Striving in a Tough Economy

DJH Construction, Inc. has delivered a proposal to a orange county non-profit organization for the installation of a 570 kW solar photovoltaic system. The proposal valued at over $ 4.5 million dollars, will reduce the customers utility usage by 30%, producing over 871,977 kWh's a year. The project is said to have the potential to be one of the larger solar installations in Laguna Hills, CA. DJH Construction, Inc. is in talks with investors and Power Purchase Agreement companies that would possibly help provide the necessary financing to help this community go GREEN. Because the host customer is a non-profit, both entities are researching for investors to partner up with and provide the necessary financing to bring this project to fruition. Don Harris, President and CEO of DJH Construction, Inc. was quoted saying," The opportunities are there to make these deals come together, but where's the financing?. We have the ability to create jobs and yet we are still wondering why the banks will not see the value in these types of projects where the customer wants to save money, help the environment, and is spending the money on high cost energy already." A 4.5 million dollar installation would quality for a 1.5 million dollar grant and be eligible for almost 1 million dollars in rebate incentive from the utility as well as it would be eligible for accelerated depreciation with a 50% bonus in the first year. These type of incentive are wonderful to make deals happen if the financing can leak out of the banks vaults.

What Business Owners Should Consider Before Investing In Solar

Commercial buildings use approximately 40 percent of energy consumed in the United States today, so increasing the efficiency of buildings is one of the most effective ways to lower energy consumption, save money, and reduce carbon emissions. The last blog entry focused on the financial incentives for a residential solar system with the implementation of the Renewable Energy Grants (REG). We decided to provide a similar comparison for a 50kW commercial system to show business owners how they can capitalize on the REG. The assumptions of this comparison are:

1. PV System located in Laguna Niguel, CA 92677
2. Type: Commercial
3. Size: 50 kW
4. Utility: Southern California Edison (SCE)
5. Federal Corporate Tax Rate = 34%
6. State Corporate Tax Rate = 8%
7. Note: Calculations do not take into consideration time and value of money

Below is a table summarizing the results:



The difference in the ITC versus the REG is still greater on commercial systems as it is on residential. In our hypothetical analysis it is almost a $5,000 cost difference. The estimated cost per watt including utility rebates, grants, and depreciation bring the net cost of the system down to less than $3.00/watt.

Please note: Interested businesses should consult the federal tax code and/or a certified public accountant or tax attorney to determine exact eligibility and provisions of the incentives described above.

Solar and the American Recovery and Reinvestment Act

On February 17, 2009, President Obama signed the Economic Recovery Legislation. This bill marks a historic milestone within the solar industry and proposes to create 60,000 jobs in the solar industry in 2009 and a total of 110,000 over the next two years.

Three key points to the bill specific to photovoltaic and thermal solar are:

1. Renewable Energy Grants
2. Repeals Penalty for Subsidized Renewable Energy Financing
3. Remove Limits on Solar Water Heating

The renewable energy grants is a new program administered through the Department of Treasury that provides grants equal to 30 percent of the cost of solar property placed in service during 2009 and 2010. This grant replaces the section 48 investment tax credit. (Div. B, Sec. 1104, p. 38)

The bill also repeals the penalty for subsidized renewable energy financing. This allows businesses and individuals to qualify for the full amount of the solar tax credit even if projects receive subsidized energy financing (e.g. below market loans, tax preferred bonds, state grants etc.). This amendment shall apply to periods after Dec. 31, 2008. (Div. B, Sec. 1103, p.36)

The stimulus bill also removes the $2,000 monetary cap on solar water heating, providing a full 30% credit for qualified solar water heating property (Div. B, Sec. 1122(a), p. 46). Qualified solar water heating property is defined as used for a purpose other than heating swimming pools and hot tubs. In addition, the credit may be claimed against the alternative minimum tax.