Incentivizing the Green Build Up

There are many good reasons to build green, but for homeowners and small businesses, the high upfront costs can be prohibitive.

The key to advancing renewable energy use nationwide may be government involvement.

Federal, state and local incentives can help offset the big capital outlay that solar, wind and other renewable energy technologies require. Tax credit and rebates already go a long away. Now, innovative local funding programs are taking these projects even farther, making renewable energy installations as affordable as the monthly electric bill.

Adding Up the Incentives

Homeowners and small businesses in every state can start with the federal tax credit for energy efficient home improvements. The credit just increased from 10 percent to 30 percent under the economic stimulus package.

In many states, they can also add state incentives, and often local incentives as well. Put together, these incentives can make a significant dent in the cost.

Take California, which offers a Solar Rebate Program. Installing 600 square feet of photovoltaic panels, enough to power a 2,500-square-foot home with air conditioning would normally cost about $90,000. Of this amount, the $66,000 for equipment would qualify for the state rebate and federal tax credit, which also would cover a portion of labor costs. With those incentives, the homeowner saves about 50 percent.

The cost may be reduced even further by rebates and grants offered by local government-operated utilities. For instance, Anaheim, Austin, Los Angeles, San Diego, Palo Alto and Roseville municipal utility districts offer incentives for photovoltaic systems, ranging from $3 to $6 per kilowatt hour, offsetting the cost for a system up to 75 percent. The cost for a system varies by regional sunshine availability and individual electric usage. For a typical residence, the cost of installing a one-kilowatt (1,000 watts) solar photovoltaic system—the smallest considered practical—is between $6,000 and $10,000. To find out how much is needed, based on location and usage, check the Solar Power Calculator.

Cities Go the Extra Mile

The federal tax credit and Environmental Protection Agency Energy Star programs have been highly successful in encouraging energy-saving home improvements, such as weatherizing, better insulation and purchase of energy-efficient equipment and appliances.

Renewable energy incentives, however, have failed to generate significant participation nationally – even in places with incentives like California.

Annual limits on funding for state energy incentives, along with lack of public awareness about green energy programs, may be partially to blame. But the main problem is the high upfront cost for installation, which is still a lot of money even after rebates and tax credits, points out Dave Alpert, vice president of the San Francisco office of HGA Architects and Engineers.

He says his commercial clients usually aren’t interested in solar because payback takes longer than five years. He points out that the majority of participation in California’s Solar Rebate Program involves new construction, where installation costs can be rolled into 20- or 30-year mortgages. Alpert suggests that green energy incentives would get more traction among existing homeowners if coupled with a financing mechanism similar to Berkeley, Calif.’s FIRST (Financing Initiative for Renewables and Solar Technology) program.

Launched last year, FIRST uses bond financing to provide 20-year loans at 3.75 percent on up to $37,500 for renewable energy installations. Similar to loans for other public utility upgrades, the property is encumbered so the debt can be transferred to new owners if it changes hands.