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7 California Solar Incentives you Need to Know

Posted by Sunny Wang on Jun 18, 2020 6:00:00 AM

With California’s year-round sunny skies, ambitious climate change goals, and a selection of solar incentives to choose from, going solar might be more affordable than your customers think. Here's a compilation of the Golden state's top solar incentives that you can share with your prospective residential customers to help them go solar.

The exact cost of your PV system (and how much you’ll save on your utility bill) depends on a list of factors. Some include the size of your PV system, which installer you choose, eligible solar incentives, which utility services your region and their electricity rate structure, and how much electricity you use. 

Regardless of where you live in California, there are a few solar incentives and savings benefits for you, including property-assessed clean energy (PACE), property tax exemption for PV systems, and Net Energy Metering (NEM). Another tax solar incentive that is quite substantial is the federal solar tax credit—also known as the investment tax credit (ITC). Continue reading to find out more about these offerings and more.

California Tax-Based Solar Incentives

Property-Assessed Clean Energy (PACE) 

PACE—known as the Home Energy Renovation Opportunity (HERO)— is a loan option that allows property owners to finance their qualified solar energy and energy efficiency projects through their property taxes. Local or state governments, working with traditional financiers, fund the upfront cost of the project, and homeowners pay back their local authority via an increased property tax bill, usually over a period of 20 years. PACE programs are currently operating in 20+ states, including California. 

Property Tax Exclusion for Solar Energy Systems

In California there are two main ways a reassessment at full market value of your property can be triggered—when you sell or buy a house and when there’s new construction or major house renovations. Section 73 of the state’s revenue and taxation code allows a property tax exclusion for qualifying new solar installations. Meaning, your property taxes will not increase if you install solar on your property. This tax exclusion was set to expire in 2016, but is now extended through January 1, 2025. Find out more about the active solar energy system tax exclusion and what qualifies here.

The Investment Tax Credit (ITC)

Though not a California specific solar tax incentive, the federal ITC provides additional and significant savings for solar installations. Every homeowner who buys and owns their PV system can claim and deduct 26% of their solar installation costs from their federal taxes (tax liability) this year—2020. For example, if you install a PV system that costs $20,000, and you owe $6,000 in taxes, you can reduce your tax liability from $6,000 to $1,200 by applying your $5,200 ($20,000 x .26) solar installation tax credit.

If the value of your tax credit exceeds your tax liability, you can apply the unused credit to the following year’s taxes. Using the same example above, if your tax liability was $3,000 instead of $6,000, you can roll over the unused $2,200 ($5,200 - $3,000) to next year’s taxes. 

Note: you can only roll over any unused credit once, and the ITC is in addition to all local and state rebates and solar incentives you receive. Also, the value of the ITC started stepping down this year from 30% to 26%; it will drop to 22% in 2021, then to zero for residential installations in 2022 unless Congress renews it. 

Here’s an in depth guide about the ITC for homeowners from the Department of Energy.

Net Energy Metering

Net metering (also called Net Energy Metering or NEM) allows utility customers to sell their excess solar energy they’ve generated for on-site use to reduce their electricity bill. NEM has become the dominant approach in the U.S. for compensating solar customers for the energy they contribute to the grid. In California, NEM right now is mandatory, and it increases the value of rooftop solar.

New participating PV systems must be sized to meet customers’ demand—not higher, and switch to a time-of-use electricity rate.

If you choose to participate in NEM, you will receive a bill credit for the excess solar energy your PV system produced and exported to the electric grid. The credits you’ll receive on your bill will be the same rate that you would have paid for electricity. We’ve written extensively about NEM and what it’s changes will mean for solar savings; learn more about California’s latest NEM policy here—NEM 2.0.

Solar for Affordable Housing

California’s Single-Family Affordable Solar Housing (SASH) program provides incentives to qualifying low-income single family homeowners to help offset the upfront costs of installing solar. The program offers one up-front incentive level of $3/Watt to all qualifying applicants. SASH is overseen by the California Public Utilities Commission (CPUC) and administered by the non-profit Grid Alternatives.

