Economics of Solar: PG&E Focus

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This class helps PV dealers, installers, and salespeople make the best and most accurate financial case to their customers to help them make more sales and open more eyes to the value of solar systems.

Andy Black will provide an overview of solar electric (PV) system costs and approximate savings for residential systems. He will provide detailed information on state & federal incentives available and how to apply and use them. These include rebates, performance based incentives, and tax credits. He will explain the choices for electric rate structures and the advantages of each relative to building load profile, system design, and site specifics (shading, orientation, etc). Andy will discuss the various methods of performing financial analyses in conjunction with the savings realized. Financial analysis methods presented will include Simple Payback, Total Lifecycle Payback, Internal Rate of Return (IRR), Cash Flow analysis, and Appraisal Resale Value. Interactive examples of residential sites will be provided, including discussion of the salient differences and advantages of each method. The assumptions and variables that affect each analysis will also be presented including inflation, maintenance expenses, and interest rates.

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Economics of Solar: PG&E Focus

  1. 1. Andy Black “Economics of Solar: Solar Financial Analyst (408) 428 0808x1 Making The Financial Case” andy@ongrid.net Check-in (15 minutes before listed start time) Introductions Solar Financial Payback - Overview of the Variables Economics Break, Q & A, Networking Overview of the Variables (con’t) Rate Structures ~12:00 Lunch, Q & A, Networking (~45 minutes) Overview of the Variables (con’t) System Performance Financial Analysis Methods Break, Q & A, Networking Tools: Solar Financial Analysis, Sales, and Other Tools ~4:30 Formal Conclusion, Break, Q & A Interactive Examples (for those who wish to stay) Using the OnGrid Solar Financial ToolDiligence: Heights by great men reached and kept were not obtained by sudden flight, but they, while their companions slept, were toiling upward in the night. - Henry Wadsworth Longfellow
  2. 2. Andy Black “Economics of Solar: Solar Financial Analyst (408) 428 0808x1 Making The Financial Case” andy@ongrid.netAbstract:This class helps PV dealers, installers, and salespeople make the best and most accurate financial case totheir customers to help them make more sales and open more eyes to the value of solar systems.Andy Black will provide an overview of solar electric (PV) system costs and approximate savings forresidential systems. He will provide detailed information on state & federal incentives available andhow to apply and use them. These include rebates, performance based incentives, and tax credits. Hewill explain the choices for electric rate structures and the advantages of each relative to building loadprofile, system design, and site specifics (shading, orientation, etc). Andy will discuss the variousmethods of performing financial analyses in conjunction with the savings realized. Financial analysismethods presented will include Simple Payback, Total Lifecycle Payback, Internal Rate of Return(IRR), Cash Flow analysis, and Appraisal Resale Value. Interactive examples of residential sites will beprovided, including discussion of the salient differences and advantages of each method. Theassumptions and variables that affect each analysis will also be presented including inflation,maintenance expenses, and interest rates.An overview of the various tools available on the market for assisting the dealer, installer or salespersonin making the case and the sale to a customer will conclude with an in depth look at the OnGrid Toolthat Andy created for use by the industry. If time allows, group exercises using OnGrid will be availableto try cases and see how a powerful presentation can be created.All students will receive a copy of the demo version of the OnGrid Tool (licensing agreement will berequired). Focused on residential, serves as a prerequisite for “Commercial Solar Economics &Financing with PPAs and Leases.”Biography:Andy Black is a Solar Financial Analyst and the owner of OnGrid Solar. OnGrid Solar providesfinancial analysis and sales education & software to solar installers to