What is this graph all about?
This is the first installment in a series of reports covering the current state of residential solar energy in the United States. The above graph provides a visual reference to compare when an investment in an average size residential solar electric system will pay for itself across all 50 states. Icons for each state are placed on the year of most probable payback.
Why should I care about this?
#1: You like money and representative democracy and want more of both.
Is it fair that people in a state like Massachusetts can purchase an investment with a guaranteed return of over 300% and you can’t? Investing in solar energy can be a very profitable opportunity which every citizen should have.
#2: You’re someone who appreciates a growing economy, ample job opportunities, clean water, blue skies, and lush forests.
When return on investment for anything is significant, easily attainable, and fast, demand is strong. When demand for solar energy is strong, the local economy strengthens, new jobs develop, people have more savings and disposable income, lives flourish, and Mother Nature smiles a little more at us.
If you live in a particularly sunny state, like Mississippi, Texas, or Florida you might like to think an investment in solar energy would be sensible because there’s so much sun! However, demand for solar panels has been strongest in other parts of the country, particularly the Northeast. They are reaping massive economic benefits from investing in the future growth of a new clean industry.
Shouldn’t your state be doing similar? To understand what makes the states different and why demand is strong in some areas and not others, keep reading!
Why such a loooooooong graph?
We are not strangers to the lengthened graph format, and prefer to make the most of computer scrolling in information design.
What do the long arrows mean?
In some areas of states, solar pays for itself much faster. Certain cities offer their own juicy solar incentives which differ greatly from other areas in the state (e.g. – San Antonio, Texas, or Napa, California). To account for the wide difference, we’ve added an arrow for states with wide variation in expected payback year. Other factors which create varying payback within states include inclusion status in other state’s renewable energy certificate trading programs and/or utility company geography.
Why are some cloudy states like Pennsylvania, Washington, and Illinois killing others like Alabama and Florida when it comes to payback?
As you can see, there is considerable variation in return on investment timeframes for solar power across the country. Logically, you may have thought solar energy may pay for itself much faster in say, Missouri than Alaska. However, there’s a lot more than available hours of sunshine when it comes to calculating when your investment will start paying dividends for you.
Payback time largely depends on each state’s legislative efforts to move renewable energy forward. Your state legislators determine what requirements your electric utility must abide by to derive a certain percentage of their future energy mix from renewable sources. That’s called a renewable portfolio standard or RPS.
The states with the shortest payback periods, like New Jersey, New York, and Massachusetts not only have a strong RPS, but also have a certain amount of the required future electricity mix carved out specifically for solar energy. These requirements are coupled with stiff penalties to the utility companies if they do not meet their numbers.
Therefore, electric utilities buy up SRECs generated by homeowners. SRECs can be worth a big chunk of change over the life of the solar energy system. Here’s a great video on how SRECs work.
How did you calculate payback periods?
The calculations above assume a 5kW solar energy system installed on a south facing roof, tied to the grid, with no trenching or extensive solar racking required, installed at $7/watt, or $35,000 total. We used local utility rates, available utility rebates, state and federal tax credits, state rebates, state tax credits, solar performance based payments such as SRECs, and feed-in tariffs to inform our calculations.
Keep in mind, the above calculations also do not account for any increase in home property value, which in many states creates immediate return on investment. The estimated figure is 20 times annual utility savings, and in many states this value addition is tax exempt!
How do I know you’re not just making this up? Where did source your data?
Data for utility rates came from the Department of Energy, the rebates and tax credits were sourced through the Database of State Incentives for Renewables and Efficiency just last week. SREC payment information was derived from SRECtrade. Very small solar energy pilot programs such as the Gainesville feed-in tariff were omitted from the report.
In the next section, we provide a summary report card of each state’s incentives, utility policies, net-metering, and interconnection standards. Grading weights and criteria are provided too!
2010 SPR Solar Report Card Navigation:
Part 1, Residential Solar Energy ROI by State (you are here)
Part 2, Residential Solar Report Card Summary Grades
Part 3, Electric Utility Policies and Rates
Part 4, Solar Incentive Summary Grades
Part 5, Solar Yearly Performance Payments by State
Part 6, State Rebate Details
Part 7, Tax Credit Overview by State
Part 8, Property Tax Exemptions
Part 9, State Loans for Solar
Part 10, Sales Tax Exemptions |
SPR Report Card 2010 – Part 2 – State by State Summary Grades »« The 2010 Solar Power Rocks Report Card is On Deck!
Louisiana has a 50% tax credit incentive. Why did it get an “F” in that category?
Hello BC,
While Louisiana does indeed have a 50% tax credit, it is capped at $12,500. Therefore, only if you have the tax liability AND you install a small system <2kW, are you able to achieve a fast payback. While tax credits are a very nice option for some people, SREC payments, Feed-in tariffs, and utility rebates are much much better for everyone else. Louisiana has none of those other options, mainly because there is no carve out for solar in the state's renewable energy standard.
Idaho for instance has a 100% tax credit for solar up to $20,000. That's pretty great (for some people). But that does not justify an overall incentive "A" in this report. Personal tax credits are worth only about 8% of the total incentive portion of the report card. Years to payback on a 5kW system is worth 50%, then performance payments 20%, rebates 10%.
You can see more details of the incentives portion of report in Part 4 – Incentive Summary Grades.
Thanks for the reply Dan. However, I must point out one thing. Louisiana’s tax credit is capped at $12,500 per system. Home owners are allowed to install as many separate systems as necessary to offset their entire power consumption.