The state’s Multifamily Affordable Solar Housing (MASH) program, which is now closed to new applicants but has a waitlist, provides incentive rates of $1.10 to $1.80/Watt for qualifying multifamily affordable housing. It is administered by PG&E, SCE, and the Center for Sustainable Energy in SDG&E territory.

Local Incentives

Many city-level rebate programs have expired, but it’s worth taking a look in your area. The City of San Francisco’s GoSolarSF program offers a one time cash incentive to residential, commercial, and nonprofits to encourage solar installations. There are different levels of incentives; for CleanPowerSF and Hetch Hetchy residents, the 2020 incentive rate is $100/kW, $250/kW if installed by a San Francisco contractor. Learn more about the different incentive rates and eligibility here.

 

Topics: Solar Incentives

Opportunity Zones Explained: A Helpful Solar Incentive

Posted by Lisa Cohn on Dec 11, 2019 2:50:34 PM

Federal opportunity zones, which offer tax benefits to qualifying businesses, are little known and not always well understood. But they can offer important advantages to solar companies, adding to solar tax benefits such as the federal Investment Tax Credit (ITC).

Opportunity zones were created to promote economic development in low-income communities by allowing companies to defer capital gains taxes, said Roman Petra, attorney for Nelson Mullins who specializes in commercial real estate transactions.

“The zones offer tremendous value for solar,” said Jim Spano, a managing partner of Spano Partner Holdings, who has been involved in the development of more than 300 megawatts (MW) of solar. “Having a tax break in areas where economics don’t support solar can provide lower cost of capital and opportunities for projects to pencil out.”

Pairing Solar Benefits with Opportunity Zone Benefits

Jeff Just, co-founder, along with Spano, of RadiantREIT, which provides financing for solar projects, added that locating a solar installation in an opportunity zone allows businesses to double dip on tax benefits.

“They get all the benefits of the zone—including permanent exclusion of future capital gains—while keeping all the tax benefits of solar...There are no limitations on pairing these two opportunities,” he said.

Developers who invest in economically distressed communities through the program are given three tax incentives: temporary deferral, step-up in basis, and permanent exclusion of capital gains. Let’s take a look at each in more detail below.

Deferral, Basis Step-up and Gain Exclusion

With temporary deferral, investors can defer tax on prior capital gains reinvested in a Qualified Opportunity Zone. Investors also receive a step-up in basis for capital gains reinvested in a Qualified Opportunity Zone.

A higher basis means lower capital gains. Under the program, the basis steps up by 10% if the investment is held for at least five years, and by an additional 5% if held for at least seven years.

The third incentive, permanent exclusion, says that if held for at least ten years, capital gains from the sale or exchange of an investment in an Opportunity Zone may be permanently excluded from capital income.

Creating A Qualified Opportunity Zone Fund

To qualify for the Opportunity Zones program, investors must establish a Qualified Opportunity Zone Fund. This fund holds Qualified Opportunity Zone property.

Many different types of taxpayers can establish an opportunity fund, including corporations, partnerships, limited liability companies, and individuals.

Different segments of the solar industry can take advantage of opportunity zones, including solar equipment manufacturers that produce panels, inverters, batteries, battery charge controllers and components, and equipment that moves DC energy produced by solar panels for conversion into AC electricity, said Petra. Solar installers and solar farms also qualify.

It’s important to understand where the zones are located—and identify whether a solar business can take advantage of the zones, said Spano.

The Importance of Consulting an Attorney

“As business people, we look at the definition of opportunity zones in geographic areas and the qualification requirements of the business,” he said. Because it’s not always easy to determine whether a business qualifies for the benefits, his company always consults attorneys. “Our attorneys advise us about how to present our applications for qualification,” he said.