help them make a strong salescase for solar electricity to their customers. Andy has more than a dozen years of design, consulting,teaching, sales, and research experience in solar. He specializes in demonstrating the financial paybackof solar electricity systems. He is a former NABCEP certified solar installer.Andy Black is a recent member of the Board of Directors of the American Solar Energy Society andserved as Chapters Representative. He is also a member of the Advisory Board of the NorthernCalifornia Solar Energy Association.Andy’s formal education includes a Bachelor’s in Electrical Engineering from Penn State University, aMaster’s in Electrical Engineering from University of Southern California, and a Marketing Certificateat the University of California. His training in solar electricity includes Solar Energy International’sintensive photovoltaic coursework and more than a dozen specialty courses in solar electric and relatedfields. He presents regularly on the financial analysis of solar electricity to audiences nationwide.Andy is also the groundskeeper and servant for a cat at his home in San Jose, CA.Contact Info: Andy Black, CEO OnGrid Solar 4175 Renaissance Dr #4, San Jose, CA 95134 (408) 428 0808x1 andy@ongrid.net www.ongrid.net
  3. 3. SOLAR ECONOMICS: Introductions & Thanks MAKING THE FINANCIAL CASE !  Solar Power International ‘10 Andy Black !  Solar Electric Power Association Solar Financial Analyst "  Stuart Raper & Julia Hamm & Sales Software Creator !  Yennie Solheim !  Andy Black, OnGrid Solar "  Solar Financial Analyst & OnGrid Tool Creator Solar Power International 2010 !  You for coming! © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 2 NIMBY A Volunteer Please? !  Who’s hear of NIMBY? !  You are BANANAs! "  Plague to many large or public projects from garbage dumps & oil refineries to renewables such as wind farms !  You are all BANANAs!© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 3 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 4 Add picture of classroom full of bananas Quick Survey – What BANANA Variety of Good Bananas Are Here? !  Anyone know what BANANA means? !  Existing dealer / installers "  Build Absolutely Nothing Anywhere Near !  Salesperson for dealer / installer Anything "  Including owners if you do sales !  You are good BANANAs !  New or hopeful dealer / installers "  Small & rooftop solar is exempt from !  New or hopeful salespeople BANANA scrutiny !  Government, Utility "  Your future is more secure because the !  Customers / end users public supports and doesn’t protest this kind of renewable energy !  Manufacturers ….so, go BANANAs! !  Others?© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 5 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 6
  4. 4. Quick Survey - Instructor Background Your Goals for Today? !  Electrician’s Helper 3 summers !  Learn about payback for general knowledge !  M.S. Electrical Engineering !  Want to use payback in selling / grow !  SEI graduate business !  NABCEP Certified Solar PV Installer Emeritus !  Want to learn about / have the OnGrid Tool !  Involved with Solar since 1991 !  Want to increase your knowledge to develop !  Studying, writing, & presenting about Solar your own tool Financial Issues since 2000 !  Other goals? !  Solar Salesperson 2001-2006 !  Networking list? !  Now a Solar Financial Analyst & Economics of Solar PV - 7 Creator of the “OnGrid Tool” solar sales software8 - Economics of Solar PV© 2010 OnGrid Solar, All Rights Reserved. © 2010 OnGrid Solar, All Rights Reserved. Resources Decorum Resources available at www.ongrid.net !  Questions: Please focus on Solar Economics & Payback !  Articles & papers on solar “Payback” !  Good environment: !  Upcoming classes & events "  Cell phones to fun mode "  Financing Solar PV including PPAs & Leases "  Side conversations: Yes or No? "  Sales & Marketing for Solar "  Please help each other !  Slides from past classes !  Site Logistics & Breaks !  Free demos of the OnGrid Tool "  Facilities "  Lunch & 2 breaks: Networking© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 9 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 10 Agenda Prepare Interactive Examples !  Overview of the Variables !  Examples in Solar Financial Analysis Tool !  Financial Analysis Methods !  Please prepare some cases !  Parameters: !  Solar Tools !  Interactive Examples "  Usage, System Size, Price "  Inflation Handouts & Acronyms "  Starting & Ending rate schedule Questions preferred at points marked: "  % on-peak usage "  Please focus on Payback Questions? !  Free Demo - License Agreements© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 11 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 12
