Solar Tax Credits Increased

One surprise by-product of the financial bail-out legislation passed this Friday appears to be a substantial increase in federal tax credits for residential solar power, upping the tax rebate from today's $2,000 cap to 30% of systems total cost in 2009.

If my reading is correct, this dramatically changes the economics of installing photo-voltaic power systems on homes, making much larger systems affordable. For example, in one specific but representative quote, a 7,000 D.C. Watt system with a gross cost of cost $57,100 that nets out to $43,447.00 after California state rebates (through the local utility, PG&E in this case) and Federal tax credits today. That same system will have a net cost of only $31,812.90 after a tax credit of $13,634.10 next year.

Basically, that solar PV system couldn't be economically justified before, but is now a worthwhile investment for a home owner.

The payback period drops from a questionable 10.2 years to a more practical 8 years, in this particular case, assuming a 6 per cent increase in electrical rates per year.

The actual numbers are going to vary widely with vendor, home installation details, your local electrical power rates, and this price includes a California rebate, which depends on a complex formula including inclination to the sun, shading and other power generation parameters. So, your financial mileage may vary.

I haven't yet seen this reported in the main stream media. Papers have widely stated that the current solar power tax rebate, which was scheduled to expire at year end and whose renewal was being stalled by Republican opposition, was extended. But this goes well beyond simply extending today's tax credit. California Senator Barbara Boxer was on TV taking credit for getting the solar bill tacked on to the financial rescue bill, although in typical TV fashion the story gave no details.

You can find the relevant references in the "Emergency Economic Stabilization" bill on the U.S. House of Represetatives' site. This is a 451-page PDF. The thirty percent (30%) credit is covered starting on page 134 and variously through page 140, in typically-obscure legalese that refers to changes in a prior bill. Another important consideration is that the tax credit apparently can be carried forward to future tax bills if it is not used in its entirely the first year, at least that is how I read page 140.

So, while the pork larded on the bill is offensive, and this may have been an inappropriate way to implement the solar power credit, the end result is good for anyone looking to make their electrical power consumption a bit greener. Also, it appears these tax deductions also apply to other, alternative power sources such as wind and geo-thermal. Here is one solar power news site that supports my interpretation of the tax changes: Solar Buzz.

The economics highlight how residential, solar power is still far more expensive than conventional power; it's viability depends on extensive, government subsidies.

Caveat: I am simply a potential purchaser of a solar system, not a tax accountant, nor a lawyer. So far, this is simply how this layman interprets the legal folderol our legislators created.