### New Solar Tax Credit changes the game

The newly enacted Federal Solar Tax Credit makes a real difference.In a state like

**California**which has lots of sun, high electric rates, and provides its own solar incentives the elimination of the cap will really boost solar installations.

Assuming an $8/W installed price for solar panels, a 3.5kW installation of solar panels (enough to supply nearly 600 kwh/mth) would cost $28,000 total. But after state rebates (worth $1.90/W) and the solar tax credit (worth ~$1.83/W) the homeowner would pay just under $15,000 (~$4.27/W) for a system that generates $1,000/yr worth of electricity ($0.14/kwh rate).

**The yield from this solar investment is 6.6% tax free.**An equivalent taxable investment would have to yield ~9.5% (assuming a 30% tax rate).

Oh yeah, don't forget the solar investment is 1) risk free, & 2) understated because the year-by-year return (i.e. yield) will rise as energy prices go up in the future.

There are now eleven states that have residential electricity rates greater than or equal to $0.14/kwh; the US residential average is now about $0.115 kwh according to the DOE. If you look at the bottom you can see that in Hawaii the residential price is $0.31 kwh (!!). I almost can't believe this.

Hawaii gets as much sun as CA, let's assume 2,000 hrs/yr and state incentives (dsire shows that the state offers a 35% tax credit up to $5K), a $10/W installed price fora 3.5kw solar system (price is assumed to be $2 higher than CA due to less competition) leads to a sticker price of $35,000. After the federal tax credit ($2.8/W), and the $5k max state rebate (~$0.7/W) leads to a homeowner cost of just under $23,000* ($6.5/W) for a system that generates $2,200 worth of electricity each year (the value is higher b/c electricity costs more).

**A solar system in Hawaii yields ~9.6% tax free**each year (a.k.a. 10.5 yr simple payback). The equivalent before tax yield would have to be 13.7% (again risk free).

SOLAR POWER IS FULLY ECONOMIC IN HAWAII.

I predict that homeowners, companies and utilities begin installing solar hand over fist on the islands come 2009!

*I assumed the state rebate must be subtracted before applying the federal tax credit. The effect of this assumption is to undercount the federal tax credit amount (i.e. the tax credit would be bigger) if one can apply the federal tax credit first.

## 3 Comments:

Solar system roughtimate:

The initial cost of the Sharp 2.160 kW Solar System is $12,739. This does not include installation.

Here is my math.

12,736 - 4000 tax credit = 8736

8736 - 25% WI state rebate = $6552

Actual efficiency = 80% of ideal = .8 * 2.160 kWh = 1.728kWh

Maybe 8 hours a day worth of sunlight.

15 days on non cloudy days a month

from my energy bill this month, 1kWh = $.117630

1.728kWh * 8hours * 15 days * $.117630 = 24$ a month savings.

$6552 initial cost / 24 per month = over 22 years to see a return on your investment.

And this is assuming there is no maintenance cost and that the system will work flawlessly for 22+ years.

Am I calculating this correctly??? What am I missing???

rickatopenthesundotcom

www.openthesun.com

Hi Rick.

First of all solar IS expensive power! (it is also high quality, reliable and predictable over longer than a week timescales.)

I would encourage you to install efficient lighting, upgrade insullation and weather-stripping, upgrade appliances, add powerstrips, etc and perhaps invest in a solar thermal system (for heating water) before investing in solar PV, as these all have much faster paybacks.

That said, I would do the math slightly differently (include the installation costs to begin with then take the state & federal credits) but your end result is about right.

First of all, you get a return on your investment EVERY SUNNY day! It is a small return and given your calculations it will take 20 years to pay for itself. But it won't really take 20 years because your utility rate will go up each year and the cost of sunshine won't.

Finally a 20 year payback is equivalent to a 5% tax-free return (7.1% before tax return). Which is not a bad investment.

Hi! nice post. Well what can I say is that these is an interesting and very informative topic. Thanks for sharing.Cheers!

- The

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