All Forum Posts by: Frank S.

Currently the average payback period for residential rooftop solar in Chicago is 8.2 years, according to the folks who track these numbers: https://www.solarreviews.com/b...

8.25 years according to these guys: https://www.energysage.com/sol...

and 5.1 years according to these guys (who are factoring in potential future rate increases): https://www.solar-estimate.org...

That's pretty good in my book for such a low risk investment, especially when compared to zero payback and infinite negative cash flow if one just continues paying their electric bill.

One company I work with is installing 29.36MW of commercial PV in the Chicago market this year, totaling over $90M. Those installations all have a payback period under 5 years. 

I agree with Franks comment that there is a soft benefit to producing renewable energy, and many folks buy into it for environmental reasons alone. However this is far from the only reason solar makes sense and we are seeing many sophisticated investors and large financial institutions are choosing to invest in solar in 2019 for the financial returns alone. The numbers are very good in certain markets with Chicago being one of them. For example the specific projects mentioned above are all strictly numbers-based as there are institutional investors involved who demand a certain return and give zero cares about the "warm tinglies" of saving the planet. These companies are choosing to put over $90M in solar in the Chicago market strictly because they see it as a low risk, high return, completely bankable investment. 

The tax credit is part of the equation of course but that's not unique to solar as every form of energy is heavily subsidized. It could just as easily be argued that nobody would invest in building a coal power plant without the many tax credits allocated to those projects, or without being able to mine coal on public land for pennies on the dollar. Furthermore the oil and gas industry wouldn't be what it is without the “Intangible Drilling Costs” (IDC) tax credit among many other subsidies. Not a single nuclear power plant would exist without government stepping in to insure them and manage the waste. Transportation wouldn't be what it is today if we had to pay the true cost of gas at the pump. We can't just single solar out as the energy industry is not a free market in any way. So the solar investment tax credit is necessary to keep solar cost-competitive with other forms of energy that have all been propped up by government for many decades in a heavily manipulated energy market. The good news is that solar is on it's way to becoming cost-competitive without subsidies whereas energy from fossil fuels will require increased subsidization over time to remain competitive. But I digress. In Chicago there is also a nice SREC program where one can sell their solar energy back to the grid for a premium which is an additional benefit on top of the tax credit. 

In my experience as solar leaves the early-adopters phase and enters the main stream, which happened in 2012-2013 in many markets, more and more solar customers are concerned with the hard numbers over the soft benefits. In many places with mature solar markets the hard numbers are looking very good thanks to decreased costs from mass production of equipment and increased efficiencies in racking and installation techniques. But other areas of the country don't even have net metering yet so solar hasn't advanced much in those areas where customers are locked in to an energy monopoly with no option to generate their own electricity and sell it back to the grid. 

One important thing to note is that unfortunately the 30% investment tax credit only applies to a primary residence or vacation home and specifically does not apply to investment property, so the payback period will be 30% longer in instances when the property doesn't qualify for the ITC. There are ways to monetize the ITC on investment property such as using a 3rd party that can take the tax credit and pass the savings on, like in a PPA or lease situation, but those options have some drawbacks such as clouding the title with a UCC-1 fixture filing (kind of like a lien) which isn't a benefit during transfer of title as in during a sale. Also worth noting is the ITC is dropping to 26% at the end of this year and will be phased out entirely in the next few years.