Belmont’s Solar Campaign

Belmont’s Solar Campaign, called Belmont Goes Solar,  is now in full swing.  Direct Energy Solar (DES) is offering discounted rates for Belmont residents choosing to put solar panels on their rooftops.  Almost 125 residents have already chosen to go solar.  Direct Energy Solar will continue to offer their special rates until April 30, 2016 so there is still time for Belmont residents to sign up.

Direct Energy Solar was chosen as the preferred installer by the Belmont Goes Solar team after a careful vetting process done late last fall.   They have successfully sponsored town campaigns before and have been off to a great start in Belmont.  By meeting the 100 resident milestone of sign-ups Belmont has already qualified for a free $25,000 solar system for a municipal or school building.   Belmont Goes Solar is now working with Direct Energy Solar about another possible bonus should 200 residents sign up before the conclusion of the program.

For more information about Belmont Goes Solar click here.  To sign up for a free consultation with Direct Energy Solar (DES) click here.  They will help you decide whether your home is a good candidate for rooftop solar, help you look at your various options, and offer you discounted rates special for the Belmont Goes Solar campaign.

 

Direct Energy will be hosting informational sessions on the following dates/locations for Belmont residents who want to find out more about their programs.

BELMONT SOLAR OPEN HOUSES: See solar panels in action at these two Belmont homes and learn more about solar:

  • Saturday, March 26th, 2016 – Learn more
    • 10 am – Noon:  57 Woodfall Road
    • 2pm – 4pm:  120 Gilbert Road

SOLAR WORKSHOP: Everyone is welcome to attend a solarworkshop in Belmont. Saturday, April 2, 2:00 pm – 3:30 pm, Beech Street Center.

Interested residents can also speak with solar coaches—Belmont residents who have carefully studied the issues related to residential solar.  They offer their services free of charge and have no financial connection with Direct Energy or receive financial gain from your decision to go solar.  They can be contacted at coach@BelmontGoesSolar.org

Belmont Goes Solar came about when the Selectmen asked the Energy Committee to organize a solarize program.   Solarize campaigns are town sponsored activities in which town officials ask a number of solar installers to submit discounted bids for a group buy for town residents.  The town helps promote the advantages of going solar and the installer can offer a decreased rate as some of the work of finding business is done for them by the town.

Many solarize campaigns are sponsored by the Massachusetts Clean Energy Center. (Mass CEC).   Since Belmont is serviced by a municipal utility that does not contribute to the Renewable Energy Trust, a funder of the Mass CEC, the Mass CEC will not organize a formal solarize campaign in Belmont.  That means our solarize campaign had to be home-grown.

Belmont Goes Solar set a goal of 100 installations for the campaign.  If this goal is met Direct Energy will donate $25,000 towards a solar system to benefit the town.  If 50 installations are reached the donation will be $10,000.   Many residents have already signed up and the campaign is well on its way to meeting this goal.

If you have any interest in solar for your house, now is a great time to do it.   The discounted rates last only until April 30.  The current state subsidy program will expire some time in the next few months and future subsidies are almost certainly going to be less generous.  And finally you can join a community of neighbors with an interest in clean energy.  For more information about renewable energy, solar tariffs, and the finances of going solar feel free to explore the rest of this website.

How to go Solar in Belmont

With the recently passed solar tariff many Belmont residents can put up solar panels with a reasonable expectation of a return on investment of less than ten years and some could see a return substantially sooner.  While many people choose to go solar to decrease their carbon footprint and improve the lives of future generations, they are also interested in keeping an eye on the financial consequences of their decision.   So, how should one start?

For most residential, condo, and commercial property owners the first step should be to get involved with the Belmont Goes Solar campaign.  The campaign is described here.  Briefly, Belmont Goes Solar is a town sponsored group purchase arrangement with a preferred installer, Direct Energy Solar,  that allows residents to get discounted rates and preferred treatment.  For further information you should email admin@BelmontGoesSolar.org.

