There has been a lot written lately about the “green” revolution and the use of solar energy. This article will provide a general overview of solar energy basics and the laws and regulations governing solar energy’s installation and use.
Why solar energy?
A solar energy system generates reliable, long-term clean energy. By installing a solar energy system on your house or commercial building, you can reduce emissions of greenhouse gases, reduce your carbon footprint and help reduce our dependence on foreign oil. Once properly installed, a solar energy system will generate clean energy for at least 20 years with minimal maintenance.
How does it work?
Solar panels installed on your roof1 (preferably facing south to south west with unobstructed access to the sun) use the sun to generate electricity. The sun shines on the solar panels and the energy is transferred from the panels through an inverter (which converts the power generated by the solar panels from direct current to alternating current) and then into your building’s electric service, which is connected to your local utility’s electric distribution system. The more electricity generated by your solar panels each month, the less electricity you have to buy from your local utility and, therefore, the lower your electric bill for that month.
Because your building is connected to the utility’s distribution system, any electricity generated by the solar panels in excess of the building’s electricity requirements goes back into the utility’s distribution system. Many utilities will pay the customer for this excess power (subject to certain rules and restrictions). This is called Net Metering.
How much does it cost?
Currently the rule of thumb for how much a solar power system will cost is anywhere from $6 to $8 per watt.2 That means, for a typical house installation (5kw to 10kw), the cost is anywhere from $30,000 to $80,000. For a business installation (50kw to 1mw or more), the cost could be anywhere from $300,000 to $8,000,000 or more. I know that sounds like a lot of money, but there are ways to bring the price down.
Despite the high cost of installing a solar power system, federal, state and local governments and electric utilities help subsidize the cost in several ways because it is commonly recognized that the promotion of renewable energy, and solar power in particular, is important to achieving certain societal goals.
Subsidies come in many different forms. For example, (a) many utilities have rebate programs based on the size of the system installed,3 (b) in some States, your solar system will generate renewable energy credits which can be sold to power plant owners that use coal and oil to offset their emissions,4 (c) the Federal Government has enacted a 30% investment tax credit (for business and residential customers) and allows for accelerated depreciation (for business customers only),5 (d) several States have also enacted state tax credits,6 (e) several local municipalities have enacted laws allowing for property tax reductions7 and sales tax waivers,8 and (f) through Net Metering (as described above), you may be able to sell your excess electricity to your local utility, thereby further reducing your electric bill.
How do I pay for my solar system?
If you write a check and pay for the solar system in full, it will take several years before you get your money back from the lower electric bills, even after all the rebates and tax benefits described above. There are, however, several methods for lowering your upfront costs and financing your solar power system. A home owner can obtain a home equity loan to pay for a solar system and some banks offer “green” financing providing special programs for installing “green” or environmentally friendly home improvements, including solar power systems. This will allow you to spread the cost over time and, hopefully, the cost of you monthly loan payment will be less than the amount you save on your monthly electric bill.
A business can also use a line of credit or mortgage to fund the solar system. Leasing a solar system is another option; the same way your business would lease any other piece of equipment. No different from the residential example given above, if your business finances its solar system with a lease, you would want the monthly lease payment to be less than the amount of your monthly electric bill savings. Typically, a solar system lease is for a longer term than other types of equipment leases because the solar system should last at least fifteen to twenty years and the monthly electric savings will not justify a large monthly lease payment.
Another alternative for businesses is to enter into a Power Purchase Agreement.9 A Power Purchase Agreement, also known as a PPA, is a long-term agreement whereby you, the customer, get solar power for no or minimal up front costs. The solar developer/installer installs the solar energy system at your business (rooftop, parking area, spare property, etc.…) and maintains and operates the system under a long term contract. You in turn purchase the electricity generated by the solar energy system at a set rate, which is usually below the rate you currently pay for electricity and is fixed for the term of the PPA.10 The developer/installer as the owner of the solar system, will purchase, install, operate, and maintain the turn-key solar energy system and assume the risks and responsibilities of ownership.
There’s nothing left for you to do but enjoy clean, cost effective “green” electricity without taking away funds from your capital budget. The only catch is that the PPA is usually for at least 15 to 20 years. What’s in it for the developer/installer? Because the developer/installer is the owner of the solar system, the developer/installer gets all of the financial incentives (investment tax credit, accelerated depreciation, rebates, renewable energy credits to sell, etc…) in addition to monthly revenues from you for the electricity generated by the solar system.
Other legal issues arising from solar energy systems include leasing roof or ground space for the solar system if you are a tenant, roof structural issues, building department issues and warranty issues relating to the equipment and installation of the equipment.
Robert J. Cassandro, Esq. is the Managing Partner of Abelow & Cassandro, LLP a general practice law firm in Jericho, New York. His practice concentrates in renewable energy, real estate and business law. He has been practicing energy law for 20 years. He can be reached by calling (516) 932-0068 or at email@example.com.
1. While there are other technologies currently in use and in development, when I say “solar panels” I am generally speaking about silicon based photovoltaic panels used to collect energy from the sun. Also, in this article I refer to installing the solar panels on the roof; however, panels can be installed as ground mounted systems, on parking structures, on awnings and other creative locations facing south or southwest that have unobstructed sunlight. In addition to generating electricity from solar panels, solar hot water heaters and solar pool heaters are popular, but not specifically discussed in this article.
2. Solar power systems are typically measured by the electrical power they produce, in watts, kilowatts (kw), or even megawatts (mw).
3. The Long Island Power Authority offers rebates through its Solar Pioneer Program. For more information, go to www.lipower.org/efficiency/solar.html.
4. New Jersey has a Solar Renewable Energy Certificate Program. For more information, go to www.njcleanenergy.com.
5. The federal business energy tax credits available under 26 USC sec. 48 were expanded and extended by the Energy Improvement and Extension Act of 2008 (H.R. 1424), enacted October 3, 2008, and the American Recovery and Reinvestment Act of 2009 (H.R. 1). A provision of the ARRA also allows business customers to take a cash payment equal to 30% of the project’s cost in lieu of taking the 30% investment tax credit.
6. New York State Tax Law section 606(g-1) allows taxpayers to claim a credit for solar energy system equipment that is placed in service on or after January 1, 2006, and is used to heat, cool, or otherwise provide energy for residential use.
7. New York State Real Property Tax Law sec. 487 provides for real property containing a solar, wind, or farm waste energy system approved by the State Energy Research and Development Authority to be exempt from taxation for a period of 15 years to the extent of any increase in assessed value due to the system; however, this exemption is subject to local option.
8. Nassau County’s Energy Policy and Action Plan provides for an exemption from the County portion of sales tax to homeowners installing solar energy systems.
9. There are companies working on a PPA for residential customers but it is not yet widely available.
10. Some PPA’s have an annual escalation, but the amount is usually less than the local utility’s rate increases and allows for more predictable long term electricity expenses.
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