The Solar Boom in California

urlWe have observed a “solar boom” in California, meaning that many homeowners are accessorizing their roofs with pricey solar panels.  Typically, these eco-friendly generators run at a cost of over $23,000 with a sizable Federal Tax Credit of $7,200, winding the price down to less than $17,000.  The Federal Tax Credit, established in 2006, provides 30% tax benefits for residential and commercial solar installations through the year 2016.  Now, I know what everyone is thinking: That is still really expensive.  How does anyone possibly afford that? 

Yes, on the surface it may seem that solar panels – like many other things in this country – are only attainable to those with plenty of money to play around with.  However, the process of obtaining solar panels on your home has been re-invented to move solar panels within reach of the Average Joe.  The vehicle that moves solar panels into close proximity of the working class is called a third party operator.  Third party operators provide third party financing that allows homeowners to install and use solar panels for little to no cost down to the homeowner.  There are two ways that third party financing works:

  1. A lease – similar to a car lease, a solar panel lease can be signed by the homeowner, requiring them to make payments for the use of the panels.  Upon the end of the term, lessees have the option to purchase the panels.  Leases typically run 15-20 years.
  2. A Power Purchase Agreement – a power purchase agreement (PPA) entails the third party operator taking the electricity provided by the solar panels and selling it back to the household.  The rate for the electricity is fixed upon the contractual agreement, however it is still cheaper than the traditional electric bill.

Forbes reports that third party financing is the dominant way for homes to go solar in the states of Colorado and California (http://www.forbes.com/sites/peterdetwiler/2014/02/10/solar-third-party-financing-at-3-34-billion-in-2103-key-to-the-u-s-solar-boom/).  The article then states that the solar boom simply would not be possible without third party financing facilitating the growth in the residential market.  Currently, the state of California generates the most solar electricity in the country.

All of this does not go without answering the question: Do solar panels really work?  The answer is yes.  Solar panels do work.  In fact, solar panels generate excess electricity.  Some companies offer homeowners a credit on their utility bill as a “buy back” of the extra electricity that the panels provide.  Solar panels bring enough power back to the electricity companies that it outweighs the cost of providing those customers with credits on their utility bill.  On average, it takes about 5 and a half years to break even on the cost of buying solar panels without third party financing as so much is saved on the utility bill annually.

The United States residential solar market grew incredibly fast in 2013 and is likely to grow rapidly in 2014 as well.  As reported by another Forbes Article, the number of “home solar installations jumped about 60% by adding 792 megawatts last year…Overall, workers completed about 4.8 gigawatts of projects in 2013 for homes, businesses, and utilities throughout the country, a 41% hike from 2012” (http://www.forbes.com/sites/uciliawang/2014/03/05/what-can-solar-companies-do/).   Although coal is not dead, solar panels are a great way for homeowners to participate in renewable energy and minimize their costs, while simultaneously fueling electricity companies and encouraging the growth of a new market.

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