Solar Investment Tax Credit (ITC)

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Solar Investment Tax Credit (ITC)

The Federal Investment Tax Credit (ITC), also known as the Solar Investment Tax Credit, is a tax credit that homeowners are eligible for when they install a solar system.  If a homeowner installs their new solar system in 2019, they can claim a 30% tax credit on their 2019 tax return.  For example, if your total solar system cost is $10,000 (including equipment, labor, permits, etc…) then you can claim a $3,000 tax credit in 2019.  While you still need to pay your installer $10,000, you will owe the federal government $3,000 less in taxes for 2019.

Does Everyone Qualify?

If you did not purchase your solar system outright, perhaps because you chose to go solar with a lease or a power purchase agreement (PPA), then you will not be eligible for the tax credit. Typically, in a lease, or a PPA, the solar system is owned by someone other than the homeowner and that organization will get the benefit of claiming the tax credit. As compensation, the homeowner often receives a discounted price.

Being a tax credit, people who owe no federal taxes unfortunately are not able to make use of the tax credit benefit. In that case a PPA may be a better option. Or, if you can generate taxable income in the year you go solar (perhaps by selling some appreciated assets or converting a Traditional IRA to a Roth IRA) then you might make use of the tax credit.

As with all tax matters, please consult your tax advisor!

Keep in mind that if you don’t have enough tax liability to use all of the tax credit in one year you can roll it over to future years for as long as the tax credit is in effect.

Is the ITC Phasing Out?

As of January 1, 2020, the tax credit will be reduced to 26%, then on January 1, 2021 it is reduced to 22%. Any residential projects started on January 1, 2022 or later will not receive a tax credit (commercial projects still receive 10%).

A residential solar installation must be placed into service by the end of 2019 to receive the 30% tax credit. This typically means that you need Permission to Operation (PTO) from the utility before the end of the year. As on all tax matters, please consult your tax advisor.

Don’t wait too long to get your project on your installer’s calendar – their workload is likely to increase as these deadlines approach!

Click here for more details on the Solar ITC.

Will the ITC Get Extended?

While it is true that the ITC has been extended several times in the past, whether it will be extended again is anyone’s guess.

Has the ITC been effective?

According to the Solar Energy Industries Association, since the ITC was enacted, solar deployment has had a 59% compound annual growth rate. Over 60 GW of solar PV has been installed in the US, enough to power 11 million homes, and over 250,000 people now work in the solar industry. This boost in affordability from the ITC as spurred interest in the technology which in turn has made a market that is competitive and innovative.

As with all tax matters, please consult your tax advisor!

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“Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid” according to the Solar Energy Industries Association (SEIA). Net Metering is short for Net Energy Metering (NEM).

NEM basics:

  • During the day, your solar system generates energy.
  • When you’re away, most of your solar energy will probably go to the grid.
  • When you’re home, you may use some or all of your solar energy, and you may need additional energy from the grid.
  • During the night, all the energy you use will come from the grid. (For people who add batteries to their system, the batteries can supply a portion of the nighttime energy requirement. Check out this article to learn about adding batteries.)
  • You’re paid for your solar energy at close to the same rate as you pay for grid energy.

When you use more energy than you generate during a month (called a “billing cycle”), your PG&E meter tracks how much you used from the grid. When you generate more energy than you use during a month, your meter tracks how much you sent to the grid. At the end of the billing cycle, PG&E lets you know how much you owe, or how much PG&E owes you. For example, if you use 400 kilowatt-hours (“kWh” – the unit of energy PG&E uses to bill you) from the grid during a month, and you send 350 kWh of solar to the grid during that same month, you’d owe PG&E for the “net” difference of 50 kWh. Because the monthly amounts are often small and because of seasonal variations, you’ll either pay or be paid just once per year, called the true-up. This happens approximately on the anniversary of your solar “interconnection” date. PG&E has an easy short video about NEM concepts on its Understanding NEM page.

The following image showing typical patterns of energy consumption and generation appears on Wikipedia.

The concepts here are good, however there are some devils in the details. There are rate plans and tiers, territories, and time of use charges, and the “minimum bill.” Let’s take these in order.

Rate Plans – Baselines and Tiers and Time of Use (TOU)

Rate Plans are also known as Rate Schedules, and they determine how much you pay for energy based on how much and/or when you consume it during the billing cycle.

