantic region ensures solar project owners maximize their lowest cost of energy production. At the same time, the low, levelized cost of solar power production compares against a backdrop of regional, deregulated energy markets – with annual rate increases averaging 6.5% per year.
Federal Investment Tax Credit Rebate
In 2008 the long-standing 30% Federal Investment Tax Credit (ITC) for renewable energy projects was extended until 2016 – providing long-term certainty for a significant value in solar project development. The Investment Tax Credit value represents 30% of the gross cost of the system and can be carried forward for 20 years, if needed.
In 2009, as part of the American Recovery Act (the stimulus bill), the Department of Treasury converted the 30% Investment Tax Credit to a 30% cash rebate program for commercial entities developing solar projects through 2011. The rebate is paid directly from the Department of Treasury upon utility inspection and system commissioning. There is no size or funding limit associated with the ITC cash grant but systems must begin construction by December 31, 2011.
Accelerated Depreciation
Commercial entities enjoy a significant additional benefit in solar project development through accelerated equipment depreciation. The capital expense related to the purchase of a solar system is eligible for Modified Accelerated Cost Recovery System (MACRS) at both the federal and state level – allowing for the full depreciation of a solar electric system in six years. The total cash value of deprecation varies – depending on federal tax brackets and state tax rates – but typically exceeds 30% of the gross cost of the project.
Net Metering Energy Policy
Net metering is the state energy policy allowing companies that generate solar electricity to receive full compensation for any unused energy provided back to the utility electric grid. Net metering eliminates the need for battery back-up systems. Your company provides unused renewable generated energy to the utility and receives a full retail rate credit, ensuring the ability to use lower-cost produced solar electricity when needed. In effect, the utility becomes a bank for renewable generated energy that can be used at a later date. In practice, you may see a credit applied to your traditional electric bill for renewable energy provided to the utility. If unused, credits for provided power roll over month-to-month or year-to-year without expiration.
Annual Utility Rate Increases
The average commercial rate of utility power ranges between $0.09 and $0.17per kilowatt-hour in the Mid-Atlantic area. Regionally, commercial rates are currently increasing, faster than the national average of 6.2% and greater than the rate of inflation and are expected to nearly double over the next 10 years. In contrast, solar provides a hedge against increasing utility power costs as a solar project is – in essence – the pre-purchase of energy at a set, low rate. The cost of solar power averages $.03-.04 per kilowatt-hour, a value that increases with each utility rate increase.