Vice President, Sales Residential, HelioPower

So, you’re thinking about installing a solar system on your home.  Depending upon where you reside, you may be eligible for state rebates, state tax credits, utility rebates, SRECS (solar renewable energy credits), and even local city cash grants, low interest loans, zero cost permits, and property tax assessment waivers. The incentives are dizzying in their breadth and depth and vary widely from locale to locale across this great nation.  However, regardless of where you live in the United States, anyone installing solar photovoltaics (PV) and/or SDHW (solar domestic hot water) as part of their energy generation mix is eligible to receive the Federal Residential Energy Tax Credit. This blog examines the Residential Energy Tax Credit and how it applies to those seeking to take advantage of it.

If you’ve looked into solar with any conviction, you’ve undoubtedly received bids from solar contractors showing both gross system cost, as well as, net system cost after all available incentives are factored in. The breakdown typically looks something like this, using a representative 5KW system with $1.50/AC watt rebate:

HelioPower solar installation in Corona, CA

Solar PV system gross cost:                               $30,000            

State/Utility Rebate:                                            -$7,500 

Federal Tax Credit:                                              -$6,750

Solar PV system net cost:                          $15,750

This breakdown looks pretty good, doesn’t it?  Heck, the government and utility are paying for 47.5% of your solar system!! But is this true in every case?  Let’s take a closer look.

Chances are that your state/utility rebate is locked in.  Most of the time, your solar contractor will ‘float the rebate.’ This is industry talk for charging you the gross system cost LESS the rebate.  In the above example, your ‘out of pocket’ net cost (used to calculate the Federal Tax Credit) is $22,500.  Thus, we can consider this rebate locked in provided that your contractor calculated it correctly.  Wild variations in rebate amounts between solar contractors should be seen as a red flag warranting further analysis. However, if all of the contractors are showing similar amounts you should feel confident that your rebate is all but assured.

The Federal Residential Energy Tax Credit is another matter entirely.  Before assuming that you qualify for this ‘tax credit,’ you should speak with your tax professional.  Why?  The solar federal tax credit is exactly that: a credit against taxes owed.  In other words, to qualify, you must owe federal taxes.  Let me repeat that: YOU MUST OWE FEDERAL TAXES.  This credit is NOT a line item deduction to lower your tax basis nor is it an automatic refund from the federal government.  If you are not paying taxes to the feds   you cannot take the federal tax credit for solar. Period. This is why it is so important that you have a solid understanding of your tax situation before moving forward with a solar power system.  Unfortunately, many solar contractors make their customers believe that the federal tax credit is a done deal.  It’s not.  Your tax professional will let you know how much tax credit you’re eligible for and how to go about filing for it (more on this later).

Another oft misunderstood element of the federal tax credit is the number of tax years one can roll the credit forward should one not be able to take the entire credit in the first year. For residential customers, you have two years to take advantage of the credit.  If you can’t take it all in the first year, you can roll it forward to the next tax year.  If you have any left over at the end of the second year, you lose it. That’s right: use or lose it. Under current tax code, the credit expires December 31, 2016. This expiration date could have serious implications for those who go solar in 2016 and can’t utilize the entire tax credit in the first year.

I want to cover one last thing before I move on to your options should you not be able to take any or all of the tax credit.  The federal tax credit only applies to solar photovoltaic (electricity producing) and solar domestic hot water (heating water for showers, kitchen, etc). It DOES NOT apply to thermal solar for pool or spa heating.  In fact, very few, if any, incentives exist for pool/spa solar thermal.  I guess the powers that be feel that heating pool water is a luxury unworthy of incentives.  Whether you agree or disagree with this logic, you’ll be hard pressed to find incentives to heat your pool using solar technologies.

So, what if you don’t qualify for the federal tax credit?  The good news is that there are entities that are happy to take the tax credit for you.  The result of this arrangement is that you pay the NetNet  price (line four in the above example). One such entity is SunRun. SunRun provides residential Power Purchase Agreements (PPAs) for photovoltaic solar systems. When customers sign up for SunRun, SunRun takes the rebate and the tax credit right off the top line before calculating either your monthly payment or pre-pay price.  Even better, if one elects the pre-pay option, the final price is discounted an additional 10%.  In our example above, you’d take 10% off line four to arrive at your new ‘out of pocket’ price ($15,750 – 10% = $14,175.90).  Additionally, SunRun provides twenty years of maintenance, monitoring, and warranty for all of their customers.  SunRun can even help those who CAN take the tax credit but would like to take it now rather than wait.  In summary, SunRun not only allows customers who cannot take the credit to take it, but instantly monetizes the tax credit for those who otherwise qualify for the credit but don’t want to wait.  This is also true of the myriad photovoltaic lease products currently available on the residential solar market.