Another reasonable step might be checking out Project Sunroof, Google’s new service that estimates the average amount of sun reaching a given home’s rooftop over the course of a year.   Homes whose roofs are shaded by trees or buildings are not good candidates for solar arrays.  On the other hand, homes with large exposed southern-facing roofs work wonderfully.   Project Sunroof takes all this into account and gives you a good sense of whether it makes sense to look into solar further.    If you have any questions contacting Belmont Goes Solar or the preferred installer, Direct Energy, will certainly make sense as installers will have more detailed information about whether your property is a candidate for solar.

Deciding on how to finance the project is an important decision.   The two major models are ownership and leasing.   For most people owning the array is the better financial decision because all the financial benefits, including the federal and state incentives, accrue to the homeowner.  However ownership means coming up with a large chunk of cash or taking out a loan.  Many lease agreements require no upfront money at all and the solar company is responsible for all maintenance.   However all the financial incentives (SRECs and the Investment Tax Credit) go to the installer.

If one does want to own the array but can’t come up with the cash to buy it outright then taking out a home-equity loan (or line) will often be the best course.   Interest rates on these loans are often quite low and interest payments may be tax deductible.  There are also specific solar loans available and the state DOER (Department of Energy Resources) just launched a Mass Solar Loan program which gives very favorable interest rates and is open to moderate income residents, renters, and those with low credit scores.  Check it out here.

Until very recently it looked like the Investment Tax Credit program was going to end December 31, 2016.  However it was just extended giving potential solar hosts more breathing room in deciding about going solar.  But there are still very good reasons to act quickly.  The biggest one is certainly the termination of the SREC-2 program some time in 2016 when total solar capacity in Massachusetts reaches 1600 MW.   A new state solar incentive program to replace SREC-2  is being actively debated in the legislature but there are good reasons to believe it won’t be nearly as generous as the SREC-2 program.  So going solar now, during Belmont’s solar campaign still makes excellent sense.

Deciding whether the project makes financial sense is an individual decision that should be discussed with your chosen solar installer.  The general issues involved in the figuring out the financial implications of going solar are discussed here.

This is a great time to go solar.  The industry is relatively mature and the financial benefits are probably as good as they will ever be—at least for the next few years.  So if you have ever thought of going solar, the time is definitely now to join other residents in Belmont Goes Solar.

 

Belmont’s New Solar Tariff

As of November 1, 2015 Belmont residents with rooftop solar will be paid for their energy production under the terms of a new tariff.   After years of turmoil and uncertainty the new tariff will give both residents and installers some certainty about the financial consequences of the decision to go solar and make the decision to put up solar arrays a lot easier.   To find out about solar tariffs in general go here.  To examine the finances of solar projects go here.   But stay right here if you want to find out where the new tariff came from and how it compares to other solar tariffs out there.

In the Spring of 2015 Belmont’s Board of Selectmen appointed a Temporary Netmetering Working Group to come up with a solar tariff that was equitable for ratepayers and that would not discourage the growth of solar in Belmont.   They met 19 times over the summer and came up with a new tariff that pays 11 cents per kWh for energy sent to the grid by solar hosts.  Energy made by solar panels and used on premises will avoid the full retail rate of electricity and is effectively paid 19 cents per kWh.

Prior attempts at coming up with a tariff by the Municipal Light Advisory Board (MLAB) met with widespread criticism from solar advocates.  Prior MLAB proposals considered any value given to solar production (including energy produced and used on premises) beyond the Locational-Marginal-Price  (LMP) to be a cross-subsidy from solar hosts to non-solar ratepayers.  Solar advocates objected to this kind of reasoning on many grounds but especially noted that the MLAB proposals didn’t account for the many other benefits of residential solar production.     Solar tariffs put forward by MLAB would have paid  Belmont solar hosts less than 40% as much as solar hosts in neighboring towns.  The very existence of these  proposals severely curtailed the growth of solar in Belmont.

In this context the Selectmen said they wanted a new tariff that was equitable between solar hosts and non-solar ratepayers and should also pay enough to make sure that the finances of going solar would not discourage future growth.

So let’s take a look at the new tariff.  First the Working Group chose not to impose any fees on energy produced and used on premises.  Such energy does not use the transmission or distribution system and they took the stance that it shouldn’t entail additional costs to the solar host.  MLAB had argued that since solar production is intermittent the distribution and transmission system would have to be ready to provide for solar hosts when their panels weren’t producing and so even self-generated energy production should incur transmission and distribution costs.   Solar advocates had argued that this was unfair arguing that many other non-solar homes also have energy usage profiles marked by intermittency and noting that families who go on vacation are not asked to pay distribution and transmission costs on energy they didn’t use.   The Working Group chose not to ask solar hosts to pay such self-generation fees.

