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Solar panel projects: does it pay to play?

Phrases like "going green" and "focus on sustainability" are commonplace in the real estate business today. The question of payback in relation to dollars spent on energy related items is central to everyone. When the payback period is two or three years, many find it palatable, but when the payback period nears five or more years, many determine that the financial merits do not warrant the expenditure. Some argue that payback should not be measured in dollars, but rather in quality of environment and in making the Earth an eco-friendly place, regardless of dollar cost. This idea is carried into the political arena, where portions of energy projects are funded by state and federal subsidies in addition to income tax incentives.

Regardless of your social and political take on this subject, the reality of ever-increasing energy costs has caused our industry to consider alternative energy sources and energy efficiency products. Energy management has become a major part of the business of property management, as property owners are increasingly aware of energy costs and rely more than ever on property management professionals to monitor and shape energy savings.

With electricity being by far the most critical energy medium used today, alternative methods to generate electrical power and reduce consumption are being considered by our industry as well as the rest of society.

Getting the Green for Green Energy

Solar panels are the most prevalent alternative source of electrical power, with various types of these panels being used for residential and commercial applications around the world. The general problem with solar panels is that their payback period varies greatly, easily ranging from 10 to 20 years. Thus, economic incentives have been provided to spur installation of solar panel systems and stimulate the market for solar panel products. The largest source of these incentives? The federal government.

Section 1603 of the American Recovery and Reinvestment Act allowed applicants to forego tax credits under sections 48 and 45 of the Internal Revenue Code and apply directly to the U.S. Treasury for cash reimbursement payments of 10 to 30 percent of the cost basis of the improvements. Section 1603 of the act expired at the end of 2011; however, federal investment tax credits for the same 30 percent amount are still available.

Under the federal Modified Accelerated Cost-Recovery System (MACRS) businesses may recover solar projects over a five-year period. In addition to the normal schedule of cost recovery, a bonus provision was allowed for solar panel projects. In December 2010, the provision for bonus depreciation was amended and extended through 2012. This bonus allowed the taxpayer to take cost recovery on 100 percent of a qualified solar project basis in one year. Additionally, 50 percent of the money received from a 1603 grant could also be added to the basis for determining MACRS. This year, bonus depreciation reverted from 100 percent to 50 percent of the eligible basis. For a summary of federal incentives online, visit

A number of state governments and municipalities offer investment tax credits, abatements, reimbursements and other incentives to qualified companies which install solar projects. Some states, such as Arizona and California, have passed legislation that requires utility companies to provide a certain amount of power from alternative non-fossil fuel power sources. Utility companies in these states offer cost rebates or reimbursement for portions of solar panel projects.

Forecasting the Costs

To determine your cost basis, tax credits, grants, MACRS schedules, etc., see a competent accountant or legal representative. Once you have determined your actual capital investment in your solar project you can do the following simple financial tests:

* ROI--The capital investment divided by the annual dollars saved from purchasing electricity will give you the annual ROI.

* Payback Period--The cost basis divided by the annual energy cost savings per year will tell you your approximate payback period in years.

* Cost to produce--You can also determine the cost to produce a kilowatt hour (kWh) with your solar project by dividing the estimated kWhs that will be generated over 25 years by the initial project cost.


Solar Systems in Application

I recently installed my first solar panel project, a system comprised of 130-230 watt solar panels with a 29.9 kilowatt output. In other words, at 100 percent capacity, these panels will generate 29,900 watts of electrical power per hour. The system is currently generating approximately 46,000 kilowatt hours per year resulting in an annual power savings of about $3,700. The components needed for a solar panel project are listed below:

Solar Panels--Photovoltaic (PV) systems use solar panels to convert sunlight into electricity. A linked collection of solar panels is called an array. Solar panels have a useful life of approximately 25 years. Warranty periods are typically the same: Their efficiency declines with age. In recent years the cost of solar panel production has decreased significantly. These PV systems can stand alone or can be made to connect to a power grid. For a view of a typical solar panel, see



Inverters--To convert direct current (DC) power into alternating current (AC) power, an inverter is used. When direct sunlight is received to a solar panel it is a DC commodity. Modern facilities need alternating current AC power. AC is also needed if the excess power from a solar panel system is going to be fed into a power grid. For insight into a typical inverter, visit


Racking systems--Racking systems are used to connect solar panels to each other and to secure the panel system to the roof of a building or to a land surface. Weight is an issue associated with roof mounted racking systems. The racking system also allows for the angle at which the solar panels face the sunlight. For a view of a typical racking system, visit

Monitoring System--In order to monitor how effectively your solar panel operates, a monitoring system can be attached to your solar panel projects. Through the use of technology, an internet address allows you to see how many kWhs you are generating at a moment in time--daily, weekly or monthly etc. For a view of a typical monitoring system, visit


These solar panels generate 29,900 WATTS OF ELECTRICAL POWER PER HOUR and approximately 46,000 KILOWATT HOURS PER YEAR. Altogether, they provide an ANNUAL POWER SAVINGS OF $3,700.


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Comment:Solar panel projects: does it pay to play?
Author:Storey, Eric B.
Publication:Journal of Property Management
Geographic Code:1USA
Date:Nov 1, 2012
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