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Solar Energy In California – A Beginning
August 16, 2005

I get calls every day from people who are tired of paying their electric bills, tired of rising energy prices, and tired of our country’s reckless energy policies. To these callers, what I offer is often seen as a bright light on a dark horizon. I sell residential and commercial solar electric systems as an Energy Consultant for Borrego Solar Systems, Inc. in San Diego. There is lot to be upset about regarding the lack of a comprehensive energy strategy to achieve energy independence in the US, but the solar industry has been making significant inroads in California the past few years and shows no sign of letting up.

My knowledge of solar energy was limited until three years ago. As a Market Maker on the Options Floor of the Pacific Stock Exchange, I traded stock options in an open-outcry market. It was a great way to make a living until 2002 when I began asking myself a simple question, “If I could choose any profession, and money was not an obstacle, what would I do?” With that in mind, I read Natural Capitalism by Paul Hawkins and Amory Lovins and became dedicated to the pursuit of sustainable living through environmentally conscious business. However, no matter how green or environmentally harmonious a business is, it is not sustainable if it is not also profitable. The more I researched the more I became convinced that “solar” could provide a sustainable source of energy as well as a profitable business opportunity. For example, in the past five years alone the solar industry has grown more than 30% per year. This phenomenal growth has been attributed to several driving forces, including numerous and rather well publicized “brownouts,” “blackouts,” and skyrocketing electricity prices. Yet, the number one factor in California remains the rebates and incentives available to those who install solar energy systems.

According to the California Energy Commission (CEC) the average household in California consumes roughly 7,000 kilowatt-hours (kWh) per year. My average customer uses closer to 9,000 kWh per year. A kilowatt-hour is the unit of energy utility companies use to measure electricity consumption. It is equivalent to using 1,000 watts for one hour. If one were to turn on ten 100-watt light bulbs the instantaneous draw, or load, would be 1,000 watts. If these light bulbs were left on for one hour the total energy consumed would be one kilowatt-hour, or 1 kWh. If they were left on for 24 hours, the consumption would be 24 kWh. If they were left on all year the consumption would be 8,760 kWh’s. (100 watts X 10 = 1,000 watts, or 1kW. 1kW x 1hour = 1 kWh. 1 kWh x 24 hours x 365 days = 8,760 kWh per year.) One can see that in one year my average customer uses an amount of electricity equivalent to using 10, 100-watt light bulbs 24 hours per day, 365 days per year.

California utility companies allow customers with solar systems to spin their meter backwards at times when they are producing more electricity than they are using. This is called net-metering and it allows customers to offset charges for electricity they used at other times. Customers can effectively eliminate their annual bills, but the utility will never write them a check. Any excess production beyond an offsetting consumption will simply be fed into the grid. With this dynamic in place there is no incentive for installing a solar system that will produce more than the total electricity a customer will use in a year. If we know that a customer will regularly use around 9,000 kWh per year we will try to design a system that will produce just enough electricity to eliminate his or her electric bill. In San Diego that would be around a 4.5 kW system. In more than 35 states utilities are required by law to offer net-metering. This is critical to the successful growth of the market for solar electricity.

Once we have identified how big the system will need to be in order to eliminate the electric bill, the next question is “How much does it cost and what programs are available to offset the price?” Currently, the primary incentives in California include the following:

Cash Rebates: For the last five years the state of California has offered the largest and most successful rebate programs in the country. Cash rebates for systems under 30 kilowatts are currently available from the California Energy Commission’s Emerging Renewables Program at the rate of $2.80 per watt or $2,800 per kilowatt. For reference, a 30 kW system would produce roughly 57,000 kWh per year in San Diego, enough electricity for roughly six, three-bedroom homes. A second program, the Self Generation Incentive Program, exists for systems larger than 30 kW. This program allows for rebates at $3.50 per watt, but all of the money set aside for this program has been allocated and new applications are no longer being accepted. Both of these programs have been extremely popular, but the money is limited and the rebates decline every six months. The idea behind the rebate programs was to stimulate the renewable energy industry in its initial stages and then remove this stimulus over time with progressively lower incentives. The hope was that the rebates would lead to increased business, economies of scale, and lower prices. As anticipated, prices have dropped, but because both programs have run out of money at various times over the years, the programs have failed to provide a stable environment for businesses. To correct that, Governor Schwarzenegger and the California legislature are currently working to significantly increase the available rebate money and extend the programs out to the year 2018.

