.:FINANCIAL INCENTIVES AND TAX CREDITS

As a result of Global Warming, the recent push for renewable energy has created very attractive tax incentives for Hawaii residents to go solar too!

Tax credits allow homeowners to use tax liability to fund these systems.   Taxpayers have the choice of giving their money to the government, or investing it in their home. Tax credits are a direct deduction from the amount owed on a dollar for dollar basis.  In contrast, tax deductions only reduce the amount of income.  For residential photovoltaic systems the credits are:

If the system cost is $16,000, $7,000 would be paid for by your tax liability- credits and only $9,000 would be the true cost. 

As a rough guide, your electric bill matches these system sizes:

Once a system costs over $14,285, the Federal credit of $2,000 and State credit of $5,000 are used up.  In other words, the tax incentives no longer apply.  In Hawaii, Tax Information Release 2007-02 permits year over year additions to the system.  Thus the $5,000 State tax credit is available to use in year 2 of the project.  It is likely the Federal credit also applies.

MULTI-YEAR PHASING:  To maximize the credits, multi-year phasing should be considered:

REDUCING YOUR ELECTRICITY BILL:

Electricity and oil prices are rapidly rising.  From 2002 to 2008, electricity has increased 93%, from $0.14/kWh to $0.27/kWh.  Since 90% of Hawaii’s electrical production is dependent on petroleum sources, electricity rates will keep pace with oil.

State of Hawaii Primary Energy Sources, 2005.

Source: State of Hawaii Strategic Industries Division

The good news is there is a solution.  By using tax money toward a PV system you can stabilize the cost of electricity.  Once a system is in, the cost to produce is the same no matter the price of oil.  Once the system is paid for, the electricity produced is free.

From February 2007 through May 2008, residential electrical rates on Oahu rose almost 50%.  Investing now stabilizes your electricity price.  In other words, no more increases.  In the long term, it is free. Purchasing a system will save you thousands of dollars in electricity over the years, eventually paying back the money put into it.  As the cost of electricity rises, the payback period will shorten. 

The graph below illustrates the payback period for sample 4200 Watt system, which occurs in year 8. This projection assumes multi-year install, an electricty rate of $0.28/kWh, and 10% or 15%  inflation of electricity cost.

In year 2, 16 more panels are added.  In year 8 the system is paid for.  Starting in year 9, all energy production is profit.  In year 15, inverter replacement may be needed.  With an electricity inflation rate of 15%, the payback period is only 7 years.

NETMETERING

The utility company is required to credit you with any excess production that goes into the utility grid.  For example if no one is at home during the day there should be excess production and your meter will register backwards!

For nearly everyone however, more will be used than produced.  For those who have the luxury of producing more than they use, there is a 12 month period to use it or lose it.

Solar Wave Hawaii will set up your Net Energy Agreement with HECO so you can enjoy a smooth transition to energy independence.

HOME EQUITY LOANS

Taking out a Home Equity Loan to finance the system is yet another way to reduce the cost of a solar photovoltaic system.  In fact, monthly electrical savings can exceed the monthly HEL payments, therefore increasing your cash flow (assuming after tax credit cost). 

For example, if you took out a HEL to in order purchase a 4.2 kW system (3.5 inverter and 24 panels) with a 2 year plan, this is what your cash flow would end up looking like at 4 years:

Initial Cost of System: $31,625
Interest Rate: 7%

First Year Cost (8 panels): $16, 000 - $7,000 tax credits = $9,000
Second Year Cost (16 more panels): $15,625 - $7,000 tax credits = $8,625
Final Cost after Credits: $9,000   + $8,625 = $17,625.00

Monthly HEL Payments: $17,625.00 x 0.07 /12 months = $102.81
Monthly Production Value after Second Year: 496.5 kWh x $0.27/kWh= $134.06

As shown, after your tax credits, production value would cover the HEL and create a positive cash flow.  If electricity rates were to rise, your HEL payments would remain the same, but your production value would increase.  At a conservative inflation rate of 7% a year, by year 4 you would be pocketing $50.67 a month.

Annual profits would accumulate to over $60,000 by year 25.

REAL ESTATE APPRECIATION:

Appreciation is yet another way to reap the benefits of a solar system. 

According to the Appraisal Institute, for every dollar of annual PV production, there is a $20.73 increase in house value. 

For example: