The solar marketplace is largely policy-driven. Because solar is expensive, federal and state incentives exist to encourage the commercial adoption of solar electricity. Each state supports solar through a variety of mechanisms, creating a nationwide web of subsidies that support solar projects to varying degrees. Understanding this fast moving, fluid marketplace is difficult for any firm without a dedicated resource tracking solar legislation and policy. The good news is that HelioSage does this for you.
A glossary of solar incentives includes:
30% Federal Investment Tax Credit (ITC)
Through 2016, the federal government will provide solar owners with a federal income tax credit valued at 30% of a system’s total installed cost. This legislation is part of the Energy Policy Act of 2005 (Section 1336- 1337).
Modified Accelerated Cost-Recovery System (MACRS)
The MACRS, 26 USC § 168, is an accelerated depreciation schedule that allows business to recover investments in solar property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. For solar, the current MACRS lifetime class is five years.
Solar Renewable Energy Certificates (SRECs)
In some states, a “Renewable Portfolio Standard” (RPS) requires electricity suppliers to secure a portion of their electricity from solar generators. Electricity suppliers are able to meet this obligation by purchasing SRECs from other owners of solar assets. An SREC is sold separately from the electricity and represents the “solar” aspect of the electricity that was produced. It also provides a parallel source of production (kilowatt hours and SRECS) and a new revenue stream for the owner of a solar asset.
The value of an SREC is determined by the market, subject to supply and demand constraints. The market is typically capped by a fine or solar alternative compliance payment (SACP) paid by any electricity suppliers for every SREC they fall short of the requirement. The sale of SRECs is intended to promote the growth of distributed solar by shortening the time it takes to earn a return on the investment.
SRECs are traded on a “megawatt hour” basis:
1 SREC = 1,000 kWh of solar electricity = 1 MWh of solar electricity
100 kW solar capacity = ~120 SRECs per year
State Investment Tax Credits
Around twenty states offer personal and/or corporate investment tax credits to help offset the expense of purchasing and installing solar energy equipment. Tax credits generally range from 10% to 50% of project costs. State tax credits tend not to be the primary motivating factor influencing purchasing decisions, but they can help “seal the deal” when coupled with federal incentives.
Grant & Rebate Programs
State grant & rebate programs are a fairly typical mechanism for legislatures interested in promoting solar development on a state wide basis. Most grant and rebate dollars are paid out as either a Capacity Based Incentive (CBI), providing a dollar per watt of installed capacity metric, or a Performance Based Incentive (PBI), providing a dollar per kilowatt-hour of production metric. These programs tend to be relatively short lived as they are tied to a finite amount of state funds that tend to be spoken for relatively quickly. Therefore, grant and rebate programs are often used to jump start a nascent market and represent short “windows” of opportunity for solar owners.
Feed-In Tariffs (FIT)
A feed-in tariff (also known as an “FIT”, “standard offer contract”, “advanced renewable tariff”, or “renewable energy payment’) is a policy mechanism designed to accelerate investment in solar by establishing a program whereby the owner of a solar asset can secure long-term contracts to sell electricity to a local utility. Tariff rates differ from program to program, but all are designed to enable profitable investments in solar. Typical terms are 15-25 years.