California makes a lot of sense for solar power; not simply because there's plenty of sunshine, but there's also a growing need in urban centers to utilize more green power to reduce smog and improve air quality. Additionally, California has some of the highest electricity rates in the country as well as frequent blackouts during the summer in some areas. California has recognized this need and responded with some excellent incentive and rebate programs for solar power system owners.
The California solar initiative (or CSI) offers two incentive types, which pay the system owner in either an Expected Performance-Based Buy-down (EPBB) or as a Performance-Based Incentive (PBI). The main difference between the two programs is that the EPBB is paid as one lump sum, upfront once the system is installed whereas the PBI is paid out in 60 monthly payments over five years.
In addition to the CSI, California residents can take advantage of the state Feed-In Tariff program, which allows customers to sell the electricity they generate back to their utility. This can be a great way to monetize a solar power system, however, opting in to the feed-in tariff program means that you will be unable to participate in any other state rebate programs (such as the CSI)
Available financing programs vary a great deal between municipalities, however there is a state-wide PACE program (Property Assessed Clean Energy Financing) wherein the state loans the money for the purchase and installation of the solar power system and the homeowner pays it back over the course of 20 years through his or her property tax.
California Solar Initiative
The California solar initiative (or CSI) offers two incentive types which pay the system owner in either an Expected Performance-Based Buydown (EPBB) or as a Performance-Based Incentive (PBI). The main difference between the two programs is that the EPBB is paid as one lump-sum, upfront once the system is installed whereas the PBI is paid out in 60 monthly payments over five years.
Both programs pay a rate based on a statewide step. This means that as more and more people adopt solar power within the state, the rate paid to system owners goes down. There are 10 steps in the CSI table ranging from 50MW to 350MW of overall solar power generation in the entire state. California is currently at step 8, meaning that a system built today would qualify for $.35/watt for residential and commercial or $1.10/watt for government/non-profits using the EPBB program; PBI payments currently sit at $.03/kWh and $0.10/kWh respectively.
Most consumers will want to opt for the EPBB since it will help will covering the purchase price of the system and will be a guaranteed number that won't fluctuate based on the actual amount of energy generated. This also eliminates the need for a consumer with a relatively small solar power system to maintain a report of electricity generated and makes the program much simpler to comply with.
Commercial, government and non-profit projects will likely want to opt for the PBI, and for systems 30KW and greater, the PBI is a requirement. The PBI, as the name implies, pays the system owner based on the actual amount of electricity generated by the system.
Governmental and non-profit organizations with systems under 30KW may want to opt for the EPBB, however, since they will receive a 30% higher payment than commercial organizations with the EPBB whereas with the PBI, the difference is only 28%.
California Feed-In Tariff
California's Feed-In Tariff program is designed as an alternative to traditional solar rebate programs. The key difference is that California residents who take advantage of the Feed-In Tariff program, instead of the state rebate program, will be eligible to receive payments each month from their local utility, based on the amount of energy generated.
California residents opting in to the Feed-In Tariff program will work with their local utility to provide any excess electricity generated by the solar power system back to the grid. The utility will have contracts of varying lengths and the customer and utility will agree upon the rate to be paid as well as outline the documentation required from the customer by the state.
Since the average solar power system takes roughly 10 years to amortize, this program, makes a lot of sense for state residents who plan on staying in their homes for several decades. Additionally, utilities will pay higher rates to customers who enter into longer contracts, for example; a 10-year contract might pay 8 cents per kWh, while a 25 year contract could pay 10 cents.
Note that Feed-In Tariffs are not the same thing as net-metering. A common misconception is that all grid-tied solar power systems qualify to have the utility pay the system owner for energy put back into the grid, however, this is not the case. In a typical net-metering scenario, the utility will charge the customer for any electricity used beyond what his or her solar power system generates, with any energy put back into the grid deducted from the customer's bill as a credit, however the utility will never pay the customer if they generate more electricity, month-to-month, than they use. A Feed-In Tariff differs in that the net amount of energy put back into the grid each month equates to a payment to the customer at the agreed upon rate. This is why customers opting for the Feed-In Tariff program should make sure that as they're designing their solar power system, they make sure that it will more than cover their monthly energy needs.
