Will solar-power rebates burn out?

Los Angeles Times

LOS ANGELES

Abundant sunshine has made Southern California one of the brightest markets for residential solar power in the country. Some might say too bright.

Encouraged by federal tax credits and a municipal rebate, so many LA residents sought to add rooftop solar panels at the start of the year that the Department of Water and Power had to suspend its Solar Incentive Program in April because of overwhelming demand and funding concerns. But on Thursday, the DWP was to relaunch the program, albeit with reduced rebates and a new online system to process applications.

What do the new rebates mean for homeowners? For those who want to go green and add solar panels, what will the new out-of-pocket expenses look like? And potentially most important, how will the new rebates affect the ability of residents in LA and beyond to lease panels instead of buy them — a popular way to get solar installed with minimal up-front costs? The answer to that leasing question isn’t too sunny, but first let’s look at the broader solar-power landscape.

The last time the DWP offered a solar rebate, homeowners who bought and installed photovoltaic panels were reimbursed $3.25 per watt, or $16,250 for a typical 5-kilowatt system. The average cost of this system was about $35,000, so the rebate covered nearly half. Savings on electric bills meant that the solar panels typically paid for themselves after 10 to 12 years.

Under the new rebate structure, homeowners will be reimbursed $2 to $2.20 per watt, or $10,000 to $11,000 for a typical system. That lowers the incentive to about 30 percent of total costs. Homeowners will recoup their investment in about 13 to 15 years, said Michael S. Webster, assistant director of DWP power system planning and development.

The other wrinkle: The DWP estimates that about 700 residential installations will qualify for these rebate amounts, and then the rate will drop even further. For subsequent homeowners who buy their systems, the rebate drops to $1.62 per watt, or $8,100 for a typical 5-kilowatt system. At this rate, 2,000 more installations can be completed before the rebate drops yet again, to $1.05 per watt.

Bottom line: The largest rebates are expected to go fast.

Why the tiered structure? The idea behind these incentives is to get people to buy something new — something that they might not otherwise invest in because of cost. Once enough people buy in, the market grows larger, and economies of scale help to bring down the free-market prices. More people theoretically can make the purchase without incentives.

Indeed, the cost of solar panels has been decreasing, thanks to an increase in companies entering the market and a recession- induced glut of supply.

The bad news: Panels and other hardware constitute roughly half of the total cost of installation, according to the U.S. Department of Energy’s National Renewable Energy Laboratories. The other half is composed of soft costs, principally labor, that can be difficult to reduce.

How these new numbers pencil out will be crucial in the world of solar- panel leasing. Many residents have installed solar through leasing companies that require no money down but charge a monthly fee for use of the panels.

For many customers, that monthly bill is roughly equal to what they’d been paying the utility company, so solar was a no-brainer.

Under the new rebate structure, companies that install solar as part of a lease agreement will get smaller rebates: $1.95 per watt, or $9,750 for a typical residential project, if among that first group of 700 installations. The rate drops to $1.50, or $7,500 for a typical home, for the next 2,000 installations.