(Newswire.net — May 8, 2019) — Solar photovoltaic systems have become a cost-effective electricity source, and there are now many solar farms delivering electricity at a lower price than coal power stations. Solar power systems are also characterized by their ease of installation and maintenance, which makes them suitable for the rooftops of homes and businesses.
Since its creation in 2005, the Investment Tax Credit (ITC) for renewable energy has been a key incentive for solar power. In a few words, homeowners and businesses who deploy solar power systems can deduct 30 percent of their cost from federal taxes. This is essentially a 30 percent discount for all eligible solar power systems in the US.
The 30 percent federal tax credit will only be available until the end of 2019, and it will be reduced to 26 percent in 2020 and 22 percent in 2021. Only a 10 percent ITC will be available for businesses starting from 2022, and homeowners will no longer get the tax credit. Therefore, 2019 is an excellent chance to install a solar power system and get the full benefit.
Note that this article is informative. The services of a Certified Professional Accountant or Tax Advisor are recommended before claiming the federal tax credit for solar power.
Which Solar Power Systems are Eligible for the Tax Credit?
To be eligible for the 30 percent solar tax credit, the project installation must start during 2019. Completing the project the same year is not mandatory, as long as it is operational by the end of 2023. It is important to note there is no upper limit for the tax credit, which means it can benefit solar power installations of any scale.
Battery systems are promising enhancements for solar arrays, since they eliminate their main limitation – dependence on sunshine to deliver power. A battery system is also eligible for the tax credit, as long as it gets 75 percent of its charge from the photovoltaic array.
- A battery system that meets the minimum 75 percent charge requirement gets a corresponding 75 percent of the benefit – a 22.5 percent tax credit.
- On the other hand, a battery system that is fully charged with the solar array gets the complete 30 percent tax credit as well.
- For any charge percentage between 75 and 100 percent, the tax credit is calculated proportionally. For instance, getting 90 percent of the charge from a solar array results in a 27 percent tax credit.
The applications of batteries are still limited by their high price, but the International Renewable Energy Agency predicts a cost reduction of over 50 percent within the following decade. The most promising applications for batteries are found in homes and businesses with variable electricity prices throughout the day: energy can be stored for the hours with the highest electricity prices, maximizing the savings achieved.
How Much Can a Solar Power System Save?
In addition to the installed capacity, many factors influence the potential savings from a solar photovoltaic system. The dollar amount saved is determined by the local solar radiation rates and electricity prices. Solar radiation is normally measured in kilowatt-hours per square meter per day, or peak sun-hours per day.
- A solar power system getting 6 peak sun-hours per day will produce around 50 percent more energy than an identical installation getting 4 peak sun-hours per day.
- If two solar power systems have the same energy output, the savings are determined by local electricity rates. 500 kilowatt-hours of solar generation save $100 if the local electricity price is 20 cents/kWh, but only $60 with a price of 12 cents/kWh.
The feasibility of a solar power project is also influenced by site conditions, such as the area available for photovoltaic panels, and the shadows from nearby buildings and terrain features. To ensure safe operation, the installation should also be compliant with the National Electrical Code and any applicable building codes. Professional electrical engineering services are strongly recommended to meet these requirements.
Concluding Remarks
Solar power systems are becoming more affordable each year, but the 30 percent federal tax credit provides a great chance to reduce the upfront cost. Once the benefit expires, significant price reductions will be necessary to reach the same net cost.
Note that the federal tax credit can only be claimed if a solar power system is owned directly. This applies for installations that are paid in cash, but also for those financed with a loan. However, leased solar arrays are not eligible because they are not owned by the user. The same applies for Power Purchase Agreements, since the user is paying for the electricity produced and not the solar array itself.