  5. 5. Financial Payback !  Payback on solar isn’t the most important thing… Solar Financial Payback !  … it’s the only thing the vast majority of potential solar purchasers care about© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 13 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 14 Right or Wrong Attractive Economics PV systems can be financially attractive to !  95% see energy as a commodity customers using enough electricity: !  Few will pay more > $80/mo in CA !  Must meet them on their terms: > $60/mo in NJ > $90/mo in CT $$ FINANCIAL! $$ Attractive defined as: "  Rate of Return > 10% "  Property Value Increase > System Cost "  Bill Savings > Loan Cost© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 15 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 16 Payback Analysis Agenda Why is it Needed? !  Overview of the Variables If we’re going "  Costs & Incentives to put solar on "  Rate Structures every roof, it "  System Performance needs to make !  Financial Analysis Methods $ense. !  Solar Tools Courtesy Sharp Electronics !  Interactive Examples© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 17 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 18
  6. 6. Agenda Incentives Pre-Exercise !  Overview of the Variables !  Common “up-front” incentives (2): "  Costs & Incentives _________________________________________ "  Rate Structures "  System Performance !  Common incentives received when taxes are filed (3): _________________________________________ !  Financial Analysis Methods !  Solar Tools !  Common incentives received over time (3): !  Interactive Examples _________________________________________© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 18 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 19 System Costs System Costs - Size Depend on: !  Typical range $7-$11/ CEC AC watt thru 10/2008 "  = $6-$9/ STC DC watt (1 W DC ! .83 W AC) !  System size (per watt) "  Includes parts, installation labor, profit, warranty "  Simplest composition shingle roofs: Doesn’t include !  Mounting: roof, ground, trellis “adders” for harder jobs (tile, steep, etc). !  Special factors !  Commercial & Municipal: $5-$8 /CEC AC watt "  $4.00-$6.50/Watt STC DC (1 W DC =~ .83 W AC) "  $4.00/W STC is typical for 500kW+ !  Most residential now: $6-$9/CEC AC watt !  Some economies of scale© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 20 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 21 California Price Trends 2000-2010 System Costs - Ongoing? $14.00 $12.00 $10.00 Top Line Average Price !  Maintenance: 0.25% of system gross cost per year, $ / CEC Watt $8.00 increasing with inflation $6.00 Net Cost to Consumer after "  It’s in there one way or the other (cost of cleaning, Rebate (excluding ITC) $4.00 vs. loss in performance from dirty system) $2.00 Rebate !  Inverter Replacement: ~$700/kW at year ~15 $- !  Property Tax 2000 2002 2004 2006 2008 2010 "  Often exempt for original purchaser !  Price Trends 2003-2008 "  Germany & Spain Questions? !  Fire/Loss Insurance !  Price Declines Since 11/2008 and Predictions "  Ask your insurer, sometimes = $0 "  Down ~$1 by 5/2009; Down ~$1.50-$2 by 12/2009, but varies Questions?© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 22 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 23
  7. 7. Incentives Performance Related Incentives !  Feed-In Tariffs !  Types of Performance Related Incentives: !  PBIs & RECs "  FITs – Feed-In Tariffs "  PBIs – Performance Based Incentives !  Rebates "  SRECs – Solar Renewable Energy Certificates !  Tax Benefits & Issues !  Incentives paid for actual kWh produced !  Net Metering (in Electric Rates section) "  Missed production reduces incentive received "  Motivates attention on the system !  For incentives in other states see the "  Monitoring – A Must! DSIRE database: www.dsireusa.org© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 24 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 25 Residential Incentives FITs: Feed-In Tariffs !  