Nationally, California is the undisputed leader in total installed solar power capacity. As of late 2016, there was over 16.5 gigawatts (GW) of solar power capacity in the state. For comparison, total US installed capacity is just over 36 GW, which means California represents over 45% of the total US installed capacity.
There are many reasons why California has secured its spot atop the American solar industry. The state gets abundant sunshine, has a thriving entrepreneurial community pushing new technologies forward, and has plenty of capital available to finance both solar companies and individual projects. In addition, there is a statewide goal requiring local utilities to generate 50% of all energy from clean sources by the year 2030.
The electric sector in California is dominated by four major utilities that serve more than 80% of the state: Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric, and Los Angeles Department of Water and Power. The average price of electricity is 17 cents per kilowatt-hour (kWh), exceeding the national average of 13 cents per kWh by 30 percent. In other words, the energy savings associated with generating 1 megawatt-hour (MWh) of solar power exceeds the national average savings from solar by $400.
California has a solid net metering policy; if you generate more energy than what you consume, you get credit for the surplus at the full retail price up to the total amount of energy you consume. If you have a large enough area for solar panels, you can become a small-scale energy producer, taking advantage of the generous sunshine in the state and billing your utility company instead! Though, if your solar panel system produces more energy than you consume, the utility will only pay you the wholesale rate of energy for the excess production. Therefore, it is best to size your solar system to just offset all of your energy needs.
The California Solar Initiative (CSI) is the main rebate program in the state, and it launched with the goal of increasing the solar power capacity by 3 GW by 2017. The program was highly successful, and funding for this program among the four major utilities was depleted in 2014.
However, plenty of municipal utilities still offer rebates, sometimes exceeding $500 per kW of installed capacity. Many of these programs target the residential and small commercial sectors, and most of them are capped in terms of capacity or total funding. We suggest talking with a local solar professional to find rebates in your area.
California offers no state-specific tax benefits for solar power. However, the nationwide Solar Investment Tax Credit applies to home and business owners in California. Here’s how the national tax credit works:
It is important to note that the full 30% benefit is only available for solar panel systems installed before 2020. The tax credit drops to 26% in 2020 and 22% in 2021. From 2022 onwards, the residential tax credit will be eliminated and the corporate benefit will stay at 10%. If you are considering solar panels, we highly recommend that you install your system while the 30% tax benefit is still in place.
In California, using debt financing for solar panels makes sense when monthly electricity savings and incentives offset the monthly loan payment. Home and business owners can own the panels while paying less per month than they currently do for energy by getting a low-interest loan with a long repayment term. California also has a loan product that is exclusive to Californians called a Property Assessed Clean Energy (PACE) loan. A PACE loan is tied to the property instead of the property owner or owners and can offer substantial savings over traditional solar loans. Ask a local solar professional if a PACE loan makes sense for you.
A Power Purchase Agreement (PPA) is an alternative to debt financing, where a company installs a solar panel system for your property at zero upfront cost. They own it and provide maintenance, but you agree to purchase all the electricity generated over a specified period of time. They charge prices below utility rates, which guarantees savings right from the start.
Since the PPA business model was developed in California, there are plenty of options available. The only drawback to this approach is that the company providing the PPA keeps the tax credit, but don’t have to worry about loan payments and panel maintenance. Of course, the potential savings are higher when you own the solar panels, but a PPA offers an attractive alternative if you cannot pay for the system upfront and do not want to take out a loan.