The 2020 Guide to Solar Tax Credits

Jan 27, 2020 | FINANCE, POLICY

The 2020 Guide to Solar Tax Credits

This is the last year businesses and homeowners can claim a 26% solar Investment Tax Credit (ITC). The ITC is in a final phase-out and will level off at 10% in two years.

The price of solar has been dropping for years, but the price declines are leveling off. With a high tax credit and low installation costs, 2020 may be the most affordable year for solar so far. Thinking about solar? Don’t leave money on the table. 2020 is the year to invest if you want to take advantage of significant tax credits before they disappear.

Key Points

WHAT IS THE ITC?

The ITC is a federal income tax incentive that allows you to deduct a percentage of the total cost of installing a solar energy system from federal taxes with no cap. The credit includes equipment, wiring, labor, and even battery energy storage systems. It is a critical component in many customers’ financial calculations.

WHEN DOES IT EXPIRE?

The tax credit phases out over several years, with a smaller credit each year.

Here’s the schedule for the step-down:

• 2020 – 26%
• 2021 – 22%
• 2022 & after – 10% for commercial, 0% for residential

HOW DO BUSINESSES USE THE CREDIT?

You can use your tax savings to grow your business, improve price competitiveness, and increase profits. However you choose to reinvest your tax credit, the savings and other advantages compound over time – giving your company an edge over your competition.

What is the Solar Investment Tax Credit?

The ITC is a federal income tax incentive designed to support the growth of solar energy. Since it was enacted in 2006, the ITC has helped the U.S. solar industry grow an average of 54% per year.

The ITC has been so successful that it’s been expanded and extended several times. When the Energy Policy Act of 2005 passed and enacted the ITC starting in 2006, the credit was limited just $2,000 credit was set to expire in 2008. In 2008, the credit was extended another eight years and the cap was removed, allowing for credits of unlimited size. In 2015, the ITC was extended again, with the full credit available through 2019, a step down through 2021, and a permanent 10% credit for commercial projects after that.

The Step Down: Expiring Tax Credits

Now that we’re in 2020, the ITC step down has dropped to 26%, in 2021 will further reduce to 22% and in 2022, 10% will be available for businesses permanently. Homeowners won’t be able to claim any tax credit for projects begun in 2022 or later.

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Solar ITC FAQs

DO I QUALIFY?

Any homeowner or business with tax exposure is eligible to claim the credit. If you pay federal income tax, you’re eligible. Government entities, schools, and non-profit organizations are not eligible. If your organization is tax protected, it can’t claim a tax credit.

WHAT IF I DON'T QUALIFY?

A solar project structured as a power purchasing agreement (PPA) can claim a credit if the project owner pays taxes. Many educational and municipal solar projects are structured this way.

The ITC is a critical piece of the puzzle for the investors backing your PPA solar project. They will want to capture as much tax credit as possible to make their investment in your solar project payback. If a PPA is on the table for your institution, you should encourage your investors to move forward this year.

WHAT IF I DON'T HAVE A TAX APPETITE?

If your business is eligible for the credit, but you don’t have the tax appetite to benefit from the full credit in the first year, you can take advantage of carrybacks and carryforwards. The tax credit can be carried back one year and carried forward 20 years. If your business still hasn’t claimed the full credit after 20 years, you are eligible for a refund equal to half the remaining credit. The rest is lost.

WHAT ABOUT DEPRICIATION?

Under the federal tax code, renewable energy systems including solar can take advantage of one of two accelerated depreciation options. Either they can claim 100% bonus depreciation, or they can use the 5-year Modified Accelerated Cost-Recovery System (MACRS) depreciation schedule. The total depreciation amount will depend on your businesses’ tax rate.

ARE BATTERY ENERGY STORAGE SYSTEMS ELIGIBLE FOR THE ITC?

Yes and no. While there’s no credit for battery energy storage systems by themselves, if an energy storage system is paired with a solar installation the IRS considers it to be part of the solar installation and therefore eligible for the credit. This is a big deal for large electric users with expensive demand charges, because energy storage systems are often a key part of solar energy systems designed to reduce demand charges.

HOW DO I MAKE SURE I GET THE CREDIT THIS YEAR?

In 2018 the IRS issued guidance on what exactly is meant by starting construction for the purposes of claiming the tax credit. The Solar Energy Industries Association (SEIA) summarized these methods as follows:

“(1) starting physical work of a significant nature (Physical Work Test), or (2) meeting the so-called Five Percent Safe Harbor test (i.e., paying or incurring five percent or more of the total cost of the facility in the year that construction begins).”

In either case, once a project begins continuous progress has to be made towards completion. We can help with this. One of our specialties is walking our customers through every step of the solar process – including all permits, inspections, and applications needed to ensure you get your tax credit.

WHAT OTHER TAX CREDITS AND INCENTIVES ARE AVAILABLE?

Your state may offer its own tax credit. For example, Iowa offers a solar tax credit equal to half of the federal credit. Through 2019, the credit is 15%, after that it steps down in lockstep with the ITC. The credit is limited to $5,000 for individuals and $20,000 for businesses. The Iowa credit is capped at an aggregate $5 million with a $1 million set aside for residential installs, and is given out on a first-come, first-served basis.

