A few months back I had a 7.36 KW solar photovoltaic system installed on the roof of my house in Virginia. Though we struggled a bit through the installation process and up the learning curve with the contractor, the panels have been up and running for over four months. For the month of September my solar panels produced 1.1 MW hours of electricity to offset my electric bill. That power reduced my electric bill for September by $138.91. For the month of August the panels produced $126.28 worth of electricity. Since the solar panels were installed they have produced 4.7 KW hours or $593.52 in energy. While I find the electric savings to be exciting, it would take more than the rated lifetime of the solar panels to have the solar panels pay for themselves. The only reason solar panels made any economic sense at all was the various rebates that are available. My latest excitement is I have received my first check for selling my Solar Renewable Energy Credit (SREC) to a Pennsylvania utility. The SREC sold for $301 and I netted $285.95 after fees to the broker. To successfully navigate the solar credit market you need to have the soul of an accountant or at least the aptitude. As Peggy Noonan pointed out in her most recent column, the paperwork nation we’ve become is at odds with the innovative character needed to create and modernize great industries. Still, I feel joy at having navigated the paper maze that is solar power.
The cost and return on a solar power system is based entirely on regulated incentives starting with Renewable Energy Rebates and federal tax credits. The final incentive is the Solar Renewable Energy Credit or SREC. Each SREC is a credit for each megawatt of electricity that is produced. A SREC is not electricity, it is a credit for energy I produce and use myself. In the first four and a half months of operation, my system has produced 4.7 megawatt hours. SRECs have value only because some states have Renewable Portfolio Standards, RPS, which require that a portion of energy produced by a utility be produced by renewable power. Utilities in the state buy SRECs from solar installation producers. It is a way for states to ensure that the upfront cost of solar power is recovered from utility companies (and ultimately from the consumers). Some states, like New Jersey and Maryland, require their utilities to buy SRECs only from residents of their states creating a closed market where the price is kept high. Other states, like Virginia, have no current RPS requirement. Still other states, like Pennsylvania allow their utilities to buy their RPS from any resident within the PJM regional transmission organization. The power in the grid is purchased and sole on a regional basis, so I suppose there is some logic to a regional SREC market.
To purchase and install a 7.36 KW solar array consisting of 32 Sharp 230 watt solar panels, 32 Enphase micro-inverters and mounts was $57,040. For the engineering and permits I paid $1,500 for a grand total of $58,540 out of pocket. Then it gets complicated because to make the economics of the system work, you must successfully navigate all the sources of rebates and credits. The 7.36 KW are equivalent to 6.2 KW PTC. I reserved 6 KW PTC Renewable Energy Rebate from Virginia and on completion of installation, inspection and approval by the county, and sign-off by my power company, NOVC, I filled out all my paperwork, provided copies of permits, signed off inspections, invoices, technical information and manufacturer certification, contractor information and pictures of the installation, and meter and fairly promptly (within 4 weeks) received my renewable energy rebate of $12,000 from Virginia. This payment may or may not be taxable income.
When I file my federal tax returns at the end of the year, I will have to fill out a special form (5695) and retain copies of all the documentation for my federal tax returns as well as provide evidence that Virginia reviewed my installation paperwork and paid my Renewable Energy Rebate (of $12,000) to obtain my 30% tax credit of $17,562. (Do not forget to adjust the basis in your home by the net cost of the solar panels only so that the tax credit will be recovered by the government upon sale of the house if you exceed the standard real estate profits allowance under the tax code.) Thus, from the original installation cost of $58,540 I subtract the Virginia Renewable Energy Rebate of $12,000 and the 30% federal residential energy tax credit of $17,562 and my total out of pocket cost for my solar system after the first year is $28,978. A rough estimate using the DOE model of my savings on electricity (I have an air heat exchanger) is $1,400 per year. That would be an under 5% return on my investment each year. In this market that was almost enough to make solar power look reasonable, but it was the possibility of selling the SRECS that made the return attractive enough to get my husband to agree to buy them. I agreed to manage the construction, documentation and paperwork because I really wanted solar panels. When we purchased this house, one of the selection criteria was an open southern roof span. It was the desire for the solar panels that saw me through the process of installation and paperwork.
My system should produce 11 SRECs a year. Under the federal incentives (what my husband lovingly calls Al Gore funny money) I can sell SRECs for 15 years assuming that there remains a market for SRECs in the future. Because SRECs are not physical entities, but merely a credit for having made power (I used all the power produced by the panels in my own home) their value depends entirely on regulation which can change over time. There is a certain risk that SRECs could become worthless at any time if regulations change. Of course they could become worth more. Meanwhile, I will continue selling SRECs on the spot market. After looking into creating an account for my SRECs in Pennsylvania and Washington DC, I ended up signing up with a service to manage my SRECs for 5% of the sale price. After investigating the market, I discovered that there are tremendous inefficiencies, a few young companies and not a lot of operating history. I ended up taking a bit of a flyer on SREC Trade, a small operation out of San Francisco after checking references with the state regulators. So far it is working out. I have successfully been registered in the Pennsylvania and Washington DC markets and have received my first check for the sale of a SREC.