If I understand the new tax cuts, (and who really does given its 500 pages were written in a matter of days) then a business can immediately expense 100% of equipment investment against business income.
That means no more capital depreciation. You buy it, you expense it during its first year of use.
If first year expensing applies to solar systems, then this could be a huge opportunity for lowering your business electricity costs. Imagine being able to deduct a solar system’s full cost during its first year of operation. It opens the door to decades of “free” electricity!
The three key steps to finding out if this opportunity is available for your business are:
- Work with a tax professional on this question
- Retain a rate design expert that can analyze your utility bill for kWh and KW pricing
- Solicit bids for a solar/battery electricity system.
Rate design is biggest obstacle to solar electricity
Today, solar is the cheapest source of electricity! Utilities across the country are fighting to preserve their revenues by winning rate designs from their regulatory commissions that undercut solar’s economics for consumers.
The KW charge is a key price weapon that utilities use to preserve their revenues at the expense of customer owned solar power. KW charges are a legitimate methodology for recovering capital investments in power plants, substations and lines. Too often, utilities and their regulators have applied non-coincident KW charges in a manner that erodes or eliminates solar economics. (It also robs energy efficiency investments from reducing electric bills.)
Real time pricing is a very efficient pricing system for allocating utility cost and investments to consumers that are most responsible for the utility’s peak demands. But utilities can use this pricing pricing system to assign a lower value to solar’s daytime generation while charging really high electricity prices during early evening hours when the sun is setting.
Here’s the technology good news regarding solar. A perfect storm (from a utility’s perspective) is growing where the technologies of solar, batteries and load control can defeat KW charges and real time pricing.
For example, I recently developed a solar system combined with a load control system to dramatically cut a medical building’s electricity bills. This system used solar to generate energy (kWh) while the load control system lowered KW charges by more effectively managing multiple A/C units.
High battery costs are the current weak link in the path to consumer owned solar. They currently cost $200+ per kWh. This price is typically uneconomic in comparison to utility prices. The good news is that battery technology is projected to achieve $100 per kWh breakthrough prices by as soon as 2019.
Now add in the economic benefits created by the new tax plan. If a business can 100% expense a solar/battery system’s costs during the first year of operations then this could make solar/battery systems cheaper than buying from your electric utility right now.
The tax benefits of solar
Companies from Apple to Walmart are currently installing solar in solar-friendly states like California. A driving economic reason is that investing in solar generates a 30% investment tax credit (ITC) plus five year accelerated depreciation. These tax incentives plus the potential for lower electricity costs can generate a system payback in a little over five years.
This new tax plan can accelerate solar/battery system investment recovery to just one year! That could mean realizing “free” electricity starting in year two.
How close to free electricity can a solar system achieve?
Solar has zero energy costs. Maintenance costs are minimal, typically the cost of cleaning the panels once or twice a year.
Significant costs should not incur until around operations year 10 when inverters may need to be replaced. Inverters convert solar’s direct current into the alternating current used by A/C units, motors, etc.
Solar panels experience output degradation. It is usually around .5% annually. In 20 years the panel system is producing 80% of its first year’s output.
Battery life is a complex question involving numbers of discharges and depth of discharge. Working with a technical expert is critical to designing a battery system that will offer years of cost effective protection against KW demand charges and high real time prices.
Overall, declining technology costs plus this new tax law has the potential of enabling solar/battery systems to dramatically cut, or even eliminate, electricity bills!
Free electricity plus increased reliability
Your business bottom line is that solar/battery systems can be cheaper than buying from the utility if:
- Your business can write off 100% of investment against business income during the first year of installation
- The system can reduce your electric bill by reducing or eliminating KW demand charges and kWh consumption.
Increased reliability is the icing on the cake for solar/battery systems. A solar system located on a roof or in a building’s parking lot can have a much lower risk profile than a utility pole next to a busy street.
Utilities also struggle to maintain urban voltage because utility power plants are located far removed from cities to minimize human impacts from pollution or nuclear waste. On the other hand, a solar/battery system is integrated into a building’s electrical system and is digitally monitored in real time for voltage, distortions and reliability.
In summary, the new tax cut legislation my be another reason businesses in 2018 should consider a solar/battery system for their buildings.