The developing energy crisis has necessitated action from the United States government.
Sources of fossil fuels are little more than a band-aid, a temporary solution to a larger issue. A transition to greater energy efficiency and renewable sources of that energy is required if our modern way of life is to survive. To facilitate this transition, several solar programs have been constructed. Some of these government incentives include a sizable tax credit, government grants, and, depending on your location, a tax abatement. Additionally, solar panel subsidies have helped to drive down the cost of manufacturing for the solar industry.
This is great for you, the customer, because you can use those solar panels to make a sizable amount of passive income. All of these solar incentives have coalesced into a time-sensitive opportunity that has already begun to wane. You need to put a plan together quickly if you want to take advantage.
The Solar Incentives
There are quite a few government incentives currently available, but a lot of them have a time limit that is rapidly approaching or has already passed. Renewable energy is still in its infancy. In the current setting, do the pros outway the cons? Is solar energy worth it? As you probably expect, the short answer is yes. However, you should understand why that is because the details are important. They will likely save you thousands of dollars.
2019 and the Diminishing Solar Credit
About a decade and a half ago, the Energy Policy Act of 2005 introduced a temporary credit that reduces your income tax by 30 percent of the cost of the solar panel purchase and its installation. It is called the Solar Investment Tax Credit (ITC). This credit was due to expire a couple years after that, but it was saved from oblivion thanks to multiple extensions. Currently, that solar credit still exists, but 2019 is the last scheduled year that you can take advantage of the full 30 percent. After that, it will decline to 26 percent in 2020 and to 22 percent in 2021. Adopters from the years following 2021 will receive a diminished credit of 10 percent.
Tax Abatements do not permanently reduce the value of the solar panels from the applicable year’s income tax. Rather, they delay them. After a set period of time, those delayed taxes are slowly reincorporated back into the yearly tax. In regards to solar panels, this has the obvious benefits of initially increasing their affordability. By the time that the taxes are due for reincorporation, the solar power systems will be running and releasing more income that can pay for those taxes.
Check to see your state if has its own solar program. A lot of opportunities have appeared in recent years. You will find that several of the densely populated cities such as New York and Florida have made a strong effort to incentivize their citizens to move towards clean energy. Unfortunately, some of these solar programs have already run their course. New York just concluded its tax abatement for early adopters on December 31, 2018. There are other programs still running. However, they will continue to disappear as we move from the early adoption phase of renewable energy.
Solar Panel Grants
As part of the push towards renewable energy, solar panel grants have been released on a continuous basis. Almost every week, the U.S. Office of Energy Efficiency & Renewable Energy announces a new grant to develop research, promote renewable energy businesses, or to pay for remodeling services. A lot of the government grants are targeted for the neighborhoods with lower-incomes, so it is worth checking out if your finances are a preventative factor. It can bring the effective cost much lower.
Solar Panel Subsidies
The government has created solar panel subsidies in an effort to make solar panels more affordable, and ultimately, to increase the nation’s solar capacity. Reducing the effective cost of each unit for the companies has translated into a better bottom line that allows a more flexible customer price point. Unfortunately, as our solar capacity grows, the subsidies disappear. And they are disappearing fast. In three years, 2013 through 2016, the subsidies dropped from $15.5 billion to the much lower number of $6.7 billion. Companies must turn a profit, so a product that costs more for the company will also cost more for the customer.
Loans are a potential way to get your hands on a solar panel system.
Here are a few options that I’d like to go over:
- FHA Title 1 Secured
This is a home equity loan. Since it is tied to the value of your home, you can negotiate a very low rate. Typically, the term of the loan will be between seven and ten years. If you have bad credit, this can be a great way to get a hold of a system. Yes, the system will cost money, but the increased value of your home, from a long-term perspective, will offset that cost. If you ever decide to sell your home, the loan will be repaid in full at that time
- Property Assessed Clean Energy (PACE)
Much like the Title 1 loans, this secured line of credit is borrowed against your home, and it will cover 100 percent of the cost of the system. The biggest difference between these two loans will be seen if the home is ever sold. Rather than being paid back at the time of the sale, the PACE credit line will be transferred to the new owner
This is the most expensive of the loans. The money borrowed will be based on your credit score instead of the home’s value. It is riskier for the lender, and that translates into the interest rate. This rate will vary, but you can expect somewhere in the ballpark of 10 percent
Solar Panels Rebate (Passive Income)
Generally, I agree with the common wisdom that it is best to avoid loans. However, in defiance of that common wisdom, a solar panels rebate can turn a financial deficit into a positive. Owners of Solar panels have the ability to make money through selling the ownership of their generated electricity. They do this by selling rebates called Solar Renewable Energy Certificates (SREC). SRECs vary in value, and that value depends on the location and saturation of the local solar power market. You can earn one rebate for every 1000 kilowatts that you generate.
Electricity companies are required by law to provide a certain percentage of their power from renewable sources. At the moment, it is cheaper for these companies to purchase ownership of these SRECs than it is to build their own renewable energy systems. This becomes an increasingly good bargain for them as the law of supply and demand drives down the price of that electricity.
Solar panels, especially those with high energy efficiency, have the potential to make quite a bit of money. Those areas that have a strong need for solar power can receive as much as $300 per SREC. Locations with high saturation will still receive money, but the decrease in demand could bring the value closer to $50.
However, that isn’t the end of the story. This is undoubtedly the start of a series of pushes that will transform the landscape of the solar industry. At the moment, these companies are only required to produce seven percent of their energy through renewable sources. In 2020, that amount is going to roughly double to 15 percent and the value of the SRECs will most likely spike too. Getting on the ground floor will ensure that you get the biggest slice of a very profitable pie.
Is Solar Energy Worth it?
At the moment, the potential profit and savings are both very high. Yes, it is clearly worth it, but this opportunity will not last forever. While it is true that the price of solar panels is going down, their effective price is actually going up. Please give a little forethought to the potential financial advantages. Too often, as a people, we ponder opportunities, but we are rarely proactive. This isn’t just a question of saving money. Many people are receiving rebate checks worth thousands of dollars. Right now, the government is highly motivated, and this has opened up an opportunity. Take advantage of it.