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Residential Solar Power Incentives: Why Utility Companies are Reconsidering

image credit: Image Source: https://www.pexels.com/photo/black-solar-panels-on-brown-roof-2850347/

Although the solar energy industry has grown considerably over the last few decades, the general consensus among U.S. utility companies is that solar power is undesirable from a profit standpoint. In fact, utility companies in numerous states have either proposed or implemented additional fixed charges to residential solar customers. However, it’s difficult to see why solar energy is seen as a threat to utility company profits when you consider that only about 1.5% of the nation’s energy production comes from solar sources.

Further, a number of changes are on the horizon: As of January 2020, solar panels will be required for all new construction homes in California that are less than four stories. Experts predict that the new regulations will result in 74,000 new solar installations annually. The normalization of solar panels as an integral part of the construction process has wide-reaching implications nationwide. 

Into the Mountain West, numerous utility companies are lowering reimbursement rates for individual grid-connected solar systems. Idaho Power, which supplies energy across the Gem State, has set a goal of 100% clean energy by 2045. What’s more, the company holds contracts with 19 commercial solar energy projects, which can produce a total of 316 MW of power. Generally speaking, Idaho Power plays only a small role in America’s overall solar energy picture, but the industry itself continues to grow.

The State of Solar Energy in the U.S.

When power companies and individual consumers find common ground on the topic of renewable resources, everyone benefits. In fact, Northeastern University researchers claim that “renewable resources are paving the way for a cleaner, more efficient society.” The U.S. has a long way to go if it wants to be a leader in renewable energy, however. In Iceland, about 85% of the national energy supply comes from renewable sources, mostly geothermal. 

But we’re getting there. Along with California and the Mountain West, the push towards solar energy is gaining momentum across the country. As solar energy collection is more productive in areas with plenty of sunshine, low humidity, and light winds, it’s no surprise that the majority of American cities with the highest solar photovoltaic (PV) capacity are on and around the West Coast. Los Angeles and San Diego top the list as of April 2018. Phoenix, Las Vegas, and Denver weren’t far behind.

For its part, Boise, where Idaho Power’s corporate headquarters are located, is considered a solar-friendly community. The city earned a Gold Designation from SolSmart in 2018 for its efforts, and Boise boasts solar arrays in a number of facilities, including the Boise Airport and City Hall West. Boise residents are also jumping on the renewables bandwagon in increasing numbers, in part thanks to Idaho’s Residential Alternative Energy Tax Deduction.

Residential Solar ROI: By the Numbers

Even with renewable energy tax credits, residential solar panels are a hefty investment. For that reason, homeowners may find it difficult to justify the expense, even when the potential reduction of energy bills is factored into the equation. However, homeowners have a number of financing options that may help pay for rooftop solar panels, but many are location-specific. For instance, Property Assessed Clean Energy Programs (PACE) are only available in Florida, California, and Missouri. 

No matter a homeowner’s location, it’s important that they understand that it may take years for solar panel ROI to come to fruition. While personal financing does not typically affect incentives offered by utility companies, it may affect their clients’ decision to switch to renewables. What’s more, at the residential level, it may be difficult to accurately estimate the potential ROI at the time of solar panel installation. 

Of course, a customer’s location is the biggest variable when it comes to calculating solar panel ROI. Homeowners who reside in locations with a significant amount of sunny days are likely to recoup the upfront cost of solar panel installation more quickly than others. But the difference may be negligible: According to the National Renewable Energy Laboratory (NREL), homeowners should see the complete payback of their solar panel investment within 6 to 8 years.

Off-Grid System Considerations

Of course, those numbers only encompass solar energy systems that are tied to the grid. Does ROI differ if a customer isn’t feeding their excess solar-derived energy back to the power grid? Many homeowners believe that they can drastically reduce energy costs by installing off-grid power systems. While that notion seems logical on the surface, the reality is much more complex, and homeowners should be aware of what they’re getting into.

The primary difference between on- and off-grid solar systems is the presence of batteries. On-grid residential solar systems feed excess energy back to the grid, and ultimately the local utility company. Conversely, the excess energy harnessed via an off-grid system is stored in batteries on a homeowner’s property, to be used at a future moment. But off-grid solar systems are definitely a fringe market: Only about 180,000 families are estimated to live off-grid in the U.S., but a large segment of that fringe population calls New Mexico home.

