Cost of Solar, Financing, Lease Options
How much does solar energy cost?
An average residential solar system costs between $15,000-$25,000 after solar rebates and solar incentives. Considering that you will probably spend over $72,000 in electrical bills over the next 25 years, this can be a small price to pay. Some companies even offer solar lease options in which you pay no out-of-pocket expenses for the installation.
The exact cost of your solar system will depend on the applicable New Jersey solar state rebates and utility incentives available in your area and the type of solar installation you chose. Using a qualified installer who is familiar with the local incentives and permitting process will ensure that you get the most from your investment.
Are there any government tax incentives or rebates?
One of the great elements of solar power in the U.S. is that there are large number of tax incentives and rebate programs that exist to make it easier to afford solar power for your home. The solar installer that you select will be up to date on all of the applicable incentives based on where you live but below are some of the basics:
- Federal Tax Credit: Investment Tax Credit (ITC) allows individuals to deduct 30% of the cost of a solar system from individual federal income taxes;
- Individual State Rebates: Many states offer cash rebates that are either flat amount or are based on the size of your solar power system – check out the U.S. governments Database of State Incentives for Renewables & Efficiency for more information on the rebates in your particular area;
- Property Tax Exemptions: Many states also specifically exclude the value a solar energy system from your your annual property taxes… for example, if a new solar power system adds $30,000 to the value of your home, that $30,000 will be exempted from the total assessed value and your property taxes will not increase as a result of the new system.
- Municipal and Utility Rebates: In addition to the federal and state incentives, many local municipalities and utilities will offer rebates on top of everything else…please check out Database of State Incentives for Renewables & Efficiency for any incentives in your specific area.
What are the current New Jersey solar incentives and how do they work?
To achieve the goals set out by New Jersey’s RPS program, the Renewable Energy Incentive Program was created. Begun in 2001, it offered cash rebates (per watt) up to 50% of renewable energy systems for residential and non-residential customers. Given the great success of the program, funds allocated for solar power systems were exhausted in 2010. The program is still active with over $1 million available for certain rebates, although the Wind Energy portion of the program is no longer accepting applications at this time. Rebates for photovoltaic installations are also no longer available through this program, although PV systems are still eligible to receive Solar Renewable Energy Certificates.
While the range of the program’s abilities have been somewhat reduced since its inception in 2001, there are still quite a few options for those who qualify. Sustainable biomass and fuel cell systems, for example, are eligible for $2.00 per watt for the first 500 kW then $1.00 per watt for the next 500 kW. If these systems incorporate combined heat and power (CHP), then these incentives would increase to $3.00 per watt for the first 500 kW and $2.00 for the next 500kW. There are also the Wind and Biomass Feasibility Studies that are available to non-residential systems. This program offers incentives for a wide range of system sizes; 100-500 kW systems are eligible to receive 50% of cost up to $25,000 and 501-1,000 kW systems can receive 50% of cost up to $50,000. All systems 100 kw or larger are eligible for this incentive, provided that their energy production does not exceed 100% of historical or expected on-site consumption.
New Jersey’s main public energy utility, PSE&G, which serves almost 75% of New Jersey’s population, opened the more economically efficient and sustainable Solar Loan Program under the direction of the New Jersey Board of Public Utilities. When it opened, the Solar Loan Program had a $105 million budget to install 30 megawatts of solar PV capacity. Within a year, this popular program was operating on a waitlist basis. So, Solar Loan II was opened in December 2009. With an additional $143 million in available loans to support another 51 megawatts of installed solar capacity, New Jersey has developed an efficient program that will help them reach their solar goals with minimal cost to residents.
The Solar Loan II program offers loans which cover 40-60% of solar power system costs. These loans, which are funded by rate payers, offer residential systems 10 year loans at a 6.5% interest rate and non-residential systems a 15 year loan at an 11.3092% interest rate. The actual loan amount is based on how much energy the system is expected to generate in its’ lifetime. These loans are only available to systems smaller than 2 megawatts in installed capacity that are net metered (see below) and generate Solar Energy Renewable Credits (SRECs) (see below). While PSE&G offers a relatively high interest rate, it allows customers to repay the loan and interest with the SREC (something your bank and credit card won’t really allow). Of course, you could sell your own SRECs on the trade market and use that money to pay off the loan, but then you do not have the price floor or convenience that PSE&G guarantees (see below).
Unfortunately, as of January 2012 both Solar Loan programs have been suspended and are no longer accepting new applications for loans. This is large in part due to the unexpected success of the program and the fact that there wasn’t enough money in the original budget to compensate for the high demand that residents of New Jersey had for the program. In May 2012, the New Jersey Board of Public Utilities issued an order for extension of the program. This order also allowed New Jersey’s investor-owned utilities to decide whether or not they would participate in the loan program. All four of the utility companies agreed to participate in the program, so the program should be up and running again as soon as the funding becomes available.
What are New Jersey Solar Energy Renewable Credits (SRECs)?
A Solar Renewable Energy Credit (SREC) represents 1 megawatt-hour of electricity generated from an eligible renewable system. Just like stocks, SRECs are sold on an open market at varying prices correlated to demand. Launched in 2004, New Jersey’s online SREC trading market was the first of its kind. In order to fulfill the RPS mandates, utilities need to buy these SRECs and because New Jersey has an aggressive RPS, SRECs are always in high demand and subsequently cost more than in other states. The high SREC prices have led some economic analysts to question whether New Jersey’s solar program is financial sound over the long-term. Whatever the case may be, New Jersey’s solar programs have already been and continue to be extremely successful in bringing clean, sustainable solar energy to thousands of homes and businesses.
