Introduction
In the near future, you may see an unexpected surge in the demand for electricity. The supply position is not that encouraging. This could result in two things. One is the power cuts putting you into lot of inconvenience. The second is the increase in the cost of electric current. This could hurt your pocket. The best way out is to make use of the alternate energy generating sources such as solar.
Solar Photovoltaic (PV) System
The sun is a never-ending source of energy. You should be able to harvest this source to meet your electricity needs. The raw material is available free for you. You can install a solar PV system to meet the electricity demands for each house.
Solar System – The Economics
We shall take the following New York example.
3KW PV System Cost : $11,700
Incentives:
– NYSERDA PV EPBB : $2,342
– Federal PV Tax Credit : $3,510
– NY PV Tax Credit : $3,094
less Total Incentives : $8,946
Actual Cost : $2,754
In case you add batteries and inverters, the cost could go up a little. You can opt for the leasing and PPA options. However, you would stand to lose the Federal tax benefits under such circumstances.
An average user in Northeast area uses about 8500 kWh of electricity per year. Installing a 6.6 kW rooftop solar PV system can compensate 100% of the energy used for a period of 30 years. The typical cost for such a system would be around $7,000 after tax and rebates. You would start earning actual payback after 4-7 years. Hence, you could enjoy free electricity thereafter.
The actual cost of the system would depend upon many other factors. The cost break up includes PV panels, labor, inverter, and other system components.
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Solar Power – Finance Options
There are usually three financing options available for you. They are as follows.
• Solar Lease
• Power Purchase Agreements (PPA)
• Loan for purchase
We shall now go into the details of each option individually.
Solar System – Return on Investment
The returns on the investment are the amount of savings you are able to generate by way of a reduction in your monthly electricity bill. One advantage is that the cost of using normal electricity can go up with time. The PV systems do not depreciate. They are a lifelong asset for you. In fact, they have an average lifespan of 25 years at the minimum.
The cost of consuming electricity in Northeast region is approximately 22 cents per kWh. You should know that you are eligible for rebates, net metering system along with federal tax rebates. You are also eligible to avail tax-deductible low-interest finance.
Solar System – Cost of Installation
The average cost of installing a solar PV system would be in the range of $4 to $6 per watt. In case of a complicated installation, the costs would be higher.
Solar Power – Basic Finance Factors
In order to understand the viability of installing a PV solar system at home, you should be aware whether the loan payments would be equal to or less than the savings on the electric bill. To have a clear idea, you should know the extent to which the solar system would cover your electricity requirements. In case it is able to cover a significant portion of your electricity needs, you will be able to justify the payments for the PV system.
The main question on the mind of every person would be the cost factor in installing a PV solar system at home. Usually you would find your monthly payments far less than the monthly electricity bills. Hence, you would be able to see instant saving benefits.
There are companies and banks offering long-term financing for such PV solar systems for domestic use. You should have an idea about these options. We shall take you through these options to enable a clear understanding of the subject.
Solar Lease
This is like any other normal lease. The homeowner enters into a lease agreement with a solar leasing company. The lease agreement is a kind of a service contract wherein the homeowner agrees to pay a scheduled, pre-determined amount of lease to the leasing company for a fixed period of lease. This lease period is usually 15 to 20 years.
Under this system, the solar leasing company agrees to install the PV solar system at the homeowner’s place. The ownership of the system remains with the leasing company. The customer can consume the electricity generated from the solar system for his domestic needs. In case the generation of electricity is in excess of the consumption, the electricity goes into the grid. The customer can enjoy the credits for the same. However, in case the consumption is
more than the generation, the consumer will have to pay the charges for the same to the electricity company. In addition, the consumer will be paying a fixed amount of rent or lease to the leasing company.
Power Purchase Agreement (PPA)
The PPA is a novel type of an arrangement between the homeowner and the solar project developer. In this contract, solar project developer owns, installs, and operates the PV solar system at the homeowner’s place. He also enters into an agreement with the homeowner to provide all the electricity to the consumer at a fixed rate, competitive with the utility rate in the area.
Under a different type of a residential solar PPA, the solar finance company buys the equipment from the project developer and maintains the same on the house owner’s property. The advantage for the consumer is that he will be in a position to use the solar energy at a prescribed rate without having to incur the upfront cost of the solar system. He can also steer clear from the responsibility of maintaining the solar system. By agreeing for a fixed rate, he gets insulation from any possible increase in the utility rates in his area. He does not enjoy ownership rights but enjoys the consumption rights alone.
Loan Options
This is a simple finance option available to the consumer to purchase the solar system for installation at his place. He will have to pay the monthly installments in the same manner as he pays the other loan installments for purchase of a car or a house. Banks and financial institutions come forward to grant loans for such products based on the basic eligibility of the consumer. They fix up a schedule of repayment that can extend to even ten years or more depending upon the repaying capacity of the customer. In this arrangement, the consumer becomes the owner of the equipment. This enables the consumer to avail the tax benefits and other concessions available to rooftop solar system installers. However, it is the responsibility of the consumer to maintain the system. He incurs the liabilities associated with the ownership of the PV solar system.
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