If you’re considering solar in Iowa or a state with a capped credit, it’s a good idea to move quickly so you can take advantage of the state credit before the available funds are exhausted for the year.

Some utilities may offer rebates or other incentives, as well. Contact us to find out what incentives are available in your area and how they stack with the federal ITC.

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How Our Customers Use Their Solar Tax Credit

The ways our customers use their credits are as varied as our customers’ businesses. Steffensmeier Welding & Manufacturing reinvested in an expanded benefits package for employees, AutoCAD training, and adding a second shift with new hires. Schaus-Vorhies Manufacturing views its credit and utility savings as an alternative to the higher-risk proposition of adding a new product line or service. Agri-Industrial Plastics Company is building a sustainability-focused strategy to become the employer of choice in the region and cement its position as a top supplier for the global brands it counts among its customers.

Above: Agri-Industrial Plastics Company (AIP) is using solar as part of their sustainability growth strategy to attract hires and clients.

From Left to Right:Steffensmeier Welding and Manufacturing is reinvesting energy savings into employee benefits and expansion, Schaus-Vorhies Manufacturing (SVM) saves about $100,000 annually in energy costs with their half-megawatt array, sited on a former brownfield.

However you choose to reinvest your tax credit, the savings and other advantages compound over time – giving your company an edge over your competition. The competition has heard of solar energy and might even be considering it. This year is your opportunity. If you adopt solar now while your competition sits on the sidelines watching the credit step down, you’ll have that much more time to put your utility savings and tax credit to work in your business.

Adopting solar before your competitors doesn’t just give you more time to use the tax credit and utility savings. You can also tell a story your competition can’t.

First. Largest. Cutting edge. These are the kinds of words used to describe our customers’ projects. Our customers have used their solar projects to attract new hires, bring leading politicians to their events, and earn press and award recognition. If you want to be the forward thinking-thinking business in your industry, solar energy is the right investment.

Never a Better Time for Solar

Between historic low prices on solar installations and the last year of the full tax credit, there has never been a better time to invest in solar. At Ideal Energy, we are experts at maximizing the return on your solar investment. Get in touch to see how the solar tax credit can help your bottom line.

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Electric Vehicles and the Future of the Grid

Dec 10, 2019 | POLICY, TECHNOLOGY

Electric Vehicles and the Future of the Grid

When it comes to transportation, the future is electric. By 2025, 7 million electric vehicles are projected to be on the road in the US, with 5 million charge ports to support these vehicles. What will happen to our grid as the motor vehicle industry becomes electrified?

Will Electric Vehicles Kill the Grid?

A number of think pieces have been published in the last few years asserting that mass adoption of electrical vehicles (EVs) might kill the electric grid. These authors have a point; the electric grid wasn’t designed to handle a couple hundred million EVs charging every day. But the way in which the grid will be “killed” may not be what these authors had in mind.

Rather than causing widespread blackouts or increasing the cost of electricity, the actual change may be more of an evolution than an extinction. EVs could usher in several significant changes to the grid that make it more distributed, more flexible, and smarter.

Sales of electric vehicles are growing fast. The Edison Electric Institute reports that up to seven million EVs could be on Americans roads by 2025, up from a little over half a million in 2016, with continued sales of 1.2 million per year. That represents around 3% of the 258 million cars and light trucks expected to be registered in the U.S. in 2025.

According to EEI, approximately 4.4 to 5.5 million charging ports, including Level 1 and Level 2 chargers in homes and workplaces and Level 3 fast chargers in public charging stations, will be needed by 2025.

The increased demand EVs will place on the grid will be enormous. A single electric vehicle can draw as much power as three new houses. Rapid chargers, in particular, draw very large loads. Utilities theoretically have the excess generation capacity to power around 75% of America’s vehicles if they were EVs. But if those EVs charge around the same time, especially during times of overall peak demand, utilities won’t be able to meet the demand.

Utilities’ Response

Utilities need to match the supply of generated power with their customers’ demand for power. Demand isn’t constant, however; it varies depending on what customers are doing. For example, during hot summer afternoons demand is much higher than most other times because of the need for more air conditioning.

To meet high demand utilities either have to activate peaking power plants or buy energy from other utilities. Both options are more expensive than operating base load power plants during times of lower demand.

Demand charges and time-of-use charges are used to pass those costs on to consumers. The concern with EVs – particularly EVs charged with direct current fast chargers (DCFCs) – is that they will create higher peak demands than the grid can provide.

Several utilities, including Pacific Gas & Electric, San Diego Gas & Electric, Southern California Edison, and Hawaiian Electric, are already experimenting with time-of-use charges to send price signals that push drivers to charge during off-peak times. Some other utilities are lobbying their state utility boards to allow them to charge residential customers demand charges to provide similar price signals.

Customers pay for electricity in one of two ways: consumption, measured in kilowatt-hours (kWh); and demand, measured in kilowatts (kW). Consumption, also called usage, is the amount of energy used in each billing cycle. Demand, also called load, refers to the rate at which energy is used at any given moment. Customers on demand charge tariffs pay for the highest rate of energy use they reach – the peak demand ¬– in each billing cycle. Most residential customers only pay for consumption. Most commercial customers pay for both demand and consumption.

