We often get asked, “when is the best time to go solar?” Our answer is always a resounding “now!”
For the planet, there has never been a bad time to go solar — with the carbon crisis we’re facing, our planet needs more renewables, and fast.
For the individual though, there is currently a powerful incentive to move to solar before the end of the year. And the opportunities might be even bigger than you think.
Today, new solar owners are eligible for a federal tax credit of 30% of a project’s cost. That means a new solar owner can deduct 30% of the total project expense off of their tax bill immediately. Depending on the project’s size and a person’s tax liability, a smart solar owner can get their tax bill down to almost nothing. In fact, if your tax liability is too small to use the whole 30% credit by the end of the project’s first year, the remaining federal credit can be transferred forward for up to 20 years.
This solar Investment Tax Credit (ITC) program has been extremely effective at encouraging the deployment of renewables in Vermont and across the country. However, the program’s incentives are about to decrease dramatically. The first reduction of the ITC begins on January 1, 2020. The current solar tax credit of 30% will drop to 26% at the end of this year, then to 22% for projects beginning in 2021, and finally down to 0% come 2022.
These solar tax incentives completely disappear in two years, so a smart homeowner or investor needs to act now to fully realize the potential of a solar investment.
While these savings apply to a simple home solar array, there is currently an opportunity for almost any Vermonter to take advantage of these savings at a much larger scale.
At AllEarth Renewables, we have pioneered an approach we call “Solar Business in a Box.” The approach is actually quite simple, and it greatly expands the opportunities for savings for any Vermonter who pays taxes.
The process begins with the establishment of a Limited Liability Company (LLC), a straightforward and inexpensive process. The LLC is specific to the solar project and functions as a basket, holding all of the project’s assets, liabilities, and costs. Additionally, the LLC establishes a liability barrier between your personal assets and the solar project, helping to mitigate risk in the event of any litigation or other issues.
This LLC, or “Solar Business in a Box,” creates the vehicle to not only realize tax credit savings but also create long-term revenue. Here’s how it works: Vermont’s current solar permitting structure allows for inexpensive and streamlined permitting for projects up to the 15kW AC net-metering cap. For AllEarth Renewables, this has traditionally meant a three-solar-tracker array. However, any type of array up to the 15kW cap qualifies.
Power from this array is monetized through a Power Purchase Agreement (PPA). The project will be interconnected to Vermont’s distribution grid through the state’s net-metering program. Power generated by the project can be sent to any other customer, or “off taker,” in the utility’s service area. The PPA establishes a business relationship between the project LLC and the off takers, who pay you for their power usage, providing you with monthly revenue. Typically, the PPA sells solar power to the off taker at a 5-10% discount from their previous electric bill. The investment return is significant. A project developed in this manner can realize the owner a 15-40% ROI over a 20-year period!
As an additional incentive to act now, in Vermont, there is an additional 7.2% tax credit for businesses, such as LLCs. A business can expense 85% of the cost of a solar system over five years. If the system is installed in 2019, you can take 100% Bonus Depreciation and apply all the expense to this year’s taxes. Next year, though, the Bonus Depreciation drops to 67%, and in 2021 it goes down to 33%.
When the federal and state tax credits and savings are combined, your first year out-of-packet cash is usually reduced to about 50% of the total solar system cost.
Financing a project this size may seem elusive to many Vermonters, but the truth is it has never been easier for a Vermonter to finance a solar installation. VSECU is currently offering no-money-down full solar loans for projects up to 15kW. Through PPAs you can begin immediately generating monthly income above the costs of loan payments. Over time, the high return on investment is a rate that any large-scale investor would be envious of.
Opportunities are rare for low-risk, good return, and socially responsible investments. However, owning a solar project as a financial investment offers the ability to diversify your financial portfolio to include tangible, real, high-value assets, lower your tax burden, and reduce carbon emissions by supporting greater renewable energy penetration.
We encourage you to think big. The planet demands it. “Solar Business in a Box” might just be the ideal approach for you. Please do reach out to us at AllEarth. We’d love to talk further about helping you making your dreams of owning your own solar business a reality!
David Blittersdorf is an entrepreneur and engineer from Vermont with nearly four decades of experience as an innovative leader in the wind and solar energy industry. David founded NRG Systems in 1982, and AllEarth Renewables in 2004. AllEarth Renewables is dedicated to bringing clean, renewable energy to businesses, farms, municipalities and homeowners to help lessen our nation’s dependence on fossil fuels and reduce greenhouse gas emissions.