September 11, 2007

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Standard (non-Solar) Electricity Pricing

Today, nearly all PG&E residential customers are billed for electricity usage on an "E-1" meter. This meter charges a flat rate per kilowatt-hour (KWH) regardless of the time of day, peak periods, season, etc. Your baseline rate is just 11.4 cents/KWH. The baseline usage is adjusted month to month by PG&E - you can find this listed on your bill. Notice in the graph below that the price per KWH increases dramatically if you exceed the base tier. At just 30% over the base tier, the price per KWH jumps 100%, and if you exceed the base tier by 100% you can pay over 200% more per KWH. This rapid price increase is why you can have a $200 bill one month and a $500 bill the next with just a small increase in usage.

Source: http://www.pge.com/tariffs/ERS.SHTML#ERS

In general, if your bill is over $75/month for electricity (not including gas) then you are likely exceeding the baseline tier and moving into the more expensive tiers. At $150/month you are into the very expensive tiers. A solar electricity system will offset your most expensive tiers first, offering the highest possible return on investment.

Time-of-Use Metering

PG&E offers the "E-7" meter to residences that install solar electricity systems that provides huge savings. The E-7 meter charges significantly higher rates during peak periods (50%-150% higher than E-1) and lower rates (10%-25% lower than E-1) during off-peak periods. "Peak" periods are between 12pm and 6pm, Monday through Friday. In summer the peak rates are considerably higher than in winter.

Source: http://www.pge.com/tariffs/ERS.SHTML#ERS

The reason why the E-7 time-of-use meter is so valuable for solar is because peak hours are when your solar system will be producing its maximum output. You'll be selling kilowatts to PG&E at peak rates during the daytime, and buying them back at off-peak rates at night, when your solar system isn't producing. Because of this you can offset nearly 100% of your PG&E bill with a solar system that produces only 60-70% of the actual kilowatts you use.

Government Incentives

The California Solar Initiative (CSI) is a $3.3 billion program to achieve 1 million solar households by 2017. For residential installations the CSI program provides an up-front rebate based on the size and output of the installed solar system. Your solar installer will take care of all the paperwork and this rebate will get immediately applied to reduce the initial cost. For a typical 2KW residential installation, the rebate is approximately $6,000. For full details on the program, visit the California Solar Initiative website: http://www.gosolarcalifornia.ca.gov/csi.

The US Federal government also provides incentives, in the form of tax rebates, for solar installations. The Solar Energy Investment Tax Credit, passed under the Energy Policy Act of 2005, provides a 30% tax credit for solar energy investments, up to a maximum of $2,000. Note, this is a tax credit, not a deduction - meaning this will reduce your tax liability by a full $2,000. Also, this credit is "AMT immune" - you cannot lose its benefit due to alternative minimum tax. From the IRS site:

Additionally, the new law makes a credit available to those who add qualified solar panels, solar water heating equipment, or a fuel cell power plant to their homes in the United States. In general, a qualified fuel cell power plant converts a fuel into electricity using electrochemical means, has an electricity –only generation efficiency of more than 30 percent and generates at least 0.5 kilowatts of electricity. Taxpayers are allowed one credit equal to 30 percent of the qualified investment in a solar panel up to a maximum credit of $2,000, and another equivalent credit for investing in a solar water heating system. No part of either system can be used to heat a pool or hot tub. 

(Source: http://www.irs.gov/newsroom/article/0,,id=153397,00.html.) 

Pending Legislation

Congress is now considering a new Act that would dramatically increase the incentives for solar installations. The Securing America's Energy Independence Act (H.R. 550) would increase the credit from a maximum of $2,000 to $3,000 per KW (in 0.5 KW increments). For example, a 2.5KW installation would receive $7,500 under this provision - over $5,000 more than currently provided. H.R. 550 is currently being scheduled for debate in Congress and analysts predict it will pass in 2007. 

Should you wait until this Act passes? Maybe not. The bill will apply retroactively to any system installed since January 1, 2007. Also, it is widely expected that once this bill does pass that California will lower its solar rebate in an effort to allow the $3.3 billion funding to cover more homes. By installing now, you can lock in the high California rebate, and benefit from the increased Federal rates if/when they pass.

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