In fact, one of the nation’s most famous off-grid communities is located in Northern New Mexico, called the Greater World Earthship Community. Its 79 sustainably built homes are powered via solar panels, and the community is decidedly off-grid. The Earthship Community notwithstanding, New Mexico is still a leader in renewable energy, and recently topped the U.S. list of energy efficiency job growth. Much of that job growth is associated with PNM Resources, the public energy company that supplies power to the majority of New Mexico’s residents.

The biggest takeaway for homeowners considering off-grid solar is the fact that those systems typically don’t qualify for incentives. In the eyes of utility companies, off-grid homeowners are basically on their own, which may actually do more harm than good. Traditional homeowners need to prioritize renewable energy in greater numbers in order to keep fueling the alternative power revolution. 

Indiana  Lee's picture

Thank Indiana for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Jan 21, 2020 10:49 pm GMT

Only about 180,000 families are estimated to live off-grid in the U.S., but a large segment of that fringe population calls New Mexico home.

That's way more than I would have thought-- do you know how that number was arrived at? Or what the definition of off-grid for that purpose is? I'm curious if it only counts 100% off-grid homes (which I would have assumed to be well lower than that) or if it's something about homes that are typically off-grid but do have grid backup?

Indiana  Lee's picture
Indiana Lee on Jan 23, 2020 6:16 pm GMT

I found that information in a study cited by this link. https://www.infoplease.com/math-science/earth-environment/living-off-the-grid

The study was done in 2013 and I am not sure what their metrics for it were, other than the homes being considered by Home Power Magazine as "Off Grid"

Matt Chester's picture
Matt Chester on Jan 23, 2020 10:06 pm GMT

Thanks Indiana-- I tried finding some alternative data source or backup source, but my Google Fu has failed me. 

Bob Meinetz's picture
Bob Meinetz on Jan 22, 2020 12:14 am GMT

"The biggest takeaway for homeowners considering off-grid solar is the fact that those systems typically don’t qualify for incentives."

Indiana, both grid-connected and off-grid solar qualifies for the 26% Federal Tax Credit for 2020; in 2021 it drops to 22%, then ends in 2022.

"In the eyes of utility companies, off-grid homeowners are basically on their own, which may actually do more harm than good."

Though many believe the electricity wires they see traversing the landscape in the U.S. were paid for with their taxes, about 70% were purchased with private investment - utilities investing shareholders' money. They belong to your utility, which continues to maintain them.

While you were buying their electricity, part of your bill paid for installing new lines and maintaining old ones. But when you started generating your own electricity, in your eyes your utility was basically on its own. So yes - you'll have to pay a transmission/distribution fee if you're using their wires, even if it's only for a little bit of their electricity each month.

Indiana  Lee's picture
Indiana Lee on Jan 23, 2020 6:27 pm GMT

Hello Bob, In the first sentence you quote I was not talking about tax incentives. I was discussing the incentives recieved by private home owners from utility companies, specifically power companies, per Watt sent back with a grid connected unit. https://www.idahopower.com/energy-environment/green-choices/solar-power-options-customer-generation/customer-generation/

I appoligise for the confusion. Your information at the end about the use of power companies in funding the power lines and such was quite interesting to read. Thank you for commenting!

Bob Meinetz's picture
Bob Meinetz on Jan 24, 2020 6:54 pm GMT

Thanks for your response Indiana. Generally, a net-metering credit earned by a homeowner for selling energy back to the grid is not considered an "incentive", although no doubt some homeowners would consider it one. After all, its money the homeowner has earned!

That homeowners are compensated at the electricity's retail value is controversial. After all, utility-scale power generators, whether zero-carbon (nuclear, solar and wind farms) or not (natural gas, coal) are awarded wholesale rates and are, in essence, forced to compete with homeowners at a price disadvantage. In California, midday solar often provides too much electricity, creating a situation called "negative pricing" - California has to pay other states to take our extra electricity, while paying homeowners for generating it!

This anomaly is a product of deregulation. In the 1990s, energy interests in Congress made a fundamental miscalculation - they thought it might be possible to drive down utility prices with a free market in electricity. But with only one set of power electricity wires connected to U.S. homes and businesses, the company that owns them has a monopoly on your supply of electricity, and no amount of legislation can change that fact. What legislation has done, unfortunately, is to create an expansive network of unregulated electricity resellers - "middlemen" who add no real value to the electricity for which you're paying them - and predictably, prices have gone nowhere but up.
 

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