Last year I wrote a blog about “Waves of Disruption” [Feb 22, 2014] sweeping through the energy sector.
Economic Benefits of Solar
Updated December 15, 2013
Five years ago Forbes magazine proclaimed that “a new era for solar power is approaching.”
It isn’t the first time that the promise of solar has been touted as ushering in a new era in energy.
During the 1920s and 1930s solar water heating was gaining in popularity before cheap fossil fuels and products were introduced into the market. Sixty years ago, in 1954, US News and World Report magazine proclaimed that solar cells may one day “provide more power than all the world’s coal, oil and uranium.”
But the solar industry, largely identified today as an equipment industry, has seen its promise thwarted over the decades that followed because of economics. The entry costs have been the single largest barrier to the adoption of solar energy. Consumer concerns over equipment payback times have impeded the solar industry from facilitating a transition to an alternative future (the “payback standard” does not apply to traditional energy sources as they do not have paybacks).
Today, however, technological improvements, plummeting solar costs and increases in the price of traditional energy sources have all contributed to solar energy finally becoming a viable alternative, and in some cases the economical choice as well.
Since the solar leasing model began to take off in 2010, U.S. solar adoption has increased so dramatically that in January 2013 the Edison Electric Institute warned its utility clients that solar energy had become a "disruptive" technology posing a threat to the traditional utility business model.
Homeowners are embracing leasing because it eliminates the big upfront cost of going solar. The leasing model is also eliminating the question of payback. Leases are structured in such a way as to save customers money from the very first day.
The growing popularity of rooftop solar electric systems today is also challenging the role that electric utilities have historically played. This has led to debate about whether solar customers should pay additional fees to sell excess solar generation into the grid and to have access to grid power when the sun isn’t shining. This debate over new fees is changing the economics yet again while encouraging innovation from the solar industry to offset their impact.
While the economics of solar energy is ever-changing and improving, most of the energy used in Arizona to heat and power our homes, businesses and industries continues to come from in-state generators fueled by nuclear, coal and natural gas, and imports from a variety of generation sources throughout the west. But the contribution of passive solar energy designed homes, solar water heating systems and solar electricity generation is increasing, and even large scale solar is beginning to generate a substantial amount of power for utility customers.
Arizona Solar Economic Facts
- A solar water heater can save $140 annually or $2,900 over the lifetime of the water heater, if you combine solar with a backup gas storage water heater instead of using the gas water heater alone. If you have an electric tank water heater for back-up, you'll save about $280 or $5,200 over the lifetime of the water heater each year on electricity bills. Large families with greater hot water needs can save even more. The average life expectancy of certified solar water heating systems is 20 years, much longer than standard gas or electric storage water heaters. (Source: Energy Star, US Environmental Protection Agency)
- The value of a PV system’s electricity will depend on how much you pay your utility for electricity and how much your utility will pay you for any excess that you generate.
- Incentives add to the saving on monthly bills for solar users. Some of these incentives can significantly reduce or offset the initial installation costs.
- Arizona's Solar Energy Credit is available to individual taxpayers who install a solar or wind energy device at the taxpayer's Arizona residence. The credit is allowed against the taxpayer's personal income tax in the amount of 25% of the cost of a solar or wind energy device, with a $1,000 maximum allowable limit, regardless of the number of energy devices installed. The credit is claimed in the year of installation. If the amount of the credit exceeds a taxpayer’s liability in a certain year, the unused portion of the credit may be carried forward for up to five years. (Source: Database of State Incentives for Renewable and Efficiency)
- Arizona’s property tax exemption was established in June 2006 and originally applied only to “solar energy devices and any other device or system designed for the production of solar energy for on-site consumption.” For property tax assessment purposes, these devices are considered to add no value to the property. (Source: Database of State Incentives for Renewable and Efficiency)
- Arizona’s utilities offer customers who install various renewable energy systems cash rebates. Check with your utility on the availability of funds.
- Arizona provides a sales tax exemption for the retail sale of solar energy devices by qualified vendors and for the installation of solar energy devices by contractors. The sales tax exemption is scheduled to expire in 2016.
- Federal tax renewable energy tax credit allows a taxpayer to claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. The federal tax credit is scheduled to expire at the end of 2016. (Source: Database of State Incentives for Renewable and Efficiency)
- The 2006 Energy Dollar Flow Analysis produced by the Arizona Department of Commerce estimated that 55 cents of every dollar spent in Arizona on electricity flowed out of state. The analysis also estimated that 63 cents of every dollar spent on natural gas flowed out of state. Arizona benefits from solar directly by keeping a portion of this money in the State for spending and saving by Arizona citizens.
- The Arizona solar design, construction, and equipment industry is a job creator that contributes significantly to employment within the State. The equipment industry, and portions of the solar construction industry, are labor intensive in nature since there is use of materials and equipment manufactured in the State, and installation and maintenance is done by local technicians. A 2013 report by the Solar Energy Industries Association estimates that 9,800 Arizonans are employed in the renewable energy industry in Arizona.
Application Specific Economics
- Passive Solar Economics
- Photovoltaic Economics
- Solar Domestic Water Heating Economics
- Solar Swimming Pool Heating Economics