Post-Solar Tariff: Should you still go solar?
The increase in the price of solar panels, in most commercial solar projects, still pales in comparison to the solar incentives available
On February 7th, the solar tariff imposed by the Trump Administration after the Section 201 Trade Case, officially went into effect. This decision is frowned upon by most solar industry experts, and of course the implications are less than ideal, but is the solar tariff really enough reason to shy away from going solar?
Here’s a quick breakdown of the price increase projections from the tariff, and the incentives still in place to counter that increase.
|Year 1||Year 2||Year 3||Year 4|
|Safeguard Tariff on Modules and cells||30%||25%||20%||15%|
|Cells Exempt from Tariff||2.5 gigawatts||2.5 gigawatts||2.5 gigawatts||2.5 gigawatts|
But is this enough to outweigh the savings that solar would bring to your business? For commercial projects, no. Only the very biggest projects – utility-scale – will be severely affected, given that panel prices make up such a significant portion of their overall costs. In many areas across the U.S., the cost of standard electricity is more expensive than solar, even with the impact of the tariff. Beyond this difference in the base cost of energy itself, there are several major additional solar incentives still in place that sweeten the deal. Below are a few that highlight why the vast majority of projects will still pencil.
According to GreenTech Media, the solar tariff (revisited above) stands to potentially increase the cost of solar by $0.10 to $0.15 per watt.
Solar Investment Tax Credit (ITC)
The first place to find reprieve from the cost of solar is the ITC. It has a tremendous impact on the overall cost of your solar system, allowing both commercial and residential system owners to deduct 30% of the total system cost from federal taxes. Fortunately for your business, the ITC is set to stay at 30% through the end of 2019, before going down to 26%—meaning there is still ample time to take advantage of these drastic savings.
MACRS and Bonus Depreciation
As far as the value of your system, the federal government understands the draw of seeing compensation for depreciation immediately. Through the federal Modified Accelerated Cost Recovery System (MACRS), businesses can recover investments in solar energy equipment through income tax deductions. Even though the value of a solar system actually takes decades to fully deteriorate, MACRS establishes a 5-year cost recovery period, allowing businesses to use depreciation deductions to rapidly recover equipment investments.
In addition to the MACRS, Congress’ 100% bonus depreciation provision for renewable energy systems in the new December 2017 tax bill significantly speeds up cost recovery. This allows businesses to claim depreciation on the entire cost of the solar property within the first year of the project’s operation.
RECs and RPSs
So you have a sizable tax credit and benefit from the full depreciation of your new asset in the first year how about the dollar value of your environmental impact? The cool thing about the solar power your system generates is that it’s actually quantifiable—here’s where RECs come in.
A Renewable Energy Certificate (REC) is a tracked, tradable market certificate that represents the environmental and social benefits accrued when one megawatt-hour (MWh) of renewable electricity is delivered to the grid.
How do you take advantage of these valuable RECs?
Well, states rely on RECs to fulfill their Renewable Portfolio Standard (RPS) requirements. A state RPS generally specifies a minimum percentage of power that all utilities within the state must obtain through renewable energy sources, within a certain timeframe. As RPS requirements become more and more ambitious, with states like New York and California requiring 50% of power to come from renewables by 2030, they increase the demand for RECs, boosting their market value and fueling the development of solar projects—to your benefit. If you purchase your solar system, you have the ability to sell these RECs to the utilities that need to achieve these RPS requirements, bringing a key revenue stream to your business.
Finally, we have net metering.
Think of net metering like filling an infinity pool. When your system is producing more energy than you need, just like when the water reaches the top of the pool wall and starts to spill over, the excess power flows back into the grid. In the same way that the water that spills over the pool wallis pushed back into the pool once again, the power injected into the grid is credited back to your account. So, at times when your solar system isn’t producing enough power to cover the energy use in your building (during evenings and rainy days, for example), the power you overproduced on sunny days balances out your increased energy needs, reducing your overall bill.
Going solar from here
Will there still be projects that don’t work on paper? Yes. But altogether, the combination of these tax incentives, environmental attributes, and compensation for excess energy consumption, makes solar hugely profitable.
What we’re saying is don’t write solar off—the financial benefits won’t be sunsetting anytime soon. The environmental benefits of solar remain as always, and solar can still save your business tens of thousands of dollars.