FITs are the only ongoing payment for owning the system "  No Net Metering savings (no savings on the electric bill, which makes FITs different from PBIs and SRECs) "  FITs do combine with the Federal Investment Tax Credit !  Very popular in Europe, Ontario. Becoming popular in U.S. (FL,VT, … national?) !  Risk losing Net Metering© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 26 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 27 Commercial Incentives PBIs & RECs !  PBI: Performance Based Incentive !  REC: Renewable Energy Credits (Green Value - more later), usually called SRECs !  Paid in addition to Net Metering savings on the bill (which makes them different from FITs)© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 28 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 29
  8. 8. Residential Incentives© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 1 Commercial Incentives© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 2
  9. 9. SRECs, Green Tags, TRCs REC / SREC Value !  SRECs = Solar Renewable Energy Credits/Certificates !  TRC = Tradable Renewable Certificates !  SRECs have value to other consumers !  Green Tags = RECs = TRCs = SRECs "  Those who can’t/won’t get solar directly #  Green-e Certified RECs: www.green-e.org !  What are these? "  Utilities who need to get into compliance with "  The green value part of a solar kWh government RPS requirements "  The legal rights to greenness Electricity (kWh) #  Programs or government authorized trading boards Generating Plant !  Value ranges from 1¢ to 68¢/kWh (kWh) "  Depends on location, type & term "  Depends on state mandate for S-RECs Green Tags (kWh)© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 30 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 31 Residential Incentives Rebates !  Up-Front Reductions in System Cost !  Rebates are paid in addition to savings on the bill "  Typically received 30-120 days after inspection© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 32 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 33 CSI PBI: CSI EPBB Rebate Performance Based Incentive !  EPBB: Expected Performance Based Buydown "  Adjusted for Expected Performance: !  Paid for all kWh produced for first 5 years #  Tilt, Orientation, Shading, Location, Module "  Actual performance (risk) Temperature (due to lack of air flow) !  Does not reduce upfront cost (in lieu of rebate) #  EPBB Design Factor Calculator: www.csi-epbb.com #  Design Factor allows up to 100% of base incentive "  Still get savings on electric bill "  Upfront payment to reduce initial cost !  Monitoring requirements: Add’l 2% accurate "  Popular option for systems under 30kW "  Add’l cost ~$30/mo + $1,000-$2000 for meter !  Energy Efficiency Audit required !  Option for systems up to 30kW !  Only CSI incentive for systems over 30kW !  Meter Required: Inverter built-in (5% accurate) is ok Questions?© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 34 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 35
  10. 10. CSI Trigger Tracker Step Statewide MW in Step EPBB Payments (per Watt) Residential Commercial Government / PBI Payments (per kWh) EPBB Payments (per Watt) Residential Commercial Government / Tax Benefit Overview PBI Payments (per kWh) Non-Profit Non-Profit 1 50 n/a n/a n/a n/a n/a n/a Government Government 2 70 $2.50 Statewide $2.50 $3.25 $0.39 $0.39 $0.50 Step Residential Commercial / Residential Commercial / !  State Tax Credits 3 100 $2.20 $2.20 $2.95 $0.34 $0.34 $0.46 4 130 $1.90 MW in Step $1.90 $2.65 $0.26 $0.26 $0.37 5 6 160 190 $1.55 $1.10 $1.55 $1.10 $2.30 $1.85 $0.22 $0.15 $0.22 $0.15 $0.32 $0.26 Non-Profit Non-Profit 7 8 215 250 1 $0.65 $0.35 50 $0.65 $0.35 $1.40 $1.10 n/a $0.09 $0.05 $0.09 $0.05 $0.19 $0.15 n/a n/a Federal Investment Tax Credit (ITC) & 1603 !  n/a n/a n/a 9 285 2 $0.25 70 $0.25 $0.90 $2.50 $0.03 $0.03 $2.50 $0.12 $3.25 $0.39 $0.39 $0.50 10 350 3 $0.20 100 $0.20 $0.70 $2.20 $0.03 Issued $0.03 $0.10 $2.20 $2.95Treasury Grant $0.34 $0.34 $0.46 Unused MW Revised MW 4 Step in Step130 Previous Total MW in Reservation Remaining Customer Current Initial MW $1.90 Conditional MW $1.90 $2.65 $0.26 $0.26 $0.37 !  Federal & State Depreciation Administrator from Under Class * Steps Step Review 5 7 Residential 31.00 160 0.99 31.99 $1.55 (MW) Letters 27.38 4.61 $1.55 6.40 $2.30 $0.22 $0.22 $0.32 PGE Non- 6 8 Residential 73.20 190 2.18 75.38 $1.10 14.61 60.76 $1.10 12.85 $1.85 $0.15taxable entities (not schools, !  