Image source: Pew Research Center
Solar: Solar power is one of the best ways people can reduce their carbon footprint, but they have also been crucial in helping them save money.
In California, a utility regulator recently cut back on net metering.
As a result, it will reduce homeowners’ total savings by selling energy to the grid by at least 60%.
In addition, it changes the economic equation with national ramifications.
What solar brings
In the state of Connecticut, resident Josh Hurwitz connected his home to solar power for three reasons:
- Reduce his carbon footprint
- Store electricity in a solar-powered battery in the event of a blackout
- Save money
Hurwitz’s decision allows him to pay for his system in six years and save tens of thousands of dollars in the following fifteen years.
At the same time, it also gives him a hedge against utility-rate inflation.
So far, solar has been working well enough to allow him to prepare to add a Tesla-made battery to store the power he makes.
“You have to make the money work,” said Hurwitz.
“You can have the best of intentions, but if the numbers don’t work, it doesn’t make sense to do it.”
Inflation Reduction Act
Josh Hurwitz’s experience alludes to the benefit of the Inflation Reduction Act passed in August this year.
The benefit of the extension and expansion of tax credits includes promoting the spread of home-based solar power systems.
According to Wood Mackenzie and the Solar Energy Industry Association, adoption is projected to grow 26% faster thanks to the law.
It also extends tax credits set to expire from 2024 through 2035.
The credits will cover 30% of the system’s cost.
In addition, there’s a 30% credit for batteries that can store newly-produced power for use when needed.
Warren Leon, the executive director of the Clean Energy States Alliance, a bipartisan coalition of state government agencies, said:
“The main thing the law does is give the industry, and consumers, assurance that the credit will be there today, tomorrow, and for the next ten years.”
“Rooftop solar is still expensive enough to require some subsidies.”
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California solar market
Certainty is the most challenging aspect when it comes to solar.
Frequent policy changes can make the market a “solar coaster,” as dubbed by industry executives.
When the expanded federal tax credits took effect, California slashed another big incentive on December 15.
It allows homeowners to sell excess solar energy generated by their systems back to the grid.
As a result, the math was scrambled in California and the significant solar-power market.
However, it only takes effect in April 2023.
Wood Mackenzie believes the solar market will take a massive 39% decline in 2024 if the state and federal changes occur together.
Before factoring in the Inflation Reduction Act incentives, the consulting firm projects a 50% drop with the California policy shift.
In addition, Mackenzie said that residential solar is coming off a historic quarter.
There is a 1.57 GW with a 43% increase year-over-year, and California is slightly over one-third of the total.
Tax credits can quickly recover part of the upfront cost of going green for prospective switchers.
When Josh Hurwitz installed his solar system, he took the federal tax credit.
He is currently preparing to add a battery since it also comes with tax credits.
Meanwhile, some contractors offer deals where they can absorb the upfront cost and claim the credit for agreements to lease back the system.
The tax credits can make rooftop solar systems pay for themselves in as little as five years, combined with savings on power homeowners don’t buy from utilities.
In addition, it can save $25,000 or more after recovering the initial investment within two decades.
Veronica Zhang, the portfolio manager of the green fund Van Eck Environmental Sustainability Fund, said:
“Will this growth have legs? Absolutely.”
“With utility rates going up, it’s a good time to move if you were thinking about it in the first place.”
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Some states have more generous subsidies and more pro-consumer rules mandating utilities pay higher prices for excess power home solar systems created at peak production hours or extracted from homeowners’ batteries.
Before this week, California had some of the most generous rules.
However, state utility regulators agreed to let utilities pay less for excess power they are required to buy after power companies argued that the rates were too high, raising power prices for other customers.
According to Wood Mackenzie, details of California’s decision made it look less demanding than the firm initially expected.
EnergySage says California’s payback period without a battery will be a decade instead of six when the new rules take effect.
The company also estimates that savings will be 60% less in the following years.
According to EnergySage, systems with a battery will not be as affected because owners keep most of the excess power instead of selling it to the utility.
“The new [California rules] certainly elongate current payback periods for solar and solar-plus-storage, but not by as much as the previous proposal,” said Mackenzie.
“By 2024, the real impacts of the IRA will begin to come to fruition.”