The eligible tracts for the zones are based on economic indicators of median family income and poverty, said Petra. States are limited to establishing zones in 25% of their low-income communities. In other words, if a state has less than 100 tracts identified as low-income communities, 25 qualify, he explained. The tracts are chosen based on statistics from the U.S. Census.

Consider Focusing on Puerto Rico

Puerto Rico—which is rebuilding its energy infrastructure in the wake of the devastation of Hurricane Maria—received special treatment, with 835 of 945 low-income tracts qualifying as opportunity zones.

“Of particular interest should be Puerto Rico, which after Hurricane Maria has made a concerted effort to promote alternative energy, especially solar energy,” said Petra.

Last year, the U.S. Department of Treasury certified over 8,700 individual census tracts as Qualified Opportunity Zones in 50 states, six territories and the District of Columbia, he said. About 35 million people live in these zones, which are established for 10 years.

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Look for Opportunity Zones in Rural Areas

“Most solar energy developments located in opportunity zones should qualify,” said Petra. He added that “Developers should consider rural areas, where over 23% of census tracts are located and land tends to be more available and cheaper.” Solar developers should also consider opportunity zones in the states with the most sunshine, he noted.

In order to qualify for the tax benefits, a Qualified Opportunity Fund must invest in a Qualified Opportunity Zone Business. A Qualified Opportunity Zone Business must be a trade or business in which substantially all (70%) of the tangible property is owned or leased in a Qualified Opportunity Zone, said Petra.

Fifty percent or more of the business’s total gross income must come from actively doing business in the Qualified Opportunity Zone. And at least 40% of the company’s intangible property must be actively used in a Qualified Opportunity Zone. Intangible property includes non-material assets such as bank accounts, copyrights, stocks, patents, bonds, insurance policies, retirement benefit accounts, plus customer lists or trade secrets, all of which have a dollar value.

Petra notes that the location of the business is especially important to qualifying for an enterprise zone. “The focus is on the location of the business, but a Qualified Opportunity Zone Business must meet other tests,” including the requirement that the company must derive 50% of its gross income doing business in the Qualified Opportunity Zone,” he said.

It’s important for solar businesses looking at the program to understand what’s needed to qualify as an Opportunity Zone Business, he said. Spano agreed, noting that the zones can be confusing, so it’s important to work with attorneys.

Offsetting the Step Down of the ITC

“In an ideal world, I believe the zones will be utilized and they will help offset some of the step down in the Investment Tax Credit (ITC),” Spano added.

The ITC is a 30% tax credit for solar systems on residential and commercial properties, and steps down to 26% in 2020, 22% in 2021, and in 2022, 10% for commercial and utility-scale projects and zero for solar.

“The final benefit of the Qualified Opportunity Zones program is if the investor holds the investment for more than 10 years, any subsequent gain recognized escapes federal tax entirely,” said Petra. (It is important to note, however, that a state may not follow the federal law and may tax the gain.) Overall, the tax benefits available to investors should translate to long-term, cheaper capital, he said.

To date, most of the qualifying transactions in the zones have been in real estate, said Petra. “Generally, real estate projects are well suited... but as folks have gotten more comfortable with the program, other industries [like solar] have gained interest in the program.”

Has your company been involved in solar developments in Opportunity Zones? Share your experience in the comment section below!

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Topics: Solar Incentives

Don’t Overlook the Power of SRECs in Your Solar Sales Discussions

Posted by Sara Carbone on Nov 28, 2018 4:05:10 PM

As a solar contractor, you’re always looking to convey the most persuasive and relevant information in your sales conversations. When you’ve found the ideal prospect, you want to make it abundantly clear how a solar installation can benefit them–including clearly spelling out the financial benefits. You also want to build trust by providing up-to-date, educational information that answers their questions and concerns about going solar.

If your prospective customer lives in a state that offers Solar Renewable Energy Certificates (SRECs), a discussion of SRECs–which can significantly increase the return on investment–should be an integral part of your conversations.