The 11 cent figure for payment for excess generation sent to the grid was arrived at by taking the generation cost from the Belmont Light bill (about 8.9 cents) and adding in the Transmission cost (about 2.5 cents) and coming up with the 11 cent figure.  Such a tariff gives value to solar generation for generation costs, capacity costs (which are included in the generation line-item on the Belmont bill) and transmission costs but does not give value for distribution costs.

A quick review of terms:  The distribution system is made up of the electricity lines and substations within Belmont and are owned and maintained by Belmont Light.  The transmission system consists of the higher voltage lines that go from generation plants throughout New England to local substations and are owned and maintained by other companies.   Reimbursements to these companies come from payments made by utilities (like Belmont Light) to ISO New England—the independent agency that runs the grid.  Capacity payments are payments also made by utilities to ISO New England, so ISO New England can pay generation plants to wait on stand-by for sudden increases in demand.

The Working Group reasoned  that the energy sold by solar hosts to Belmont Light uses the distribution system and so value for distribution costs is not given.  The energy does not use the transmission system so value is given for transmission costs.  Value was given for capacity payments presumably because solar arrays usually produce during times of high system load upon which capacity payments are determined.

That’s it in a nutshell.  The Working Group report is available at the Belmont Light website under the “Leadership” tab.  While neither doing a formal Cost of Service study to look carefully at all the costs of serving solar hosts or a formal Value of Solar study to look carefully at all the benefits of a residential solar production the Working Group took a “on the face of it” approach and came up with the above tariff.   Some criticisms of the tariff are discussed later on but for now let’s see how it compares to other tariffs in terms of how much solar hosts save on their electric bill.    In specific we’ll compare it to 3 other tariffs.  Retail net-metering (the standard in the rest of Massachusetts), MLAB’s phase 2 tariff (excess solar production paid at LMP),  and MLAB’s phase 3 tariff (all solar production paid at LMP).  To keep things simple I’ll use a 2014 yearly average for LMP of 6.5 cents.  I’ll look at a model 5 kw system producing 5.7 MWh  per year. (1 MWh equals 1000 kWh.)  I’ll assume 40% of solar electricity production is used on premises and 60% is sold to Belmont Light.  For more information on solar tariffs in general go here.  Some of these calculations are gone over in more detail here.  So here is a look at yearly energy savings for Belmont’s new tariff compared to the 3 other tariffs.

ONE: Belmont’s new tariff.  40% of 5700 kWh is 2280 kWh, the amount of electricity used on premises.  This production avoids the full retail rate of 19 cents and is valued at 2280 kWh multiplied by 19 cents which equals $433.  60% of the 5700 kWh is sold to Belmont Light at 11 cents per kWh.   This is 3420 kWh at 11 cents per kWh which equals $376.  The sum of $437 and $376 is $809. So $809 is the total yearly savings on the electric bill.

TWO:  Retail Net-metering, the norm in most of Massachusetts.  In this tariff all 5700 kWh are reimbursed at 19 cents/kwh.  5700 kWh multiplied by 19 cents equals $1083 which represents the total yearly savings on the electric bill.

THREE:  Phase 2 of MLAB’s proposal reimburses excess generation at LMP.  I’ll use the yearly average of LMP to keep the calculations simple.   2280 kWh used on premises saves $433 as in the Belmont Tariff.  3420 kWh sold to Belmont Light at 6.5 cents per kWh equals $222.  The sum of $433 and $222 equals   $655, the yearly savings on the electric bill for Phase 2.

FOUR:  Phase 3 of MLAB’s proposal reimburses all solar generation at LMP.  5700 kWh reimbursed at 6.5 cents per kWh equals $370, the savings of the electric bill for this tariff.

In summary the yearly savings are as follows:

Netmetering: $1083

Belmont’s new Tariff: $809

MLAB’s Phase 2: $655

MLAB’s Phase 3: $370

So one can see Belmont’s new tariff while a little better than MLAB’s Phase 2, and a lot better than MLAB’s phase 3, is substantially worse than the Massachusetts standard of netmetering.