State and Federal Tax Credits: The Internal Revenue Service (IRS) currently allows for a 10% tax credit on the after-rebate cost of the system. This is a dollar for dollar credit against income taxes owed to the Federal Government. However, this credit has been limited to commercial projects. The new Federal Energy Bill will triple the federal tax credit to 30% for systems installed in the year 2006 and 2007. In addition, homeowners will now be eligible for the Federal tax credit with a cap of $2,000. The state of California allows for a 7.5% tax credit on the after-rebate cost of the system. The CA tax credit is also a dollar for dollar credit against income taxes owed to the state. The state credit is set to expire after 2005. It may be reinstated after 2006, possibly sooner.

State and Federal Depreciation: In most cases, the IRS and the State of California allow businesses to depreciate the cost of their solar system over a five-year period.

Exemption from Property Taxes: Any property improvement in California that is the result of a solar installation is exempt from property taxes. Like the California tax credit, this law is set to expire after 2005.

A simplified illustration, using a number of generalized assumptions, might be useful in showing the power of the current incentives

Sample Solar Incentives Calculation for a 5 kW System Installed in CA in 2006

Total Installed Cost...........$40,000.00
Rebate.............................-$14,000.00
Total (Net after Rebate)......$26,000.00

Federal Tax Credit 30% .................................-$2,000.00
(capped at $2,000 for homeowners)
State Tax Credit 7.5% ...................................-$1,950.00
(currently not available after 2005)
Total (Net after Rebate & Tax Credits).........$22,050.00

Percent of Total Cost Paid by Owner: 55.1%
*All numbers are for discussion purposes only. Please consult your CPA or lawyer for tax advice.

In the above example, the system will typically pay for itself in around ten to twelve years. A solar system installed for a business, while much more expensive, is also eligible for depreciation. Savings from depreciation usually bring the payback time closer to five to seven years. While this may seem like a long time for the solar panels to pay for themselves they typically come with a 25-year warranty, they have a 30 to 40 year life expectancy, and they require no additional fuel other than sunshine. The result of all of the available incentives is that thousands of businesses and homeowners in California have decided to install solar energy systems. Rebate programs are springing up all over the country and, now that the Energy Bill is signed, all Americans will soon be eligible for greater Federal assistance.

The future looks bright for solar, but is it right for everyone? No. Not everyone can take advantage of the tax credits and depreciation. Not everyone has the space or the right view of the sun for a solar system. However, the goal is not to find the one cheapest source of energy that will work for everyone immediately. The goal is to work towards increasingly the amount of energy we produce from renewable sources. According to the National Renewable Energy Laboratory “more energy falls on the earth each day than all the planet’s 6.1 billion people would consume in 27 years.” Last year, in the United States, the percentage of electricity generated from solar sources was considerably less than one percent. The reality is that it is probably not realistic to think that in the future this figure will increase beyond 20% of total supply. However, we still have a long, long way to go before we have fully capitalized on the potential for using solar energy in this country.

The environmental benefits of solar are obvious. Solar offers a solution to the problems associated with fossil fuels; problems which include global warming, smog, acid rain, high concentrations of mercury in our rivers and oceans, strip-mining, and war to name a few. The economic advantages of solar can be outstanding: no ongoing fuel costs, decreased pressure on the electrical grid, and a safe and reliable source of electricity. However, solar is not a silver bullet. The reality is that there is no silver bullet. The human race always has and always will use as much energy as it can harness. The need and drive for energy has arguably taken us well beyond rational environmental and political limits. Debating over whether we should focus on solar, wind, nuclear, hydrogen, coal, or oil is pointless. The livelihood of our economy and our nation depends upon our massively diversifying our energy sources. Our nation’s top energy priorities must be to make renewable energy cheaper, to make traditional energy sources cleaner, and to call for radical improvements in energy efficiency and conservation.