Finally, if you do qualify for the tax credit and elect to take it, you’ll need to let the IRS know of your intent when you file your taxes.  You’ll need to fill out IRS Form 5695 available for download from the IRS’s website: (http://www.irs.gov/pub/irs-pdf/f5695.pdf). Currently only the 2009 version is available.  The 2010 version of IRS Form 5695 should be available shortly for those filing an April 2011 return. This form contains explicit instructions about who qualifies, eligible technologies and improvements, and other general guidelines for claiming your tax credit.

If you’d like to learn more, additional information and FAQs are available on the Solar Electric Industry Association’s’ (SEIA) website: http://seia.org/galleries/pdf/SEIATaxManual_v3-0_FAQ.pdf

In closing, I’d like to reiterate the importance of seeking professional tax advice if you plan on making solar or other energy improvements to your home. This is the only way you can be certain of your eligibility. Options such as SunRun allow one to take advantage of the tax credit even if one doesn’t qualify and can also be a good option for those who do but don’t want to wait to receive the benefit. That last thing you want is to install a solar system only to discover later that you can’t take the tax credit. Be diligent in your examination of the issue.  The Federal Tax Credit is a big piece of the solar energy incentive pie that you definitely want to take advantage of fully.

You can reach Scott Gordon directly at SGordon@HelioPower.com

Solar in Palm Desert, CA installed by HelioPower

 on a solar power system purchased in 2009 on their primary residence.  Form 5695 for "Residential Energy Credits" can be found here: http://www.irs.gov/app/vita/globalmedia/5695.pdf

The tax credit is eligible for "expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer." Please see your accountant or financial advisor for financial and tax information.

Additional source links:
Tax code information can be found here.

Database of State Incentives for Renewables & Efficiency

With the sun setting before 5 p.m., solar power may be the last thing on your mind these days.

But declining panel prices, a federal tax credit and a state rebate all make now a good time to at least investigate whether solar power might make sense for your home — and your budget.

"If you're thinking that you'd like to go solar within the next few years, right now is the time to do it," said Lynn Jurich, president and co-founder of SunRun, a San Francisco-based startup that provides solar financing for consumers who can't afford the upfront costs of buying their own solar systems. "Panels are on sale right now. There's a sweet spot where the state rebates are still relatively high, but the costs have come down."

And winter is a good season to research solar options, experts say. It's generally a slower time for the industry, which means companies may be willing to give you a better deal.

If you're thinking about going solar, here's a checklist of things to think about:

• Take a good, hard look at your electricity usage over the past year or several months. You probably know how much you pay for electricity every month and have records of the checks or bills paid to PG&E or your municipal utility. But do you know how much electricity you actually use? Electricity is charged by the kilowatt-hour (kWh). Some people use as little as 300 kWh per month; others easily use more than 1,200 kWh a month.

In general, solar is a much better investment for people who use a lot of electricity. And PG&E has a tiered rate structure, so customers who use more electricity are charged more.

Understand how you use electricity," said Sue Kateley, executive director of CALSEIA, the California Solar Energy Industries Association. "Get out your bill and look at the tiered rates. If you don't use a lot of electricity — if you are a Tier One or Tier Two customer — then you really need to do a cost analysis to see if solar is cost-effective."

• Take a look at the roof of your house. How old is your roof, and what kind of shape is it in? If your roof is due to be replaced, you'll want to do that before, or along with, adding solar.
• And is your roof ideally situated for solar? Does it face south? "Shading" is also an issue: your roof should have clear, unobstructed access to the sun for most of the day and be free from shade from trees or other buildings.
• Shop around. Ask friends and neighbors who have already installed solar power if they've been happy with their systems. Learn about financing options: Do you have to have the money for the entire system upfront, or does your installer offer a leasing option?

Interview at least three potential installers and obtain bids in writing before making a decision. Whatever the salesperson tells you should be in writing in the contract.

• If you buy electricity from one of California's three investor-owned utilities — PG&E, Southern California Edison or San Diego Gas & Electric — and you have roof or ground space that gets unobstructed sunlight from 11 a.m. to 6 p.m. year round, you qualify for cash back incentives through the California Solar Initiative.

The California Solar Initiative (CSI) was started in 2006 to provide $3 billion in incentives for solar energy projects by 2016. Rebates for smaller residential systems are given upfront — a one-time payment based on system size. The current rebate level for PG&E residential customers stands at $1.10 per watt. So if you're putting in a 5 kw system, that results in a $5,500 rebate. But as more people apply for the rebates, the incentives are reduced, and many experts expect them to drop further later this spring.

Customers of municipal utilities may also qualify for incentives through their municipal service provider.