The criticisms of the tariff come from both sides.  Former MLAB members still feel any tariff other than Phase 3 above creates cross-subsidies.  Solar advocates, on the other hand, argue that it doesn’t give full value to solar production and point out that many studies that account for all the benefits of distributed solar show that even net-metering underestimates its value.   Others point out that the tariff will especially harm potential leasers.  It is not clear whether solar leasing companies will even work in Belmont under the new tariff.   They point out this will harm low and moderate income families wanting to go solar the most.

And finally it is my opinion that the tariff is fundamentally irresponsible.   This is not because of the reasoning used to reach the tariff which in my opinion was thoughtful—although as solar advocates point out debatable.  It is because that Belmont should be looking to do more for renewable energy not less.   Our utility, unlike the Investor Owned Utilities doesn’t buy either SRECs or RECs.  It is these production subsidies that drive renewable energy in New England.   Without them there would be no solar or wind generators in New England.  Take a look at the economics of solar here and see how the calculations work without SRECs.  If every community acted like Belmont there would be no new renewable generation any where in New England.  Ratepayers in the poorest of communities (Springfield, Lawrence, Chelsea etc.) pay extra on their utility bills to support renewable energy through their utility’s purchasing of RECs and SRECs.  Ratepayers in Belmont pay nothing.   The Selectmen should never have appointed a Net-metering Working Group in the first place.  A town that does so little for climate change action should be thoughtfully considering what more we can do for climate change and not worrying about a small potential cross-subsidy that may or may be incurred by retail netmetering.  We needed a Climate Change Working Group not a Netmetering Working Group.

 

A Solar Project by the Numbers

The financial assessment of the costs and benefits of putting up a solar system should be carefully gone over with your solar installer.  However having a rough estimate of the numbers involved can help a potential host gain the confidence to ask themselves and their installer the appropriate questions.   One needs to remember that putting a solar array is an investment and the payoff is dependent on financial conditions in the future and so is necessarily uncertain.  However the returns on the investment are probably more predictable than most other investments and the rate of return should be good—and of course you’ll be reducing your carbon footprint and helping the environment at the same time.

We’ll take a look at the financial costs and benefits of a model 5 kw system—a typical size for many households.

Costs:  The costs for a solar system are generally given in dollars per installed watt.   The costs could be further divided into hardware and labor (often called Balance of System or BOS costs) but for most families the important number is simply dollars per installed watt.  We’ll use $4/installed watt for our calculations.  The number will be higher if one uses high-efficiency panels and lower for less efficient panels.  Efficiency is the per cent of solar energy hitting the panel that is actually turned into electricity.    Higher efficiency panels can produce more electricity for a given sized panel.   In other words if you covered your roof with high efficiency panels you might be able to put up a 6kw system while with lower efficiency panels it would only be 5kw.   The size of system (5kw) refers to the maximum power generated by the system at a specific temperature and solar irradiance.  Basically it is a the maximum power your array can produce under ideal circumstances.   The calculation of the cost of the system then is simple.  It is the size of system multiplied by the cost per installed watt.  5000 watts X $4/watt = $20,000.  If your system price is less than $4/watt then your cost will be less and if your system price is more than $4/watt then it will be more.

 

Benefits: The financial benefits of the system can be divided into 4 parts: 1.  The Federal Investment Tax Credit (ITC)  2. The Massachusetts state Income Tax Credit.  3.  The SRECs that the owner can sell  4.  The savings on the electric bill.

One: The ITC is a credit against the owner’s income tax bill worth 30% of the installed cost of the solar array.  It is not just a tax deduction but a full credit against the bill.   To take the credit the owner’s array has to be installed and functional.  Unless the federal government extends the credit it will expire December 31, 2016.  So a Belmont family’s solar array needs to be functional by that date.   In the example above the ITC would be worth 30% of $20,000 or $6,000.

