Newest Minnesota Rebate Makes Solar a Decades-Long Bargain
By Michael Balchunas
Published March 3, 2010
A new rebate program from Xcel Energy has helped vault Minnesota into the ranks of states where many residents and businesses can lock in a multi-decade supply of solar electricity at prices competitive with – or even much less than – today's utility rates.
Sharply reduced solar-equipment costs and still-generous incentives are responsible.
Ironically, at the same time that solar electricity is becoming not just affordable but a bargain for many members of the American middle class, confusion and debate abound about how best to figure costs and determine the tax implications of myriad rebates and other incentives. Some experts even advise consulting a certified public accountant when considering a solar purchase.
In Minnesota, at least, a CPA may not be needed.
Xcel Energy is sponsoring a rebate of $2.25 per watt for solar photovoltaic installations in the areas of Minnesota it serves, as part of its Solar Rewards program. Some solar installers in the state, such as Innovative Power Systems of Minneapolis, are quoting prices as low as $6 per watt for straightforward, routine installations before any incentives are applied. For customers in its service area, the Xcel Energy one-time rebate drops the potential cost to a buyer to $3.75 per watt.
The state of Minnesota also offers a solar photovoltaic rebate program that pays up to $2 per watt. State officials confirmed that the state program can be combined with Xcel's rebate.
In addition, a federal Residential Energy Efficient Property Credit available to most homeowners provides a tax credit for 30 percent of the cost of a solar PV system. Businesses also are eligible for a 30 percent federal tax credit or grant. If the 30 percent credit is applied to the $1.75 remaining cost after the utility and state rebates are considered, the price of a straightforward solar PV installation in parts of Minnesota could go as low as about $1.23 per watt. The most relevant number for consumers – the long-term price per kilowatt-hour of electricity produced – may be as low as 6.7 cents, well below the utility's average retail price.
Businesses, which may be eligible for accelerated depreciation, may pay even less for solar in parts of Minnesota over the long term.
This incentive combination is available in the area served by Xcel, which has 1.2 million customers in Minnesota, mostly in the southern part of the state. Minnesota Power, another utility, offers a residential solar incentive program that is most cost-effective for very small systems with capacity ratings of 0.5 to 2 kilowatts. The average residential solar PV system in the United States has about 5 kilowatts of production capacity.
Minnesota Power, which serves about 144,000 customers the northeast part of the state, pays a rebate of $2 per watt but it tops out at 2 kilowatts, with a maximum of $4,000. It can be combined with the state rebate. The long-term price for consumers who buy a small 2-kw system in Minnesota Power's service area may be as low as about 8.1 cents per kwh. With larger systems in this utility's area, the anticipated costs rise toward the statewide 2009 average retail price of utility electricity, which was about 10.1 cents, according to the U.S. Energy Information Administration.
For a nationwide interactive map of electricity prices, please click here.
The Internet abounds with calculators consumers can use to try to determine how much a solar PV system would cost. Prices can vary widely and have been volatile, however. Few calculators provide a key figure consumers can use to directly compare their present cost of electricity with the long-term cost of solar – the price per kwh. A solar purchase, lease, or power-purchase agreement can lock in the electricity price for 20 years or more.
Solar modules typically make up 50 to 60 percent of the total cost of a photovoltaic installation. Last fall, panel prices began to drop precipitously at the retail level. A single 200-watt module that may have cost $1,200 or more a year ago can now often be had for about $600 at retail. The price decline has spread across the country.
A solar
purchase, lease,
or power-purchase
agreement can lock
in the electricity
price for 20
years or more.
In some states, including Minnesota, Arizona and California, some installers are quoting gross prices as low as $6 per watt for the most routine installations. Every solar installation is different, and prices vary.
At Innovative Power Systems in Minneapolis, a spokesman said he thinks prices may even go a bit lower soon.
Modules are typically warranted for power production for 20 or 25 years, and during that time a system is almost certain to need a new inverter, which converts an array's DC electricity into the AC used in the electricity grid. Inverters are typically warranted for up to 10 years; some for as long as 15 years. A new inverter installed for a solar-electric system rated at 5 kilowatts of production capacity – an average U.S. residential system – would cost $3,000 to $4,000 at today's prices, but prices are expected to decline in coming years, perhaps significantly.
At a gross cost of $6 per watt, a 5-kilowatt system installed in the area served by Xcel Energy would cost $30,000. The Xcel rebate would reduce the cost by $11,250, to $18,750. The state rebate, which varies and is dependent on several factors, provides up to $2 per watt. For a 5-kw system that would amount to $10,000, the maximum available for homeowners. From the post-rebate cost of $8,750, a federal tax credit of $2,625 may trim the net cost to $6,125.
Although the expense of a new inverter may be 10 to 15 years away, today's typical price of $3,000 to $4,000 can be added to the numbers for the purpose of calculating long-term costs.
Adding a net installation cost of $6,125 and a future inverter cost of $3,000 to $4,000 in today's dollars results in a 25-year net cost range of $9,125 to $10,125 for a non-complex 5-kilowatt installation. (Maintenance costs for small residential solar systems are usually negligible. Please see our Questions page for information about maintaining solar equipment.)
A 5-kw system in the Minneapolis area, facing due south at a completely unshaded site, in line with a typical roof angle of about 22 degrees, might be expected to generate a maximum of about 6,000 kilowatt-hours of electricity a year, according to a solar production calculator called In My Back Yard, available from the website of the National Renewable Energy Laboratory. (The estimated cost figures associated with this calculator appear to be outdated at present.)
Solar photovoltaic modules have long lifetimes, during which production declines slowly. Module power-output warranties are designed to account for this. Applying a degradation rate of 1 percent annually, which is considered conservative and may overstate the actual decline, yields a projected 25-year production output of about 135,500 kilowatt-hours for a 5-kw system in the Minneapolis area.
When the 25-year net price of $9,125 to $10,125 is divided by the 25-year anticipated production output of about 135,500 kilowatt-hours, the estimated electricity cost is about 6.7 to 7.5 cents per kwh.
Many homeowners who have inquired at public meetings in California about the cost of solar electricity have focused on the years needed to pay off a system. However, because solar electricity is a long-term investment that substitutes a stable and relatively predictable cost for the variable cost of utility electricity, many solar experts and business owners prefer to consider the cost per kilowatt-hour over the system's warranted and service lifetimes. The figure then can be compared with today's cost of utility-supplied electricity and the likelihood of future increases.
Confusion about tax issues complicates matters for many consumers who wish to consider solar electricity. The federal tax treatment of solar-electric installations and state and utility rebates is far from clear. Cost analyses can become very complex.
Some installers around the nation advertise prices that subtract the federal 30 percent tax credit directly from the gross cost of a system. In California, the leading solar state, whose policies often are emulated, publicly regulated utilities that distributed solar cost information to thousands of residents in 2009 penciled in the federal tax credit after, not before, applying the utility rebate and any other incentives. This is considered a conservative approach, one that many installers follow.
More information about solar rebates and other incentives available in Minnesota (and in every other state) is available from the federally funded Database of State Incentives for Renewables and Efficiency, or DSIRE. Consumers also can get specific, detailed rebate information from the websites of Xcel Energy and the Minnesota Office of Energy Security.
Although it may indeed seem at times that a solar shopper needs a CPA, it's possible even for calculus-challenged consumers to sometimes spot a bargain.