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Ownership Financial Example

Wellfleet Example – SREC II Rebates

In this example we assume that a homeowner purchases a 5kW rooftop solar system at the basic rate, with no “extras”.  The example is based on the final draft of the SREC II program that will take effect at the end of the first or beginning of the second quarter of 2014.

The  conclusion we reach is that discounted to the present, the owner would have a payback period of 4.1 years and would save and earn the equivalent of $15,500

Assumptions: Solar Ownership Model

The price of electricity is expected to rise significantly for the next few years in the Northeast because of a shortage in natural gas line transmission capacity.  After that, we conservatively assume that electric prices will rise only slightly faster than inflation.  Over the last year, electric rates have risen faster than this.

 

Size: 5 kW (5,000 watts)
Annual Production (1st year): 6000 mWh
Panel Degradation: 1% Annually
Electricity Price (See below): $0.21/kWh
Electricity Price Escalator: inflation  + 3% annually for 3 years, then 1%
Life of System: 20 years
SREC Value: $285 declining to $189
SREC Factor 1.0 SRECs per mWh
Timeline for SREC Sales: 10 years
Federal Income Tax Rate: 28%
Discount Rate: 4.0% above inflation
Wellfleet Tier 5 Price: $3.50 / Watt
SRECs assumed not taxable
System installed 4th quarter 2014

Assuming that Solarize Wellfleet reaches tier 5, we will have a very advantageous base cost of $3.50 per watt.  In addition in this example there is a Commonwealth Solar rebate of $2000, a Federal tax credit of $5250 and a Massachusetts Tax Credit of $1000.  Taking these credits into account, the basic cost of the system will be $9250.  That cost will be offset by not paying NSTAR for electricity and by income from SRECs.

Calculations

Item Value Notes
Total Installation Cost $17,500 Assumes Tier 5 without any adders
CSII Rebate (base of $0.40/watt) -$2,000  Taxable ( 1099 issued)
Total Upfront Cost $15,500
Federal Tax Credit (30% of cost) -$5,250 Applied on 2014 tax return in 2015
MA Tax Credit -$1,000 State taxes will be reduced by the credit amount, but federal taxes will have a corresponding reduced state tax deduction.
Total After Tax Credits $9,250

Here are some details.  

Assuming your federal taxes exceed $5250, you will be able to take a federal tax credit.  If your state taxes exceed $1000, you will also get a Massachusetts state tax credit.  Credits can be carried forward and spread over several years.  

Offsetting these credits, you will need to pay taxes on the CS II rebate.  In addition, the amount you can deduct on your federal taxes for Massachusetts state tax will be reduced because state taxes will go down due to the state tax credit.  That is, in the 28% federal bracket, you only retain 72% of the CS II rebate and state credit.

You will also be saving on the cost of electricity over the next 20 years (or more) and will be able to “mint” solar renewable energy credits (SRECs) and sell them.  The cost of electricity in the future is speculative, but will probably go up.  The value of SRECs can go higher than the numbers stated, which are the “floor” prices.

Payback

The chart below includes the effect of taxes and the expected income streams.  It has two columns of costs.  In the first, the after-tax costs and income streams are summed.  In the second, the “Net Present Value” is considered as well.  “Net present value” takes into account that a dollar of income promised for five years from now is worth less to you than a dollar in hand today, since you could invest the dollar now and presumably have more than one dollar in five years.  The chart assumes 3% return over the rate of inflation.

The chart does not calculate or assume a specific rate of inflation.  It assumes that the price of electricity and the return on your investments will be inflated equally.  An alternate way of saying this is all numbers are in “2014 dollars”.

The bottom line is that whether you consider present value or not, the payback period (the time it takes to recover your investment) is between four and six years.

 

Item After Tax NPV After Tax Notes: NPV discounted at 4.00%
Upfront Cost $15,500 $15,500  
Credits
 $5,410 $5,194  Federal Tax Credit – tax on CSII Rebate + MA Tax Credit 
Cost after tax credits $10,090 $10,306  
SREC Income (over 10 yrs)  $11,313  $8,909  
Maintenance  -$3,500 – $2,144 Replace inverter at 12  years
Electricity Savings (over 20 yrs) $26,890 $18,091 Cost escalated and discounted
Net Project Value $25,870 $15,539 In current dollars.
Payback Period 4.1 4.6 Years

 

NSTAR Rates 2014 for Wellfleet (Estimated)

Distribution $0.07332
Transition $0.02922
Transmission $0.01863
Energy Conservation $0.00250
Renewable Energy $0.00050
2014 Generation Rate $0.09334
Total $0.21751

 

Disclaimer:  The example on this page is an estimate made by Solarize Wellfleet and is not intended to be a guarantee or a pricing offer.  It is based on our best estimate at this time.

1 comment

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  1. Dick Elkin

    In the example above you can expect a payback period of 4 to 6 years. If you invest $15,500 in 2014 dollars you will receive a return of $33.7K over the life of the project. The net present value of the returns is $35.1K in 2014 dollars.

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