Below are the most common subsidies for solar generating facilities for residential and small commercial arrays. Federal tax credits of 30%, combined with a grant of 25% and a net metering subsidy of $.07 per kWh add up to about 85% of the cost of a solar array being funded from sources other than the owner if the project is eligible for the two subsidies. When evaluating the costs and benefits of a PV generator, doing the research up front to determine the eligibility and applicability of a site will pay off in the long run.
Federal Tax Credits: Solar Energy Systems
Established by The Energy Policy Act of 2005, the federal tax credit for residential energy property initially applied to solar-electric systems, solar water heating systems and fuel cells. The Energy Improvement and Extension Act of 2008 extended the tax credit to small wind-energy systems and geothermal heat pumps, effective January 1, 2008. Other key revisions included an eight-year extension of the credit to December 31, 2016; the ability to take the credit against the alternative minimum tax; and the removal of the $2,000 credit limit for solar-electric systems beginning in 2009. The credit was further enhanced in February 2009 by The American Recovery and Reinvestment Act of 2009, which removed the maximum credit amount for all eligible technologies (except fuel cells) placed in service after 2008.
- Tax credit in effect through 2021. 30% of the cost (including installation costs), with no upper limit (Credit decreases to 26% for tax year 2020; drops to 22% for tax year 2021)
- Must be installed in a home you own and use as a residence (no rentals, but second homes qualify) between January 1, 2009 and December 31, 2021.
- Photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirement.
The federal business energy investment tax credit available under 26 USC § 48 was expanded significantly by the Energy Improvement and Extension Act of 2008 (H.R. 1424), enacted in October 2008. This law extended the duration — by eight years — of the existing credits for solar energy, fuel cells and microturbines; increased the credit amount for fuel cells; established new credits for small wind-energy systems, geothermal heat pumps, and combined heat and power (CHP) systems; allowed utilities to use the credits; and allowed taxpayers to take the credit against the alternative minimum tax (AMT), subject to certain limitations. The credit was further expanded by the American Recovery and Reinvestment Act of 2009, enacted in February 2009. The credit was most recently amended by The Consolidated Appropriations Act of 2015, which extended the expiration date, but also introduced a step-down in the value of the credit for solar technologies and PTC-eligible wind.
Tax credit in effect through 2021. 30% of the cost (including installation costs), with no upper limit (Credit decreases to 26% for tax year 2020; drops to 22% for tax year 2021)
Rural Energy for America Program (REAP) Grant
The Rural Energy for America Program provides financial assistance to agricultural producers and rural small businesses in America to purchase, install, and construct renewable energy systems, make energy efficiency improvements to non-residential buildings and facilities, use renewable technologies that reduce energy consumption, and participate in energy audits and renewable energy development assistance.
Renewable energy projects for the Renewable Energy Systems and Energy Efficiency Improvement Guaranteed Loan and Grant Program include wind, solar, biomass and geothermal, and hydrogen derived from biomass or water using wind, solar, or geothermal energy sources. These grants are limited to 25% of a proposed project’s cost, and a loan guarantee may not exceed $25 million
New Clean Renewable Energy Bonds (CREBS)
New Clean Renewable Energy Bonds are one of several types of tax credit bonds authorized under IRC Section 54A, that allow a credit to investors that hold such bond on one or more of the quarterly credit allowance dates. New CREBs must comply with the requirements of IRC Section 54C.
Section 54C authorized $2.4 billion volume cap for New CREBs with no more than $800 million of the $2.4 billion total volume cap allocated to qualified projects owned by public power providers, governmental bodies, and cooperative electric companies. The allocations awarded for projects owned by public power providers and governmental bodies each met the $800 million statutory allocation limit. However, the allocations awarded for projects owned by cooperative electric companies did not reach the $800 million limit.
A net metering interconnection to the local distribution system (“grid”) allows an eligible, private solar net metering customer (“generator”) to consume electricity generated by a solar array or, if the generator produces more than the customer can consume at any one time, deliver that electricity to the grid in exchange for kWh credit with a value of the kWh charge of that cooperative. The value of that credit varies from utility to utility, but is generally in the range of 10 cents per kWh in western Kentucky.
A huge benefit to the consumer is if the generator is unable to generate enough electricity to cover their load, the utility provides the difference. In the case of solar generation, the electricity production only occurs when the sunshine is intense enough to elicit the flow of electrons.
Electric cooperatives are not for profit utilities that construct and maintain generation, transmission and electric distribution facilities commonly referred to as a grid. The cost of these facilities are fixed and the maintenance must be done no matter how much electricity is produced or purchased.
The variable cost to produce electricity is different for each power plant and can even change season to season. Electricity can also be purchased from the market when the cost to purchase is less than it costs to generate. Big Rivers commonly purchases energy from the Midcontinent Independent System Operator (“MISO”) (https://www.misoenergy.org/AboutUs/Pages/FactSheet.aspx), which is the electricity market in this part of the country.
The average price for on-peak electricity from MISO in 2016 was $.0337 per kWh at the Indiana Hub and represents the market value of electricity in the region. If the value of capacity and transmission and distribution losses are added, the cost of a delivered kWh is about $.0356. Big Rivers produces electricity at a lower cost than the market price most of the time, but when the market price is very low, purchasing the electricity is a cost-saving option.
Between the retail credit of about $.10 and the on-peak purchase price of $.036 is a subsidy paid for by the retail members of the cooperative, since electricity is effectively being purchased at $.10 per kWh that could be purchased or produced at less than $.036.
Is this a large subsidy?
For a 10 kW system, which would be expected to produce about 14,000 kWh annually, the subsidy of about $.064 per kWh would amount to about $900 per year.
Who pays this cost?
As not for profit electric cooperatives, the entire cost of the subsidy is by definition spread among the other member customers of the cooperative.