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Solar power pushes toward parity

Solar power pushes toward parity

As electric rates rise, the elusive break-even point comes into view

  • Updated
Part of the solar array at Tucson Electric Power’s solar test yard. More efficient photovoltaics are boosting the energy harvest.

Hefty tax credits and utility rebates have helped fuel a sun-powered boom that has solar arrays sprouting up on rooftops and carports in Tucson and across Arizona.

But as prices for solar systems plunge, the market is accelerating toward the day when the cost of generating solar power will match standard electric rates - without any subsidies.

The Obama administration predicted in August that nationwide, the cost of generating power with photovoltaics - which convert sunlight into electricity - will drop by half and reach parity with typical household and wholesale electric rates by 2015. But that assessment depends on so many variables, including local electric rates, it's been called overly optimistic even by some renewable-energy advocates.

Another study gives better clues as to where solar is headed in Arizona.

Here, it could match the overall cost of retail power without subsidies between 2020 and 2025, assuming electric rates increase overall, says a consultant who has studied the state's power market.

Maine-based Navigant Consulting's state-funded 2007 study also forecast that photovoltaics may beat standard retail electric rates by 2025.

But the break-even point may come sooner, said Lisa Frantzis, Navigant managing director for energy.

Prices for photovoltaic modules - the sunlight-catching components that can make up half the cost of such systems - have dropped about 40 percent in the past year, while overall system costs are dropping at a 5 to 7 percent annual clip, Frantzis said.

New, lower-cost and more efficient technologies - including thin-film photovoltaics that avoid the relatively high cost of silicon -can only hasten the cost reductions, she said.

For now, utility rebates funded by state-approved surcharges on electric bills, together with state and federal tax credits, are driving the solar boom. Together, they can cut the out-of-pocket cost of home solar systems by more than half.

SaddleBrooke resident Bill Boaz priced photovoltaics as he planned to build his energy-efficient home in the retirement community in 2001, before the generous rebates were offered.

"My wife had been talking about it (installing solar), but it never penciled out," said Boaz, 58, a retired salesman.

But in May 2009, Boaz attended a seminar at SaddleBrooke by a Phoenix-area solar company that highlighted the generous credits and rebates.

After taking bids from four companies, Boaz hired Tucson-based Technicians for Sustainability to build a roughly 5-kilowatt photovoltaic system in October 2009.

The total price: about $33,000.

But after a 30 percent federal tax credit, an $880 state tax credit and a $16,480 rebate from his power company, Trico Electric Cooperative, the system ended up costing Boaz about $8,600, after paying about $3,000 in income taxes on the Trico rebate.

"If I had to pay 33 grand, we wouldn't have done it," he said, noting that he expect to recoup his investment in under 10 years.

The program has become so popular that utilities are running out of rebate funds.

Trico told state regulators in January that it had run out of funds and owed $1 million to customers, some of whom may have to wait a year or more for reimbursement.

Tucson Electric Power Co., which has offered some form of rebate for renewable-energy installations since 2004, has seen its residential photovoltaic systems rise from 139 in 2008 to 298 in 2009 and about 1,100 this year.

In July, TEP asked state regulators to cut the amounts of individual residential rebates to $2.50 per watt of system capacity, from $3 per watt, estimating it would run through $17.6 million set aside for rebates this year by August.

TEP said demand for rebates has skyrocketed as prices for photovoltaic systems dropped to around $5 a watt from nearly $12 a watt in 2006.

The Arizona Corporation Commission agreed, dropping residential rebates to $2 per watt and rebates for small commercial customers to as little as $1.50 per watt.

State regulators also have approved rebate cuts for Trico and for Arizona Public Service Co., the state's biggest state-regulated utility.

A local solar-system installer said the utility incentives have helped drive the market, but companies look forward to when the industry won't rely on the rebates.

"The incentives did what they were supposed to do - built up confidence in the marketplace," said Kevin Koch, owner of Technicians for Sustainability. "I want to see the industry wean itself."

Katharine Kent, president and owner of The Solar Store, said tax credits and utility rebates have helped spur the industry, but she worries that consumers may be burned by fast-buck business practices.

The rebates "need to drop down to something more realistic," she said.

Kent noted that for a typical 7.5-kilowatt home photovoltaic system costing around $40,000, tax breaks and rebates have driven down the simple payback period - the time to recoup system costs, excluding factors like inflation and maintenance costs - to just over 10 years.

That compares with more than 27 years for a similar, unsubsidized system, she said.

But Kent says the price of solar systems seems to be flattening out, with increases in costs for wiring and framing partly offsetting falling module costs.

If and when solar reaches parity with standard electric rates - so called "grid parity" - depends on local costs, said Bill Richardson, research and development director for local photovoltaics maker Solon Corp. The German-owned company opened its U.S. operations here in 2007 and has since expanded, specializing in large commercial and utility-scale solar installations.

In places like California and parts of the Northeast, solar already has reached or surpassed parity with grid rates, Navigant's Frantzis said.

According to the U.S. Energy Department, residential rates averaged more than 16 cents per kilowatt hour in New England, 15.5 cents in California and 28 cents in Hawaii.

Rates in Arizona average about 12 cents per kilowatt hour, while TEP's rates are closer to 9.5 cents per kWh.

But electric rates are expected to rise across Arizona in the next few years, said Frantzis, whose Arizona calculations assumed annual increases of 1 percent.

In late 2008, regulators approved new TEP rates that boosted base rates about 4 percent for typical residential customers, or up to 8 percent for bigger users, while adding surcharges for fuel costs. TEP's rates remain fixed until at least 2012.

IRS rules rebates taxable

If you're planning to scoop up a rebate from your utility to help cover the cost of a solar or other renewable-energy installation, be ready to pay tax on it.

The Internal Revenue Service in a letter ruling has clarified that utility rebate payments are counted as taxable income. That makes them taxable by the state as well.

Tucson Electric Power Co. requires each rebate recipient to file a W-9 form, which results in TEP issuing a Form 1099-MISC based on the rebate amount.

If you're calculating the cost of a system, make sure to include the effect of the additional income at your effective tax rate.

Contact Assistant Business Editor David Wichner at or 573-4181.

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