Going Solar

The federal, state and local policies you need to know

  • Trina Solar Inc.'s, San Jose, Calif., Trinamount system was installed on the Meridian Center Solar Plant, Eatontown, N.J. More than 3,100 panels on 25 minisystems were installed on four buildings. Photo courtesy of Aerial Photos of New Jersey, Clinton, N.J.
  • One of four buildings at the Meridian Center Solar Plant in Eatontown, N.J. The 728-kilowatt system is expected to produce 830,000 kilowatt-hours every year.Photo courtesy of Aerial Photos of New Jersey, Clinton, N.J.

Although the construction sector still feels the strain of the nation's recession, the solar industry continues to demonstrate its viability. The solar industry is booming: Panel costs are rapidly decreasing; more financing options are available; and smart policies are enticing businesses and homeowners across the U.S. to go solar.

In the same way technology improvements and financing innovations have opened the door for more homeowners and businesses to go solar, advances in installation practices have reduced installation costs and enabled more workers to join the solar industry.

It's no wonder The Solar Foundation's jobs census report, "National Solar Jobs Census 2011: A Review of the U.S. Solar Workforce," stated the solar industry surpassed 100,000 jobs in an otherwise down economy or that the Solar Energy Industries Association® (SEIA) reported 2011 was a record year for solar growth. Data from SEIA's quarterly U.S. Solar Market Insight™ reports reveal the industry more than doubled the number of installations from 2010 to 2011.

Despite some sensational headlines that seemingly indicate the U.S. solar industry has troubles ahead, the truth is it has shown significant growth nationally and in multiple localities.

As the industry evolves, roofing companies, particularly businesses with long track records of installing quality roof systems and providing superior customer service, can benefit. Compared with new solar companies that still are building names for themselves, long-established roofing companies have community relationships and brand recognition they can leverage to help consumers go solar.

However, to successfully take advantage of this opportunity, you must understand how federal, state and local policies shape the national market and the distinct state markets within the U.S.

Federal incentives

Understanding solar incentives at each level—national, state and local—provides insight about breaking into the solar market. Currently, the federal government enables all purchased solar systems for residences and businesses to qualify for a solar investment tax credit (ITC). Congress created the solar ITC through the Energy Policy Act of 2005 and later extended it through December 2016. Essentially, it allows the Internal Revenue Service to provide homeowners with a 30 percent tax credit based on the post-rebate price of their systems.

Tor Valenza, also known as "Solar Fred," offers a great example of how this works in his blog "How to Calculate the 30% Federal Solar Investment Tax Credit." He explains if a homeowner buys a $35,000 solar system and receives $15,000 in state and local rebates, the 30 percent in this case is based on the remaining $20,000. In this scenario, the result is a $6,000 tax credit, which reduces the price of the system to $14,000.

The 30 percent credit also is available to businesses that purchase solar systems. To borrow from Valenza's example: If a business purchases a $40,000 solar system, the 30 percent applies to the original price tag, reducing the price to $28,000. The business still is eligible for state and local rebates (though the federal government views the rebate money as taxable income), which reduces the system's full price.

Additionally, businesses can claim a depreciation tax credit for this infrastructure investment through the Modified Accelerated Cost Recovery System, which allows business owners to claim their solar systems as a business operations expense and deduct a greater amount during the first five years of a system's life cycle.

State and local policies

In addition to national tax incentives, many states, counties and cities have regional incentives to spur local solar adoption. Many states have a renewable portfolio standard (RPS) policy requiring a certain percentage of energy production come from renewable sources such as solar. In short, high RPS goals encourage states to enact various programs and incentives aimed at successful long-term solar development.

Currently, more than 30 states have an RPS policy in place though percentages and deadlines vary. For example, the top two states for solar installations—California and New Jersey—have a 33 percent and 20 percent RPS mandate, respectively. Both have a target date of 2020. Hawaii currently has the highest RPS requirement, which is 40 percent of energy production from renewable sources by 2030.

Resources such as Ernst & Young's 2012 Renewable Energy Country Attractiveness Indices can help you determine the state markets that may grow. This index scores long-term attractiveness for individual renewable technologies based on states' unexploited resources, as well as appealing financing structures and tax incentives. Its 2012 scores indicate California, Colorado and New Mexico will remain top states in the long run, but it estimates Hawaii and Massachusetts soon will enter the top five.

There also are a number of trade association reports indicating which states are in the solar growth pocket. SEIA's 2011 U.S. Solar Market Insight report shows California, New Jersey, Arizona, New Mexico and Colorado ranked as the top five states with the most megawatts installed in 2011. The states rounding out the top 10 are Pennsylvania, New York, North Carolina, Texas and Nevada.

To increase local solar adoption, states and cities use several types of incentives to encourage businesses and homeowners to go solar. One type of incentive is a feed-in-tariff (FiT). Utilities offer home and building owners a tangible reward for installing solar by paying them for the energy generated from the system.