• Be sure to apply for the Solar Federal Tax Credit, which allows you to claim up to 30 percent of the costs for a new system. A buyer who installs a $25,000 solar panel system on his or her roof will get $7,500 in income tax credits.
• Consider your long-term electricity needs, and find out if the solar technology you're interested in allows you to add on more panels over time if necessary. A swimming pool, changes in family size or the use of a plug-in hybrid car could vastly change your energy consumption.

While solar-panel prices have fallen 25% or more, on average, due to a global slowdown in demand, rooftop solar panels remain in high demand in California, the world's third-largest solar market, the CPUC data show.

The strength of California's solar market is due largely to generous state incentives, coupled with federal tax credits that greatly reduce the cost of installation and the fact that California has among the highest utility rates in the nation, making self-generated solar power competitive with conventional utility power, especially for large users.

The state is spending $3.3 billion to install 3,000 megawatts of solar panels over 10 years.

In a quarterly report on a solar rebate program it administers, the CPUC cited a recent change in the federal tax code that allows homeowners a larger tax credit for solar installations as a factor driving strength in that market.

Solar rebate applications filed with the CPUC in the first quarter hit a new quarterly record for capacity, at 52 megawatts, since the program started in January 2007, while the number of applications was down compared with the fourth quarter, the CPUC said.

To date, customers of utilities owned by PG&E Corp. (PCG), Edison International (EIX) and Sempra Energy (SRE) have installed 211 megawatts of new rooftop solar generation since 2007, the CPUC said. Statewide, California generates more than 500 megawatts of power from solar panels, the agency said.

A growing number of states are moving to require home builders to offer solar electricity and hot-

New home solar power system in California installed by HelioPower

water systems in new homes, right alongside more traditional options such as fancy kitchen countertops and special window treatments.

"It's just like the granite countertop upgrade or the two-car garage or the larger closet — these are options the homeowner can choose to purchase," said Jeff Lyng, the renewable energy program manager for Colorado Gov. Bill Ritter's Energy Office.

In Colorado, lawmakers are considering a bill that would require builders to offer a range of options, from pre-wiring the home for solar power to full installation of a solar system. The legislation would also require builders to tell buyers they can roll the cost of the system into their mortgage, reducing up-front costs, Lyng said.

"What this begins to do is standardize things. We're trying to build Colorado's infrastructure to be ready for solar," Lyng said.

The Colorado proposal has passed in the state House and awaits Senate consideration. Ritter, a Democrat who had solar panels installed at the Governor's Mansion in Denver several years ago, said he plans to sign the bill.

Elsewhere:

•New Jersey lawmakers approved a bill last month that would require builders in developments of 25 homes or more to offer solar panels to home buyers and to discuss during construction the benefits of clean energy.

•A California law taking effect in 2010 will require builders to offer solar panels on homes in developments of more than 50 houses.

•Hawaii, starting Jan. 1, will require all new single-family homes to include solar hot-water heaters, said Russell Pang, a spokesman for Gov. Linda Lingle, a Democrat. Hawaii imports 90% of its fossil fuel energy sources, Pang said. "Living on an island, that's not the kind of thing we want to be depending on."

•New Mexico home builders must offer solar-ready wiring but are not obligated to offer solar installation, under a law that took effect last year.

The federal government is offering a 30% tax credit for homeowners who install solar panels or solar water heaters through 2016, said Karen Schneider, spokeswoman for the federal Energy Star program. The credit covers materials and installation costs, with no ceiling on claims.

Colorado officials hope at least 10% of the 12,000 new homes expected to be built in the state this year have solar systems installed, creating at least 300 jobs for installation technicians, Lyng said.

Daniel Glick, of Lafayette, Colo., helped persuade more than 25 families in his neighborhood to install solar systems over the past several years. Glick said residents agreed to use homeowners association dues to make low-interest loans to their neighbors to cover installation costs. Glick now gets a monthly check from his power company because his home is generating more power than it uses.

"It's not just the right thing to do. It makes economic sense," he said.

Commercial Solar Power Installation in Poway, CA by HelioPower

Here is an excerpt:

Most of the projects in the the President's $900 billion stimulus package are the kind of public works the government has executed for decades: trains, bridges, and so on. But the "Energy" projects that will be eligible for funding are full of new technologies that have never before been implemented on a large scale. What exactly are they?

According to the House Committee on Appropriations, the House version of the bill reserves "energy" monies for the following project categories.

• $11 billion for R&D devoted to the Smart Grid Investment Program and various energy pilot projects
• $8 billion for loans for renewable energy plants
• $6.9 billion for loans to state and local governments, to help them make general "investments" that will increase their energy efficiency
• $8.7 billion to weatherize HUD-sponsored and moderate income housing
• $2 billion in loans and grants for battery technology
• $1.5 billion for increasing the efficiency of schools and colleges
• $300 million in rebates for consumers who buy Energy Star-rated appliances
• $1 billion to buy alternative fuel cars for federal, state and local government
• $200 million in grants towards electric vehicle research
• $2.4 billion for carbon-capture technology to cleanse fossil fuel energy
• $350 for the Department of Defense to figure out how to power bases and weapons with renewable energy
• $500 million for energy-efficient manufacturing projects
• $300 for reducing diesel emissions.