There is still an overwhelming amount of work to do to get our country to where it needs to be in terms of our energy policies and portfolios, but there is hope. California has set a great example for how to run a successful rebate program and how to create a favorable regulatory climate for renewables. Since the year 2000 the average price of a solar installation has dropped twenty to thirty percent and a fledgling group of installers and manufacturers have multiplied into a multi-billion dollar industry. We are experiencing a worldwide shortage of solar panels because demand is so strong. The recently signed federal energy bill is lopsided in favor of fossil fuels, but the new and increased tax credits are going to have a significant impact on the renewable energy industry and, perhaps, on the nation as a whole. I like to think that the growth of the renewable energy industry in California over the last few years is just the beginning. We seem to have reached an inflection point where public demand, political will, and economic opportunity have converged. I hope we can keep our focus over the next ten years or so to lay the foundation for lasting change. The need for change is obvious and the stakes are too important to ignore.

Ned DeWitt
Energy Consultant
Borrego Solar Systems, Inc.San Diego, CA
ndewitt@borregosolar.com

Read/Post Comments (13)













Comments (13)

David RR Webber from MD
8/17/2005 11:13:33 AM

I'm thinking for many people a home equity loan is the way to go here - its about the same expense as buying a new car. However I'd like to understand more on the mechanics. If my monthly power bill is about $200 - how does the numbers stack up? Comparing my monthly repayment on the loan to what I'd save on power? Also - what does the solar provide in the house, lighting, heating, cooling?

David RR Webber from MD
8/17/2005 11:30:03 AM

I omitted to mention - for people interested in the issues around wind power for comparison - see http://uswindpower.info

Chris W from CA
8/18/2005 8:08:00 PM

Ned, thanks for the article. There seems to be a limit on how many residential solar systems can tie into the grid depending upon what utility company you use. Which goes contrary to wanting to become energy independent and can actually eliminate or greatly reduce the payback. Any details on these limits and what we can do to expose them and then change them?

Reggie B. from NJ
8/19/2005 10:46:13 AM

I have a 10kw system producing about 55% of my total electric needs. The savings and Green Tag Credits more than equal my loan payment each month. As electric costs increase, my savings increase too, but my loan payment remains the same so the deal just keeps getting better each year. In NJ we can get up to 70% of the installation cost paid for by the BPU! The electricity I produce powers whatever is normally powered by the utility company, the power is seamless between what I produce, and what the utility company provides. You can't even tell which system you are getting power from, the solar power just comes in to your electric panel, same as the utility's power.

Pat in SD from CA
8/19/2005 12:57:27 PM

Do rentals get the same rebates in California?

Jake Hoechst from FL
8/21/2005 11:41:09 AM

After reading and deliberating over Ned DeWitt’s editorial on “Solar Energy In California”, I’ve concluded that the solar concept he espouses fills a niche in the country’s need for finding and developing various methods of environmentally correct sources of energy. There are many such niches, wind, ethanol, biomass, nuclear, hydrogen and a number of others, and they undeniably fill energy needs where they are used, but on the broad scale of the country’s energy requirements, they all fall short of meeting the needs of every section of the country. Solar in the south and southwest, wind in various areas where certain conditions are conducive to windmills, ethanol as a minor player in fuel propulsion devices, (and an assist to the farmers) hydrogen, well down the road, and so it goes. But keep one thought firmly in the forefront of your mind; a concept must appeal to all regions of the country, north, south, east and west. It cannot and must not be a niche solution. In that context, and to my mind, oil is the only energy which is universally required, and not just for fuel, but for all the lubrication functions it performs as well as the essential feedstock for the entire plastics industry. It is not for nothing that we are known as an oil based economy. There is, quite frankly, no replacement for oil.