A recent example is the Los Angeles Department of Water and Power's CLEAN LA Solar program. Approved in April, the program makes more than 12,000 acres worth of rooftop space available for solar projects. The Los Angeles Business Council sponsored a study conducted by UCLA that found a 600-megawatt FiT, similar in size to the CLEAN LA Solar initiative, could result in 18,000 green jobs.

Other incentives include performance based incentives (PBIs). PBIs provide payments based on the estimated amount of kilowatt-hours (kWh) a solar system generates. For example, if a locality offers $1 per watt in incentives, a 5-kWh system (5,000 watts) would receive a $5,000 rebate off the system's cost. The PBI amount varies by jurisdiction and installation type (residential, commercial or nonprofit) and system size. Many state and local incentive programs have online calculators to help calculate the actual savings. Regardless of incentive amount or rules, all rebate programs place a premium on having a well-performing system. Installers with a poor track record of installations may be excluded from these incentive programs.

Finally, home and building owners also can take advantage of another program called net energy metering (NEM). State utility commissions are testing various implementations, but the overall process includes the system host enrolling in an NEM program with the local utility company. Net metering enables customers to use their own generation from solar electricity to offset their electricity consumption during a billing period. It allows their electric meters to literally turn backward when they generate solar electricity in excess of their demand. If a home or business creates more energy than used, some states enable customers to "bank" their excess energy and receive the monetary value of the net excess credit at the end of a period, typically a calendar year.

New financing opportunities

In addition to RPS policies, emerging initiatives to reduce the upfront costs for solar projects also have been a catalyst for various markets across the U.S.

Power purchase agreements (PPAs) are one of the more popular financing mechanisms available to solar projects. These agreements, which are similar to leases, are between the host customer (homeowner or building owner) and the solar services provider.

In this relationship, host customers enable the solar services provider to put solar on their buildings' rooftops or adjacent land. Host customers pay for the power the panels generate without owning the system. The solar services provider owns the system on the property and charges the homeowners or building owners a monthly locked-in rate that is cheaper than their current monthly utility bill for a predetermined amount of years. Additionally, the solar services provider is responsible for arranging the financing, design, permits, construction, installation and upkeep processes.

PPAs are popular because they deliver the benefits of solar to the host customer while ameliorating the upfront costs that often are a barrier for property owners to adopt solar. In most states, PPAs still are eligible for FiTs or net metering rebates, reducing the monthly "lease" payment to the solar services provider.

Interested roofing professionals can take advantage of these new PPA models by working with national financing companies. In some cases, these companies will market their financing options. Customers then contact the financing companies, and the financing companies subcontract the installation to a network of local installers. In other cases, installers market their installation services and offer third-party financing through their financing partners. In either case, the financing models enable an easy way for installation businesses to join the solar industry.

FiTs, NEM and PPAs commonly are found in state solar policies, but other policies may affect solar rooftop businesses. The Database of State Incentives for Renewables & Efficiency at www.dsireusa.org is a great resource to obtain a rundown of state and local policies.

Local permitting issues

Like many construction businesses, the permitting process adds obstacles, costs and time to the installation process. In fact, nonhardware, or "soft costs," can amount to up to 40 percent of the total installation cost of a rooftop photovoltaic (PV) system. As many in trades know, system costs vary as permitting rules change among jurisdictions.

The solar industry, Department of Energy (DOE) and local jurisdictions are working to address the differing rules to reduce costs and speed up installation times. Currently, DOE is conducting the Rooftop Solar Challenge, a national competition where 22 teams test ways to streamline and improve the "going solar" process. The systems being tested include online permitting systems, community solar education and expanding financing options. The goal is to reduce the administrative barriers to solar rooftops and reduce costs for customers and solar product installers.

Developing a foothold

The solar industry remains primed for continued and explosive growth, and changes in installation technology are enabling roofing professionals to add solar installations to their suite of services.

The manufacturing side of the industry is working to address installation costs and quicken the installation process. Solar panel manufacturers are producing affordable, high-performing panels that fit easily into different mounting systems. These systems reduce installation time and labor costs, which are important factors in lowering the soft costs of an installation and provide greater security from panel theft.

Because federal and state policies laid the groundwork for a long-term market and the savings from higher-performing panels are creating solar adoption, you can make PV installations an attractive addition to your established businesses.

Mike Grunow is the marketing director at Trina Solar Inc., San Jose, Calif.

Did you know?

NRCA offers Photovoltaic Roof Systems: Energizing Your Business, a unique educational course focusing on the latest information about the terminology, benefits, design considerations, construction details, electrical considerations, code compliance, and business and legal issues associated with photovoltaic roof systems.

For more information, go to www.nrca.net/nrcauniversity or contact NRCA's Customer Service Department at (866) ASK-NRCA (275-6722) or info@nrca.net.



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