Going Solar in Colorado
By maninboulder, New West Unfiltered 3-24-06
Investing in capturing solar energy is not just for houses…….it makes good economic and ecological sense commercial and industrial buildings, too. With rising energy costs, building owners and users, alike need to be knowledgeable about the benefits of solar. In this article, I will explain how Colorado building owners and/or tenants can take advantage of investing in solar.
With the passage of Amendment 37 in November 2004, Xcel Energy is required to generate 0.4% of its electricity through solar by 2015. To comply with this voter mandate, Xcel established a rebate program to provide financial incentives of up to 60% of the total cost of installing solar electric systems (also called solar photovoltaic or solar PV) on private buildings. Some solar energy contractors will ‘float’ the rebate, so that you, the customer do not have to be out-of-pocket waiting for Xcel’s check to arrive.
In addition, tax benefits are available. A 30% federal income tax credit is being offered under the recently passed energy bill, the Energy Incentives Act of 2005. Residential system tax credits are capped at $2,000 whereas there is no cap for commercial systems. Plus, the owner of the solar electric system can depreciate the full retail cost of the system (minus half of the tax credit amount) over 5 years, while the life of a typical PV system is 30+ years.
Owning a solar electric system allows you to produce your own electricity and therefore reduce your building’s electricity bills. As solar electric systems last for 30 years or more, buying one is like paying for 30+ years of electricity with a one-time, upfront cost. The more that electricity prices go up, the more valuable your system becomes via saving larger and larger amounts on your utility bills.
With assistance from our friends at Namaste Solar Electric, a solar contractor based in Boulder, we have put together a hypothetical example for purchasing a 10kW commercial solar PV system:
Retail price of the solar PV System$80,000
Xcel Rebate ($45,000)
Income Tax (30%) on Xcel Rebate$13,500
30% Federal Income Tax Credit ($24,000)
Net Out-of-Pocket Cost$24,500
Annual Tax Savings from Depreciation in first 5 years(“straight-line” depreciation schedule at 30% tax rate) $4,000
Estimated Annual Savings on Electrical Bill(based on conservative, fixed electricity rate) $1,000
Total Annual Savings for First 5 years $5,000
Re-occurring savings Year-6 and beyond
(in present-time dollars) $1,000
Pay-back Period Approx. 5 Years
Through a capital investment of this type that decreases the operating expenses of the building, it is reasonable to expect an increased value to the building. In the example above, capitalizing the $1,000 re-occurring annual electricity savings at a 7% rate (1,000/.07) yields an increase to the value of the building of $14,286, which is additional benefit over-and-above the initial 5-year pay-back.
PV panels are typically located on the roof on the building, where they can help reduce cooling costs by mitigating the roof’s heat gain. In the case of a flat-roofed commercial building the panels may not even be visible from the ground. However, PV panels can also be used as awnings over doors and windows to provide shade where needed, while capturing and utilizing that solar energy at the same time. In short, solar panels can be an aesthetic and functional addition to a building. For a picture of a solar awning, click on http://www.nrel.gov/buildings/pv/images/09436.jpg
One more reason to invest in solar is it’s marketing value your building. In Colorado, people value a clean environment. It stands to reason that if two buildings are in competition for a tenant, (assuming the cost of leasing the two buildings are identical) the one with a solar PV system may likely be chosen over the non-solar building. And in the case of a tenant/buyer who has a strong affinity for renewable energy, the customer may be willing to pay a substantial premium for the solar-equipped building.
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Mark Casey is founder of Casey Partners, Ltd. a real estate investment advisory headquarter in Boulder. Mark holds a Master of Business Administration (MBA) from the University of Virginia. He is a member of the BoulderGreenBuildingGuild; CORE Connected Organizations for a Responsible Economy (formerly CEBA/P3); Urban Land Institute, and Commercial Brokers of Boulder. For more info, call 303-665-6000 or visit http://www.caseypartners.com . Namaste Solar http://www.namastesolar.com can be reached at 303-447-0300.
Comments
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