As 2011 enters its final quarter, activity in the solar energy market is literally heating up. This includes the tried-and-true solar-powered water heaters and the newer grid-tied photo-voltaic (PV) systems.
It’s imperative for consumers to get their systems installed before the end of the year to qualify for the generous renewable energy credits offered by both the IRS and state of Hawaii taxing authorities. The cost of these systems is essentially subsidized by the government up to 65 percent of the purchase price. This not only makes it affordable, but from an investment point of view, a “no-brainer.”
Solar water heaters can save upward of 30 percent to 40 percent of a home’s electrical energy costs, while PV systems have been known to eliminate nearly all of the utility bill beyond a minimum connection charge of around $18 per month. Contrast that with typical energy expenses of $300 to $400 per month or more. The rate per kilowatt hour (kWh) has risen by more than 30 percent from a mere year ago.
Various factors must be considered to determine the right systems to install. These include the energy consumption based on the number of household residents, lifestyle habits, geographical location of the home and orientation of available roof areas. Often, a combination of both solar water heating and PV would achieve the homeowner’s goals at an economical outlay. One size does not fit all.
This is the philosophy practiced by Hi-Power Solar’s partners, Ron Romero and Matt Adams. Ron has more than 20 years of experience in the solar business and Matt has 16 continuous years with system installations. Hi-Power uses proven components in its customized system designs from manufacturers such as Sanyo, Samsung and Solar World, which are among the most productive PV modules available today.
The numbers are in and the decision has been made. You want to “Go Green” and commit to solar. The next questions are: “What are the dynamics of the energy credits?” and “How can systems be financed?”
Assume that a typical two-system PV design has a gross price of $30,000. The federal tax credit is 30 percent, or $9,000, and the state credit of 35 percent is $10,000 as there is a $5,000 limit per installed system. The net cost after credits is $11,000. Let us also assume that the energy output will reduce electrical usage by 660 kWh per month. Multiplied by a rate of $0.30 per kWh, the homeowner can realize a saving of $198 per month, or $2,376 annually. This represents a 21.6 percent rate of return and a payback period of four years eight months on the net cost of the system.
Many homeowners might not have funds readily available in cash or cash-equivalents. They may need to access funds through a home equity line of credit (HELOC) from their bank or credit union. Many are available with attractive initial interest rates under 2 percent for the first 12-18 months, with current variable rates of 4.5 percent. Interest paid is generally a deductible item as mortgage interest on Schedule A. Many HELOCs may permit the conversion of the loan to a fixed-interest second mortgage at a later time.
Other financing, such as special “green loans” are standard second mortgages with fixed interest rates typically higher than the initial HELOC rates. An area of difference is that repayments to HELOCs reopen the credit limits as the loan balance decreases, whereas this does not happen with standard second mortgages. The interest charged also qualifies as deductible mortgage interest expense.
Some individuals may have access to pension funds with special loan provisions. These loans are not included as current income: 401(k) plans, 403(b) tax-sheltered annuity (TSA) plans available to public school system employees (Hawaii’s DOE and University of Hawaii system), and 501(c)(3) plans for hospitals, nonprofits, charitable and scientific organizations. Loans will be limited to the lesser of $50,000 or 50 percent of the account value. In addition, there is a loan term of five years with required repayment on at least a quarterly basis. Should the required repayment become delinquent, those sums in default transform into reportable income for the applicable tax year. Depending on the age of the employee, additional IRS penalties may also apply. The interest paid on these loans is generally not deductible as mortgage interest.
Joining the solar revolution is likely to provide a financial bonanza for the consumer. It pays to be a little cautious in choosing the most appropriate system design and to explore the financial options available. Let Hi-Power Solar help you Go Green! For additional information, call 342-0802.
CONTACT: 342-0802
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