A peculiar consequence of this benefit is that the owner can only use this benefit if he or she has an income tax to use the credit against.  While most Belmont residents pay at least $6000 on their income tax this is not true for non-profits or municipalities.  This poses an issue when a town like Belmont considers putting solar on a school or a landfill.  Because Belmont doesn’t pay any income tax it can’t take advantage of this generous credit.  For this reason most solar projects on schools and landfills are owned by third parties who enter into 3 way agreements with the town (or other non-profit) and the utility.

Two:  Massachusetts state Income Tax Credit.    The state gives the lesser of a 15% or $1000 credit on your state income tax bill.  For our model system this is simply a $1000 credit.

Three: SRECs are Solar Renewable Energy Certificates.  They are incentive or bonus payments owners of renewable energy systems receive for each MWh (1000 kWh)  of electricity their systems produce.   An owner can print 1 SREC for each MWh their system produces for the first 10 years of their facility’s operation.  The SRECs are purchased principally by the Investor Owned Utilities (IOUs) to meet standards set by the state.  They are discussed in further detail here.  For now, one only has to understand that unlike the ITC, SRECs are production subsidies.  An owner gets paid according to how much electricity their systems produce.  In order to calculate the value of the SRECs then one needs to know how much electricity their system will produce in one year.   Let’s take a look at how that figure is arrived at.

Let’s go back to our model 5 kw model system.  It produces a maximum of 5 kwh of electricity per hour.   Here it is crucial to remember the difference between power and energy.  Power is a rate of flow of electricity and energy is a quantity of electricity.  High power is like a fire hose.  Low power is like an eye dropper.  A fire hose filling a shot glass is high power and low quantity.  An eye dropper filling a pool is low power and high quantity.  Our 5kw power system working under perfect sunlight conditions through an entire year would produce 5 kwh of electricity every hour of the 8760 hours in a year.  A quick calculation shows such a system would produce about 44,000 kwh or 44 MWh in a year.

In reality no solar system can do that.  First there is that pesky little problem called night.  Solar arrays don’t produce at night.  Secondly there are clouds and weather issues that interfere with ideal performance.   And thirdly there are local factors such as shading from trees or leaf cover or snow.   So no solar system will ever work to 100% capacity.   The actual per cent of maximum capacity that a solar system can attain in a year is called its capacity factor and is location determined.  There are data sheets that show average capacity factors in different locations.  In the Boston area a figure of 13% is generally used.  In Arizona it is closer to 19%.  Note that the capacity factor of your system may be less than 13% if there are local factors that interfere with its performance.

So our 5kw system that in a world without night and weather could produce 44 MWh of electricity in a year, in reality would generally only produce about 13% of that if well located in the Boston area.  13% of 44 MWh is 5.7 MWh.  That is the number we’ll use going forward for the yearly production of our model system.

Now we need to know how much the owner can get for each SREC.   The value of SRECs are determined by a number of factors including initial auction price, alternative compliance costs that the IOUs must pay if they don’t meet their RPS (see here for a more complete explanation of RPS) as well as simple supply and demand.  There is a market for them which can be looked at here.   Note that there really is no predicting their value in the future so any dollar number one might use is a guess of sorts.   The current price is around $285 and the initial auction price is scheduled to decline by about $12 every year.  It is probably reasonable to assume the value of SRECs, then, will slowly decrease to some place about $170 over the next 10 years.    I’ll use $225/MWh for my calculations below—an educated guess as to their average value over the next 10 years.

I would like to note here  that the numbers I’m using are very rough and intended to show how they might be calculated.  They are not intended to be used to make decisions.  For one I’m no expert on future SREC markets.  Secondly I’m not an expert in electricity markets going forward either which will be an important factor when calculating the future income stream of the electricity your system produces.  And thirdly I will make no attempt to calculate the present value of future income streams.  Generally future income is discounted when calculating its present value.  I will not do that.  So take all numbers here with a grain of salt.  They are intended to assist in understanding where they come from rather than to be taken as an exact  estimate of the actual cost and benefit of your system.

So let’s get back to SRECs.  Our system that produces 5.7 MWh of electricity in a year can print 5.7 SRECs which can be sold for $225 per SREC for a total value of about $1280.   So for simplicity we’ll say our owner will make $1280 per year for the first 10 years of system ownership.