As a rate payer, you have some choice on which rate plan you adopt. E-1 (or E1) is the typical non-solar residential rate schedule. Under this plan, you pay a certain amount for each kWh you use up to a “baseline” number. The baseline varies with the season and where you live (the PG&E territory you live in, usually either “t” or “x” for the bay area) and ranges from about 210 to about 330 kWh/month. Once you’ve used more than your baseline (also known as Tier 1), you’re charged at a higher rate for the next 210 or 330 kWh or whatever amount your baseline was. This is called Tier 2. Everything above Tier 2 is Tier 3 and is billed at a yet higher amount. For E-1, Tier 1 is currently about $.18/kWh, Tier 2 is about $.24/kWh, Tier 3 is about $.40/kWh. For example, if your baseline quantity is 210 kWh/month and you use a total of 600 kWh/month, you’d be charged $.18/kWh for the first 210 kWh ($37.80) plus $.24/kWh for the next 210 ($50.40) plus $.40/kWh for the remaining 180 kWh ($72) for a total of $160.20. You can easily find your average cost per kWh by diving your total dollars by total kWh usage: $160.20 / 600 kWh = $.26/kWh.

Some rate plans include a Time of Use (TOU) feature. This means that you’re charged most if you’re using energy during “peak” hours and you’re charged least during “off peak” hours. With some plans, there are also “partial peak” hours. For the common residential TOU plan E-TOU-A, rates range from about $.15/kWh for off-peak to about $.40/kWh for peak hours. E-TOU-A peak hours are 3pm to 8pm Monday – Friday (except holidays). All other times are off peak. E-TOU-A also has Tiers: the $.15/kWh above is for baseline off-peak, the $.40/kWh is for above-baseline peak hours. Some rate plans, like E-TOU-A have tiers and TOU, some have only tiers, some only TOU. Because there has been significant overlap between when the sun is up and peak hours, many solar customers have selected a TOU plan. And as of January 2017 all PG&E solar customers must be on a TOU plan.

The images below show peaks and tiers for the E-TOU-A rate plan, for summer and winter. The two E-TOU-A tiers are named with and without “baseline credit” but the effect is the same as a lower per-kWh charge for a baseline quantity, and a higher per-kWh charge for additional usage. These charts, and much more information about TOU plans appear at on their original PG&E Explore the PG&E Time-of-Use plans page.

Full details on all rate plans, tiers and TOU rates ​are beyond the scope of this article. It gets complicated! 

SunWork can help you think through rate plan choices. Note that from time to time, PG&E changes per-kWh prices for all rate plans and tiers, and for which hours are considered peak, partial-peak and off-peak. One of the many benefits of going solar is you know in advance what you’ll be paying for the bulk of the electricity you use over the next 25 years.

Minimum Bill – $10 per Month

The minimum bill is how PG&E has charged solar customers for using their wires and infrastructure. The minimum bill means all solar customers pay up to about $10/month for “transmission and distribution” fees, meaning substations and transformers and high-voltage pylons, the wires, the “line losses,” the labor and maintenance and overhead. If you use $10 per month or more of grid electricity, you won’t be charged the minimum bill. Because the minimum bill cannot be offset with solar, most people choose to install enough solar to cover all but about $10/month worth of electricity from the utility. This is typically the economically optimal target unless you plan on adding electrical loads in the future such as an Electric Vehicle.

For those on PG&E’s CARE low income rate, the minimum bill is roughly $5 per month.

Final Points

PG&E’s rate plans and net metering policies can be confusing, but with California’s relatively high electricity prices (nearly double the US average) and strong commitment to clean energy, rooftop solar is an excellent financial as well as environmental investment.

SunWork can help provide the information you need to assess your home for solar.

Here is a link for additional information on tips and resources to consider when going solar.

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Community Choice Energy (CCE) programs are rolling out throughout California, which in the Bay Area will replace PG&E as the supplier of electricity for most residence and business. PG&E is still responsible for transmission, distribution and billing, however your CCE, a Joint Powers Authority formed by local cities and/or the county, is responsible for purchasing the electricity. CCE’s provide for higher levels of renewable energy as a default versus PG&E and at slightly lower prices.
Rollout to Solar Homeowners driven by True-up Date

Solar homeowners get a letter that gives details about special timing for enrollment.  The timing is driven by your true-up date, and its goals are to make sure that you don’t lose any credit you may have banked with PG&E and that you don’t have to pay a big true-up bill at a time of the annual cycle when you weren’t expecting to.

