Solar Financial Information
•Positive Cash Flow
•Buying vs. Renting Electricity
•External Energy Costs
•Competitive with PG&E Rates
	The following information covers a variety of topics of interest to those considering installing solar electric power at their California home or businesses.
	Protection from Rate Increases!
	A properly sized solar electric system designed to zero out the electric bill protects the owner from rising electric costs. As electric rates inevitably rise, so do the credits generated during the day when the meter spins backwards.
	A solar electric system reduces the amount of electricity used, thus systems sized to offset part of the electrical bill will reduce the electric costs in these higher rate tiers first, offering a faster payback. Even if your roof space is limited and you are unable to fit a PV system designed to eliminate all your electric usage, it is still beneficial to install a smaller system that will reduce the most expensive electric rates for energy users paying these higher rates to the utility each month. For those with a high electric bill or limited sunny roof space, we offer the extremely efficient Sunpower and Sanyo solar modules that generate the most power in the smallest area (at competitive prices too).
	As fossil fuel supplies dwindle, where do you think electricity costs are headed? 2006 PG&E Electric Rates to increased over 10%
	Increasing Your Home's Value!
	Homes with solar electric systems have lower monthly operating costs which makes them more valuable to prospective buyers. According to the October 1999 issue of the Appraisal Journal, every dollar saved in annual utility costs increases a homes value by $20. (1999 Appraisal Journal, "More Evaluation of Rational Market Values for Home Energy Efficiency.pdf").
	A 3 kW photovoltaic system will save the average PG&E electric user about $2,000 per year in electric expenses. Theoretically this makes such a home worth $24,000 more ($2,400 X 20 = $48,000). The installation cost after rebates and tax credits is about $24,000* for a 3 kW system, which means the homeowner has instantly realized a $24,000 gain from this investment. Currently, there is not enough market data to back up this theory, as most of the grid-tied solar electric systems were installed after the electricity crisis in 2001, and there has not been enough market turnover of these homes to provide needed data of comparable home sales. Solar homeowners tend to stay in their homes longer than average and may be reluctant to sell, since they expect to save money as electric rates rise.
	Thus when its time to sell, the solar home may command a price premium higher than the initial solar investment (compared to a similar home without solar), and in the mean time the electric bill was offset, yielding an effective income stream and providing a valuable investment for the owner. The value added to the property will depend on when the home is sold relative to the value of electricity at that time, the current performance (the main concern here is shade profile on the array, as annual solar module degradation is a small 1/4 of a percent per year or so) and remaining estimated useful life of the system. For instance homes sold several years after a photovoltaic system is installed should tend to command a high resale premium relative to the system investment, compared to homes sold near the end of a system's useful life (estimated to be about 35 years) due to these kinds of factors.
	* solar rebates in California are required to decline on average 7% per year according the the newly approved California Solar Initiative that has a 10 year incentive program to promote solar energy. Thus these after rebate system investment amounts will vary due to current incentives and solar module prices that are set by the market and silicon availability.
	Low Risk Investment
	Solar electric systems are a conservative, high-yielding investment to one's home. They are a low maintenance, tangible asset that generate clean electricity every day. Solar panels are warranted for 25 years with a design life of over 40 years. Photovoltaic systems pay for themselves over time in avoided electric costs and belong to an elite category of goods that actually pay for themselves.
