Artistream Energy, Inc.

Most of us take power for granted. When we need it we just plug into the grid and download the amount that we need. But every month like clockwork we receive a bill from our local utility for all of the electricity that we used. Not only do we pay for the fuel (coal, natural gas, nuclear, hydro, etc.) that generated the electricity but we pay for the transmission infrastructure as well.

What if we could get the fuel for free? And what if we could own our own power generation equipment right next to where we needed it so that we could minimize the transmission loss? This is what a solar power installation delivers.

When a business weighs a decision to purchase a new piece of equipment, one of the key criteria is the return on investment (ROI). In essence, they want to know how much money will they make relative to the upfront investment for the equipment that they purchase. Whether you consider a solar installation for your business or your home, you must first do an ROI analysis.

Upfront Cost – This is dependent on a number of factors.

• State Subsidies – In the U.S., many states have incentive programs that directly impact the initial cost of a solar implementation. In some states, such as New York, the money is paid directly to the installer who passes on this saving to the customer in the form of a reduced overall equipment and installation fee.
• Federal Subsidies – As part of the Wall Street Bailout Bill that was passed in the Fall of 2008, Washington renewed the 30% Federal Renewable Energy Tax Credit for both businesses and residential owners of solar. During the years of 2009 and 2010 this 30% tax credit can be taken by commercial businesses as a direct grant from the Treasury. If elected, the Treasury will deliver a check within 60 days of the solar “Go Live” date equal to 30% of the customer’s upfront costs.
• Tax Offsets – Many states and localities have additional tax offsets to encourage the implementation of solar energy. In some cases the tax offsets are substantial. New York City provides a 4 year 35% property tax abatement for solar implementations within the 5 boroughs of Manhattan. The IRS allows for a 5 year rapid depreciation of solar equipment based on the MACRS table. In addition, there is a 50% bonus depreciation in year 1 which expires at the end of 2009.

• Financing – This is an evolving area of solar and not all options are available in every area. The options range from:
  • Power Purchase Agreement (PPA) – This is a contract where a developer implements, owns and maintains the solar installation and the customer signs a long-term (10 – 20 year) electricity purchase agreement with the developer for a locked in energy rate.
  • Solar Lease – This is essentially a modified equipment lease tailored for the unique circumstances of the solar model. Solar leases are only offered by a few providers currently but as solar becomes more common and lenders understand the dynamics better, these leases will become more available.
  • Mortgage Vehicles – Currently many mortgage lenders will bundle solar implementations into 1st mortgages, refinances, 2nd mortgages or home equity lines. In many cases, the additional monthly payment is less than the cost of the electricity being offset by the solar system.
  • Commercial Loans – Many companies opt to use existing credit or financing lines with their banks or use excess cash that would otherwise be invested elsewhere.

There are many variables that will affect the upfront cost of solar. Each case is unique and must be worked out individually considering all of the options. However, for states such as New York, 60 – 80% of the upfront investment of a commercial solar implementation can be recouped in the first year of operation due to subsidies, tax offsets and power production. In many cases, this same commercial solar install will recoup all of the upfront investment in 4 – 6 years. For residential payback, the timeframe generally ranges from 7 – 11 years.

Cost of Fuel – None. Solar systems take the sun’s rays and convert a portion of that spectrum into electricity. Unless the system is part of a utility’s power network, there is no cost for using the sun’s rays in this manner.

Ongoing Maintenance – For most solar systems, this is minimal. The most common distributed system uses Photovoltaic (PV) solar panels which are solid state encased in a hard substrate that resists golf ball sized hail. These panels are warranted for 20 years by the manufacturer and will generally last much longer (30 – 60 years). The most complex component of a solar PV system is the inverter which converts direct current (DC) to alternating current (AC). These inverters may need to be replaced after 7 – 10 years of usage. The rest of the system is wiring, conduit and the structure used to mount the solar panels.

The payback for commercial solar is very attractive. And when you take into account that once the system is paid for there is a net cash flow stream from the production of solar energy that will last 40 to 60 years with minimal maintenance costs, it becomes even more attractive. This cash flow stream adjusted for the historical energy inflation rate (5%) can be easily reach several million dollars depending on the size of the commercial system.

Though the payback for residential solar is generally longer than the commercial payback, it is still a good investment. What other home purchase pays for itself and then produces a net cash flow for 40 to 60 years? And don’t worry about having to stay in your home that long to profit from the system. Even if you sell your home a year after installing the solar system, you will be able to sell your home for a premium generally equal to 3 or 4 times the cost of the system.