Four:   Savings on electricity bill.  Finally let’s take a look at the savings on the electricity bill that the system owner can expect to have for the life of the system.  What is the life of the system?  It would be best to ask your installer but I’ll use 25 years in my estimates here.  You might also want to ask your installer how much less efficient you can expect your system to become as it ages.  A figure of 1% per year is some times used but this will depend on the particular brand of panel you select.  Solar panels (unlike the inverters) are generally long lasting robust systems that deteriorate only slowly.  I’ll ignore these issues here and simply assume the system produces at full capacity for 25 years and then needs to be replaced.

Belmont’s new tariff pays 11 cents per kWh for energy produced by the panels and sent to the grid.  Energy produced by the panels and used on premises, however, saves the solar host the full retail rate or about 19 cents per kWh.   So to calculate the savings on the electric bill (also called the avoided electric bill) one needs to know what percentage of energy produced by the panels is sent to the grid and what percentage is used on premises.  On the average solar hosts use about 40% of the energy in the house and about 60% is sent to the grid.  But the range of values is large.  A host who works at home during the day in an air-conditioned house doing the laundry and running the dish washer will use a lot more solar production on premises.  A family that all go to work leaving a darkened home during the day and who uses most of their electricity at night will send most of their solar production to the grid.  So the answer will be different for every household but in the spirit of keeping things simple I’ll use the 40/60 average split for our estimates here.  40% of the 5700 kWh of yearly solar production or 2280 kWh is used on premises and 60% or 3420 kWh is sent to the grid.  2280  kWh multiplied by the retail rate of 19 cents per kWh is $433 and 3400 kWh multiplied by the tariff rate of 11 cents per kWh is $376.  The total yearly savings on the electric bill then would be the sum of $433 and $376 or about $809.

But of course the future stream of savings will depend on the future cost of electricity which will certainly change over the next 25 years while your solar panels are producing.  How they will change is uncertain so the savings are uncertain.  One would assume electricity rates will go up and most people who estimate these kinds of things think they well.   But even this isn’t certain.   A large increase in natural gas supply with a developed pipeline infrastructure could lower prices.  A robust carbon pricing schedule would tend to increase prices.  However, since this post is not a discussion of the future of energy markets I will make do with the figures assuming that energy prices will stay flat.

With all the caveats listed above, we are now ready to calculate our return on investment on our model 5 kw system costing $20,000.  First we will take account of the Federal Income Tax Credit (ITC) and cut the figure to $14,000.   Then we’ll subtract the State Income Tax Credit of $1000 bringing down the cost to $13,000.  Next we’ll add the yearly income from SRECs ($1280) to the yearly savings on the electric bill ($809) to get $2090  as the yearly income from the system.  Divide $13,000 (the cost of the system after tax benefits) by $2090  (the yearly income provided by the system) and you  get a return on investment of about 6.2 years.   After that your system will start making money for you.   3 .8 years later the stream from SRECs stop and the value of the system will simply be the energy savings.  Of course there will be costs as well in terms of maintenance.  Usually these are small but the inverter often needs to be replaced every  ten years or so.    You should ask your solar installer about the costs of maintenance.  It should be noted that the estimate of 6.2 years for a return on investment is probably conservative as it assumes flat electricity rates.

And finally, what fun is a discussion of income streams without mentioning taxes.   The issue comes up principally around whether proceeds from SRECs are taxable.   As it turns out there is a lack of clarity on the issue and as a result a profusion of opinions.  In the end one is left to follow their heart or the advice of their favorite tax expert.   SRECTrade, the leading broker of SRECs, has a blog devoted to the issue which can be viewed here.

What is less controversial is the calculation of how paying taxes on SREC proceeds affects the return on investment.   Of course it depends on your income tax bracket but we’ll keep it simple and say 1/3 of the proceeds from SRECs goes to taxes.  In the above example that would drop the after-tax income from SRECs to $854 and as a result the return on investment goes up to 7.8 years.

So those are the numbers and the assumptions that one must make to calculate the numbers.  For many people in Belmont with a southern-facing non-shaded roof a solar investment should be a very good one.  Nothing of course is guaranteed but you should be able to count on the returns of your solar panels better than on returns from many other kinds of investment.  And of course you are helping future generations at the same time.  Not such a bad deal.