Only apply to $0.15 $0.26 Non- 7 215 1.89 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19 Residential 5 24.30 0.37 24.67 11.78 12.89 1.49 SCE Residential 8 7 Residential 7 66.30 7.30 250 0.20 68.19 7.50 $0.35 37.96 5.53 30.23 1.96 21.99 $0.35 0.81 $1.10non-profits, gov’t, etc) $0.05 $0.05 $0.15 CCSE 9 7 14.80 285 3.22 18.02 $0.25 $0.25 $0.90 $0.03 $0.03 $0.12 Non- 15.90 2.12 1.59 Residential Trigger Tracker website: 350 10 http://www.csi-trigger.com As of 10/9/10 $0.20 $0.20 Disclaimer: I’m $0.03CPA or lawyer, and am not providing $0.70 not a $0.03 $0.10 Program Data & Statistics: http://csi.powerclerk.com tax advice. Seek qualified professional help© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 36 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 37 Residential Incentives State & Local Tax Incentives !  Tax Credit vs. Tax Deduction "  E.g.. HI: 35% State ITC NY: 25% State ITC up to $5K or 10kW "  !  In practice, worth about 65-80% of face value due to reduced federal deduction of the now reduced state taxes "  Effectively “federally taxed” !  Property Tax Exemption: CA - Com & Res to 2016© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 38 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 39 Federal Investment Federal Investment Tax Credit - Residential 2009+ Tax Credit - Commercial !  30% Investment Tax Credit (ITC), Sect 25D !  30% Investment Tax Credit - Extended 10/2008 "  No Cap (unlimited) "  Must be “placed in service” during 2006-2016 "  Residential not eligible for conversion to "  10% if installed 2017+ “Section 1603 Treasury Grant” treatment “There is no feast which does not come to an end.” - Chinese proverb ! !  Systems “placed in service” in 2009-2016 !  IRS Form 3468 (Sect 48 of Internal Revenue Code) !  IRS Form 5695 !  Unused credit can be carried forward 20 years !  Received on “next year’s” tax return (1 year delay) !  Commercial !  Unused credit can be carried forward thru at least 2016 "  Including home businesses > 20% sqf - with caution !  Not limited by AMT (Alternative Minimum Tax) !  Not limited by AMT (Alternative Minimum Tax) !  Important negative tax interaction with Rebates !  Vests at 20% per year (over 5 years)© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 40 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 41
  11. 11. CSI Trigger Tracker EPBB Payments (per Watt) PBI Payments (per kWh) Step Statewide MW in Step Residential Commercial Government / EPBB Payments (per Watt) Residential Commercial Government / Non-Profit Non-Profit 1 50 n/a n/a n/a n/a n/a n/a Govern 2 70 $2.50 Statewide $2.50 $3.25 $0.39 $0.39 $0.50 3 100 Step $2.20 $2.20 $2.95 Residential $0.34 $0.34 Commercial $0.46 / 4 130 $1.90 MW in Step $1.90 $2.65 $0.26 $0.26 $0.37 5 6 160 190 $1.55 $1.10 $1.55 $1.10 $2.30 $1.85 $0.22 $0.15 $0.22 $0.15 $0.32 $0.26 Non-P 7 8 215 250 1 $0.65 $0.35 50 $0.65 $0.35 $1.40 $1.10 n/a $0.09 $0.09 $0.05 $0.05 $0.19 n/a $0.15 n/ 9 10 285 350 2 $0.25 $0.20 70 $0.25 $0.20 $0.90 $0.70 $2.50 $0.03 $0.03 $0.03 $0.03 $2.50 $0.12 $0.10 $3. 3 100 $2.20 Issued $2.20 $2. Unused MW Revised MW Administrator Class *4 Step in Step130 Previous Total MW in Reservation Remaining $1.90 Customer Current Initial MW from $1.90 Conditional MW Under $2. Steps Step Review 5 7 Residential 31.00 160 0.99 31.99 $1.55 Letters (MW) 27.38 4.61 $1.55 6.40 $2. PGE Non- 6 8 Residential 73.20 190 2.18 75.38 $1.10 14.61 60.76 $1.10 12.85 $1. Non- 7 215 0.37 $0.65 $0.65 $1. Residential 5 24.30 24.67 11.78 12.89 1.49 SCE 7 66.30 1.89 68.19 37.96 30.23 21.99 Residential 8 7 Residential 7.30 250 0.20 7.50 $0.35 5.53 1.96 $0.35 0.81 $1. CCSE 9 14.80 285 3.22 18.02 $0.25 $0.25 $0. Non- 7 15.90 2.12 1.59 Residential Trigger Tracker website: 350 10 http://www.csi-trigger.com As of 10/9/10 $0.20 $0.20 $0. Program Data & Statistics: http://csi.powerclerk.com© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 3 Residential Rates * Best Rate for Solar if PV is large enough compared to load and depending on consumption and production patterns© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 4
