How homeowners can understand climate finance

Solar panels generate electricity on the roof of a house in Rockport, Massachusetts, USA June 6, 2022. The picture was taken with a drone.

Brian Snyder | Reuters

When Josh Hurwitz decided to install solar power in his home in Connecticut, he had three important reasons: to reduce carbon emissions, ultimately store electricity in a solar panel in case of a power outage, and, most importantly, save money.

Now he’s on track to pay for his system in six years and then save tens of thousands of dollars in 15 years after that by insuring himself against utility rate inflation. It works so well that he’s getting ready to add a battery made by Tesla to allow him to store the power he produces. The key to the deal, he says, is tax breaks and other benefits from both the state of Connecticut and Washington, DC.

“You have to make money work,” Hurwitz said. “You may have the best of intentions, but if the numbers don’t work, it doesn’t make sense.”

Hurwitz’s experience points to one advantage of the Inflation Reduction Act passed in August: its extension and expansion of tax breaks to promote the spread of home solar energy systems. Adoption is expected to rise 26 percent faster due to a law that extends tax credits expiring from 2024 to 2035, Wood Mackenzie and the Solar Energy Association said in a report.

These loans will cover 30 percent of the cost of the system – and for the first time, a 30 percent loan is available for batteries that can store newly produced energy for use when needed.

“The main thing the law does is to give the industry and consumers the confidence that the tax breaks will work today, tomorrow and for the next 10 years,” said Warren Leon, executive director of the Alliance of Clean Energy Nations, a bipartisan coalition. government energy agencies. “Rooftop solar panels are still expensive enough to warrant some subsidies.”

California Net Solar Metering Decision

Confidence in solar is hard to come by as frequent policy changes turn the market into a “solar coaster,” as one industry executive put it. Once extended federal tax credits went into effect, California on Dec. 15 cut another major incentive to allow homeowners to sell excess solar power generated by their systems back to the grid at attractive rates, re-turning the math in the largest U.S. state and its largest solar market. , although the changes will not take effect until April next year.

Pair state and federal changes, and Wood McKenzie believes California’s solar market will shrink sharply in 2024, down as much as 39%. Before the Inflation Reduction Act stimulus was factored in, the consulting firm was forecasting a 50% drop as a result of the policy change in California. Residential solar is coming out of the historic district with 1.57 GW of installed capacity, up 43% from last year, with California accounting for just over one-third of the total, according to Wood McKenzie.

For potential transitions, tax incentives can quickly offset some of the initial costs of moving towards green technology. Hurwitz received a federal tax credit for his system when he installed it in 2020, and is preparing to add a battery now that it too comes with tax credits. Some contractors offer deals in which they take on upfront costs – and require a loan – in exchange for lease-back agreements for the system.

Combined with energy savings that homeowners don’t buy from utilities, the tax credits could make rooftop solar systems pay for themselves in as little as five years, and save $25,000 or more after recovering the initial investment over two decades.

“Will this growth be justified? Absolutely,” said Veronica Zhang, portfolio manager at Van Eck Environmental Sustainability Fund, a green fund focused on more than just solar energy. “With rising utility rates, it’s a good time to move if that’s what you thought about in the first place.”

How to Calculate Installation Costs and Benefits

That’s how numbers work.

Nationally, the cost of solar energy in 2022 ranges from $16,870 to $23,170 after a tax credit for a 10-kilowatt system, the size most frequently requested on EnergySage, a Boston-based solar panel and battery price comparison site. Most households can use a six or seven kilowatt system, EnergySage spokesman Nick Liberati said. He added that a 10-12 kilowatt battery costs about $13,000 more.

According to EnergySage CEO Vikram Aggarwal, these numbers vary significantly by region, as well as by size and other house-specific factors. In New Jersey, for example, a 7-kilowatt system costs an average of $20,510 before a loan and $15,177 after. In Houston, that’s about $1,000 less. In Chicago, this system is almost $2,000 more than in New Jersey. A more reliable 10-kilowatt system costs more than $31,000 before credit in Chicago and $26,500 in Tampa, Florida. All of these average prices are listed by EnergySage.

The effectiveness of the system can also vary due to the nature of the home, including the placement of trees on or near the lot, as we learned when we asked EnergySage’s online filing system to look at specific homes.

Rates on a single home in suburban Chicago ranged from $19,096 after a federal loan to $30,676.

According to filings, these costs are offset by energy savings and state tax credits that recoup the cost of the system in as little as 4.5 years. Contractors argued that energy savings and government incentives could save another $27,625 over 20 years, on top of capital costs.

Alternatively, consumers can finance the system but still own it themselves—we were given interest rates ranging from 2.99 percent to 8.99 percent. This eliminates upfront consumer payments, Aggarwal said, but reduces savings as some of the avoided utility costs go towards paying interest.

According to Dr. Hurwitz, the key to maximum savings is knowing your state’s specific regulations and getting help understanding often complex contracts.

Energy storage and excess power

Some states have more generous subsidies than others and more consumer-focused rules that require utilities to pay higher prices for the excess power that home solar systems produce during peak hours or even draw from homeowners’ batteries.

Until this week, California had some of the most generous rules. But state regulators have agreed to allow utilities to pay far less for the excess electricity they must buy after utilities said tariffs were too high and raised electricity prices for other consumers.

Wood McKenzie said the details of California’s decision made it less burdensome than the firm expected. EnergySage says the payback period for California systems without a battery will be 10 years instead of six after new regulations go into effect in April. The company estimates that savings will be about 60 percent less in subsequent years. Systems with batteries that pay off in 10 years will suffer little, according to EnergySage, because their owners keep most of their excess energy rather than selling it to utilities.

“New [California rules] will certainly lengthen current payback periods for solar and solar plus storage, but not as much as the previous proposal,” Wood McKenzie said in a Dec. 16 report. “By 2024, the real effects of the IRA will begin to show in the fetus.”

The more expensive electricity is from a local utility, the more value home solar power will make. And some contractors back up energy savings claims with agreements to pay a portion of your utility bill if systems don’t produce as much power as promised.

“You have to do your homework before you sign,” Hurwitz said. “But energy costs are always rising. It’s another hidden incentive.”

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