Virginia Explained: How can you save on residential solar?
Navigating a tangle of tax exemptions, credits, rights and utility programs
Solar panels being installed on a low-income house in Norfolk. (Norfolk Solar Qualified Opportunity Zone Fund)
Scammy internet ads and dubious “qualification” surveys about solar installation in Virginia abound online, but it is difficult to find clear, accurate information on what the state and federal government are doing to encourage cleaner energy consumption.
With a price tag similar to that of a used car, Virginia homeowners looking to make a financial investment in solar panels are confronted with navigating a tangle of tax exemptions, credits, rights and utility company programs.
The costs (and benefits) of going solar
The solar marketplace EnergySage estimates the average price for residential solar in Virginia to fall between $12,325 and $16,675 for a 5 kilowatt system, which is on the smaller end of a system size. The most common systems are between 8 to 10 kilowatts, but it depends on the size of the roof. For a 9 kilowatt system, the average cost is about $26,100 before federal tax breaks.
EnergySage estimates the average solar system in Virginia pays for itself in about 12 years by lowering or eliminating a household’s power bill and saves customers about $21,000 over 20 years compared with simply buying energy from a traditional electric utility. A solar array typically lasts about 25 years.
Nonprofit Solar United Neighbors, which helps organize solar cooperatives, evaluates quotes by installers and advocates for increased solar accessibility, estimates the payback time to be shorter: between eight and 11 years, according to Virginia program associate Ben Hoyne.
These estimates assume an upfront payment for the solar array, as well as a 2 to 3 percent increase in the price of non-solar electricity annually.
Solar Renewable Energy Credits
Electric utilities can buy solar renewable energy credits, or SRECs, from solar system owners in order to meet certain mandated sustainability requirements, and demand exists from some companies that want to offset their non-renewable energy somewhere else. These credits operate like vouchers that certify energy as renewable and can be traded through third-party brokers on an open market exchange. If a company claims to offset all its carbon emissions, some of that may be a result of buying credits from individual households that are clean energy producers.
SRECs are valued at up to $75 per megawatt-hour produced and typically range anywhere from $30 to $60. Selling these credits does not require a net excess of solar electricity production, and they can either be sold all at once or over time
How solar pays you back
Those with residential solar are able to save money despite most systems not offsetting 100 percent of a home’s usage with clean energy.
Once the solar system installation is completed, homeowners are able to trade energy back and forth with their energy company through net metering. Net metering is the system that counts inflows of electricity from the grid and outflows generated by rooftop panels, enabling solar owners to build up credits for the excess electricity produced by panels during the day.
As the meter installed on your house tracks how much electricity is being consumed, it also calculates how much is being offset by generation and fed back into the grid, potentially reducing or even eliminating your energy bill depending on the generating capacity of the system.
The state requires for-profit regulated utilities like Dominion Energy and Appalachian Power to abide by fair price net metering rules. This means that the energy being fed into the grid receives the same valuation as the energy being pulled from the grid.
Dominion has also gotten into the residential solar installation business with a subsidiary called BrightSuite.
Some Virginia utilities impose monthly “standby charges,” which are meant to compensate them for losing out on customers whose systems generate too much excess power. However, the law prohibits standby charges for residential solar in Appalachian Power and Old Dominion Power territory.
Federal tax incentives
For people interested in installing solar, the largest up-front financial assistance is provided by the federal investment tax credit for residential solar energy, which offers a 26 percent credit for systems installed between 2020 and 2022 — meaning you can deduct 26 percent of the cost of system installation from your income taxes when you file. For that 9 kilowatt system, the credit would reduce the cost to $19,314.
For systems that complete their installation in 2023, the credit is 22 percent, after which it will expire without further congressional action.
This credit requires that solar customers have some tax liability to deduct from, as well as requiring that customers pay for the system in full, either in cash or through financing. For example, a married couple under 65 filing jointly making less than $25,100 would be ineligible for the tax credit.
Financing options for residential solar
If paying for the system requires a loan from a bank or other financial institution, prospective customers also have to factor in the fees and interest payments associated with borrowing money.
Solar customers who are homeowners may be able to take out a home equity loan. The interest rates for a long-term loan for a solar array from Clean Energy Credit Union, a financial institution that solely offers loans and financing services for clean energy investments, are currently around 5.5 percent.
