Over the past two decades, solar panels have evolved from an experimental technology to a competitive electricity source for buildings. They typically achieve a payback period of 4 to 8 years when used in homes and businesses, while lasting over 20 years. In other words, their energy savings in the long run are much higher than their upfront cost.
The growth of the US solar industry has been possible in great part thanks to the Investment Tax Credit for renewable energy sources. If you purchase a solar power system, you can deduct 30% of its cost from your federal taxes. This applies for both homeowners and businesses, and it is essentially a 30% discount for solar power.
Unfortunately, the tax incentive for solar power ends in 2019, and it will then be reduced gradually over a three-year period. The benefit is reduced to 26% in 2020 and 21% in 2021. The benefit will expire for home solar systems in 2022, and only a 10% tax credit will remain for businesses.
How Does the Solar Tax Credit Work?
A solar power system is eligible for the 30% tax credit if the installation is started before the end of 2019. Also, if you cannot deduct the full tax benefit from your next payment, the difference can be carried over to the next year.
States, municipalities and electric companies often have their own incentive programs. Cash rebates for solar power are common, and they are normally calculated based on the size of the system. For example, if the rebate is $300 per kilowatt, and your solar power system has 6kW of capacity, you get $1,800 upfront. When rebates are available, the tax credit is calculated with the net cost after subtracting the rebate.
It is important to note that only the legal owner of a solar power system can claim the tax credit. This means you must purchase the solar panel system to be eligible; if you lease solar panels, the provider gets the tax benefit.
Note that you can purchase solar panels with loaned capital, and still claim the tax credit. In this case you are the legal owner, even when the project with completed with money from a bank. The advantage of this approach is being able to pay the loan using the tax credit and energy savings – the net cost out of your pocket is zero.
Combining Solar Power with Energy Efficiency Measures
A solar power system can reduce the electricity bills of a home or business, but even better results are possible if energy is used more efficiently. If the electricity consumption of a building is reduced before installing solar panels, they can cover a larger fraction of the energy needs.
Energy efficiency measures also have the advantage of saving energy at any time, while solar panels only produce electricity during the day. While it is possible to add batteries to a solar PV system to store energy for the night, the return on investment is normally higher if those funds are used for energy efficiency.
- Electrical engineers often recommend upgrading to LED lighting, which normally achieves a payback period of less than three years. In areas where the lights are on 24/7, an LED upgrade may even achieve a payback period of less than one year.
- Space heating and air conditioning are normally the largest energy expenses in homes and commercial buildings. Upgrading theses systems is more expensive than switching to LED lighting, and the payback period is typically longer. However, a well-designed HVAC upgrade can drastically cut energy bills.
In general, a residential or commercial building can reduce its energy bills significantly with a combination of solar power, LED lighting, and efficient heating and cooling systems. 2019 is a great chance to go solar, since a 30% tax credit can be claimed from the federal government.
Michael Tobias, PE, LEED AP, CEM.
Michael Tobias is the founder and principal of Chicago Engineers, an Inc 5000 Fastest Growing Company in America. He leads a team of 30+ mechanical, electrical, plumbing, and fire protection engineers from the company headquarters in New York City; and has led over 1,000 projects in Chicago, New York, New Jersey, Pennsylvania, Connecticut, Florida, Maryland and California, as well as Singapore and Malaysia.
He is a graduate of Georgia Tech class of 2004, with a Bachelors of Mechanical Engineering with honors. His innovative approach to MEP engineering comes from graduating GE’s Engineering Leadership Program, where he designed wind turbines and biofuel power plant engines. Michael’s passion within design is energy efficiency and green technology. His focus is on integrating MEP/FP engineering design with architecture to create as seamless a system as possible. He is an advocate for green design and technologies, and has designed to both Passive House and Net 0 energy standards. He has spoken numerous times at the AIA, been featured in Georgia Tech’s Alumni magazine, and is an engineering expert on Discovery Channel’s show “Impossible Engineering”.
A New York native, Michael grew up in Rockville Centre, LI. He currently lives in Brooklyn with his wife and children. Outside of work, he enjoys exploring the outdoors, whether it’s on a bike, a pair of skis, or a surfboard. He is passionate about growing personally and professionally every day, and about doing innovative work in the engineering world to help disrupt the traditional construction industry.