	To compute payback, compare how much money one saves in annual operating costs relative to the investment: the normal method to compute simple payback is to divide the net system investment by the annual savings ($23,000 investment ÷ $2,400 per year savings = 11 years simple payback). The tax free return on investment (ROI) for such a system is over 11% without factoring in electricity price inflation. One way to compute ROI is to divide the annual savings by the investment ($2.400 annual savings ÷ $26,000 investment = 9.2% Financial PV System Analysis.pdf). Residential solar electric system paybacks are usually between 8 to 16 years when one considers energy cost inflation they may be more attractive. Solar electric system paybacks for businesses tend to be half this long. This is due to depreciation, federal tax credits and economies of scale realized for larger systems (the price per watt is typically less for larger PV systems).	To compute payback, compare how much money one saves in annual operating costs relative to the investment: the normal method to compute simple payback is to divide the net system investment by the annual savings ($23,000 investment ÷ $2,400 per year savings = 11 years simple payback). The tax free return on investment (ROI) for such a system is over 11% without factoring in electricity price inflation. One way to compute ROI is to divide the annual savings by the investment ($2.400 annual savings ÷ $26,000 investment = 9.2% Financial PV System Analysis.pdf). Residential solar electric system paybacks are usually between 8 to 16 years when one considers energy cost inflation they may be more attractive. Solar electric system paybacks for businesses tend to be half this long. This is due to depreciation, federal tax credits and economies of scale realized for larger systems (the price per watt is typically less for larger PV systems).
	Renewable Energy Rebates
	The California Solar Initiative subsidizes the initial cost of grid-tied solar electric systems by providing rebates. California's highly sucessful solar rebate program has resulted in over 23,000 grid tied PV systems being installed in California over the past several years (about 80% of the total U.S. capacity for PV as of 1/1/2007). This rebate is funded by a public goods charge, which appears on the utility bill for participating utilities (such as PG&E) and is administered by PG&E or the California Energy Commission depending on program qualification requirements. This rebate money pays for about a quarter of the cost of a grid-tied photovoltaic system. As of January 1, 2007 the rebate for grid tied PV systems under 100kW is slightly less than $2,200 per kW (depending on the "design factor" that considers estimated system performance issues such as tilt, shading, orientation and regional solar irradiance levels. The rebate will drop periodically as megawatt triggers are reached (due to the number of rebates reserved over time). Rebates are reserved on a first come first served basis. DEB Solar accepts this rebate as partial payment towards the up front system cost. It is required that a permit be obtained, the utility notified and an interconnection agreement between the utility and the customer must be signed to qualify for the rebate. For large PV systems over 100kW in size there is a performance based incentive program that pays the owner monthly based on actual kWh solar generation.
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	California State Tax Credits
	Prior to this a tax credit of between 7.5% to 15% was available for solar electric system owners. This was not a deduction but a full tax credit that could be carried over for up to 7 years. This is how it worked in 2005: 7.5% of a PV system's net cost could be claimed as a tax credit for the tax year that corresponds to the year the system was installed, which means the state income tax one normally pays is reduced by this amount (a tax credit is different than a tax deduction since a tax deduction only reduces your taxable income and a tax credit is 100% reduction of the money you would have owed on your tax bill). California state income tax form FTB 3508.pdf is used to claim this tax credit.
	Federal Tax Credits
	Income producing businesses can claim a 30% federal tax credit for systems installed between 1/1/2006 and 12/31/2008, as well as depreciating a solar system investment over an accelerated 5 year time period. These two benefits roughly halve the payback period for businesses when compared to residential solar electric systems. (Refer to Business Case Study and Federal Tax Credit form).
	In August 2005 the Energy Policy Act of 2005 was signed into law at the federal level in the USA. This created a new 30% federal tax credit for solar electric and solar hot water systems "placed in service" between 1/1/2006 & 12/31/2008 (capped at $2,000 for residential systems, with no dollar amount cap for commercial solar systems, except the tax credit can only be carried over for 2 years for commercial applications. (Refer to Solar Energy Industry Associations fact sheet about Solar Federal Tax Credits).