“Many installers have their own in-house financing or a partnership with a lender,” Hoyne said. But he cautioned that while rates are important, contract and upfront fees are also critical. “Somebody might have a really good rate, but also [if] you’re paying $5,000 in fees, [it] doesn’t matter that that rate is really good.”
Some places have solar co-ops, where prospective customers can join a large group of others in the area to use their bargaining power to negotiate better prices from installation companies. Low-income households may also be able to enter into a power purchase agreement, which functions like a lease where private equity investors pay for the system and homeowners pay the investors rather than the electric utility.
State protections and local taxes
At the community level, Virginia law prohibits homeowners associations from disallowing either the installation or use of solar panels, although it can establish “reasonable restrictions” regarding size and placement. In 2020, the legislation was updated to set clear guidelines for reasonability, barring associations from making rules that increase installation costs by 5 percent or reduce projected energy production by 10 percent or more.
Under Virginia law, solar energy equipment has a separate tax classification from real estate or personal property. For the remainder of this year, localities have the option to exempt their residents from paying taxes on that equipment.
Currently the cities of Alexandria, Hampton, Roanoke, Suffolk, Lynchburg, Harrisonburg, Charlottesville, Petersburg, Fredericksburg, Winchester and Lexington in addition to Fairfax, Prince William, Loudoun, Chesterfield, Albemarle, Hanover, Fauquier, Pulaski, Giles and Scott counties offer such tax exemptions, per a database from the Weldon Cooper Center for Public Service at the University of Virginia.
Beginning on Jan. 1, 2023, all residential solar facilities under 25 kilowatts will be considered a separate class of property and be exempt from local taxation.
Shared solar — an inclusive alternative
A potential solution to reduce the cost of solar and increase its accessibility is by participating in a community solar program, sometimes called shared solar. These programs allow multiple households to purchase a portion of the electricity generated by a solar array, allowing people like apartment dwellers who can’t put a system on their roof to buy in to clean energy and receive credits for it.
“Most folks that can get solar are homeowners, so that excludes a ton of people,” Hoyne said. That includes residents of apartments or multifamily units, those who move too frequently to realize the long-term payoff of solar electricity, homeowners with roofs or house orientations that are not suitable for panels or people who are not able to afford installations.
In 2020, the General Assembly required Dominion and Old Dominion Power to develop shared solar programs. The State Corporation Commission recently set the minimum bill for Dominion customers — the amount that customers will still have to pay to cover energy production costs — at $55, causing some lawmakers and advocates to complain that it is too expensive to be broadly accessible.
Solar United Neighbors was pushing for a much lower $10 minimum bill, and Hoyne said that $55, which he believed was the “highest in the nation,” was “not a positive development” and “goes against the intent of the legislation.”
An expanding market
Although reductions in the cost of solar technologies have far outpaced modest predictions — dropping about 15 percent per year between 2010 and 2020, according to one University of Oxford meta-analysis — a report from the Weldon Cooper Center for Public Service argues that associated “soft costs” such as permitting, inspections, labor, taxes and grid interconnection make up 63 percent of the total cost of residential solar PV installations.
Average hardware costs were about $0.99 per watt in 2018, while EnergySage found the total cost in the commonwealth to be $2.90 per watt as of July 2022.
Part of the difficulty in finding reliable information on residential solar costs is due to the variety of factors that go into them, creating large variations in prices for different systems and different installers.
Hoyne points to the relative newness of the solar industry as a reason for the “disjointed” nature of online information, as well as the “multiple players” involved. He says that there is potential space for the Virginia Department of Energy or electric utilities to fill the gap.
“Now you’re starting to see a little bit of critical mass where more folks are able to go solar,” Hoyne said. “In terms of why there’s a limited amount of information, it’s just a new market, recent in terms of having a broader appeal.”
The U.S. Department of Energy offers a solar energy production calculator that estimates the amount of energy it is possible to generate in a geographic area, although housing orientation and tree cover also impact how much direct sunlight reaches a PV system.
Other helpful resources, both business and nonprofit, include Local Energy Alliance Program, SolarizeNOVA, Google’s Project Sunroof, Solar United Neighbors, the Database for State Incentives for Renewables and Efficiency and a guide by the Solar Energy Industries Association.
This story has been corrected to reflect that SRECs are traded in megawatt-hour blocks, not kilowatt-hour blocks.
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