Green Tax Benefits & Incentives Part #4

Does solar voltaic systems make sense in Minnesota? Let's take a look at combining the current federal tax credits, pending Minnesota state rebate program and net metering benefit to see if it all can make sense.
Example:
4KWp Solar Photovoltaic System approximate cost = $36,000 40,000
- MN State Rebate = -10,000 -10,000
- Federal Tax Incentive = - 7,800 - 9,000
Total Net Upfront Cost = $18,200 - 21,000

Cost to finance @6%, 30yr loan = $109.12 - 125.91 per month
Less: Net Metering (assumption) = - 58.33 - 58.33 per month (assumes 5 sun hours per day, 7,00 KWh per year at .10per KWh)
Monthly Out of Pocket = - 50.79 – 67.58 per month

The above is based on reasonable assumptions. However, each installation is different based on solar equipment & installation cost, equipment performance, sun hours per day, electricity cost, mortgage interest rate, etc.

Another way to look at it is what happens if you pay the net upfront cost with cash out of pocket. Assuming a $21,000 net out of pocket cost the cash on cash return is 3.3% on a tax free basis. Not the highest yield, but better than leaving your money in the bank.

Other Considerations:
- Other incentives may apply depending on location, rural area, utility provider, etc
- Utility companies charge much higher rates in the summer months and the net metering assumptions shown here may be conservative.
- Assuming you stay in your home for an average of seven years (the American average) the cost to you for owning the system is approximately $5,000.00 (e.g. 60 per mo). The loan balance on $21,000 after 84 months is $18,824. If there is a twenty year life, the remaining value after seven years works out to $26,000.00. The question is will the home sell for more than the $24,824 ($18,824 + $5,000) you have invested in the solar system at that point? Not very likely since the out of pocket cost new was only $21,000.
- Your home WILL produce significantly less carbon. While there is no financial incentive to monitor carbon emissions at this time, the cap and trade bill in congress is trying to do just that. A carbon tax would most likely change these calculations considerably.
- You are less likely to have power loss in hot summer days.

So there you have it; as far as I can calculate, installing solar photovoltaic panels in Minnesota is not a net zero cost. For comparison purposes, the $21,000 cost in this example is on par with what it would cost to moderately finish an average basement.

Would you install solar photovoltaic panels given these economics?