What is interesting about New Jersey’s SREC market is that it essentially has a price ceiling and a price floor, providing much needed stability in a relatively new market. When an electricity supplier does not purchase enough SRECs to fulfill the solar RPS, the supplier must pay a Solar Alternative Compliance Payment per missing megawatt. The payment for the 2010-2011 reporting year is $675 per missing megawatt. If the price of an SREC were to rise above the $675 compliance payment, no SRECs would be purchased, therefore creating a price ceiling.
As complicated as this is, the SRECs can really help consumers. For every megawatt of electricity your solar system produces, whether you use the electricity of not, you will receive an SREC. As an alternative to cash payments from selling SREC’s on the market, customers may sign over their SRECs to PSE&G to repay any or loan payments on their solar power system, if any.
PSE&G buys SRECs at a minimum basement price of around $420 and $380 per megawatt (although these prices are beginning to deteriorate due to a lack of demand and over-supply), for residential and small commercial systems, respectively, so this creates a price floor. The price floors decline semi-annually depending on system size and sector. If the price per SREC is higher than the basement price (they usually are) customers will receive the market price and this will help reduce the principle amount on the loan for your solar power system. If the loan is repaid early, PSE&G retains the right to purchase the SRECs at 75% of the market price for the remaining loan term. After the loan term, customers will retain the rights to any generated SRECs, although according to state laws a solar system is only eligible to produce SRECs for the first 15 years of operation.
When you install a solar power system, you not only receive tax exemptions, negligible monthly electricity bills….but you will be paid for just having them there! For the average family with a 5 kW system, an SREC is produced about every 2 months. SRECs have an average price of about $560, meaning, if you sell them on the market, you’ll have about $280 back in your pocket every month (again, please note that prices for New Jersey SRECs have been deteriorating due to over-supply, so you may not be able to receive this amount)! Otherwise, you can sell them to your utility to reduce any loan on your solar power system.
As mentioned above, prices for SREC’s were flatlining due to the over-supply of SREC’s on the market and the overall success of the New Jersey solar market. According to the Board of Public Utilities, New Jersey has 15,778 solar installations on house and business rooftops, farms and brownfields as of spring of 2012 with about 4,400 projects planned but not yet built this spring. Once the supply of SREC’s exceeded what utilities were required to purchase, the price of SREC’s plummeted.To help combat this fall in prices and save the New Jersey solar market, the state government increased the amount of electricity that state utilities will be required to buy over the next few years. Utilities including Public Service Electric & Gas and Jersey Central Power & Light will need to get 2.05 percent of their electricity from solar projects in 2014, up from less than 0.5 percent now. The state’s solar requirement will increase to 4.1 percent by 2028. The penalty for utilities that fail to meet the increasing percentage will be $339 for each megawatt-hour short of the goal in 2014, declining annually to $239 a megawatt-hour in 2028. Doing this will hopefully bring the supply and demand of solar systems back into balance and better equip the state to handle large numbers of solar rebates and installations.
Does New Jersey have any other solar tax incentives?
While New Jersey does not provide any cash rebates, it does offer a number of attractive tax incentives. All solar energy equipment is exempt from sales tax, which currently is about 7%. Also, commercial and residential property is exempt from any property tax on the value added by installing a renewable energy system. Along with the 30% federal tax credit on renewable energy equipment (or a solar energy grant in some commercial cases), installing a NJ solar energy system is financially feasible when factored into your current tax situation
Is New Jersey a “net metering” state?
In New Jersey, all investor owned utilities must provide net metering, as do some municipal, such as PSE&G…this is critical to consumers receiving SRECs as well. Net metering means that you only pay for the net amount of electricity that you use. With net metering, homeowners with solar installed are able to “bank” the excess electricity their solar system generates and receive credit up to 100% of their electric use bill at the full retail electricity price that they can use later. Again, making it cheaper to afford solar panels for your home. What is unique about New Jersey’s net-metering program is that there is no maximum individual system capacity limit on net-metered systems. Customers eligible for net metering retain ownership of all SRECs associated with the electricity they generate. To be eligible for net metering, the generating capacity of a renewable energy system cannot exceed 2 megawatts (MW) AC and cannot exceed the customer’s annual electric needs.
If I can not afford an up front payment for a solar power system, are there financing options to help me?
Yes, our partners offer a variety of great solar financing options to help offset some of initial installation costs. In some cases, your monthly payment will be less than the amount of savings on your electric bill. Low interest rates are available and the solar system increases the value of your home. Again, the your solar installer will have all of the details on the available solar financing options but make sure you ask about the following:
- Home Equity Loans: borrowing against the equity of your home;
- Solar Lease: leasing the solar panels for a fee over a set length of time; and
- Power Purchase Agreement: an arrangement similar to a lease arrangement where the solar provider/installer secures funding on their own for the solar project, installs the solar system in your home/office building and then sells the electricity from the solar system to the home/building owner at a fixed contractual price for a set length of time.
**Click here to get a free New Jersey solar assessment from pre-certified installers in your area!**