by Aaron Mandelkorn
One barrier that remains ever present in the renewable energy (RE) industry is consistent financial incentives. As the industry continues to evolve, we can hope that the price of this technology comes down to a point where tax credits and utility rebates are not needed to make an investment affordable; but that day is not yet here. Currently these incentives are one of the key forces driving this industry.
It is no surprise that hoards of RE companies cluster around territories that have the best utility rebates. Financial incentives are the “make or break” force behind the decision to purchase or not to purchase a renewable energy system for most consumers.
The federal tax credit has remained consistent for some time now. Currently it is at 30% of a total system cost. A tax credit is exactly that, a credit off your taxes. Although this incentive is strong, it is not enough. What really drives this industry is known as utility rebates. Utility rebates are direct cash savings granted to the customer who purchases an RE system. These rebates vary from utility to utility and many small co-ops do not offer any form of rebate to customers in their territory. Why do some choose not to offer rebates? The answer is quite simple. When someone, for example, puts up a grid-tied energy system and produces much of their own power, they will be buying less power from the utility, thus affecting the company’s bottom line. This is why most small utilities and electric co-ops would rather sell their customers “green power” than enable them to produce their own power through their own renewable energy systems.
Laws exist to include renewable energy in the energy portfolio of all utilities; and there are a generally two ways they go about achieving this. Utilities can purchase green energy from other generators, which is then sold to their customers at a premium, or they can encourage their customers to invest in their own renewable energy systems through incentives like solar energy rebates. Both of these approaches help fulfill the utility’s renewable energy requirement. As previously mentioned, the problem is that only one of these approaches is actually profitable for the utility, while the other is a good economical decision for the customer.
Salida and other towns that lie within Xcel Energy’s territory are fortunate to have a strong rebate for solar and other forms of renewable energy systems. This rebate greatly reduces the out of pocket expense and the amount of time these systems take to pay back. When looking over the numbers, even the average person who doesn’t have a degree in finance can see what a great investment a renewable energy system can be. For example, an average grid-tied PV (photovoltaic) system on a residence in Chaffee County could cost $25,000 before any incentives are applied. After incentives and tax credits, the out of pocket expense could be less than $15,000.
As rebates come and go, one financial trend we are currently seeing in the industry is the dramatic decrease in the cost of renewable energy system components. This price drop is partially due to more efficient manufacturing as well as overproduction of solar modules in 2008-2009. During recent years the solar industry was expanding at record levels, which led to higher levels of production to meet the expected demand. As this country started to head toward an economic recession, renewable energy system sales stated to drop, thus creating a surplus of solar modules and other products. This surplus has allowed the consumer to take advantage of dramatic price decreases regardless of utility rebates that might be shrinking. An example of the price decrease of an average solar module in the U.S. last year was roughly $0.70 per watt. This is quite a significant reduction when typical residential systems are around 3,000 watts in size.
While renewable energy is bound by the same supply and demand curves of other energies, government and utility rebates allow for more widespread acceptance and a better financial investment. Yet as these incentives create more consumers, they also keep renewable energy in a category of subsidization that is not entirely sustainable. Although no one knows what the future holds for renewable energy, we can all be sure it will continue to evolve into a necessary player in this country’s energy mix.
Originally from South Florida, Aaron Mandelkorn now lives and works in Salida. He runs Renewable Energy Outfitters and specializes in remote power systems, with extensive knowledge in solar, wind and micro-hydro system technologies. He can be reached at reosolar@gmail.com.
