Solar Energy Blog

On June 14 Google invested $280 million into solar.

This investment will create new funding opportunities for homeowners seeking to utilize solar energy to bring down their energy costs. But Google is not the first major corporation to make a major investment in solar. According to Lyndon Rive, CEO of SolarCity, "the largest 200 corporations in the U.S. have more than $1 trillion in cash on their balance sheets."

So why would these highly successful companies doing this?

Is it for the positive PR? Along with generating handsome returns for corporate investors, being socially and environmentally responsible is one of many reasons why corporations such as Google choose to invest in solar. These reasons include:

Tax Benefits

Corporations that earn large amounts of income pay huge amounts in taxes. However, in 2011 the federal government's Modified Accelerated Cost Recovery System (MACRS) has made it possible for solar system owners to depreciate 100% of the solar system's cost basis in the first year.

Example:

Company X purchases a 250kW solar system for  $1,000,000.

If the corporation has a margin tax rate of 38%, this means that the corporation would generate $323,000 more in cash flow during the first year after installing a solar power system.

Warning: This 100% depreciation offer will expire at the end of 2011.

Learn more about MACRS and other federal grant incentives here.

Performance Based Incentives

Utilities and states around the country pay performance based incentives to owners of solar energy systems based on the amount of energy produced by the solar system. These incentives vary greatly depending on your geographic location and energy provider, and can be available as feed-in tariffs, or Solar Renewable Energy Certificates (SRECs).

Example:

Company X installs a system in a state where there is a market-driven commodity purchase program for Solar Renewable Energy Certificates (SRECs) at $.50 kWh for 5 years.

Learn more about SREC's here.

Energy Savings

A solar system normally comes with a 25 year warranty and has a production life close to 40 years. When considering that there has been an average annual increase of 6.5% in retail electricity pricing over the past 30 years, solar begins to look like a smart investment.

Example:

Company X has an average starting electricity price per kWh of $0.10. Therefore, the energy savings with an assumed 6.5% energy increase and a solar system production degradation of 0.5% annually is as follows.

Total Return

Adding all the above incentives shows the true value of solar. Internal Rates of Return over 10-25 years for viable solar projects range from 12-50%. And on top of this, the simple payback period ranges from 1-5 years.

Example:

Limited Risk

Risk associated with a solar system is very low, considering weather is the one thing owners and investors might worry about affecting their solar system's output. With this in mind, the total risk of a solar investment is closely compared to AAA investment grade bonds, or even Treasury Bonds.

Alternative Investments

In the current US economic environment, it is hard to find low risk investments with good return potential. But 200 of the largest corporations in the United States have over $1 Trillion in cash invested in solar energy projects, finding solar to be a stable, lucrative investment.

• The current 10 year treasury rates are below 3%.
• 5 year CDs at banks are between 0.45% - 2.5%.
• Stock market returns over the last 10 years are negative. Real estate is at 10 year lows.  

The Bottom Line:

• Rates of Return over 10-25 years for viable solar projects range from 12 - 50%.
• The Solar System will have paid for itself in 1 to 5 years.
• Low risk factors for solar installations result in solar system installations being rated on the same level as AAA grade investment bonds or Treasury Bonds.
• The current environment for solar investments is more attractive than any other investment when you take into account both risk and return.