Alternative Energy Incentives
Even with our preferred pricing, solar systems are expensive, and the payback period is long. But federal, state and local incentives are bringing down costs and improving payback options. RSB Funds is helping nonprofits realize these incentives and take advantage of innovative financing models that make it possible for nonprofits to obtain a solar system without any investment.
Federal and local governments offer incentives to encourage the adoption of solar power include:
- The federal business energy investment tax credit (ITC) for solar is equal to 30% of the net system cost. There is no maximum credit. Eligible systems include equipment that uses solar energy to generate electricity, to heat or cool, or to provide hot water for use in a structure. Systems placed in service on or before December 31, 2016 are eligible for the ITC.
- Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. A number of renewable energy technologies are classified as five-year property including a variety of solar electric and solar thermal technologies. This allows for the deduction of 100% of the solar panels cost from taxable income over a five year period, resulting in an incentive of approximately 35% of the system cost.
- To benefit from both federal incentive programs (ITC & MACRS), the solar system owner must be a tax payer, leaving nonprofits out of the ability to claim both of these incentives. However, state incentives are available to nonprofits, and can provide a greater benefit than what is available to for-profit organizations.
- Performance Based Incentives (PBI) pay out an incentive, based on actual kWh (kilowatt-hour ) production, over a period of time. PBI payments are provided on a dollar per kilowatt-hour basis. PBI’s vary from state to state and by utility within a given state. For example, in Pasadena, California, Pasadena Water and Power provides PBI’s of $0.302/kWh for all commercial installations and $0.393/kWh for government and nonprofit installations. These incentives can be substantial, amounting to 20% or more of the total installation cost over the period of the incentive.
- Some utilities offer an up-front incentive known as an expected performance-based buydowns (EPBB). The EPBB is an up-front incentive payment where the incentive amount is adjusted to reflect verifiable system capacity as well as the effect of system orientation and shading on energy production. In most cases when an EPBB is paid a PBI is not also available. EPBB’s are more common in connection with smaller systems.
Every nonprofit organization must evaluate whether the state incentives alone are sufficient to justify the installation of a solar system. The answer is typically no. While they greatly reduce the cost and payback period, without the benefit of the federal incentives, it is still many years before any financial benefit is realized.
To address the lack of applicability of federal solar incentives to nonprofits, nonprofit and for-profit organizations are joining forces to bring the benefits of solar energy to the nonprofit sector. Learn more about how RSBF can help your organization benefit by clicking here.