Thursday, November 12, 2015

Why Residential Solar Is Having A Powerful Impact

Shared BY: http://www.cit.com
By Brian Sodoma

For decades, home solar systems were a great idea that fell short of economic viability, an indulgence only a select few could afford. But today, the U.S. residential solar market is enjoying unprecedented growth. It saw a second straight quarter of record expansion in Q2 2015, according to the U.S. Solar Market Insight report released in September by the Solar Energy Industries Association (SEIA).
The report highlights several significant residential solar milestones. Residential installations in the second quarter topped the first quarter by 6 percent and were 70 percent higher than the second quarter of 2014. California installations account for 49 percent of the residential solar power market, but more states are entering the field. Ten states each installed more than 10 megawatts (MW) of residential solar, a significant milestone, according to the report. (On average, 1 MW of solar power produces enough energy for 164 U.S. homes.)
Here are three key factors driving the residential solar power boom.

1. Cost Control, Incentives

The declining cost of photovoltaic (PV) panels is a major contributor to the solar boom. Since 1998, residential system prices have dropped from $12 per watt to $4 per watt and continue to fall, according to the U.S. Department of Energy.
“On the cost side, solar panels, not unlike flat-panel TVs, have become commoditized and their production costs have come down,” said Mike Lorusso, group head and managing director of CIT Energy Finance, which finances energy projects across the United States.
The lower costs come paired with federal, state and utility incentive programs. The most popular and well-known incentive is the 30 percent federal tax credit, which is set to step down to 10 percent for third-party owned systems and expire for customer-owned systems at the end of 2016; it had been renewed by Congress in 2008, and solar industry leaders are lobbying for another multi-year extension.
The majority of utilities also use “net metering,” which allows residential users to sell back excess solar power produced during peak production times, and use energy from the grid during down times. In addition, Renewable Energy Certificates allow utilities in certain states to buy credits from solar customers to help them meet renewable energy portfolio requirements.
Such incentives, in addition to overall lower system costs, have made the solar proposition more attractive to the American homeowner.


2. Financial Innovation

Even with these incentives, most residential system purchases still range between $20,000 and $30,000, making for a long payback period of usually seven to eight years.
In the past five years, however, financing options have reduced upfront costs and been a huge driver for residential solar power growth. One of the primary factors accelerating the uptake of home solar overall is savings relative to conventional utility bills. Leases, power purchase agreements (PPAs) and loans offer immediate savings to those who sign on for what are commonly 15- to 20-year financings, with no out-of-pocket costs.
With leases and PPAs, the installer holds ownership of the solar system and charges the host rent or volumetric payments for energy produced monthly, usually at a discount of 5 to 25 percent or more from current utility rates, according to Rhys Marsh, director, CIT Energy Finance. The system owner, not the homeowner, is also responsible for maintenance. With a loan, the homeowner owns the system and makes monthly payments, also generally at a discount to utility rates, and can contract with a network of providers if repairs are needed.
“It’s one of those situations that builds momentum. Once you see a few people with solar, or neighbors getting it, you can really see accelerated growth,” Lorusso added.
With leases and PPAs, the owner of the system uses the 30 percent federal tax credit and other available incentives, instead of the homeowner. “While the company as system owner does take the tax credits, it allows the solar provider to offer a lower rate to customers on the financing contract,” Marsh explained. Conversely, with loans, the homeowner takes the credit and can pay down the debt related to the system.

3. Disruption, Storage

California and Nevada take the No. 1 and 3 spots for installations in the second quarter of 2015, while eastern states North Carolina, New York and Massachusetts make up the second, fourth and fifth spots. The growth on the East Coast can be attributed to consumers seeking alternatives to high utility costs, especially in the cases of Massachusetts and New York, Marsh said.
Arizona, whose ranking slipped a spot from fifth to sixth in 2015, may have experienced a decline because of the state’s utilities tacking on extra fees for those with solar systems. Utilities contend that there are fixed costs associated with solar owners accessing the grid both at night and when solar customers sell back their power during peak sun times over the system’s distribution lines. It’s a price that traditional electric users pay, and solar customers should too, they say, though solar companies contend that such analyses ignore other cost benefits that solar can offer the grid as a whole.
“It’s an example of how policy really can impact outcomes,” Marsh said. But he also warned utilities of an “unintended consequence.”
“Artificially slowing the growth of solar doesn’t reduce demand for solar. Disruptive technologies like battery storage can release pent-up demand by reducing solar customers’ need for net metering and the grid,” he said. Some people with solar could disconnect from the grid entirely if the fixed fee charged by utilities is higher than the cost of installing battery storage units, he added.
Battery storage units like Tesla’s Powerwall currently sell for roughly $7,000 fully installed, which makes the grid the more economic “storage” option for most American solar households. But both Marsh and Lorusso believe growth in the market, including new supply from Tesla’s Gigafactory 1 in Nevada, will lead to a drop in the Powerwall’s price. They estimate a decline of anywhere from 30 to 50 percent in the next five years.
SEIA’s Solar Market Insight report forecasts more record residential growth for the coming year. Even with the potentially moderating effects of reduced incentives or new fees, solar still broadly offers customers cost savings and remains the most economically viable of residential renewable energy sources out there today, according to Lorusso.
“In theory, yes, you can get power from a wave or wind, but it all comes down to economics, and those technologies are just not practical at small scale,” he said.

This content first ran on CIT Voice on Forbes.
Brian Sodoma is a Las Vegas–based freelance writer with a focus on health, business and real estate. He has written for several publications, including Vegas Seven, Las Vegas Review and Vegas Inc.

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