However, according to the Rocky Mountain Institute demand charges “are a significant barrier to the development of viable business models to operate public DCFC networks.“

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Solar-Powered, Grid-Connected EVs

The vehicle-to-grid (V2G) concept is a system in which “gridable” electric vehicles interact with the electric grid in more sophisticated ways than just charging. V2G systems could charge intelligently at times of low cost and low demand, provide ancillary grid services like load balancing and frequency regulation, and offer vehicle owners emergency backup power or even a source of income.

These systems reduce the negative impact that large numbers of EVs could have on the grid. They offer demand response capability by reducing their own rate of charge or sending power back to the grid when needed. V2G systems also help integrate intermittent renewable energy sources like solar and wind into the grid by acting as distributed battery energy storage systems.

The National Renewable Energy Laboratory (NREL) is actively conducting research on V2G systems. NREL researches studied plug-in electric and plug-in hybrid vehicles connected to household loads and small microgrids to evaluate their grid-connected capability. The researchers powered real home loads with Nissan Leaf and Via Van vehicles while disconnected from the grid. They evaluated the emergency power capability of these vehicles alone and also integrated real solar PV systems to extend emergency power duration. Their work shows that grid-connected EVs are viable.

V2G systems act like battery energy storage systems. Just like battery energy storage systems such as Tesla’s Powerwall and Powerpack, V2G EVs could store energy from intermittent renewable sources like solar and make that energy available whenever it’s needed.

Owning a grid-connected EV could provide all the benefits of driving an electric car and extend the usefulness of a solar array. Energy storage systems can provide peak shaving to reduce demand charges for customers on-demand charge tariffs. They can allow for greater self-consumption of solar power, which is particularly useful for customers whose utilities don’t allow 100% net metering. They can be used for emergency backup power or in microgrid applications.

How The Grid Benefits

Most vehicles are parked most of the time, but unlike internal combustion powered vehicles, EVs have the potential to provide useful services while parked.

Electric vehicles could act as distributed battery energy storage systems while plugged in, providing “spinning reserves” to the grid to meet sudden demands for power.

V2G systems could offer load balancing capabilities by “valley filling” – charging when demand is low and electricity is cheap, and “peak shaving” – exporting power to the grid when demand is high and electricity is more expensive.

Battery energy storage systems are already capable of providing voltage and frequency regulation – a necessity when integrating distributed generation sources with the grid. V2G systems could do the same.

Like other battery energy storage systems, V2G systems can make intermittent renewable sources like solar and wind fully dispatchable, meaning they can be used at any time. Battery energy storage has the potential to make intermittent renewables a base load power source, possibly replacing much of the coal and nuclear base load currently deployed.

How Drivers Benefit

EV owners may benefit even more.

EVs can store more energy in their batteries than a typical home uses in a day. With smart charge controller technology, an EV could be used for emergency backup power when plugged in at home. NREL researchers demonstrated this capability with a Nissan Leaf in their testing facility.

EV batteries may actually last longer when grid-connected. Uddin et al found that “the smart grid is able to extend the life of the EV battery beyond the case in which there is no V2G.” In simulations and a case study these researchers found both capacity fade and power fade were reduced when an EV was grid-connected in a V2G system.ⁱ

Owners may be able to monetize the grid services their EVs offer. Li et al showed that with a smart charge scheduling system, EV owners could earn $318 to $454 per year from the ancillary grid services their vehicles provide, depending on the length of their commute. They found that with a V2G system all of the popular EVs currently on the market could completely pay for the cost of electricity needed to drive 15,000 miles annually and generate a positive net profit. That means that with the right technology in place, EV owner could pay nothing for fuel and actually get paid to leave their cars plugged in to the grid.ⁱⁱ

Electric Cars Can Save the Grid

Electric cars may kill the grid as we know it, but the grid that replaces it will be smarter, cleaner, and quite possibly cheaper. Grid-connected EVs are a win-win.

ⁱUddin, Kotub, Tim Jackson, Widanalage D. Widanage, Gael Chouchelamane, Paul A. Jennings, and James Marco. “On the possibility of extending the lifetime of lithium-ion batteries through optimal V2G facilitated by an integrated vehicle and smart-grid system.” Energy 133 (2017): 710-722.

ⁱⁱLi, Z., M. Chowdhury, P. Bhavsar, and Y. He. “Optimizing the performance of vehicle-to-grid (V2G) enabled battery electric vehicles through a smart charge scheduling model.” International Journal of Automotive Technology 16, no. 5 (2015): 827-837.

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Iowa Congressman Loebsack visits Ideal Energy Solar

Feb 27, 2018 | POLICY

Iowa Congressman Loebsack visits Ideal Energy Solar

Congressman Dave Loebsack talks solar and economic growth with Troy Van Beek and Mayor Ed Malloy.

Let’s talk about jobs

Congressman Dave Loebsack visited Ideal Energy’s office on Friday, February 23rd. The Congressman sat down with Troy Van Beek, founder of Ideal Energy; Amy Van Beek, director of marketing; and Mayor Ed Malloy. The group discussed emerging technologies, legislative challenges, job creation, and Ideal Energy’s history.

