Incentives, the Stimulus and PPAs Contribute to a Bright Future for Solar Projects

By Greg Zimmerman, Executive Editor  

While facility executives wait with bated breath to learn the fate of the Waxman-Markey climate bill currently being debated in the Senate, there is still much to be excited about for those who are interested in doing a solar project.

However, facility executives in all but the most progressive organizations are still having trouble justifying solar strictly on a return-on-investment basis. The good news is the cost of solar is dropping. According to an October 2009 report by Lawrence Berkeley National Lab titled "Tracking the Sun II," the cost of installed solar photovoltaic (PV) systems, before any incentives, rebates or tax deductions are included, dropped from $7.80 per watt in 2007 to $7.50 per watt in 2008. Additionally, from 1998 to 2008, the cost dropped about 3.6 percent per year. The cost was $10.80 per watt in 1998.

Additionally, incentives to use solar are constantly popping up, shortening the payback and encouraging more facility executives to give solar a second look. For instance, in California alone there are 81 different solar incentives offered by utilities, the state government and local governments. Minnesota, not generally thought of as a sun-splashed solar-friendly state, offers 34. Facility executives can find solar incentives in their areas by visiting www.dsireusa.org.

On the federal level, the Emergency Economic Stabilization Act of 2008 extended a 30 percent investment tax credit for commercial solar installations; it now covers projects put into place on or before Dec. 31, 2016. Thanks to the American Recovery and Reinvestment Act (ARRA), facility executives have the choice of whether to take the investment tax credit or a grant equal to 30 percent of the project cost. That option is available through 2010. The idea was to extend the incentive to use renewable energy to organizations without the tax appetite to make the tax credit worthwhile. Additionally, ARRA removed a cap on the amount of money organizations could claim for a single solar project.

According to the Solar Energy Industries Association, the extension of the investment tax credit and the short-term federal grant program will be a huge boon to solar installations over the next several years. The organization predicts that as much as 28,000 megawatts of solar could be installed in the U.S. by 2016.

More good news came at the Solar Power International trade show in October 2009, when John Lushetsky, head of the Department of Energy's solar program, announced that the DOE commitment to solar would rise from $175 million in 2009 to $320 million in 2010. DOE is administering $50 million of stimulus funds in 2010 for solar projects, as well.

Alternate Way to Pay

If facility executives can't get a self-financed solar project through the C-suite, a solar power purchase agreement (PPA) may be an option for a no-first-cost solar installation.

In a PPA, a third-party company builds the solar system on the property, taking on all the cost of materials and labor. This company owns the system and is responsible for its maintenance, but it sells the power produced by the PVs back to the organization that owns the building, usually at a rate at or below grid power. The PPA usually lasts for 10 to 25 years and at the end of the contract, the organization usually has the option of buying the solar system, renewing the contract, or terminating the deal altogether and having the third-party organization remove the PV system.

Here's an example: The city of Pendleton, Ore., had a 100 kW PV system installed on the roof of its water treatment plant. Because a combination of tax credits and utility incentives dramatically reduced the price of the installation for the third-party vendor, the price of the power was reduced as well — the city is paying 4.68 cents per kilowatt hour, slightly lower than the 4.81 cents per kilowatt hour the city pays for grid power — with a 3 percent escalator every year of the 20-year deal. The solar power provides about 15 percent of the facility's power.

Facility executives who enter power purchase agreements can then count the PV-generated power toward their organization's renewable portfolio standard or carbon emission reductions goals.

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  posted on 12/14/2009   Article Use Policy

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