Since 2006, commercial solar projects in the U.S. have been eligible for a federal solar incentive known as the Section 48 Investment Tax Credit (“ITC”) which provides a 30% federal tax credit. This tax credit delivers system owners a dollar-for-dollar reduction in cash income taxes that would otherwise be paid to the federal government, in an amount equal to 30% of a solar project’s cost basis.
The 30% ITC has been the primary tool used to promote solar in the U.S., and has been wildly successful, with total annual US solar installations increasing from only 106 megawatts (“MW”) in 2006 when the ITC was introduced to 6,201 MW in 2014, according to data from GTM Research’s U.S. Solar Market Insight.
Despite its success, under current law, the 30% ITC will step-down to only 10% at the end of 2016. For businesses considering the economic feasibility of solar (which any business interested in saving money and reducing risk should be), the clock is ticking; there are only 20 months left before the ITC is significantly curtailed, so companies need to act now or risk leaving substantial solar savings on the table.
Whether your company is considering going solar with one of the numerous “no-capex” alternatives that are currently available – such as Solar Operating Leases or Solar PPA’s which provide immediate cash savings and long term pricing certainty with no investment required – or through direct system ownership options, time is of the essence, with maximum benefits accruing to solar systems that are placed into service no later than the end of 2016.
For many of our clients, the due diligence and decision-making process can be quite long, with corporate approval time frames frequently exceeding six months. And once approved, large-scale commercial solar projects can take anywhere from 6 months to over 18 months, depending on the type of installation (ground mount systems require more time than rooftop systems) and the specific jurisdiction.
The key takeaway is that prudent corporations considering major commercial solar projects should move expeditiously in order to fully capitalize on the attractive but fleeting 30% federal ITC.
Since last June, when global oil prices began their precipitous slide from over $110 a barrel to less than $50 a barrel, we have had numerous corporate clients ask how this phenomenon will impact the solar industry at large, and more specifically, how the decline in oil prices will affect the economic returns associated with onsite solar photovoltaic projects.
The short answer is that oil prices have very little direct impact on solar, and perhaps counter-intuitively, in many parts of the U.S., the slide in oil may actually improve solar project economics.
The first takeaway is that solar projects “compete” with the retail price of delivered electricity (i.e. the kilowatt-hours that are no longer purchased from the grid when clean solar electricity is generated onsite), whereas in the U.S., oil is primarily used for transportation. According to the U.S. Energy Information Association (EIA), only 1% of electricity is derived from petroleum in the U.S., with coal (39%) and natural gas (27%) comprising the largest sources of electricity generation. So while oil price volatility has a huge impact on transportation economics (and related technologies like electric vehicles), it has negligible direct impact on electricity prices.
OK, but how can these free-falling oil prices be good for solar? Interestingly, in much of the U.S., the marginal price of electricity is driven largely by the price of natural gas. And to a large degree, the recent abundance of natural gas in the U.S. (and its extremely low pricing) is a result of the significant increase in “fracking” activity, where wells targeting oil often harvest natural gas as a by-product. As global oil prices have declined, the economics for new oil fracking wells have deteriorated sharply. And as the number of active fracking wells is reduced in the U.S., the supply of by-product natural gas from these wells will shrink, which we believe will lead to higher electricity prices, which in turn will lead to improved solar project economics.
Going forward, whether electricity prices are whipsawed by future natural gas price volatility, or the increased need for utility investment in transmission & distribution lines, or the additional regulatory costs for coal generators – onsite solar generation can “immunize” businesses from this risk by providing long-term certain power pricing (often at kWh rates that are below current spot market rates).
In early 2015, CL&P and United Illuminating (UI) will formally issue requests to bid for the 2015 Connecticut Zero-Emission Renewable Energy Credit (ZREC) solar incentive program. For Connecticut businesses with large under-utilized roof or land areas, the ZREC program provides a lucrative way for companies to ‘go green’.
By way of background, a ZREC represents the renewable attributes of one Megawatt-hour (MWh) of solar generated electricity and can be more commonly referred to as ‘carbon credits’. Connecticut requires its investor-owned utilities to buy a certain number of ZRECs annually in order to meet the state’s Renewable Portfolio Standard requirements. The purchase of these ZRECs in the form of a 15 year contract provides secure and highly visible and predictable revenue to businesses and property owners with solar energy systems.
Whether your business is interested in owning a solar PV system, leasing one, or simply purchasing low-cost solar energy with no capital outlay, EnterSolar will clearly demonstrate how Solar will boost your bottom line.