Benefits of Going Renewable Now, by Maureen Eldredge
Apr 8, 2010
by Maureen E. Eldredge
When people think of greenhouse gas emissions and air pollution, most think that automobiles are the biggest culprit. However, the biggest source of CO2 emissions (the primary greenhouse gas) in the city of Boulder is commercial buildings. Energy used to heat, cool, light and power equipment (like computers) in commercial buildings generates 57% of the total emissions for the city. Unfortunately, volunteer efforts at conservation haven’t made much of a dent in energy use. The City of Boulder has committed to reduce its greenhouse gas emissions by 7% below the 1990 levels by the year 2012. Since voluntary efforts at emission reductions have not been sufficient, the City is considering making commercial property efficiency upgrades mandatory. Current federal, state and local incentives make installing a solar photovoltaic (“PV”) heating system now an option worth serious consideration. Not only will a solar PV system reduce greenhouse gas emissions, it would save on energy costs now and for years to come.
A typical 10 kilowatt (kW) solar photovoltaic system costs between $75,000 and $90,000 to install and can last 25 to 30 years. In the past, the expense of putting in these systems and the resulting long wait for the return on the investment has deterred property owners with limited capital to spare. Now, a number of federal, state and local incentives have drastically reduced the up-front costs. In 2010, the U.S. Department of Treasury is offering direct cash grants to businesses for installing solar and other types of renewable energy systems. The grant equals 30% of the cost of a new solar power production system, including equipment costs, installation and site preparation, and there is no cap on the total amount of the grant. On the typical 10kW system, this could translate to $22,500 to $27,000 back in tax-free cash.
Companies applying for the grant will receive the cash payment either after the installation begins producing energy, or 60 days after applying, whichever is later. The grant is available for renewable energy systems other than solar, but excludes those used only to heating swimming pools. However, unless the grant program is extended, the time to take advantage of this grant is limited. Under current law, the new solar PV system must be completed in 2010, or construction must start in 2010 and be finished no later than 2013.
Another federal incentive is the energy investment tax credit, or ITC, which provides a dollar-for-dollar tax credit against income tax liability for renewable energy production systems. Businesses can take either the tax credit or the grant, but not both. Like the grant, the ITC equals 30% of the total system cost but is authorized through 2017. The taxpayer takes the credit in the year the system starts producing energy. The credit carries forward for 20 years or back one year. For businesses structured as “flow-through” entities, such as limited liability companies, the ITC is passed to the owners and is taken as a direct credit on their personal taxes to offset any tax liability, even alternative minimum tax liability. Businesses can depreciate the costs of the renewable energy equipment on an accelerated basis over five year. However, the federal grant or tax credit is based on the actual out-of-pocket costs, which are reduced by the amount of any rebates or energy credits received from other sources.
In addition to the federal programs, there are a number of other state and local incentives that can reduce the cost of installing a solar PV system. Xcel Energy’s Solar*Rewards Program provides tiered incentives for smaller (less than 10kW) grid-connected PV systems, which includes $2.00 per watt as an immediate cash rebate and a one-time renewable-energy credit payment of up to $0.70 per watt. Additionally, if the system produces more energy than the customer uses, Xcel credits the customer for the power that is returned to the grid. For medium-sized systems (10.1 kW to 100 kW), Xcel’s program includes an upfront rebate of $2.00 per watt, capped at $200,000, and monthly payments of up to $115 per megawatt-hour of system production over a 20-year period.
The City of Boulder offers a solar sales and use tax rebate for photovoltaic and solar water heating installations - essentially a tax refund for any upfront taxes paid for the system. Additionally, the City offers loans through its ClimateSmart loan program to commercial property owners for energy efficiency upgrades, which are amortized over a 5 or 10-year period.
By combining federal, state and city incentives, the cost of installing solar power can be reduced dramatically. The City of Boulder’s Local Environmental Action Division estimates that after incentives, a $90,000, 10kW solar PV system for a 57,000 square foot office building could cost only $16,850 in out-of-pocket expenses and save $2,000 to $3,000 in energy costs per year at current prices. The out-of-pocket expenses could be financed by a ClimateSmart loan and amortized over 5 to 10 years, further reducing immediate cash needs. The prospect of energy savings now combined with protection against future energy cost increases, makes investing in solar power a smart business decision.
© Maureen E. Eldredge 2010
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