I recognize that Mr. Dewitt has the same kind of enthusiasm for solar as I have for TCP, but he is after all selling the product and he had better be enthused or he won’t sell it. My consideration is that it may be a trifle too detailed to maintain interest. Long ago I learned a phrase applying to salesmen, which said, “You don’t sell the steak, you sell the sizzle.” In this case I believe he may have sold more steak than sizzle. Nevertheless, I particularly liked where he began to summarize wherein he said, “However, solar is no silver bullet. The reality is that there is not silver bullet. The human race always has and always will use as much energy as it can harness. The need and drive for energy has arguably taken us well beyond rational environmental and political limits. Debating over whether we should focus on solar, wind, nuclear, hydrogen, coal or oil is pointless. The livelihood of our economy and our nation depends upon our massively diversifying our energy sources. Our nation’s top energy priorities must be to make renewable energy cheaper, to make traditional energy sources cleaner, and to call for radical improvements in energy efficiency and conservation.” Admirable goals and well stated.

Let me digress for a moment to another aspect of the criticality of the nations energy problem which seems seldom if ever to be addressed. In 1940, the population of the United States numbered some 140 million souls. Today, we are threatening 300 million. At our current rate of expansion, by 2050, this country will be at or over 500 million. That is a 60 % increase in consumers from today. Where in the world is all the energy supposed to come from? That increase is only in the U. S. How about all of the emerging countries, and the expansion in countries such as China, India, Malaysia, and the numerous poorer countries in Africa? If this country is to remain as a predominant economy, not only must we find an endless source of oil, but we must, if possible, remove oil as the source of conflict. To that end, I suggest that there is no other concept other than the thermal conversion process which has the capability of providing the United States with a never ending source of oil from above the ground, and which, if internationally applied, can remove the necessitude of territorial conquest for oil. Every nation, large and small will be able to address its own energy requirements right at home.



We still, however, must face up to the reality that oil is becoming ever more difficult to find and extract from the earth, and that the lengths and depths to which we must go make it ever more expensive. It therefore behooves us to find a method
which promises us the opportunity to, in effect, create our own renewable source to insure that, no matter what other circumstance, war, foreign supply shortages, or unexpected catastrophes, that we always have a reliable, secure source of this ingredient most essential to our economy. In that regard, so long as the sun shines and induces nature to grow greenery and all other living things, all of which contain carbon, we will never be without the elements to make our own oil. This is the promise of the thermal conversion process. It can take any material containing carbon and in two short hours, produce an oil which is superior to that extracted from the earth. It contains neither sulfur nor bitumens and lends itself much more readily to future processing to derive the manifold derivatives of oil, including gasoline, jet fuel and the various feedstocks required by the plastic industries. It is incumbent on us as a nation to facilitate in every way possible the implantation of this concept into our economy.

Rick (From Australia) from
8/21/2005 9:17:45 PM

Jake's wishful thinking is laudable for it's optimism. But unfortunately it is not founded in practicality or scientific fact. If sufficient bio-mass were converted to equal our current oil use, there wouldn't be enough land for growing food. Conversion of corn yields LESS energy than the energy put in to grow it. He also seems to forget that 2/3 of the world's current factory farmed food supply is converted oil -- in the form of fertilizers, transport, cold storage, etc. So I guess all we have to do is stop eating, then we can drive our fat SUV's on (organic???) bio gas. Considering how much less we will weigh, the mileage might even improve a bit. But, personally, I'd rather walk a mile for an organicly grown soyburger. My feet might get some pain, but at least my stomach won't ache. People got along just fine without oil before 150 years ago, we can figure out how to do it again. No fear, no panic. We're strong. The rich and their corporations won't like it much though. They can't control people who aren't dependent on them.
For a few facts, see:
http://www.energybulletin.net/