  12. 12. 1603 Federal Treasury Grant 1603 Treasury Grant Limitations !  Commercial systems only !  2009-2010 ITC can be converted to Treasury Grant "  Limited to IRC Sec 48 and some Sec 45 !  Section 1603 Grant in ARRA (Recovery Act) !  Same general features and intended functionality as the !  Pass-thru entities (partnerships, LLCs, S-corps) can ITC, but better: use grant, as long as none of the recipients is non- "  Paid < 60 days of “placed in service” or application taxable (and therefore disqualified) "  Usable even if no tax appetite (effectively a refundable ITC "  I.e. One disqualifies all, regardless of small % or Federal Rebate) "  ‘Blocker’ C-Corporations can allow !  Commercial systems only !  Allows transfer of ownership !  “Placed in service” in 2009-2010 only, or !  Recapture of Grant or ITC on permanent cessation "  Construction Initiated 2009-10, completed by 2016 !  May be state taxable in certain cases, see: #  5% non-refundable cost spent by 2010 http://www.reznickgroup.com/sites/reznickgroup.com/files/ !  Treasury application: https://treas1603.nrel.gov/ papers/rg1078_section1603_state_matrix.pdf© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 42 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 43 “Placed In Service” Rebate Tax Interactions SEIA “Guide to Federal Tax Incentives for Solar Energy” Sec 136(b) - No “Double Benefit” Available free to SEIA members at: www.seia.org! !  If the rebate is non-taxable, the federal ITC is on !  Equipment delivered and construction / installation amount after rebate completed! "  Minor tasks like painting need not be finished ! !  If rebate is taxable, then federal ITC is on amount !  Taxpayer has taken legal title and control ! before rebate !  Pre-operational tests demonstrate the equipment functions as intended ! !  CA PV Rebates are not state taxable in CA, not !  Taxpayer has licenses, permits, and PTO (permission sure about other states; check w/ enacting law, local to operate)! SEIA chapter, state energy office© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 44 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 45 Rebate May Be Federally Taxable Rebate Tax Residential Exercise !  1099 tax forms have been issued to recipients !  Section 136(a) of IRS Code: !  Is it better to have a taxable or non-taxable "  ‘Utility (ratepayer funded) direct or indirect rebates residential rebate? for energy conservation for dwellings (i.e.. residential) are not taxable’ !  Why? #  PV is ‘energy conservation’ by precedent !  What does it depend on? !  IRS hasn’t publicly ruled on PV rebates for: "  CCSE & CEC "  Oregon private letter ruling isn’t precedent !  Many residential rebates may be tax exempt because of Section 136, but not necessarily all Info courtesy Mark Bolinger, LBL© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 46 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 47
  13. 13. What If: Non-Taxable Rebate? What If: Taxable Rebate? (Residential) (Residential) $100K System Cost $100K System Cost -$20K Rebate -$20K Rebate $80K Net Cost After Rebate +6K Rebate Tax ($20K * 30% Fed Tax)* -$24K Tax Credit Value (30% of $80K)** -$30K Tax Credit Value (30% of $100K)** =$56K Net Cost =$56K Net Cost Rebate Tax Due even if rebate goes to the installer *30% federal marginal tax rate (30% tax bracket) *30% federal marginal tax rate (30% tax bracket) **30% federal ITC rate **30% federal ITC rate© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 48 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 49 Tax Credit Example 1 Tax Credit Example 2 30% Tax Bracket (Residential) 20% Tax Bracket (Residential) Non-Taxed Rebate Taxed Rebate Non-Taxed Rebate Taxed Rebate $100K System Cost $100K System Cost $100K System Cost $100K System Cost -$20K Rebate -$20K Rebate -$20K Rebate -$20K Rebate +$6K Rebate Tax* +$4K Rebate Tax* $80K Net Cost After Rebate $80K Net Cost After Rebate -$24K Tax Credit Value** -$30K Tax Credit Value** -$24K Tax Credit Value** -$30K Tax Credit Value** =$56K Net Cost =$56K Net Cost =$56K Net Cost =$54K Net Cost *30% federal marginal tax rate (30% tax bracket) *20% federal marginal tax rate (20% tax bracket) **30% federal ITC rate Questions? **30% federal ITC rate© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 50 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 51 Tax Credit Example 3 PBI & REC Taxation: Residential 40% Tax Bracket (Residential) Non-Taxed Rebate Taxed Rebate !  PBI probably taxable* "  Would prefer non-taxed PBI, but get full ITC $100K System Cost $100K System Cost "  Otherwise IRS would require NPV of future -$20K Rebate -$20K Rebate PBI payments to calculate reduction in ITC +$8K Rebate Tax* basis? $80K Net Cost After Rebate #  Unknown - How to calculate? -$24K Tax Credit Value** -$30K Tax Credit Value** =$56K Net Cost =$58K Net Cost !  RECs probably also taxable *40% federal marginal tax rate (40% tax bracket) *Suggested by Mark Bolinger, LBL **30% federal ITC rate Questions? Each 1% in tax bracket is worth 1% of the rebate© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 52 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 53