You can read the House's summary of the bill here.

We know a little bit about the so-called "smart grid" that President Obama is advocating. The smart grid is an energy transmission system that can handle variable energy levels, and can pull energy from homes and businesses as easily as it can send energy there. That makes inconsistent generators like wind turbines and solar panels feasible energy sources, and opens the possibility for hybrid cars and houses to sell back some of their energy to the utility company.

But the details of the other projects are discussed largely in catch phrases and metonyms. To figure out where this money will actually go, you have to dig into the pages of the Main Street Economic Recovery Report, which is a list of potential stimulus projects compiled by the US Conference of Mayors. As I explained in an earlier post, the mayors of America's cities will be the ones sending stimulus ideas to the state-level government, who, in turn, will apply for funding from the Department of Commerce once the stimulus–aka the American Recovery and Reinvestment Act–is signed into law at the end of this week.

But if you want a more Web 2.0 way to explore the mayors' project suggestions, you can check out Stimulus Watch, which has ported the mayors' list, and allows people to vote and comment on the projects.

The mayors' report lists over 1300 "energy" and related project ideas in all 50 states. This is the meat and potatoes of the stimulus package, right here; each idea is summarized with job-creation predictions and cost estimates. It's also the most exciting part of the act, because many of these suggested projects will, if enacted, bring thousands of talked-about "green" ideas to immediate popular use.

By Glenna Wiseman

With the extension of the Federal Investment Tax Credits for solar, the mood was jubilant.  Rhone Resch, president of SEIA, relived the exhausting 18 month journey the industry took to get the credits in place.  The legislature turned in a Hollywood style ending in its passage as part of the Emergency Economic Stabilization Act of 2008.   His retelling of the amazing collaborative effort presented a cathartic opportunity for the industry to take a deep breath, fully embody the triumph and now move onto the hard work yet to come.  In fact Resch reiterated a laundry list of objectives SEIA sees as critical to the growth of the solar industry.  Ending his speech, he recalled the recent "Drill Baby Drill" call of the oil industry, urging the industry to replace it with "Go Solar, Baby, Go Solar!"

Talking with veterans of the industry at large, several mentioned the show reminded them of the "dot com" rush.  Lots of investment bankers rooming the aisles looking for the next big idea, etc.  Described as the "solar rush" by some, the industry is indeed poised for heavy growth over the next decade. If this industry matures as most do, you will see consolidation in the ranks and those investing in solar power systems are wise to look to strong entities to supply panels.

Many believe solar to be the "right technology at the right time and place" as our country looks to green up its energy sources and free up the grip of foreign oil on our economy and national security interests. 

California Gov. Arnold Schwarzenegger walked the show prior to its official opening.  "Of course we are now facing tough economic times, but that's why we need to focus on solar and the environment," he said as reported by TheStreet.com.

The environment and the economy are cental themes in Thomas Friedman’s new book, "Hot, Flat and Crowded."  World-renowned author, journalist and three-time Pulitzer Prize winner, Friedman focuses on the role of environmental efforts in his new book, seeing this strategy as central to our financial well-being, among critical benefits.  You can join his online group discussion at http://www.thomaslfriedman.com/.

Breaking news from the Wall Street Journal…"House Passes Bailout Bill on Second Try:"

U.S. House of Representatives lawmakers wary of growing signs of the nation's economic distress voted in favor of a $700 billion Wall Street rescue package on Friday, sending the biggest government intervention in the financial markets since the Great Depression to President George W. Bush for his signature.

From RenewableEnergyWorld.com…"Tax Credits Pass: Renewable Energy Industry Breathes Sigh of Relief:"

After a disastrous few weeks on Wall Street, the renewable energy industry has come out a winner. It seems there's always a silver lining in even the worst developments.

HelioPower commercial installation for Dos Molson in Poway, CA

The United States Senate on Tuesday voted by an overwhelming majority to extend the Production (PTC) and Investment Tax Credits (ITC). The tax measure was passed by a vote of 93-2. Now it goes back to the U.S. House of Representatives where it could be approved later this week.

Under the legislation, the PTC will be extended for one year and the ITC will be extended for eight years. The extensions would be at least partially paid for by a change in the tax code for the oil and gas industry. The bill also contains removal of the US $2,000 cap for residential solar installations. The US $18 billion package is part of a larger tax bill worth approximately US $148 billion.