The economics of solar conversion are driven by government incentives.
While the price of modules keeps dropping and reaching parity with grid electricity so that incentives will not
matter much longer, the fact is that conversion is still subsidized, and that we can calculate exactly how much less a US system will save today as opposed to next year.
The IRS just released new guidance for the timing of solar projects to qualify for the tax incentives.
Notice 2018-59 stipulates that the ITC can be claimed when 1) significant work has begun, or 2) the “five percent safe harbor test” is passed (customer paid 5% or more of the total cost of the installed system in the year construction began). Projects must be completed by end of 2023.
There are two major tax incentives: The Investment Tax Credit (ITC), and the accelerated depreciation (MACRS); combined they translate into effective subsidization of more than half of a system whether it costs $500,000 or $50,000,0000 (up to 30% of Adjusted Taxable Income).
The 30% ITC is good through 2019 and begins phasing down in 2020, sliding to 10% after 2023. The MACRS bonus of 100 % in the first year is good until Dec 2022, then phases out over the next four years:
In other words, the maximum cumulative incentives will be achieved by conversions undertaken this year and next, 2018 and 2019.
With the expected drop in price of Chinese modules due to bottom out in late 2018, the best window for acquisition is between now and December.
Interestingly for PPA’s, the financials are different, but a convergence of factors make timing the same. The rise of US interest rates, the specter of trade wars and recession, and the Chinese module glut define a similar window of savings opportunity when the kWh basis will be more elastic for a few months before climbing again.
In the end, converting to solar is the smart thing to do, the right thing to do regardless of the current savings opportunity. The conventional utilities create CO2 emissions with all the electricity they produce, 0.52 lbs. for each kWh in California, so even if there were zero savings, it would still be the right thing to do.
But for now, and for the next 18 months, this is the last time when over half of a solar system will be paid for by someone else.
Consult your tax advisor to make sure this is the best time to take advantage of the 1:1 credit, then call Staten to get an accurate financial analysis.
The time has come.
PS: We do not recommend this, but it looks like IRS Notice 2018-59 created a situation which gives C&I customers the ability to start a project before 2019, wait for solar tariffs to phase out in 2021, complete the work in the next two years and still get the benefit of the subsidy tin 2018 or 2019….