Photovoltaic Modules (PVs) Ch. 10-14

Chapter 10–Misconceptions Concerning Government Rebates & Credits

Before we talk about the Return on Investment, I need to clarify some misconceptions concerning the investment in the Photovoltaic Technology. Many Homeowners have told me they were informed, the local utilities were required by law, to buy back the excess electricity and the state and federal government would provide lump sum rebates for the equipment purchased by the homeowner. Here are the facts.

(1) With respect to PV modules, the State of Florida will provide a rebate to the homeowner who installs PV modules at their home, provided they can supply proof of the investment and proof a licensed contractor performed the installation, satisfied the permit requirements and tested the system. How much the homeowner will receive is based upon the size of the array, in total kilowatts. To receive any rebate, a minimum of a 2 kilowatt array is required. The rebate amount is $4,000/kilowatt with a maximum amount of $20,000. Thus, for the homeowner to receive $20,000 from the state, it will be necessary to purchase a minimum array of 5 kilowatts. It should also be noted, this rebate does not come in the form of a lump sum check. It is paid quarterly, over the course of a year and there is a 90 day period to file the application after purchase. The appropriate document is called the “State of Florida Solar Energy System Incentives Program Rebate Application Form.”

(2) With respect to PV modules, the federal government does not offer a rebate or lump sum cash return. Instead, they provide a credit of 30% of the total investment, which can be applied to the homeowner’s future tax liability. For example, if the homeowner’s total cost for the solar array is $50,000, then 30% of this or $15,000, would be credited to the homeowner’s federal tax record. Effective January 2009, the homeowner would file their Income Tax Forms with the I.R.S., including Form #5695 which is “Residential Energy Efficient Property Credit.” Any tax liability for that year could be subtracted from the $15,000 in this example and could be continued each tax year until the credit amount was exhausted. Depending upon a homeowner’s yearly tax liability, it may take several years to recoup the original 30% investment credit.

(3) The following misconception is the most common. It refers to state or federal laws requiring local electric utilities to purchase excess electricity generated by the homeowner. If a homeowner installs a PV array and generates more power than consumed by the home each month, the homeowner is not going to receive a monthly paycheck from the local electric utility. As a matter of fact, the homeowner will be billed a monthly customer service charge, which ranges from about $9 to $11 per month, depending upon the utility. There are two types of electric utilities. One is municipal owned and the other is investor owned. A municipal owned utility will maintain “kilowatt-hour” credits for the homeowner, which can be applied any time in the future, should it be needed. There will never be any cash sent back to the homeowner. An investor owned utility will do the same except, at the end of the year will send a check to the homeowner that has extra “kilowatt-hour” credits, still available. However, the amount the homeowner receives will not correspond to the standard cost of the electric rate. It will be a value less than that, in accordance with the rules and regulations of the state.

The public is invited to contact their local electric utility to learn more about the rules and regulations concerning installation of PV modules at their home and the return of generated electricity, back to the utility. Before purchasing any PV equipment, I highly, recommend the Homeowner read and understand the “Interconnect Agreement.” Each electric utility has their own agreement. The requirements are not universal to all utilities.

In the next chapter, we will learn about an investment tool called return on investment.

Chapter 11–Return On Investment (R.O.I.)

At this time, I would like to talk about the most important consideration with respect to a homeowner’s decision to invest in Photovoltaic Technology. It is called “Return on Investment” or abbreviated, R.O.I. This term is quite common in business applications because it defines the amount of time it will take for an investor to see the return on the amount of capital invested in a project, which also marks the beginning of making true profit.

There are varied opinions as to what a proper R.O.I. is for a project. Some believe their R.O.I. should be five years. Others say, one year is more appropriate. There is no definite answer except to say, most agree an R.O.I. with significant number of years is not acceptable because of a couple of factors. The first is technology is changing for the better at a rapid rate. The second is the retail price for a product, decreases with time due to improved manufacturing techniques, larger customer demand and an increase in competitors. This would imply, investing in expensive products with a long period of time for an R.O.I, is not wise because the product price will decrease and become better products in a much lesser amount of time. The Photovoltaic Technology is no exception. From the cost calculations performed in chapters 7, 8, and 9, it is apparent, the equipment represents a substantial investment.

In order to calculate the R.O.I., we must establish the cost of electricity, which varies from utility to utility. I have chosen one local utility for our sample cost/kw-hr. The homeowner can look at their electric bill and divide the total charge for the bill by the total kw-hrs used for that month to obtain their cost/kw-hr. The local utility I have chosen indicates this value to be 12.45 cents per kw-hr. It should be noted some utilities use a tier rate which means if the homeowner uses an amount which exceeds a certain level, then the price per kw-hr increases, increasing the complexity of the bill. For now, we will assume the lower tier rate applies since the use of a PV array would facilitate the probable application of the first tier. For the R.O.I. calculations performed in chapters 12, 13, and 14, we will assume the homeowner’s monthly electric usage is 1500kw-hrs/month, at a rate of 12.45 cents/kw-hr, which facilitates a monthly bill of $186.75 and the homeowner paid cash for all equipment, receiving no loans. It also assumes the homeowner has installed the PV array according to the standards issued by the FSEC. If the homeowner is connected to the electric utility, a customer service charge of $10 is assumed, which is the average for local utilities in Polk County, Florida.