  14. 14. PBI & REC Taxation: Commercial Depreciation - Federal !  Depreciation = Commercial tax deduction spread over time MACRS 5-Year Accelerated Depreciation (1/2 yr conv.) !  PBI & RECs probably taxable !  MACRS: Modified Accelerated Cost Recovery System "  !  Section 136 is residential only IRS Form 4562 "  Equivalent of tax deducting system’s ‘basis’ over 5.5 years !  No known commercial exemptions !  Net Value = Basis * Tax Rate Net Value = (System ITC basis - 1/2 ITC) * Tax Rate Net Value = System ITC basis * 85% * Tax Rate !  Regular Schedule: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76% !  2008-10 Schedule: 60%, 16%, 9.6%, 5.76%, 5.76%, 2.88% "  2008-10 Gets 50% “Bonus Acceleration of Depreciation” !  Commercial only (including home businesses >50% by sqf) !  Up to 20 year carry-forward© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 54 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 55 Depreciation - CA State Financial Hazards & Gotchas !  Corporate: 12 Year Straight Line method !  Federal Tax on Rebate !  Non-Corporate: MACRS 5-Year !  1099 tax forms have been issued to "  (Sole-Proprietors, LLP, etc) recipients !  Section 136 applies only to residential !  State Depr Basis is Top Line Cost minus Rebate & State Tax Credit !  Commercial only (including home businesses) Questions?© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 56 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 57 Rebate Tax Commercial Exercise Tax Credit & Depr. Example Non-Taxed Rebate (Commercial) !  Is it better to have a taxable or non-taxable $150K System Cost commercial rebate? -$50K Rebate !  Why? $100K Net Cost After Rebate !  What does it depend on? -$30K Tax Credit Value (30% of $100K) -$35K Depr Value (85% of $100K * 41%) =$35K Net Cost 41% = combined net federal & state tax rate (35% Federal, 8.84% CA State)© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 58 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 59
  15. 15. Commercial Tax Credit & Depr. Example Tax Credit & Depr. Example Taxed Rebate (Commercial) Non-Taxed Rebate Taxed Rebate $150K System Cost $150K System Cost $150K System Cost -$50K Rebate -$50K Rebate -$50K Rebate +17.5K Rebate Tax ($50K * 35% Fed Tax) +17.5K Rebate Tax $100K Net Cost After Rebate -$45K Tax Credit Value (30% of $150K) -$30K Tax Credit Value -$45K Tax Credit Value -$52K Depr Value (85% of $150K * 41%) -$35K Depr Value (85K * 41%) -$52K Depr Value (127.5K * 41%) =$20.5K Net Cost =$35K Net Cost =$20.5K Net Cost If commercial, want rebate taxable (no choice) Then tax credit and depreciation are on amount before rebate "  Worth more to pay tax on rebate, then get 30% credit and "  depreciation on rebate© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 60 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 61 Section 179 Expense Section 179 Not in OnGrid!  Section 179 converts some small business depreciable !  Conflicting language, not 100% clear if available property into 1st year expense (deduction) with ITC or Treasury Grant!  Deduction limit: $500K for 2010 & 2011 !  Few project & customers qualify "  Enhanced in 2010 Small Business Jobs & Credit Act of 2010 "  Must fit within limits & "  Drops to $25K in 2012 (unless extended) "  Aren’t already using it for other property!  Phase-out begins at 4x limit: ~$2,000,000 in 2010-11 !  Can hurt customer too – could cause loss of Sec. "  $1 for $1 reduction, so at 5x, Sect. 179 has no value 179 on other eligible property "  Phase-out basis is sum of all 179 eligible property put in !  Examples that don’t qualify: service in that year "  Already using for other purchases "  If sum > 5x (>$2.5million), then can’t use 179 at all "  Projects over $500K depending are limited!  Can including PV in Home Businesses if >50% "  Phased out if total of all is >$2,500,000 business Rights Reserved.