The Feed-In Tariff program is open to all California residents; however, for homeowners with small solar power systems, the CSI will make more sense economically. Since solar power system owners must choose between either the Feed-In Tariff or the California Solar Initiative, you'll want to make sure you do your research and run the numbers for your particular system and your average energy usage to see which program makes the most sense in your home.
California Property Tax Exclusion for Solar Energy Systems
Tax exemptions here and there can add up quickly to a huge savings, and can even bump you into a lower tax bracket, lowering your overall income tax for the calendar year. Most of us pay attention to the items we purchase that qualify as a federal tax exemption, but state and property tax exemptions can be a little harder to find. While most home improvement is not considered tax exempt, California's Property Tax Exclusion for Solar Energy Systems allows for up to 100% of the value of the solar power system installed in your home is excluded from your property taxes. Considering that an average sized solar power system can cost between $15,000-$30,000, this means an incredible tax savings that every owner or potential owner of a solar power system to be aware and take full advantage of.
The way the program works is that California does not consider the value of a solar energy system into the value of a home, meaning that if you own a $300,000 home with a $40,000 solar power system, you'll only pay property tax on the $300,000. While not necessarily a game changer in terms of the cost of a solar power system, every little bit of savings helps your bottom line when calculating the overall cost of purchasing and owning a solar power system.
The program only covers active solar power systems, meaning systems that are currently being used to generate electricity to power the home. Specifically excluded are hot tub and pool heaters, but solar hot water heaters used for residential hot water should qualify. Additionally, dual-use equipment (such as ducting, hot water piper, tanks, electrical equipment) can qualify for a 75% exclusion.
The program can be somewhat intimidating when you start to look at the details, but overall it's fairly straightforward. If you have questions or concerns, talk with your tax professional, let him know exactly what kind of system you have installed, and he should be able to get you squared away with the tax exclusion program.
California's solar programs are changing rapidly; the CSI was recently suspended temporarily due to budget constraints, and many programs have limited timeframes to take advantage of them. The California Property Tax Exclusion for Solar Energy Systems is no different, and currently the deadline to qualify for the program requires candidates to purchase and install their solar power system by 2016. Once you qualify for the program, your solar power system will remain excluded from your property taxes even after 2016, so if you're on the fence, make sure you don't wait until it's to late to take advantage of all of the programs available.
Property Assessed Clean Energy Financing
Property Assessed Clean Energy Financing (also known as PACE) is a program available in many states that is typically administered at the county or municipality level. As such, there is no 'one definitive source' for California's PACE programs, however there are so many programs throughout the state that, chances are, there's one in your city.
PACE programs are ingenious methods of funding solar power systems. The basic idea behind them is that a solar power system is a part of your home, and as such, it will stay with the home even as it changes ownership. This methodology allows for the solar power system to be amortized through the resident's property tax, since whomever owns the house and is currently paying the property tax will be the one directly benefiting from the solar power system.
Terms, interest rates and amortization schedules vary greatly from program to program, but the most common terms usually include a modest interest rate (1-2% above prime) and a 15-20 year term. Since the terms are usually 15-20 years, this makes for an easy transition for the homeowner, since the monthly increase to their property tax will generally be close to, if not a little less, than their current electricity bill. This makes the decision to purchase a solar energy system dead simple if you live in an area with a good PACE program, since you'll have no noticeable increase in your monthly expenses and once the system is paid off, you'll either enjoy the financial benefit of no electrical bill, or you can opt into the Feed-In Tariff program and begin to monetize your investment.
PACE programs are administered independently of other state and federal programs and since they deal solely with the financing portion of the solar power system, the homeowner will still qualify for the federal rebate as well as either the CSI or the Feed-In Tariff.