Congressman Loebsack, a proponent of solar energy, said, “We’re creating an environment for businesses and folks who want to come in [to Iowa] from the outside.” He extolled the benefits solar brings to Iowa, including attracting out-of-state investment, bringing new residents to the state, and allowing businesses to reinvest solar savings into their employees.

“I’m happy that we can improve the environment,” he said, “but the first thing I talk about is jobs.”

Troy Van Beek expressed that as solar has taken hold, Ideal Energy has been able to add new hires each year, and the company now runs its own in-house electrical apprenticeship program which currently has three journeyman electricians in training under the supervision of Ideal Energy’s NABCEP Certified Master Electrician. “It’s important to us to be able to create jobs in rural Iowa,” Troy explained. “We’re training a quality workforce that will have well-paid jobs and grow the integrity of Iowa’s solar industry.”

Above: Congressman Loebsack sits down with Mayor Ed Malloy, Ideal Energy Founders Troy & Amy Van Beek, to talk about Iowa’s energy future.

From Left to Right: Congressman Loebsack discusses grid mondernization and solar energy with Amy Van Beek, Troy Van Beek and Congressman Loebsack visit the Schaus Vorhies Manufacturing solar field to tour a solar-elecrtric, net-zero manufacturing operation.

Solar Plus Storage

Congressman Loebsack also inquired about new developments in the solar industry, particularly battery energy storage systems. Ideal Energy is at the forefront of energy storage in the Midwest and installed the first commercial-scale solar and storage system in the state at Stuff Etc’s Coralville location.

Solar and storage systems, like the one installed at Stuff Etc, allow businesses to substantially reduce their utility bills with ‘peak shaving,’ a technique for ensuring electricity demand doesn’t exceed a threshold that would trigger expensive demand charges. Batteries charge when solar panels produce surplus energy and automatically discharge when electricity demand is at its highest.

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Congressman Loebsack asked about the impact of legislation, including the recent solar cell and module tariff, state and federal tax incentives, and the future of the Clean Power Plan. Although some legislation favorable to solar companies and their customers is in danger of being rolled back, Congressman Loebsack assured the group that “some of us fight very hard for these things.”

From Left to Right: Mayor Ed Malloy, Fairfield, Iowa; Eric Johnson, Writer, Ideal Energy; Corbin Shy, Electrician, Ideal Energy; Troy Van Beek, Founder & CEO, Ideal Energy; Amy Van Beek, Co Founder & CMO, Ideal Energy; Congressman Dave Loebsack; U.S. Representative for Iowa’s 2nd congressional district.

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Electric Vehicles and the Future of the Grid

POLICY, TECHNOLOGY

Electric Vehicles and the Future of the Grid

POLICY, TECHNOLOGY

2018 solar tariff shakeout: Solar’s still an excellent investment

Feb 5, 2018 | FINANCE, POLICY

The 2018 solar tariff is unfortunate, but solar is still an excellent investment

By: Eric Johnson, Writer, Ideal Energy

The Trump administration recently announced that a decision has been made in the Suniva and SolarWorld trade case. The U.S. International Trade Commission (ITC) sided with Suniva and SolarWorld in deciding to introduce a tariff on imported solar cells and modules.

Industry analysts believe the tariff will negatively impact the U.S. solar industry and future solar customers. The price of solar installations will likely go up, especially for utility-scale projects. Fewer solar projects will be undertaken. And there will be job losses in the industry.

While we’re disappointed with the ITC’s ruling, we don’t think the consequences will be as dire as many in the industry had feared. Furthermore, we believe the benefits of installing solar now – while the solar tax credit is still fully in effect – outweigh the small increase in cost from the tariff.

What the tariff does

Starting February 7, 2018, a 30% tariff will be imposed on all imported solar photovoltaic cells and modules. The tariff will decline by 5% per year (25% in 2019, 20% in 2020, 15% in 2021) and expire after the fourth year.

Each year, 2.5 gigawatts of solar cells – but not modules – will be exempt from the import tariff. (A solar module, also called a solar panel, is made of several solar cells. Exempting cells, but not modules, means final assembly on that 2.5 gigawatts would have to take place in the U.S.)

While previous tariffs targeted specific countries – mainly China – this tariff applies to almost all countries. The only exceptions are certain developing nations whose production only accounts for around 3% of U.S. cell and module imports. Those nations lose their exemption if their share of imports exceeds 9%.

This trade remedy is significantly lower than what Suniva and SolarWorld asked for in their trade complaint. They wanted a $0.24 tariff per watt on imported cells and $0.32 tariff per watt on imported modules – nearly double the 2017 spot prices.

History behind the tariff

SolarWorld, along with several other companies, filed its first ITC complaint in 2011 alleging that China was subsidizing solar cells and modules in violation of international trade agreements. The ITC agreed with SolarWorld that China was ‘dumping’ below-cost cells and modules in the U.S. market, and in 2012 the Obama administration levied tariffs of 30% and up on a number of Chinese companies.

A game of whack-a-mole ensued, with Chinese manufactures moving final assembly to other countries, such as Taiwan, and the Obama administration closing loopholes with additional tariffs.