Jake Hoechst from FL
8/22/2005 1:44:03 PM

To Rick from Australia:
Jake here. Glad to make you acquaintance.
Optimistic, yes, wishful thinking, no. The thermal conversion process is a patented process, approved by the U. S. government patent office as being able to utilize any non-nuclear material containing carbon, and at an 85% efficiency rating, deliver an oil which, without further processing may be used as diesel fuel. May I suggest that if you wish facts concerning this development that you go to “Changing World Technologies, Inc.” (CWT) and for further information on Renewable Environmental Solutions (RES) the company operating the Carthage, MO facility, go to http://www.res-energy.com/ If you search out the various types of information offered, you will in short order have a complete picture if what this system is, how it functions, and why it is, to my mind, the single best solution to the worlds oil problems.
Additionally, I have written an editorial, not yet released, which details the benefits (currently to the U. S.) to be generated by the full implementation of this system. I would be pleased to send it to you by e-mail. Just give me your address.

Jake H.

jhoechst@bellsouth.net

Micheal Wadas from PA
8/22/2005 4:23:29 PM

Althought I think that solar power is an honorable start to the goal of eliminating our dependency on foreign oil, I don't think it is an answer. I have been researching fuel cell technology,and I believe that this technology is the answer to our problem. Read "the Hydrogen Economy."

Bill from IL
9/27/2005 5:35:33 PM

While the incentives for solar are good, the average American simply doesn't spend 12 or 13 years in their homes. So unless the owner can make the money he put into solar when he sells his home, it's not worth it, unless he's willing to do it for other than monetary savings. It's going to come down to government will. Is the federal government truely desiring to break the strangle hold that foreign oil has on this country? The answer thus far is no. Other countries with varying success have used taxes on oil to fund alterative sources and promote conservation. It's time this one did as well.
The biggest problem I see is the one that came from Jake in FL. Everyone assumes that this country needs to replace oil with one big thing or concept. What the counry needs to do is take the first few baby steps down that road that leads to that "one big thing". There's not going to be a product that will come along and we will all be able to say "wow, now we don't need oil". It's going to be slowing turning the mindset toward public transportation and conservation. It will be about cutting back on the need for oil, rather than stopping it completely. Yes, there will be different ways to go about it and some ways will only work in parts of the country but it's the start down the road that's the most important part at this point.

Bill from IL
9/27/2005 5:36:19 PM

While the incentives for solar are good, the average American simply doesn't spend 12 or 13 years in their homes. So unless the owner can make the money he put into solar when he sells his home, it's not worth it, unless he's willing to do it for other than monetary savings. It's going to come down to government will. Is the federal government truely desiring to break the strangle hold that foreign oil has on this country? The answer thus far is no. Other countries with varying success have used taxes on oil to fund alterative sources and promote conservation. It's time this one did as well.
The biggest problem I see is the one that came from Jake in FL. Everyone assumes that this country needs to replace oil with one big thing or concept. What the counry needs to do is take the first few baby steps down that road that leads to that "one big thing". There's not going to be a product that will come along and we will all be able to say "wow, now we don't need oil". It's going to be slowing turning the mindset toward public transportation and conservation. It will be about cutting back on the need for oil, rather than stopping it completely. Yes, there will be different ways to go about it and some ways will only work in parts of the country but it's the start down the road that's the most important part at this point.

Paul W from CA
1/11/2006 11:24:21 AM

As I look out from my window at work, I can see the roofs of five other office buildings. Each one is flat and covered with asphalt, with a few air conditioners and what-not here and there. Why is each one not covered with solar panels, and providing power to the buildings, and to the grid?

Paul W from CA
1/11/2006 11:33:58 AM

As I drive up 395 (and elsewhere), I observe miles and miles of high-power transmission towers with wires strung between them. Underneath are service roads and desert. Why are solar panels not installed beneath these miles of wires throughout the southwest, providing power to the grid? (Actually, my uncle asked me this a couple of decades ago and it has stuck with me ever since).

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