This article explores a number of important points about SRECs you may want to bring to a prospect’s attention in a sales conversation.

The Basics: What Are SRECs?

An SREC is a renewable energy certificate (REC) for solar. RECs are tradable credits purchased by electric utilities to serve as proof that they have procured a certain percentage of their energy from renewable sources like wind and solar power. The percentage requirement is established by a state as part of a Renewable Portfolio Standard (RPS), a mandate created to encourage the use of renewable energy. Twenty-nine states, Washington, D.C., and three territories have adopted an RPS.

Each REC represents the environmental benefits of one megawatt hour (or 1000 kilowatt hours) of renewable energy generation. One SREC is created for each megawatt hour (MWh) of electricity generated from solar energy systems. A state with an SREC market has a solar-specific renewable energy requirement for utilities, or “solar carve-out,” to help spur the development of solar under the state’s RPS. PV system owners in these states can earn income by selling SRECs associated with their systems’ output (in the form of these electronic certificates) into their state SREC market.

State RPS Policies as of October 2018. From the Database of State Incentives for Renewables & Efficiency (DSIRE).State Renewable Portfolio Standards as of October 2018. Source: NC Clean Energy Center’s Database of State Incentives for Renewables & Efficiency (DSIRE).

Highlight Eligibility for SREC Income

First, you may need to tell prospective solar customers if their state has an SREC market (or if they can sell SRECs in another state market), as they may not be aware.

The states that have SREC markets are Illinois, Ohio, Pennsylvania, Maryland, New Jersey, Delaware, and Massachusetts, as well as Washington, D.C. States that don’t have an SREC market but where people can sell SRECs across the border in the Ohio SREC market are Indiana, Michigan, Kentucky, and West Virginia. Pennsylvania allows SRECs to be sold into the Ohio market as well, and historically has allowed out-of-state generators to participate in its SREC market–though changes implemented in 2017 have begun to limit this.

Regardless of the presence of a state market, it should be made clear to your customers that SRECs are only available to the owners of PV systems. This means that homeowners and businesses going solar via a lease or PPA, are not eligible for SRECs. This may be an important consideration for them as they weigh different solar financing options.

States with SREC markets (i.e. that have a solar RPS) or where solar customers can sell SRECs in other state markets.States with SREC markets or where solar customers can sell SRECs in other markets. Data source: SRECTrade.

Explain the Value of SRECs

A solar system owner earns one SREC for every 1 MWh of electricity their system generates. The average size five kilowatt (kW) residential system produces between five to eight and a half MWh of electricity per year (i.e., 5 to 8 SRECs). (An analysis of the production of 4.9 to 5.1 kW PV systems designed in Aurora found an average of 6.81 MWh per year, with most systems producing between 5 and 8.5 MWh per year.) Given that, SRECs can seriously impact the financial returns of installing solar panels in some areas.

The actual amount of money a solar panel owner will receive for their SRECs varies by state market and SREC prices fluctuate over time. For example, in 2018, the price per SREC in Washington D.C. ranged from $420 to $295 and in Massachusetts they ranged from $322 to $265; meanwhile in Maryland and Ohio, they ranged from $15 to $5.50 and $7 to $3.50 respectively.

SREC value is determined by supply and demand. The demand is largely driven by utilities’ need to meet their solar RPS requirement or pay a compliance penalty if they don’t. This penalty is called an Alternative Compliance Payment (ACP) and is a per-MWh fine that electricity providers must pay for the amount they fall short of their RPS requirements. The ACP serves as a ceiling on SREC prices because electricity providers will save money by buying SRECs only if the SRECs cost less than the ACP. Therefore, lower ACP values equate to lower SREC prices.

As more solar is installed, there is a greater supply of SRECs in the market. This can result in lower SREC prices over time. However, the volume of SRECs required in a state is directly proportional to the overall RPS requirements for that particular state. Often those RPS requirements are set to increase over time, which can mean that the demand for SRECs increases along with solar installation numbers.