These earlier tariffs had only short-lived impacts on the prices of cells and modules because Chinese companies moved production to new countries, like Malaysia and Singapore, faster than the U.S. implemented new tariffs.

The most recent phase of this ongoing trade dispute saw Suniva and SolarWorld, two foreign-owned, U.S.-based manufacturers, asking for trade relief in the form of steep tariffs on all imported cells and modules. With the 2018 tariff, they prevailed.

Reactions from the solar industry

Solar industry leaders reacted negatively across the board. The Solar Energy Industry Association (SEIA) issued a statement calling the decision a “loss for America” that “will undoubtedly have negative effects on the industry”.

The reason is simple: higher solar cell and module costs are bad for every part of the solar industry except domestic cell and module manufacturers. Higher costs are also bad for solar customers.

The last time a similar trade remedy was used in the United States was in 2002 in the steel industry. The case was similar. The U.S. imposed 8-30% tariffs on imported steel to protect domestic steel production. The tariffs were lifted the following year, around two years ahead of schedule. In spite of their brief duration, the tariffs had a negative overall effect. Research by the CITAC Foundation found that the tariffs actually caused job losses for over 200,000 American steel and manufacturing workers.

Although China’s illegal subsidizing of solar panels should not be celebrated or rewarded, the fact remains that tariffs do more harm than good. This trade “remedy” seems particularly misplaced when applied in a fast-growing industry that employs over 260,000 Americans.

Impacts of the tariff

PRICE INCREASES

Predictions for the increase in cost of a complete solar project range from around 0% to around 10%, depending on the scale of the project. The bigger the project, the more the tariff will affect it. This is because ‘soft costs’ like labor and overhead account for a larger share of small projects, while ‘hard costs’ like modules and racking account for larger share of big projects.

Here are a few of the projections we’ve seen:

Goldman Sachs predicts costs will increase by 3-7% for solar installations.
ClearView Energy Partners LLC predicts utility-scale installations will increase in cost by around 10% and residential installation prices will go up by 4%. Commercial scale arrays will see cost increases somewhere in between, probably around 6%.
GTM Research’s official forecast is that installations will cost an additional $0.10 per installed watt. MJ Shiao, Head of Americas Research at GTM Research, thinks the increase could be as high as $0.15 per watt during the first year of the tariff.

THE ‘OPTIMISTIC SCENARIO’

Here at Ideal Energy, some of our staff argue that the cost increase is already ‘priced in’ and therefore there won’t be any increase in costs due to the tariff. During the second half of 2017 we saw the cost of solar modules increase in anticipation of the tariff. Wholesalers raised prices and solar installers stockpiled inventory, reducing supply. These price increases were based on a widespread belief that the tariff would be higher than it turned out to be.

Now that the tariff is here and not as large as feared, it may be that the price won’t go up at all. If that’s the case, we may see stable prices this year and declining prices once the tariff starts going down by 5% per year.

JOB LOSSES

SEIA predicts the tariffs will cost 23,000 American solar workers their jobs. Many of those workers are in economically depressed areas that need more jobs, not fewer. Although it could have been much worse – SEIA originally predicted 88,000 job losses based on the higher tariff Suniva and SolarWorld asked for – 23,000 is still far too high.

DEPLOYED SOLAR

GTM Research thinks the tariff will cause a reduction in U.S. solar installations of 11% during the next five years. Their model projects 61.3 gigawatts of solar will be installed during that timeframe with the tariff and 68.9 gigawatts would have been installed without the tariff. Overall, that’s 7.6 gigawatts less solar in America.

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Why the tariff is NOT a disaster

Despite the bad news, the tariff is not a disaster and solar energy remains a great investment. Here’s why:

THE TARIFF IS ALREADY SOMEWHAT PRICED IN.

Even if the ‘optimistic scenario’ outlined above turns out to be a little too optimistic, the increase in module price over the last several months indicates that the tariff is already at least partially baked in. Wholesalers already increased their prices. As stockpiled inventory gets freed up and moves through the industry, supply will go up pushing prices down. Where the price stabilizes this year depends on how much stockpiling took place.

THE TARIFF ISN’T ALL THAT HIGH.

The tariff is not nearly as large as many in the industry feared. It’s far lower than what Suniva and SolarWorld asked for. Even at the high end of price increase predictions, the overall cost of a solar installation doesn’t increase very much. Solar will continue to be viable for most potential customers.

MODULES ARE JUST ONE COST AMONG MANY.

Solar panels are just one part of a solar installation. Racking and mounting hardware, inverters, taxes, overhead, profit, and labor – especially labor – make up the rest. The National Renewable Energy Laboratory (NREL) data indicate that modules make up only 1/3 of the cost of a typical solar installation in the U.S.

Top: Iowa consignment retail chain Stuff Quality Consignment has installed solar on two of it’s seven retail locations.

Last year the NREL estimated the nationwide average cost for a commercial-scale (200 kW) solar project at $1.85 per installed watt. That estimate is based on the spot price for solar photovoltaic modules – around $0.35 per watt in early 2017. The actual price a solar installation company pays is always higher – from $0.65 to $0.73 in early 2017, according to the NREL.