Hey BC,
Thanks for the heads up on the per-system tax credit. I suppose the Louisiana incentives are best taken advantage of if you have a large tax liability, and do not mind purchasing two or three inverters? That seems like a lot of unnecessary expenditure to squeeze through a tax loop – one that many Louisianans might not qualify for.
What about providing an optional calculator? We then could provide our personal residence values for State, County, size of solar system, cost of system and electricity used per month. That would give us a realistic pay-back period for our unique situation.
Hi Peter,
While that sort of calculator would be ideal, it’s a bit impractical. Many utilities have tiered pricing, couple that with county differences, and you’ve got a whole mess of data to deal with which needs constant updating. We’re a very small team here, and do our best to get people connected with local experts who can show you the light.
Dan, tax liability isn’t a factor. Excess tax credit is refunded in Louisiana.
Also, there is no unnecessary expeditures when purchasing systems with micro-inverters.
I have several questions regarding Solar Electric panels & cannot find definitive answers. Can you point me to a source for reliable answers?
1) Are secondary homes elegible for 30% federal tax credit? Sources SEEM to say solar panels DO qualify for vacation homes, but not sure – info before solar panels says 2nd homes qualify, info after says, “no,” but seems to be addressing fuel cells (http://www.energystar.gov/index.cfm?c=tax_credits.tx_index)
2) Where can I find clarification of elegibility? It was my understanding that homeowner installed projects did NOT qualify for any Federal Tax Credits, but I can’t find this in print. Also, I’m entering a gray area. I spoke to a panel-in-a-box manufacturer. They claim I CAN get the 30% tax credit if I apply the system on my own because I am a contractor. Background: I am a full-time building contractor (licensed in PA). I do renovation and construction & have not worked with solar, however, the solar-in-a-box systems would definitely be something our company could handle. I’d like to install this basic on-grid system to see how it works and evaluate it so my construction company could consider adding this to our work offerings. Obviously the manufacturer has a vested interest in saying yes, you’re a registered, licensed contractor, you can install this and qualify for tax credits. I’m trying to find Gov’t./IRS guidelines. At this point, I can’t even find something that says systems MUST be installed by third party, not homeowner, and, additionally, how to address the problem of me, as a contractor, installing a solar panel electric system in my own home. Any guidance you can offer would be GREATLY appreciated.
Hi Deborah,
These are great questions, we’ll start looking for answers and will let you know when we find something.
How are you calculating the payback period for California as 8-27 years? I’ve seen quotes from various different solar companies stating the payback period in CA is 5-7 years typically.
How do NJ & PA have exact payback periods? I’ve seen quotes from NJ that have payback periods as short as 3 years. Are you calculating SRECs?
I have only read this part of the report, so I may be missing something. I do like the idea, but I’m not positive about all the data.
You give an F to California when we currently account for 61% of the PV market and an A to Oregon. How can Oregon beat out a market like NJ? I understand that California doesn’t have the best rebates around but F? Ouch.
I love the incentive summary grades, but I am still interested in how you came up with some of the numbers.
Thank you,
Gregg
Hi Gregg,
I urge you to read the rest of the report, and the associated comments. The answers to your questions are right on in there, from our ambivalence about California’s “F” grade, to the rationale behind each part of the solar incentive summary grades. All the data and sources are in there.
Payback was calculated using the average utility rate in the state and the availability of performance payments (like SRECs), state rebates, utility rebates, and state tax credits.
California has some municipalities like Sonoma/Coachella who continue to offer generous rebates, whereas others do not. That’s why you have such variation in payback there.
These calculations were made using a 5kW system example. In NJ you could very well achieve faster payback with a system which is larger than this, due to the juicy SREC payments currently available. For a 5kW system, the payback we calculated was 5 years, though when priced at $5/watt you can achieve payback in 4.
Dan-California has some municipalities like Sonoma/Coachella who continue to offer generous rebates, whereas others do not. That’s why you have such variation in payback there.
I agree, but feel the arrow should extend down to 5 years. I don’t sell solar myself but I have access to software that produces quotes. I designed a sample quote for you, and the 4kW, 5kW, and 6kw systems all allowed for a 5 year payback in CA. Actually it’s in between 4&5 years, had I been in Sonoma it would have been quicker.
Again I love the report and thank you guys for posting it, your site rocks.
A sample for you:
http://solaruniverse.com/quotes/yn6pr9j5cq7742t9gpyntm#net-investment
Thanks for the quote Gregg,
I am not sure I understand how a 5kW system will offset over $300/mo in California. If that is due to tiered electric rates, great. We didn’t include them in our report, since it would be way too time consuming!
Fact of the matter is it depends where you are in California, and it’s best to connect with a knowledgeable installer to sort out all the rebates/credits/rate tiers. It’s too difficult to capture in a snapshot for California. Other states, sure.
[...] before those of you living in non-solar-friendly states get too excited (check out the 2010 state solar report card), keep in mind that many of these financing options are only available where there are good state [...]
Dan, I don’t know if you are familiar with the new legislature that just passed in Oregon cutting the BETC almost by 99 percent!!! Ouch! The available amount for funding all renewable electrical generation is now 1.5 million/with a 35 percent total state tax credit. This said, is there any possible way to make solar and the ROI under 10 years with out the state kicking in 35 percent. Chances are that 1.5 million is already gone! Please any advise would be great!