	Grid-tied System Credits and Net Metering
	For residential PG&E customers who choose a time-of-use meter (using the E-7 rate schedule) the credits banked during summer on-peak periods (noon through 6 PM) are more than 3 times greater than off-peak rates paid for electricity at night. PG&E also offers a E-6 residential rate schedule that credits peak energy production at twice the rates as off peak usage (E-7 rates usually yield more attractive solar credits for south and west facing solar arrays). The E-6 rate schedule has a partial peak period (10 AM till 1 PM and 7 PM till 9 PM during week days with another partial peak period from 5 PM till 8 PM on Saturdays). The concept of adding a partial peak period is to better reflect the cost to the utility to generate power at various times of the day when demand is highest. WIth PG&E's E-6 rate schedule, the on-peak period is from 1 PM till 7 PM on Monday through Friday, holidays excluded. The off-peak period is all other times. The summer period is May 1 through October 31. During the sunniest times of the year, when a PV system is generating the most energy, the value of this energy in terms of retail price credits is much higher using one of these time-of-use electric rate schedules. This is a key reason why PV systems are financially attractive. This enables one to zero out the electric bill by installing a smaller system (about 38% smaller for south facing arrays using the E-7 rate schedule). During the winter billing periods (Nov. 1 through April 30), the on-peak and off-peak electric rates vary slightly with on-peak being about 25% more expensive than off-peak. Since the suns energy is less during winter (due to clouds, sun angle and shorter days), these less valuable price credits reflect the sun's availability. Ask for a financial analysis that considers your particular energy usage profile, as in some cases it may be better to stay with your existing rate schedule (especially if a solar array is facing east), then to opt for a time-of-use rate schedule.
	The idea is to conserve energy during on-peak rate times, so the meter spins backwards as fast as possible and to use energy at off-peak times when it is cheapest. For working families who are away from home during the day, this rate structure is easy to live with and thus maximizes energy credits without the need to change electric use. Those who stay home during the week have a financial incentive to schedule the heaviest electric use during the off-peak periods when it is cheapest.
	Grid-tied solar homes draw electricity from the grid as needed at night and push power back onto the grid during the sunny periods of the day. When the meter spins backwards, extra electricity is credited to your account at the retail rate. Solar electricity produced by modern inverters is high quality (true sign wave) since it is produced locally and not subject to distribution shared uses and transmission efficiency losses from transporting energy over long distances. The excess AC electricity is pushed back onto the grid for your neighbors to use during the day when the meter spins backwards.
	At the end of each year you will be billed for the electricity used in excess of what is generated (based on the value of this electricity at the time it is used or generated). For systems sized to zero out the electric bill, you will not pay anything to your utility at the end of the annual true-up billing cycle. This contract arrangement between you and your electric company is called a net energy metering interconnection agreement. This billing arrangement is a key reason why it is financially attractive to own a PV system. In California there is a net metering state law that requires utilities to credit one's electric bill at the retail rate for grid connected PV systems. Billing is done annually which means that electric credits accumulated during summer periods of maximum sunshine can be applied to nigh time and winter electric usage.
	All PG&E customers must pay a minimum monthly electric meter charge (between $5 to $8) to be connected to the grid, even if all electricity usage is netted out by a PV system. (Refer to ABC's of Net Metering.pdf).
	Positive Cash Flow
	For homeowners paying more than $75 in monthly electric bills, tax deductible monthly loan payments for financed systems are typically less than the electric bill. The more you pay for electricity, the more you can save each month with solar. A correctly sized system can eliminate or significantly reduce your monthly bill. Higher income households save more money in loan interest income tax deductions than lower income households, since home loan interest is tax deductible. Homeowners who typically save the most money are those in the upper income tax brackets (over $80,000 per year) and those who use the most electricity. Residential billing for PG&E customers is tiered, so electricity used above baseline rates is progressively more costly.
	For those who use more than the average amount of electricity, it is usually less expensive to finance a PV system than it is to continue to pay the utility for energy. As electric rates rise, your effective savings increase proportionally and once the system is paid for the future monthly savings in avoided electric costs will be substantial, since electric rates tend to rise over time. Every situation is unique and there are many factors that need to be considered to determine your cash flow advantages from going solar. Horizon Energy Systems will do a free site analysis, system design estimate and cash flow analysis upon request and you can decide how to proceed. (Refer to Positive Cash Flow).