In the Midwest, we typically see an install price per watt a bit lower than NREL’s national average.

Image Source: National Renewable Energy Labs

Let’s take a 200 kW example project – about the size array you would expect to see on a big box store – and see how the tariff might affect it. On a simple ballasted roof-mount system in the Midwest, we’ve seen an average price per watt of $1.55 over the past year. This project would cost around $312,000.

HIGH
With ClearView Energy Partners’ prediction of a 6% increase for commercial projects, we’d see an increase of $18,720.

PROJECT COST: $330,720

PAYBACK: 5-6 years

INTERNAL RATE OF RETURN (IRR): 21.5%

25 YEAR UTILITY SAVINGS: $541,605

LOW

With our internal ‘optimistic scenario’ – that the cost increase of the tariff has already been priced in – we would see no increase this year.

PROJECT COST: $312,000

PAYBACK: 4-5 years

INTERNAL RATE OF RETURN (IRR): 23.04%

25 YEAR UTILITY SAVINGS: $548,712

On the highest side of tariff increase possibilities, using ClearView Energy Partners’ prediction of a 6% increase for commercial projects, we’d see an increase of $18,720 – for a total of $330,720. This system would pay for itself in 5-6 years, have a 21.5% IRR, and save $541,605 in electrical costs over 25 years. Using our internal ‘optimistic scenario’ – that the cost increase of the tariff has already been priced in – we would see no increase this year. The example project would still cost $312,000, pay for itself in 4-5 years, have a 23.04% IRR, and save $548,712 in electrical costs over 25 years.

In both scenarios, the business is benefiting from $540,000+ in utility cost savings over 25 years and earning a rate of return that’s nearly impossible to replicate in today’s markets.

Why now is the right time to invest in solar

Yes, the tariff may increase the cost of a solar installation in the short term. However, as noted above, the predicted impact on residential and commercial projects is low – in the 0% to 6% range. In the next year or two, module prices will likely begin to decline again.

However, the solar investment tax credit will also begin to decline soon. Next year – 2019 – is the last year to take full advantage of the credit. Through the end of 2019 a full 30% of the cost of a solar installation can be deducted. In 2020, the credit drops to 26%. In 2021 it drops to 22%. From 2022 onwards the credit is limited to 10% for commercial projects and falls to 0% for residential projects.

In our opinion, the benefits of the tax credit significantly outweigh the small added cost due to the tariff.

Final thoughts

We hope this article helped you understand the tariff and it’s impact. However, the information here is far from the last word on the tariff. It will take some time to see where the module price stabilizes this year. We may also see appeals to the ITC or the World Trade Organization. An early reversal, as with the 2002 steel tariff, is also a possibility.

In any case, with or without the tariff, we think solar continues to be among the best investments a homeowner or business owner could make.

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Electric Vehicles and the Future of the Grid

POLICY, TECHNOLOGY

Electric Vehicles and the Future of the Grid

POLICY, TECHNOLOGY

Governor Reynolds Visits Ideal Energy to Discuss the Future of Solar Energy in Iowa

Nov 9, 2017 | CHANGEMAKERS, POLICY

Governor Reynolds Visits Ideal Energy to Discuss Iowa’s Solar Future

By: Eric Johnson, Writer, Ideal Energy

On Wednesday, November 1st, Governor Kim Reynolds visited Ideal Energy’s office to talk policy and see the impact of solar energy on Iowa’s economy.

Policy Changes

Troy Van Beek, co-founder of Ideal Energy, lead the meeting with a discussion of policy challenges, several of Ideal Energy’s most noteworthy projects, and innovation in the solar industry. Several solar industry leaders and Ideal Energy customers also attended the meeting and spoke with the Governor about their experiences with solar energy. “We are affected by policy,” Troy said. “We’re working on a roller coaster. We call it the ‘solar coaster’. Policy comes and it goes. That has been very difficult.”

Governor Reynolds made clear she understood the difficulties that ever-changing policy can bring to a growing industry. “It’s very disrupting,” she said. “You need the stability. That impacts investments and that impacts production.”

Roger Vorhies, vice president of Schaus-Vorhies Companies, emphasized the importance of the solar Investment Tax Credit. “The tax credits were a big part of our decision,” he said. “It was a business decision. The return on investment was enhanced by the tax credits.”

Schaus-Vorhies Manufacturing (SVM), part of the Schaus-Vorhies Companies group, installed a half-megawatt solar array on a restored industrial brownfield adjacent to its facility. At the time, it was the largest privately owned solar array in Iowa. The array saves SVM approximately $100,000 per year in utility costs.

Above: Schaus-Vorhies Manufacturing (SVM) saves about $100,000 annually in energy costs with their half-megawatt array, sited on a former brownfield.

From Left to Right: Governor Kim Reynolds and Lt. Governor Adam Gregg discuss how manufacturing businesses like are gaining a competitive edge with solar energy, SVM Co-Founder Roger Vorhies explains what factors drove his company to install solar.

Governor Reynolds stated that a clear policy roadmap was essential for solar investment. “If you’re an investor that’s looking to build out an industry and you’re seeing the fluctuation we are [seeing] in policy, you’re more hesitant to invest.”

