Stacking up the Solar Energy Credits in Massachusetts

Massachusetts may not be the first place you think about when it comes to solar power, but due to a series of government incentives it can be a very profitable place to build a residential solar power system.

graph of Massachusetts electric rates since 2001As I discussed in Solar About to Go Mainstream,  one of the principal factors in deciding to build solar facilities is the cost of the regular power from the utility company. Because of the island’s dependence on oil for power generation, Hawaii has the nation’s highest electric rates and has been a leader in residential solar power. In Massachusetts, the electric rates are skyrocketing. One of their utility companies, National Grid, has raised winter residential rates this month to 24.2 cents per kilowatt hour. That’s over twice the national average.

Western Massachusetts Electric Company has asked for a rate increase of 29%. http://www.berkshireeagle.com/local/ci_26942074/western-massachusetts-electric-eyes-rate-hike

California’s solar growth can be attributed to the state’s aggressive Renewable Portfolio Standard requiring 33% of power from renewable sources by 2020. As discussed in California Solar Power and the “Duck Curve” 30 states have adopted Renewable Portfolio Standards. The Renewable Portfolio Standard in Massachusetts is 9% this year and scheduled to increase by 1% per year. Massachusetts also has a solar “carve out” designed to support up to 1,600 megawatts of solar power in the state by 2020. That’s equivalent to 320,000 homes at 5 kilowatts per house. The state is already almost halfway there. Graph of Installed solar capacity in Massachusetts

Connecting a residential solar power system to the grid allows power to flow both ways. At night, when the sun isn’t shining, the homeowner draws power from the grid. During the day, if the amount of solar power generated exceeds what is being used in the house, the power flows out into the electric system, feeding the needs of the neighbors. map of states with net metering policiesUtility billing practices that give the homeowner credit for the excess power generated and fed into the grid are called “Net Metering Policies.” Currently 43 states have mandatory net metering policies and three states have voluntary net metering.

So faced with high and rising electric bills and living in a “solar friendly” state, what can a homeowner in Massachusetts do?

One option is called a “solar lease.” If your house has a south-facing roof and little shade, companies like Solar City will install solar panels on your roof for free. Then they will sell you the power generated at a rate lower than the utility company locked in for the next 20 years. Solar City handles all of the permits, installation and maintenance. http://www.solarcity.com/residential/how-much-do-solar-panels-cost Under the lease agreement, Solar City owns the panels on your roof and you get the power at a discount.

But I’ll show you a better way.

The average home in Massachusetts uses 627 kilowatt hours of electricity per month. Installing a 5,000 watt solar system will produce 2/3 of that amount on average. If you’re efficient, that might be enough, but for our example, let’s be generous and figure a 7,500 watt system to provide for all of your needs.
Average cost of residential solar systems 2014
According to the Solar Energy Industries Association, the latest average cost for a residential rooftop power system is $3.74 per watt. http://www.seia.org/research-resources/solar-market-insight-report-2014-q2 A 7,500 watt system would cost about $28,000. That sounds like a lot, and it is.

Now let’s consider the credits. For starters, there’s a 30% federal Residential Renewable Tax Credit. So take off $8,400 to bring the price down to $19,600. Then the state of Massachusetts offers a base incentive of 25 cents per watt for the first 5,000 watts which comes to $1,250. If your household income is less than 120% of the median household income, Massachusetts kicks in another 40 cents per watt or another $2,000. Subtracting the $3,250 from the state brings the system cost down to $16,350. That’s still a large chunk.

Once the system is up and running, however, you’ll save about 625 kilowatt hours per month that would otherwise be paid to the power company. At 24.2 cents per kilowatt hour, those savings amount to $151 per month or $1,812 per year. With that, the system will pay for itself in 9 years.

But there’s more. Your system generates an estimated 7,500 kilowatt hours per year. Each 1,000 kilowatt hours earns you one Solar Renewable Energy Credit (SREC). These are separate from the power you already used in your home. Let’s round that down to 7 SRECs. These SRECs can be sold at auction and the utility companies are required to buy them to meet the state’s Renewable Portfolio Standard. At the latest auction, Massachusetts SRECs sold for $274 each. Your 7 SRECs would be worth $1,918.

When you consider the $1,812 per year in savings from your electric bill and $1,918 in Solar Renewable Energy Credits, the system pays for itself in less than 4 ½ years, and thereafter you not only have free electricity, but the system pays you. Even if you have to take out a home equity loan to pay the upfront costs, unless you plan on moving in the next 5 years, it’s a deal too good to pass up.

Disclaimer: this is not investment advice. The values here are for illustration only and your results will vary. This is not an endorsement of Solar City or any other solar supplier or installer. Electric rates and the value of Solar Renewable Energy Credits may go up or down. The 30% Residential Renewable Tax Credit is scheduled to be reduced to 10% after 2016 and may be changed at any time by an act of Congress. Do your own research before investing.

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