© 2010 OnGrid Solar, All use of asset (ie > 50% of sqf is for Economics of Solar PV - 62 business) !  Kept out of OnGrid to stay conservative © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 63 Small Business Carry-Back of NOL Tax Benefits !  In 2009(+?), small businesses can carry !  ITC & MACRS reduce customer cost, but not back Net Operating Losses up to 5 years up-front "  $15 Million Gross Receipts limitation !  Not available to all customers – MACRS Depr. is affected by AMT "  Normally only 2 year carry-back "  Ask about customers “tax appetite” !  2009 Economic Stimulus "  More in Lease & PPA section !  Customers - beware of optimistic sales claims© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 64 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 65
  16. 16. Agenda !  Overview of the Variables "  Costs & Incentives Questions? "  Electric Rate Structures Electric Rate Structures "  System Performance !  Financial Analysis Methods !  Solar Tools !  Interactive Examples© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 66 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 67 Electric Rate Structures Overview Net Metering !  Options for Solar - Net Metering Sell Power to the Utility by Day !  3 Customer Classes (Res, Com, Ag) !  2 Types of Rate (Flat, TOU) "  TOU: Time of Use Buy Power at Night and Winter . !  Demand Charges for Commercial • Exchange at Retail • 100% Efficient Battery • Annual Cycle • $0 minimum bill*© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 68 © 2010 OnGrid Solar, All Rights Reserved. *Different with Calif. AB 920 Economics of Solar PV - 69 Average monthly usage Average monthly usage kWh/mo PV system production kWh/mo PV system production $/mo The surplus covers the shortfall, 750 Roll over 750 and your yearly bill is zero. 500 500 250 250 May October April May October April “SUMMER” “WINTER” “SUMMER” “WINTER” Gets more complicated with TOU and Net Metering and AB920 Slide courtesy Pete Shoemaker, PG&E Pacific Energy Center Slide courtesy Pete Shoemaker, PG&E Pacific Energy Center© 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 70 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 71
  17. 17. Electric Rate Structures Overview Residential Tiered Rates !  Three Customer Classes Residential only (in !  general) "  Residential, Commercial, Agricultural !  Types of Rate Penalizes larger !  residential users "  Flat: Simple rate, not time or usage dependent "  Tiered: Rates increase with usage Excellent motivator !  of efficiency, "  Time of Use (TOU): Rate varies during day - conservation & PV depends on when energy is used "  Tiered-TOU: Varies with usage & time of day ! Tiers cause Tears - of Joy! "  Demand © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 72 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 73 ! ! !"#$%&()!*+,-.#()-+!/0-1#)! ! 23-10! *+,4!56*!"&%!7#4 89:99;/!2#1<+0=!*+,-.#()-+!!!!!!!>6!??:;/@! ! *+)A,,-)B 23-10! *+,4!56*!"&%!7#4 :?C8;/!! ! ! !! DE5!"FGHI7J! "&%!C! ! ! ! KE"/LI7/!2/JIG7"! ! ! SCE Baseline ! MG2!N/O/2DI7I7J!KE"/LI7/!P6E7OIOI/"! ! ! ! Territories PG&E Residential Tiered Rates !  Variations: " Locations: 5-10, 13-16 29¢/kWh surcharge Coast to High Desert #  Season: Summer or "  Winter 11¢/kWh " Type: Electric Only or base charge Both Electric & Gas !  Baseline = Tier 1 = 70% of average user’s usage Tiered Rates: !  !  Tier 1 + Tier 2 = Avg "  Base is 11¢/kWh Examples http://www.sce.com/CustomerService/billing/tiered-rates/baseline-chart-map.htm "  Top is 40¢/kWh (Surcharge currently +29¢/kWh for Tier 4) http://www.sce.com/NR/rdonlyres/02FE720D-956D-44C7-B204-D48F830B79CC/0/Baseline.pdf © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 74 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 75 ! ! ! ! ! !!>O#!Q!-)1(%0!QR!$%-,-%R@! I11$0!QR! >O#!Q!-)1(%0!QR!*+,4!56*@!E03-A!! S?:T;/! EUQ+(!V+W+R(-! N+%!M-,0! "X!?Y=!SYYZ! !NA-1-#)!! YZ;Y:;YS:! [-A!5(1-0)%! /..A%-3! ! !!"!#$ ! ! 21#,$%-#)! ! !! NJ Residential Tiered Rates Reverse Tiers !  PA – Allegheny Power : !"#$%&!"#"(&!"#") Commercial rate "  ! PA – PECO: !"#%*&!"#$+&!"#",&!"#"- ! NY – ConEd: !"#%$&!"#$. ! JCP&L "  Base is 16.7¢/kWh "  Top is 22.5¢/kWh ! PSE&G and ACE are also tiered on Residential Examples © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 76 © 2010 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 77

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