Tom Kimbis, Executive Vice President of the Solar Energy Industries Association (SEIA) spoke about additional policy issues in the solar industry, including the Suniva trade complaint before the United States International Trade Commission.

Kimbis also emphasized the growth and dynamism of the solar industry. SEIA represents around 1,000 companies with 260,000 solar jobs in the U.S. – including 38,000 American manufacturing jobs. Kimbis spoke about solar innovation including smart inverters, Tesla’s Gigafactory, and battery storage solutions.

“The great news here is that you have these innovative ideas you’ve heard just from this one short conversation,” he said. “These are the things making solar so exciting. This is happening everywhere.”

Solar Plus Storage

One innovation that Ideal Energy is introduced to Iowa is solar plus storage technology. The first use of battery storage in a commercial-scale solar array in Iowa was at Stuff Etc’s Coralville location. Founded by Mary Sundblad, Stuff Etc is a chain of consignment stores throughout Iowa. Amy Van Beek, co-founder and marketing director of Ideal Energy, brought Governor Reynolds up to speed on how the technology was used at Stuff Etc.

“In order for solar to work for Mary we had to bring a brand new technology in, which is something that’s really exciting,” Amy said. “Linn County REC, her utility, had a cap on the amount of net metering they would provide. But Mary wanted to take the store to 100% net-zero. We were able to pair her solar installation with batteries to allow her to maintain that net-metering threshold and at the same time benefit from the full advantage of solar.”

This technology is slated to be an increasing part of Ideal Energy’s portfolio of solutions. It’s particularly useful for large utility users who want to eliminate expensive demand charges, which are difficult to reduce with solar arrays alone.

Right: Stuff Etc. Founder Mary Sundblad introducted Gov. Reynolds to Iowa’s first Solar Plus Storage project, located at their flagship store in Coralville, Iowa.

High demand charges?

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Reinvestment Potential

Jenny Steffensmeier, owner of Steffensmeier Welding & Manufacturing, spoke about the reduction in her utility bill as result of her company’s net-zero installation. Her company’s utility costs dropped from $92,000 per year to just over $22 per month.

Steffensmeier reinvested those savings in her employees and her business. The business introduced a new benefits package that adds coverage for dental, vision, and disability. Several employees are receiving AutoCAD training at a local community college. And the company hired additional workers to run a second shift.

Governor Reynolds is Excited about Solar

After touring Ideal Energy’s offices and SVM’s 500 kW solar field, Governor Reynolds summed up her appreciation of solar energy’s benefits. “To go from $8000 a month for the cost of electricity to basically nothing. Zero net. That gives them the additional revenue to hire, to train, to grow their companies. That’s exciting.”

From Left to Right: Tom Kimbus, Executive Vice President of the Solar Energy Industries Association (SEIA); Jenny Steffensmeier, Owner, Steffensmeier Welding and Manufacturing; Governor Reynolds; Troy Van Beek, Founder & CEO, Ideal Energy; Amy Van Beek, Co Founder & CMO, Ideal Energy; Lt. Governor Gregg; Mary Sundblad, Founder & Owner, Stuff Etc Quality Consignment.

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Electric Vehicles and the Future of the Grid

POLICY, TECHNOLOGY

Electric Vehicles and the Future of the Grid

POLICY, TECHNOLOGY

How net metering changes affect solar for Alliant Energy customers

Oct 3, 2017 | POLICY

How net metering changes affect solar for Alliant Energy customers

By: Deniz Comez, Lead Designer, Ideal Energy

In March we published Changes Coming to Solar Net Metering: Inside the Technical Calculations to walk our readers through the math behind our assessment of the impact of the new net metering rules in Iowa. Since that post was published there have been some updates, as the new tariff has come into effect.

Overview

Although the Iowa Utilities Board (IUB) refused to reconsider its ruling, it did compel Alliant Energy to modify some aspects of the new net metering rules. These changes have lessened the severity of the reduction to net metering. This means solar is still viable for most customers.

Although we’re disappointed that Alliant Energy and the IUB have enacted new rules unfriendly to businesses and homeowners pursuing solar, we’re relieved that the impact won’t be as severe as it could have been.

But before we dive into the specifics, let’s get caught up on the background.

Background & Timeline

In July 2016, the Iowa Utilities Board instructed Iowa’s utilities to submit new net metering rules for consideration as part of a pilot project meant to expand solar power distributed generation in the state. In February 2017, the IUB accepted Alliant Energy’s proposal. Alliant’s proposed rules limit the size of new solar installations by introducing a load cap to net metering.

Calculations based on Alliant’s publicly filed data showed that the new rules reduced the viable size of solar installations by 62% for Residential customers and 68% for General Service customers compared to what would have been installed under the old net metering rules. For an in-depth discussion of the impacts of Alliant’s proposal see our previous post here.

Leaders in the solar industry, environmental organizations, and concerned citizens roundly criticized Alliant’s proposal. Although the IUB did not reconsider its ruling, these efforts were not all in vain. In March the IUB issued a ruling that required Alliant Energy to provide additional information and to make several changes to its proposal.

Alliant made those changes and the new, final rules went into effect on May 1st.