In the next chapter, we will calculate the R.O.I. for application #1.

Chapter 12–R.O.I. Calculation for Application #1

For the application, which includes the PV array, large enough to generate all of the Homeowner’s electric needs, a battery bank and complete independence from the electric utility we have:

Total Cost of PV Equipment: $96,000.00

Total cost of Battery Bank: $9000.00

State Rebate: -$20,000.00

Federal Credit: -$31,500.00

Grand Total Investment: $53,500.00

Amount saved each month: $186.75

Number of years required to pay off investment:

[($53,500.00)/($186.75)]/(12) = 23.87 years*

* After the first ten years, it will be necessary to reinvest in the Battery Bank which is $9000.00, assuming its cost does not change. This increases the R.O.I.

* According to the FSEC, PV modules degrade at a rate of about 1% per year. Thus, after 20 years, theoretically, you have a reduced output of 20 %.

* The average manufacturer’s warranty is 23 years.

In the next chapter, we will calculate the R.O.I. for application #2.

Chapter 13–R.O.I. Calculation for Application #2

For the application, which includes the PV array, large enough to generate all the homeowner’s electric needs, a bidirectional meter and connection to the electric utility we have:

Total Cost of PV Equipment: $96,000.00

State Rebate: -$20,000.00

Federal Credit: -$28,800.00

Grand Total Investment: $47,200.00

Amount saved each month: $186.75-$10.00 = $176.75

Number of years required to pay off investment:

[($47,200.00)/($176.75)]/(12) = 22.25 years*

* According to the FSEC, PV modules degrade at a rate of about 1% per year. Thus, after 20 years, theoretically, you have a reduced output of 20 %.

* The average manufacturer’s warranty is 23 years.

* The $10 customer service cost will increase for certain, however the amount is unknown.

* It is true, there are “rollover kw-hr” credits in the homeowner’s utility account, as a result of generating more electricity than consumed, however, this is of no value to a customer whose utility is municipal owned. Therefore, it cannot be accounted for in the R.O.I. calculation. If the homeowner’s utility is investor owned, a small cash credit will be awarded at the end of each year. No utility was able to calculate that for me, however, we can estimate. If the array produces 1600 kw-hrs/month, this implies an extra 100 kw-hrs/month saved as credit or a total of 1200 kw-hrs/year. At 12.45 cents/kw-hr, the maximum yearly credit value is $149.40. It is very likely, at the end of the year, the electric utility will provide the homeowner with, no more than 70 cents on a dollar, which means, the actual yearly cash return will be about 70% of $149.40 or $104.58 per year. That amount will decrease every year because the PV modules will lose 1% of their output each year.

* If the Homeowner’s utility requires the purchase of additional homeowner’s Liability Insurance (i.e. > 10 kw system), specifically in the amount of $1,000,000, it will cost the average homeowner an additional $1000 per year. This is non-negotiable because the “Interconnect Agreement” requires it. In that case, the homeowner’s cost for the equipment increases by $1000 per year. This implies about $83/month as an additional cost for installing the equipment. Now, the amount saved each month is $186.75-$10.00-$83.00 = $93.75. Recalculating the R.O.I., we have: [($47,200.00)/($93.75)]/(12) = 41.96 years.

In the next chapter, we will calculate the R.O.I. for application #3.

Chapter 14–R.O.I. Calculation for Application #3

For the application, which includes the PV array, just large enough to generate 25% of the homeowners electric needs, a bidirectional meter and connection to the electric utility we have:

Total Cost of PV Equipment: $24,000.00

State Rebate: -$12,000.00

Federal Credit: -$7,200.00

Grand Total Investment: $4,800.00

Amount saved each month: ( 25% of $186.75 )= $46.69

Number of years required to pay off investment:

[($4,800.00)/($46.69)]/(12) = 8.57 years*

* The $10 customer service cost will increase for certain, however the amount is unknown.

* According to the FSEC, PV modules degrade at a rate of about 1% per year. Thus, after 20 years, theoretically, you have a reduced output of 20%.

Now that we have completed the R.O.I. calculations for each of the applications, the homeowner can consider which is the most practical. The next chapter will present some final comments concerning the evaluation of the three R.O.I. options.

To read chapters 1-4, see my post dated March 3, 2010; to read chapters 5-9, see my post dated March 8, 2010.