The Bright Side of Solar
Lower costs and more options point to a sunny future ahead for solar power.
For years, San Francisco property owners have known about the benefits of going solar: huge electricity savings, a rise in property values and, of course, the conservation of our natural resources. But not long ago, bringing solar power to rental properties could be prohibitively expensive, putting these systems out of reach even for the most green-minded housing providers.
However, several legislative and technological developments have helped to change the equation around solar and, suddenly, the renewable resource is looking like a very bright option for lowering bills and our impact on the environment.
Solar Scales Up
The modern-day solar movement really took off in the early 2000s with the passing of the Solar Investment Tax Credit (ITC) in 2006. This credit is a dollar-for-dollar reduction in the federal taxes owed by a person or company who has installed a solar system.
When the legislation was passed, it was a 30% credit applied to both customer-sited residential and commercial solar systems, as well as large-scale utility solar farms. But a 2015 extension to the law led to a step down in the credit. For projects that begin construction in 2020, it has dropped to 26 percent, and will drop further to 22 percent in 2021. In 2022, barring any last-minute legislative changes, the credit is due to drop to zero on the residential side and 10 percent for commercial and utility-scale projects. Owners considering installing a solar system would be wise to move ahead soon, before this benefit drops any further.
But even if the credit is dwindling, the 2006 legislation has certainly already done its job in bringing solar power to the mainstream. “The ITC has proven to be one of the most important federal policy mechanisms to incentivize clean energy in the United States,” according to the Solar Energy Industries Association. “Solar deployment, at both the distributed and utility-scale levels, has grown rapidly across the country. The long-term stability of this federal policy has allowed businesses to continue driving down costs.”
That’s because, in addition to the direct savings from the federal tax credit, the ITC also helped entice more and more people to sign on to solar, thus creating greater economies of scale. The SEIA estimates that solar has grown by over 50% each year since the law was enacted.
The increase in demand has led to huge cost savings. “From the early 2000s to now, prices have dropped probably 97 percent,” according to Micha Levin, managing member of renewables company GE Options. Levin believes that the tax incentive is part of the reason for that precipitous drop, as well as the plummeting price of silicon—the major component of most solar cells—during that time.
Levin says a lot of the price cuts on solar panels themselves took place in the early 2000s, but adds that there have been other operational savings as more “soft” installation costs have also fallen recently. The SEIA estimates that the total cost of installing a solar system has fallen by 70 percent since 2010, making solar production competitive with other more traditional forms of fuel.
Battery Prices Bottom Out
Thanks to technological improvements, large-scale battery storage costs have also come down significantly in recent years. According to Climate Central, a research consortium focused on climate change, battery energy storage prices are down 76 percent since 2012.
Storage is the answer to the old complaint critics of any type of renewable energy love to toss out, Levin says, because it allows renewable systems to hold on to extra energy and use it when needed. “You’ve heard Trump say the joke about, ‘You can’t watch television today because the wind is not blowing.’ That is a critique of renewable energy. But batteries or any storage of renewable energy is what offsets that,” he said.
Lower-cost storage options also allow owners to hold on to more of the power they generate, rather than putting it back on the grid. Solar advocates can imagine a time when every home will have solar panels on the roof and batteries in the garage or basement, providing backup energy during power failures and removing pressure from traditional power plants trying to meet peak demand.
“Batteries allow us to stabilize the grid,” says Levin. “They can be very, very useful on an onsite property basis. They can be backup power and they give you control over the kilowatt hours that you produce.”
As costs for solar energy production and storage have come down, leasing solar systems has become less popular. About 28% of residential solar systems are owned by third parties, down from 62% in early 2014, according to the SEIA.
In general, it makes more financial sense to buy solar systems outright if possible or utilize current low interest rates to finance the purchase of the system if the upfront capital expenditure would be too high. Leased systems (otherwise known as power purchase agreements) are not eligible for the federal tax credits mentioned above, not to mention any additional state, local and utility rebates and incentives. Furthermore, commercial solar systems like the kinds put on large apartment complexes reach a break-even point in a little over eight years, according to data collected by Paradise Solar Energy, a multistate solar installer.
Given that the average solar system comes with a 25-year performance guarantee, and many can last far longer than that, owners who anticipate holding their properties over the long term are making a bright investment when they install their own solar systems rather than lease them from a third party. “You’ll have decades left of solar’s financial benefits and truly free electricity,” according to the Paradise Solar report.
No matter how inexpensive solar production and storage has become, some buildings simply aren’t good candidates for the systems. Approximately half of U.S. households and businesses are unable to install rooftop solar due to space, lack of sun exposure or other limitations, according to PG&E. But many more people can still take advantage of solar’s benefits thanks to the recent rise in community solar and virtual net metering options.
Unlike a leased system, which generally involves paying a monthly fee for solar panels installed and maintained by a third party on the lessee’s property, virtual net metering (VNM) is more like a solar subscription service. It’s solar’s answer to the growing “share” economy.
A community solar array is a large scale, off-site solar panel installation that will offer available energy to hundreds of nearby homeowners and businesses, who can then purchase a portion of the community solar panels and get credits depending on their percentage of the array via VNM. (It is unclear if this purchase would allow the community solar owners to get a tax credit under the ITC, as the IRS has been deciding these on a case-by-case basis. But a 2015 ruling in favor of a Vermont taxpayer who bought into a local community solar system is often considered a guide for how the IRS would rule in similar cases.)
The amount of VNM credits that owners receive depends on the size of their share in the community solar system. For example, if the owner purchased 10 percent of a community solar array, they’ll be credited for 10 percent of the production of that system on their electric bill.
Because community solar and VNM allow people to buy into solar power without the time or expense of creating their own solar power on their properties, it has become increasingly popular in recent years. It is also a nice option for green-minded renters who pay their own electric bill as people do not need to be homeowners to buy into a community solar farm and residents can take the credits with them when they move as long as it’s within the same area.
Community solar is also beneficial because it allows for the economies of scale that bring solar system prices down even further. Florida regulators recently approved the buildout of 20 new community solar plants across the state by mid-2021. Each plant will bring in 74.5 megawatts of power for 1.5 gigawatts total—including 37.5 megawatts specifically set aside for low-income customers—nearly doubling the 2 gigawatts of community solar currently installed throughout the country.
Community solar may also create lower-cost opportunities for developers to comply with increasing green mandates without installing systems of their own. California recently made headlines by approving the state’s first community solar program since mandating that all new residential properties under three stories have solar power beginning in 2020. Sacramento’s recently approved Neighborhood SolarShares program allows developers within the Sacramento Municipal Utility District to sign on to a 20-year agreement with the utility to comply with the new solar building requirements. The solar community was watching the case closely as the SMUD agreement is likely to set the precedent in other municipalities across the state.
SMUD will use its current 13-MW Wildflower project located in Rio Linda to supply the solar power initially and will add several new community plants of 20 MW or less. To comply with the new regulations, occupants of new homes must participate in the community solar program for 20 years and will receive an annual net benefit of about $10 per kilowatt (kW) per year. But SMUD will also work with builders to continue to offer rooftop solar for owners who would prefer that, rather than enrolling in the community solar option.
Be it onsite or in the community, there are an abundance of options for those looking to renewable energy to both lower prices and lighten our load on the earth. Through a combination of government incentives and new technologies, it has never been easier to see a sunny future for solar power.
Emily Landes is the content director at Livable, a smart billing software company with products designed to save money, as well as the environment. To find out what Livable can do for your property, check out livable.com or call 877-789-6027.