What changed under the revised rules?

The IUB ordered Alliant Energy to provide additional information about the class load data that the net metering load caps are based on. Furthermore, under direction from the IUB, Alliant now defines it’s load caps in terms of alternating current (AC) instead of direct current (DC), which we view as a positive change.

Class load data includes total kWh usage and non-coincident kW demand for all Alliant customers in a particular class, for example the “Residential” class or the “General Service” (commercial) class. This is important for calculating the net metering load cap, because although Alliant would prefer to use an individual customer’s actual kW demand, most customer’s electricity meters don’t measure demand. Instead, Alliant plans to infer a customer’s kW demand from the class load data.

Calculations using Alliant’s newly released class load data show that the net metering load caps won’t be as extreme as the older data had indicated.

We now calculate that net metering will be reduced by 17% for Residential customers and 34% for General Service (commercial) customers. For both cases, the Residential and General Service customers, assume the industry-standard solar generation rate of 1200 kWh for every kW DC of solar installed and the solar installation would have a 1.15 DC to AC ratio.

Although this is not the catastrophe that a 62-68% reduction would have been, we are nevertheless frustrated and disappointed that the IUB and Alliant Energy turned a pilot project meant to promote solar power into a new set of rules that will instead limit solar power. Let’s take a closer look at the math behind these net metering reductions.

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Residential net metering reduction calculations

OLD SOLAR NET METERING TARIFF

Under the old rules, a typical Iowa household using about 12,000 kWh of electricity per year could purchase a 10.88 kW solar installation that would save the family $1,509 in the first year and pay for itself completely within 9-10 years. The design lifecycle of solar is 25 years.

NEW SOLAR NET METERING TARIFF

Under the new tariff, 7.234kW AC of the same 10 kW installation is eligible for net metering with Alliant Energy, saves $1,353 in the first year, and takes 10-11 years to pay for itself. The design lifecycle of solar is 25 years.

A Residential customer that uses 12,000kWh in a year would need approximately 8.696kW AC to be net metered under the old rules to have 100% of their energy usage net-metered. This is calculated like so:

Given that the Load Factor for Residential customers Load Factor is now 18.937%, under the new rules, the client can have the Load Cap of:

General service net metering reduction calculations

A General Service customer that uses 120,000kWh in a year would need approximately 86.957kW AC to be net metered under the old rules to have 100% of their energy usage net-metered. This is calculated like so:

Given that the Load Factor for General Service customers Load Factor is now 23.855%, under the new rules, the client can have the Load Cap of:

OLD SOLAR NET METERING TARIFF

Under the old rules, an Iowa business using 120,000 kWh of electricity per year could install a solar project with 105.4 kW DC of solar panels and 86.6kW AC of inverters, which would save the business $14,065 in the first year and pay for itself completely within 4-6 years. The design lifecycle of solar is 25 years.

NEW SOLAR NET METERING TARIFF

Under the new rules, 57.425 kW AC of the same 86.6kW AC installation is eligible for net metering, saves the business $13,105 in the first year and takes 5-6 years to pay for itself. The design lifecycle of solar is 25 years.

Final thoughts on the new ruling

These new metering rules don’t spell the end of solar power in Iowa. While the rules represent a step backward, solar nevertheless continues to be a prosperous opportunity for many Alliant customers.
If you are an Alliant Energy customer and already have solar, no worries, you’re grandfathered in under the old tariff through your interconnection agreement.
The outlook is especially good for customers of MidAmerican Energy, another large public utility in Iowa. MidAmerican has implemented new rules that support and encourage solar power. We think they’re moving in the right direction.
If you’d like to know more about how these net metering changes affect your plans to pursue solar, don’t hesitate to get in touch.

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ADDITIONAL INFORMATION

What is Net Metering?

Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid. For example, if a residential customer has a PV system on the home’s rooftop, it may generate more electricity than the home uses during daylight hours. If the home is net-metered, the electricity meter will run backwards to provide a credit against what electricity is consumed at night or other periods where the home’s electricity use exceeds the system’s output. Customers are only billed for their “net” energy use. On average, only 20-40% of a solar energy system’s output ever goes into the grid. Exported solar electricity serves nearby customers’ loads.

Source: SEIA

What is Load Factor?

In electrical engineering the load factor is defined as the average load divided by the peak load in a specified time period.

Source: WIKIPEDIA

What is Distributed Generation?

Distributed generation (DG) refers to electricity that is produced at or near the point where it is used. Distributed solar energy can be located on rooftops or ground-mounted, and is typically connected to the local utility distribution grid. States, cities and towns are experimenting with policies to encourage distributed solar to offset peak electricity demand and stabilize the local grid.
Source: SEIA

What is the Iowa Utilities Board?

The Iowa Utilities Board (IUB) is a public commission that regulates power, water, and telecommunications in Iowa. The three members of the board are appointed to six year terms by the Governor.

What is Alliant Energy?

Alliant Energy is the public utility holding company of Interstate Power and Light, one of the utilities in the state of Iowa. Most Iowans get their electricity from Interstate Power and Light, MidAmerican, or one of the rural electric cooperatives. Most solar installations in the state until now have been among Alliant Energy customers.