For many investors, the costs of “green” investments such as solar power are hard to justify. But investors who are interested in solar power have the opportunity to save money by taking advantage of unique financing strategies and government-offered subsidies, rebates and tax incentives, in addition to long-term savings on energy costs. Further, investors have the opportunity to use solar energy to make money by marketing a property that uses solar as “green”—a feature for which some buyers or tenants would be willing to pay a premium.
Many emerging energy technologies promise a profitable future; however, solar could be especially beneficial for individual investors.
“The Earth receives more energy from the Sun in just one hour than the world uses in a whole year,” according to Solarbuzz, a San Francisco-based solar energy research and consultancy firm. With that knowledge, it’s no wonder that renewable energy enthusiasts have high hopes for the future of solar technology. But forget the future: Today, financing strategies are making it possible to benefit from solar technology.
Solar is a small player in the U.S. energy industry, representing about 1 percent of all energy produced; this number is likely to rise, as manufacturing has skyrocketed from an annual level of 300 megawatts in 2000 to more than 2,000 megawatts in 2006, according to the book The Clean Tech Revolution, by Ron Pernick and Clint Wilder.
Why is this industry booming? With today’s volatile energy markets, not to mention oil’s recent climb to $100 per barrel, solar energy creates an attractive alternative that allows long-term fixed costs for energy production. As costs of solar continue to fall, investment in this technology could become an economically wise decision for both residential and commercial consumers.
The biggest obstacle preventing widespread implementation of solar energy is the large upfront cost required to purchase the technology and have it correctly installed and maintained. The average cost of a residential system is around $8,000 to $12,000. Those who aren’t environmentalists likely believe this money is better spent elsewhere. But the solar industry will never reach its potential if it remains hidden in the environmental niche. To break into the mainstream, solar must become a product that is financially beneficial and easily acquired by the average consumer.
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In recent years, numerous companies have shown dedication to dispel the upfront cost and make solar energy a viable alternative to grid electricity. Two popular strategies have emerged at the forefront of this effort. One involves the use of loans to amortize the cost of a solar energy system over its entire lifespan. The other creates a relationship called a power purchase agreement (PPA) in which customers do not own the installed equipment and are required only to pay for the solar energy that is produced.
Several frontrunners have emerged in the business of lending money specifically for solar energy projects. Nationwide Mortgage, an established specialty lender, recently launched a division called Nationwide Solar Funding that will focus exclusively on financing renewable energy projects. Clean Power Finance of San Francisco has a similar goal; they focus on providing loans for residential and small business clients who wish to adopt solar energy capabilities. These loans vary in specifics, with a choice to finance only the solar energy system or an option for investors to refinance an entire home mortgage and incorporate the solar costs into the regular monthly payments.
Loans aren’t only for those who cannot afford the upfront cost of solar. They are also the smart choice for those able to buy solar in one lump sum. The logic here is based on the principle that a dollar today is worth more than a dollar tomorrow. Because loans disperse the cost over the life of the equipment, money that would have been spent on an upfront purchase can be invested elsewhere, all the while earning interest. With the success of companies specializing in solar lending, renewable energy could become more feasible and increase the speed at which these alternatives will become the norm.
The second major strategy in the creation of practical solar energy is through PPAs. This financing approach is similar to how cable television is paid for: The supplier installs the necessary equipment, and remains owner of that equipment, while the customer pays only for the use of services made available. SunEdison, the largest solar energy provider in the U.S., provides solar PPAs for commercial, utility and government customers. By simplifying the process of acquiring solar, SunEdison allows its clients to have a contract locking in a long-term fixed cost for their energy, without the hassle of installation, maintenance or a large upfront purchase charge.
Sun Run is a new company emerging on the residential front that lures clients with the possibility to “purchase power, not panels.” This California company offers a 20-year contract to install and maintain their equipment at half the price of buying an entire solar energy system. The average electric bill for Sun Run customers will be fixed at a cost of 13.5 cents per kilowatt hour throughout the contract, which is well below expected energy costs in California during the next 20 years, according to RenewableEngergyAccess.com.
Solarbuzz puts average solar energy electricity costs at around 30 cents per kilowatt hour, or about two to five times normal residential electricity rates. Though more expensive by today’s prices, the ability to fix electricity costs for 20 years or more could amount to large savings, as fossil fuel prices are likely to continue to rise during that same period of time.
Financing opportunities such as those described above make it a realistic possibility to save money with an investment in solar. In some communities, this economic benefit can be amplified through utilization of existing tax incentives and rebate programs. Among the largest and most aggressive government efforts to ignite the solar industry is the California Solar Initiative. Adopted in 2006, this bill created a $3.3 billion tax incentive program aimed at putting solar energy on one million roofs statewide by 2017. These incentives are crucial because renewable energies do not receive a fraction of the federal government subsidies that are granted to fossil fuel energy producers. Investors should visit the American Solar Energy Society’s website (www.ases.org) to find information about incentive programs in their area.
Although the future of solar seems bright, there are surely to be some roadblocks along the way. It is important to realize that solar energy provides only peak power, since for approximately half the day, each part of the earth will be on the dark side of the planet. Battery storage systems are rapidly improving, but it is still necessary for most solar producers to use the energy as a supplement to traditional grid electricity.
Geographic location also presents a problem. California is a haven for solar start-ups, and with its reputation for continuous sunshine, this comes as no surprise. Other regions with less sun exposure will be slower to jump on the solar bandwagon. However, as costs fall and efficiency improves, this energy alternative could become a viable option even in areas not known for having sunny climates.
Even with recognition of its weaknesses, solar energy’s popularity could increase given its attainability and the growing interest in the alternative energy industry. Ramped-up manufacturing will standardize production and continue to bring costs closer to parity with grid electricity. With creative financing and government-led rebate programs, solar energy can provide investors with significant long-term economic benefits. Investors could benefit not only from the decreased costs of purchasing solar thanks to various subsidies, rebates, tax incentives and innovative financing methods, but also from the ability to market their properties that use solar as “green” and to charge a premium to tenants and buyers of those properties.