For solar homeowners, CCE’s net metering programs are typically better than PG&E’s, especially if your system produces more kWh over the year than you consume.  Overproducing systems are paid full retail prices for the electricity portion of the overproduction, not PG&E’s ~2.7  cents/kWh “generation rate” (also called net surplus compensation rate) as of July 2017.  Most CCE’s also give a higher credit for the net energy you send back to the grid in any given month, typically $.01 per kilowatt-hour.

Another plus: CCEs allow solar customers to purchase electricity from 100% renewable energy sources for  electricity that you don’t produce yourself.  PG&E has a 100% renewable program, however solar customers aren’t eligible for it.  PG&E’s renewable energy costs about 2 cents/kWh more than their standard electricity offering, but the CCE Renewable Energy programs cost less.  Also, CCE’s standard electricity offerings are slightly less expensive than PG&E’s standard offerings and the rate options mirror PG&E’s.

Community Choice Energy Agencies:

MCE Clean Energy (MCE) –  this first CCE program in California covers Marin County and in 2018, rolled out to almost all of Contra Costa County.

Sonoma Clean Power (SCP) was the second CCE program in California. SCP just completed their third and final “Drive EV” program in November 2018.

CleanPowerSF started serving San Francisco businesses and residents in 2016.

Silicon Valley Clean Energy (SVCE) was founded in 2016, is based in Sunnyvale and serves 13 Santa Clara County communities.

Peninsula Clean Energy (PCE) launched in 2017 and is San Mateo County’s CCE program. PCE is currently offering a $1000 rebate on EVs. Details are here.

East Bay Community Energy (EBCE) is coming to almost all of Alameda County residences i Nov 2018 (commercial accounts started a few months ago), and will be the largest CCE program in California. Alameda county cities signing up for EBCE include Albany, Berkeley, Dublin, Emeryville, Fremont, Hayward, Livermore, Oakland, Piedmont, San Leandro, and Union City. The East Bay Express published an article about EBCE in July 2018.

San Jose Clean Energy is expected to launch in February 2019 for San Jose residential and commercial accounts.

Monterey Bay Community Power (MBCP) began providing lower-cost, carbon-free electricity during 2018 to Santa Cruz, San Benito, and Monterey Counties.

In late 2018, arrangements were worked out for the cities of San Luis Obispo and Morro Bay  (both in San Luis Obispo County) to join with Monterey Bay Community Power.  These two cities, and perhaps others that may join with MBCP as well, will begin receiving carbon-free electricity starting in January of 2020. 

Community Choice Energy Resources:

CalCCA represents CCE providers to the California legislature and regulatory agencies.

The Local Clean Energy Alliance works at the Bay Area, state and national level to promote clean energy and “local power” in the sense of democracy as well as energy. LCEA Coordinator Al Weinrub edited the new book Energy Democracy: Advancing Equity in Clean Energy Solutions.

LEAN Energy works to accelerate expansion and success of CCE nationwide.

Clean Power Exchange (CPX) was started to help form Sonoma Clean Power, the second CCE program in California. It now works to expand CCE throughout California and beyond. CPX has a statewide interactive CCE map.

The Clean Coalition helps CCE providers navigate legal, regulatory and financial issues for successful energy procurement, risk management and managing relationships with utilities and regulators.

Wikipedia provides a summary of national as well as California CCE programs here.

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The California’s Solar Rights Act was passed in 1978 and it allows Home Owner Associations (HOAs) to impose “reasonable restrictions” on solar systems, however, it prevents HOAs from disallowing solar on homes.

In 2014 the act was amended to define the nature of the restrictions that an HOA can impose. Such restrictions can’t:

  • add more than $1,000 to the cost of a system, or
  • decrease the efficiency of a system by more than 10%

Additionally, HOAs can’t delay a decision on a solar installation by more than 45 days. More information on the Solar Rights Act can be found here.

SunWork installs solar on home that are covered by an HOA. Most concerns stem from misunderstandings about where solar panels will be placed, what a solar system will look like, etc. Once these issues are explained, HOAs are generally much more willing to speed the approval process for solar.

If you have any questions about solar for your home, don’t hesitate to contact us.

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Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid” according to the Solar Energy Industries Association (SEIA). Net Metering is short for Net Energy Metering (NEM). NEM basics: During the day, your solar system generates energy. When you’re away, most of your solar energy

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Their article and podcast provide fun and detailed insights into the volunteer experience.

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Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid” according to the Solar Energy Industries Association (SEIA). Net Metering is short for Net Energy Metering (NEM). NEM basics: During the day, your solar system generates energy. When you’re away, most of your solar energy

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