(Note: If you use Aurora solar software, our financial analysis tools can help you to calculate the value of the customer’s SRECs.)

Sign up for a demo to learn more about these features and see them in action.

Know the Specifics of Your State Market

Each state has different parameters for their SREC program in terms of things like how much energy utilities must source from solar, the cost of the ACP, and the length of time customers can receive credit for SRECs. You’ll want to be familiar with the details of the SREC markets in the states where you operate so that you can be an effective resource for your customers.

For example, in Massachusetts, the RPS requires that, by 2020, 15% of all electricity sold by regulated electricity suppliers serving retail customers come from renewable sources. While the state’s 1,600 MW program cap has been reached, their “SREC II” program has been extended to help transition to a new Solar Massachusetts Renewable Target (SMART) incentive program. SREC prices in Massachusetts are also determined by an additional factor, the Solar Credit Clearinghouse Auction, which is an opportunity for brokers to sell SRECs at a set, guaranteed price when there is market oversupply. In 2017, the SACP was set at $350 and the Solar Credit Clearinghouse Auction II price was set at $285.

In Illinois, the RPS commits the state to producing 25% of its electricity from renewable energy sources by 2025, with 1.5% coming from solar systems. New Jersey utility PSG&G created a particularly creative initiative to provide loans to homeowners for their solar systems, allowing the loan repayment to come from the SRECs generated by their solar systems.

The length of SREC programs also vary. In Massachusetts and New Jersey PV system owners can claim SRECs for ten years. In Maryland, in contrast, eligible systems can continue to produce SRECs for the duration of the installation’s productive life. The Database of State Incentives for Renewables & Efficiency (DSIRE) is a helpful resource for state-specific research about SRECs. Being able to highlight local nuances to your customers is crucial to helping them understand the policies that will apply to them.

Limitations and Special Cases

There are a few caveats and special circumstances your customer may want to know about. If homeowners or businesses sell their SRECs in an SREC market they cannot claim that their building is powered by solar or make claims about reducing their carbon footprint with solar (particularly applicable to businesses interested in making this claim for marketing purposes.)

That’s because by selling their SRECs solar customers transfer the right to claim their energy as renewable because the utility is now using those SRECs to reduce the amount of renewable energy they would otherwise have to generate themselves. If the owner of the solar system claimed it for themselves as well it would mean the resulting emissions reductions would be counted twice, something regional tracking systems work to prevent. (For more on claims refer them to the Environmental Protection Agency’s Solar Power Use Claims Guidance.)

Customers may also be keen to know that if they sell their home or business in the future, they can transfer rights to SRECs to the new buyer as part of the sale process. This can act as an incentive for getting a higher sale price.

How Does Selling SRECs Work?

There are several ways a solar system owner can sell their SRECs. Many solar customers opt to sell their credits through an aggregator who acts as a broker between system owners and state markets. For a fee, these companies manage SREC sales to maximize returns and sometimes provide other resources like online systems to track performance.

Working with an aggregator requires less expertise and direct management than selling SRECs directly in the state market, though that is also an option. Alternatively, some customers enter into an agreement with a financing partner where they receive a fixed payment for SRECs over a set number of years. This can serve to insulate them from market fluctuations.

Some solar financing companies and SREC aggregators offer partnership programs with solar contractors. Like all major business decisions, these options should be weighed carefully. However, as you become more familiar with SRECs and the options you find to work best for your customers, these kinds of programs may be a worth exploring to help your customers monetize their SRECs.

Many customers are motivated to install solar because of the savings it can offer. A compelling sales conversation is bolstered by the inclusion of the role SRECs can play in a customer’s solar ROI. Depending on the state, SRECs can generate significant income for the system owner. Because SRECs and SREC markets can be complex topics to understand, positioning yourself as a resource to help prospective customers make sense of the details can be a great way to build trust and showcase the financial benefits of solar.

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Topics: Solar Sales, Solar Incentives

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