State incentives can vary depending on your location and utility-service territory. Your solar contractor should be able to explain the incentives for your state and how they apply to your proposed system. A great resource for information on the state programs is www.dsireusa.org.
For our installation example, we’ll apply the California Solar Initiative (CSI) Incentive, which is mandated by the California Public Utilities Commission but administered by each individual utility/municipality within its individual service territories. The CSI program is administered on a first-come, first-served basis, which means each utility or municipality will use up its allotted funds at a different pace depending on the rate of installations. At the time of this writing, the commercial incentive available for this installation is $93,117.
When considering a solar installation, it’s important to discuss the matter with your tax professional to understand how the investment will directly affect your finances. However, a few items will apply for many business owners and can be mentioned here. The federal grant for tax purposes is not considered taxable income, but can be considered taxable income at the state level.
For example, California recently passed legislation exempting the grant from state taxes; but before this bill was enacted, it was eligible for taxation. Your state’s solar incentive could also be considered taxable income, so talk to your accountant.
How the Payback Works
We now have information on the facility, the solar installation, available incentives and the annual energy savings from the solar array. So how do all of these things come together to create the payback on this system?
As the accompanying chart shows, year one begins with the total investment in the system. From there, applicable incentives are subtracted to show the net savings. The year-one end total is used to start year two. The same calculations are applied until the system is completely paid off and the self-storage operator has more than 75 percent of his power costs covered for free. With a self-storage facility, the reduction of a fixed operating cost can directly translate into more net income for the owner.
For the purposes of this article, I’ve set the price of the solar array a little high to keep the estimates conservative. Our example assumes the system was activated on June 1of year one. It also assumes a tax rate of 34 percent, an annual system degradation of 1 percent, and an annual increase of 6 percent in the cost of electricity. All of the incentives combined would allow this system to pay for itself in less than six years. This is excellent when you consider a solar array has a useable life cycle of at least 25 years.
In the end, every self-storage operator’s situation is unique, dependent on location, energy needs, facility size and construction, service territory, and applicable incentives. All will have an effect on the viability of the solar installation. However, as we have seen in the example above, the ability to install a system and have it make financial sense is a distinct possibility.
Bob Burson is the director of business development for DL Energy, an energy-efficiency and solar-integration company that provides custom energy solutions for the commercial industry. For more information, call 661.310.7245; visit www.dlenergy.net .