Want Solar Energy Write-Offs? Try New Jersey
John F. Wasik
Bloomberg, 2006-08-28
As the U.S. property market and summer both cool down, turning your house into a power producer can make sense. If you want to ``go solar'' with your home and boost its market value, New Jersey is a good place to start.
Although it won't usurp the title of sunshine state from Florida any time soon, New Jersey has generous benefits for homeowners installing solar equipment. Yet you don't have to live in Bruce Springsteen's home state to reap these breaks; similar programs are offered across the U.S., Europe and Australia.
Eric Olsen, a systems architect for United Parcel Service Inc., installed solar panels to generate electricity on his 3,500-square-foot home in Totowa, New Jersey. In the summer, the 48 panels generate 8.5 kilowatts, enough to pay all of his energy bills.
While the retail price of the panels was $62,500, his net cost was reduced significantly by state incentives. As his energy bills rose, the payback period for his investment has shortened.
``If the economics didn't work out, I wouldn't have done it,'' Olsen said. ``About 70 percent of the equipment and installation cost was paid for by New Jersey. It's the hottest state for solar power.''
The total cost of Olsen's system was offset by a number of financial plums that make a pricey product more affordable.
Doing the Math
Because he is using ``clean'' energy not produced by fossil fuels, Olsen receives a check for the power he generates. Under New Jersey's program, local utilities are required to buy back any power produced by solar or alternative sources. That credit was worth $1,850 to Olsen last year and covered his natural-gas heating bill.
While Olsen didn't qualify for federal-tax credits -- he installed his system before the latest U.S. income-tax write-offs became law -- New Jersey also partially subsidized the solar equipment, so that he paid only $18,000, the price of a moderate kitchen upgrade.
Using a home-equity line of credit to buy the equipment, he figures his system will be paid off in four to five years. Better yet, he estimates that his home's market value will increase by more than $60,000 because of the units and resulting lower operating costs.
Alternative energy sounds sexy these days, but there are no guarantees that adding solar, wind or geothermal systems to your home will raise its value.
You can assume, though, that your energy bills will drop. At a time when natural-gas, heating-oil and electricity prices are expected to rise, this may be one of the smartest home improvements you can make.
Three Questions
You need to do some calculations before taking the plunge. Solar equipment isn't cheap and it's important to know how long it will take for your equipment to pay you back. Those staying for only a few years in a home might not ever see a return on their investment. Here are some questions to ask:
-- What is the net cost of the system you are considering minus any state rebates and federal tax credits? A good solar vendor can help you run the numbers.
-- Is your home suitable for solar appliances? It would be difficult to install an efficient unit if you don't have an open, south-facing area or are in a wooded area. A certified solar installer or consultant should be able to make an assessment. See http://www.findsolar.com. This site also includes a calculator that estimates net cost and estimated property appreciation.
-- Will your local utility help you out? Many local utilities also provide rebates or reduce your power bill through ``net metering.'' Keep in mind if you already obtain cheap electricity, solar might not make sense. And the payback largely depends on state incentives. To see what your state is offering, check http://www.dsireusa.org.
Energy Prices Rise
As an added bonus to energy home improvements, you don't have to spend money on solar equipment to reap the savings.
Federal-tax credits are available on energy-efficient whole- house fans, hot-water heaters, furnaces, central air-conditioning units, windows, doors and insulation systems. The credits range from as little as $50 to as much as $3,400 for the most fuel- efficient cars and trucks.
To qualify for the credits, the items must meet U.S. Energy Department guidelines and be bought or installed before the end of next year.
It's a safe bet that retail energy prices may not fall dramatically any time soon.
From 1990 to 2004, power and heating/cooling bills were about 7 percent of household expenditures, according to a Chicago Federal Reserve study. Last year, that tab was estimated at 8.5 percent -- a 21 percent increase.
While I've always advocated that governments promote a clean energy policy through tax benefits, Congress should expand its program beyond 2007, when the federal-tax credits expire.
In the meantime, grab all the energy breaks while you can. As the old saying goes, ``make hay while the sun shines.''
