Time for Solar in Massachusetts

I’ve been fascinated by solar power since I was a kid and visited one of those model “homes of the future.” With the current financial incentives available, especially in Massachusetts, it not only makes sense to put a solar array on your roof, it might even be worth cutting down a tree to do it.

I’d always assumed solar was too expensive and too “long-term,” requiring an investment of at least $40k and 15 years of payback as you save a few dollars a month. I recently learned about “solar leasing,” and quickly obtained a quote from Sungevity for a system that would require no money down and generate enough electricity to at least offset the lease of $45/month. It would not save massive amounts of money for me, but the idea of a no-cost way to reduce my usage of non-renewable energy by more than half was very attractive. But it sounded too good to be true.

I consulted the collective wisdom of the Internet and found plenty of confusing information and opinion which only made me more curious. What is the downside to a solar lease? Given that they provide a performance guarantee, insurance, maintenance, etc., it seems a no-risk, no-brainer. What I eventually learned is that there is not do much a downside as the lack of significant upside when compared to buying.

First of all solar systems don’t cost $40k anymore. A typical system should cost more like $25k to build. Still not an exciting option when there are plenty of other bills to pay and projects to be done, but then there are Federal, state, and local tax credits and incentives that will reduce that cost dramatically.

First, a 30% Federal tax credit will chop $7500 off the cost of a $25K system. A tax credit is essentially a rebate–even if you lack the income to generate the taxes, you can carry the credit forward, so you do not lose the value for lack of taxes to pay.

Second, in Massachusetts, there is an additional tax credit (capped at $1000).

Third, in Boston, through Renew Boston, there are several rebates that could contribute an additional $2000 or more. And you can put your house on the cool map of renewable energy projects in the city.

With these rebates, the net cost of a system is now more like $15K; still not chump change, but starting to be feasible. It’s a project you could finance with a home equity loan over 10 years for around $175/month. To save $50/month? OK, but the real bonus upside that is lost in the lease are the Solar Renewable Energy Certificates. In Massachusetts, the state will issue a certificate for every megawatt hour of power you generate. These certificates can be purchased by utilities to satisfy state requirements that a proportion of their power comes from renewable sources. When they fail to meet the goals, they pay a $600/mWh fine. So the certificates provide a way to avoid that. Currently, these SRECs are trading at $540 with a floor price of $300. You can sell the SRECs you earn…so now you are looking at an income stream, in addition to the energy savings. In my own example with a 3.76kW array, I calculated the SRECs to be worth about $162/month.

When you consider the electricity savings AND the SRECs, you can see how a system literally pays for itself. There are no guarantees about the future of the SRECs, but certainly in the first years of the system, they more than compensate for the cost of purchasing. If you can design a system that produces significant power, you can recognize a payback period of much less than 10 years. Furthermore, if you choose to finance the system, you should be able to structure a loan that will be cash-flow neutral. It’s like buying income properties–rather than buying rental properties, you convert a portion of your home into an income-generating asset. Once the loan is paid off, it’s all profit as you own the system outright.

When you lease, all these advantages and incentives go to the leasing company. It is true they assume all the risks–so it’s still a fair deal for someone who just wants to go solar and stabilize their energy costs–but if you can build a system that pays for itself in 5-7 years, requires only small expenses up front, and then delivers perhaps 25 years of future energy needs, that seems an overwhelming argument to just do it.

Now what about that tree I mentioned? An enormous Norway maple currently shades part of my roof. But all this thought of “going green” has created a perhaps perverse incentive to kill a tree. Do the needs of the many outweigh the needs of the one? With the tree, I’ll have a smaller array that will require micro inverters and perhaps even more expensive, higher efficiency panels. That will drive up the cost and reduce the income. Without the tree, the unshaded power of the sun will fuel those panels–and perhaps bake the house prompting us to run an air conditioner more in the summer! I’m waiting to get a revised estimate and system design to see what we are really looking at here.

The solar lease is very attractive for its simplicity. The analysis above is only the tip of the iceberg…the issues involved in calculating a realistic ROI are unending and at some point, you just have to make a decision between 1) do nothing; can’t afford it now, 2) lease and save a little and feel good, or 3) cut down the tree and optimize the system, committing to this for the long haul. I think I’d like to do #3 if I can swing it.