	Financial Tip: it may be financially preferable to pay cash for a system, compared to borrowing money since no interest payments will be made.
	Buying vs Renting Electricity
	Generating your own power with a PV system is like owning a home compared to renting one. A PV system effectively increases in value over time as the price of electricity rises. Solar homeowners have control over their electric bills and are protected from rate hikes, just as a homeowner is independent from rent increases. PG&E electric rate increases have averaged higher than the general inflation rate over the past 30 years and this trend will likely continue especially as fossil fuels are depleted.
	Unlike owning property, a PV system has very low maintenance. Once installed, solar is easy to live with since they are clean and silent that magically transform about 15% of the sun's energy into usable electricity! In the summer, when electric rates are highest, periodically hose off solar panels (about two times per year should be fine, depending on the amount of dust, pollen, leaves, etc. that accumulates on the solar modules). In winter the rain naturally cleans the solar array for you, as long as the solar panels are tilted at at least a 5 degree pitch. Flat solar panels are not recommended as dust is hard to remove.
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	External Costs of Traditional Energy
	The true costs to society and to the environment of traditional power sources such as coal, oil, natural gas and nuclear are not factored in to the price charged for electricity. Environmental scientists refer to these costs as externalities, and although these costs tend to be indirect, they can never the less be both cumulative and substantial. For instance, the air pollution generated from older coal-fired power plants is harmful to humans and ecosystems (acid rain can destroy forests and lakes, and air pollution aggravates asthma and can cause respiratory illness and death).
	Disrupting climate change will plague our society for decades to come as carbon dioxide levels are altered. Burning fossil fuels to generate electricity is one of the largest source of greenhouse gas emissions in America. The ensuing natural disasters from increased hurricane activity, forest fires, droughts and intense rainfall events will probably cause massive financial losses and this will directly affect virtually everyone. Humans are intricately dependent on a stable climate for our very existence. In California, for instance, most of the water used for agriculture comes from the snow melt in the Sierra Nevada mountains. Climate scientists are forecasting significantly less snowfall at higher elevations as the climate heats up. Such a disruption to the water supply will have extreme impacts to farmers, fresh water users and wildlife.
	Competitive with PG&E Rates
	The cost per kWh of a solar electric system when amortized over a 30 year economic lifetime (after factoring in current California financial incentives), is competitive with current PG&E electric rates (refer to PG&E Residential Rates).
	How does one calculate the life cycle cost of electricity for a PV system? One way this can easily be computed is by dividing the after rebate cost of a PV system by the number of kilowatt hours (kWh) the system is forecasted to generate during its estimated useful life.
	According to the Clean Power Estimator, a PV system on a south facing 20 degree slope will generate 1,621 kWh per rated AC kW each year in Santa Clara County. A residential sized 3 kW solar system can be installed for about $24,000 with California rebate levels of $2,200 per kW. A formula to compute the cost per kWh over a 30 year period is:
	$25,000 ÷ 3kW X 1,621 kWh per kW per year X 30 years = $0.15 per kWh
	Thus over a 30 year period, the cost per kWh of electricity for a 3kW PV system is about $0.15 per kWh. As of January 2007 PG&E baseline rates are about $0.12 per kWh. The rate charged for electricity in the higher usage tiers is much higher. As of January 2007 the top tier, or tier 5, (the category for electricity used at 3+ times the baseline rate), is $0.48 per kWh. Thus solar electric system costs are competitive to baseline PG&E electric rates and less than electric rates billed to PG&E rate payers using power in the upper rate tiers. Thus the net value of a PV system exceeds its cost.
	PG&E offers two time-of-use residential electric rate schedules that benefit solar customers. The E-7 rate schedule generates the most credits during summer afternoons at over three times the off peak rate. The E-6 rate schedule also generates valuable credits at about two times the off peak rate.
	PG&E installs both a digital E7 time-of-use meter with on peak and off peak rates, and a digital E6 time-of-use meter with on peak, partial peak and off peak rates.