Saving with Solar

When examining the financial case for installing a solar energy system, there are four main factors to consider:

          1. Hedge the system provides against the rising costs in conventional power
          2. Affordability of the system
          3. Return on your investment
          4. Positive effect on the value of your property

Rising Cost of Power

The state of Florida has seen electric rates go up by 3 to 5% every year for the past decade. In 2009 alone, rates have gone up as much as 30% in certain areas. Conservative estimates indicate that rates will increase on average 3%-5% per year into the foreseeable future. What does this all mean to your company’s bottom line?

Average retail price of electricity in Florida:

Let’s use an example to illustrate:

Annual Electric Usage: 200,000 kilowatts of A/C power
Rate: $0.15 cents per watt
Utility costs current year: $30,000
Utility costs in ten years: $39,100
Utility costs in twenty years: $52,600
Total Utility Cost over 20 years: $806,100

Installing a solar power system now, and fixing your electrical costs by doing so, protects you from the inflation of electricity prices. Also, by producing energy during the daytime when power is most expensive for many rate payers, a solar system helps shave the amount of electricity consumed during peak hours, significantly reducing your power bills. In effect, you are locking down your future operating expenses. Any expense you are able to avert is a savings that would go right to your bottom line and will be recognized as an increase in the operating margin for the building.

Affordability of Solar

The current technology used to generate electricity from the sun has been around for decades and the technological advances of recent years have decreased the cost of solar energy significantly. These days, a typical commercial installation can cost between $4.50 and $7.50 per installed watt, depending on the size of the system, the type of mounting hardware used (roof or ground), the type of solar panels selected and the features added to the system.

There are a number of incentives currently offered to encourage the development of renewable energy sources like PV systems. You can immediately subtract a Federal Tax Credit (FTC) of 30% off the price. Alternatively, since it has been a bad year for many businesses, if you can’t take advantage of the tax credit, you can take it as a 30% cash grant instead. You are also allowed to depreciate the cost of your system at an accelerated rate. Depending on your location, there may also be other government or utility incentives available to you. While this is just an overview of the cost of solar (and other considerations such as the cost of financing should be included), other auxiliary benefits also apply. For a complete financial analysis, every customer should contact a QuickBeam Energy Consultant to discuss their specific situation. We will determine what size and type of system will work best for you, and will handle the paperwork involved in taking advantage of the subsidies.

Return on Investment

The annual Return on Investment (ROI) of a solar electric system is similar to those typically seen by commercial property investors. This ROI is the income (annual net after depreciation) divided by the cost of the system (after the FTC). Most investors will see a 9 to 10% ROI on their systems, but more importantly, an immediate cash flow and property valuation increase.

If you believe that the cost of energy will continue to rise, solar PV presents you with a stable, safe investment strategy. Most knowledgeable investors would agree that this is an attractive ROI when compared to the rest of the market at this time.

Increases the Value of Your Property

The annual savings in your building’s power bill translates into an increase in the building’s value. Since the property costs less to operate, you see an immediate increase in your operating margins. Also, any increase in the operating margin, divided by the cap rate, equals an increase in the resale value of the building. The end result is an immediate savings in your operating expenses plus an immediate increase in the value of your property. By the way, Florida law now provides an exemption from property taxes for the cost of an installed solar system (Section 196.175, Florida Statutes).

Incentives For Businesses

Corporate Depreciation
Under the federal Modified Accelerated Cost-Recovery System Act (MACRS), solar systems qualify for a 5 year accelerated depreciation schedule.
Business Energy Investment Tax Credit (ITC)
A Federal tax credit of 30% of expenditures in the installation of solar systems is currently available.
Renewable Energy Grant
Taxpayers eligible for the federal business energy investment tax credit (ITC) can choose to receive a grant from the U.S. Treasury Department instead of taking the business ITC for new installations.
USDA – Rural Energy for America Program (REAP) Grants
The REAP promotes energy efficiency and renewable energy for agricultural producers and rural small businesses through the use of grants and loan guarantees for energy efficiency improvements and renewable energy systems.
Florida State Rebate
There is no more funding available for this rebate program. This program received $14.4 million in federal funding from the American Recovery and Reinvestment Act of 2009 (ARRA). This funding was used to award rebates to systems in the application queue. FY 2009-2010 is the last year of the solar rebate program and the last year the program could be funded under the current authorizing statute.

Resources:

Florida Residential Electric Rate Comparisons [The Ledger]
US Energy Information Administration