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Why Are Solar Panels So Popular In California?

Within the last decade, the US solar industry has experienced a major growth from 2.5 GW of capacity in 2010 to over 81 GW within the first half of 2020. This was possible due to the federal tax credit for solar power systems which is 26% as of 2020. However, in US, solar power has not been adopted in all the states equally. Currently, California produces over 30% of the solar power generation in US. Before other states started to adopt solar power, California was responsible for over 50% of the installed capacity in US.

One of the major reason for the tremendous solar panels in California is due to abundant sunshine and favourable legislation, coupled with high kWh prices that promote businesses for going solar. Apart from this, there have been several other factors contributing to the growth of solar power in California. Besides California, New York has also is one of the major solar power leaders in US. However, NY doesn’t have the sunshine like California, but offers attractive incentives and favourable policies for homes and business that adopt solar power.

Considering the current emergency situations of the COVID-19 pandemic, solar panels are experiencing additional growth as renewable energy sources make buildings more resilient against the novel coronavirus.

This article intends to provide you with an overview of these growth factors and how other states might replicate them.

How Sunshine and Expensive Electricity Increase Solar Savings

All scales of solar arrays have solar panels as the building block, which are also called as solar modules. Due to the standardization of solar panels, the installation costs show little to no variation throughout the US. To get a better understanding of the costs associated before deducting tax credits and incentives, refer below:

A small residential system will cost $3/W of capacity.
A medium-size business installation would cost around $2/W.
Large industrial, commercial and utility systems would cost less than $1/W.

Even though the installation cost doesn’t vary much throughout the US, sunshine and electricity prices are highly variable, and both impact the financial return of solar power. In areas with abundant sunlight, solar panels produce more kWh per year, and expensive electricity further increases the value of each kWh. Since California perfectly fulfils both the conditions, solar power generation becomes a lot more valuable than other cities in US.

Considering a cost of $3/W, a 6 kW solar power system would cost around $18,000, which gets reduced to $13,320 due to the 26% federal tax credit. Now, a system of this capacity can produce power over 10,000 kWh. Electricity tariffs of above 20 cents/kWh are typical in California. Assuming annual savings of $2000, the solar power system in this example has a payback period of only 6-7 years, which is excellent for an investment that lasts over 25 years.

Solar Policy and Incentive Programs in California

The Renewable Portfolio Standard (RPS) in California is one of the most ambitious in the US and has a goal of 100% carbon-free electricity by 2045. RPS supports legislation and incentive program that favour clean energy including solar power. The RPS is legally binding for electric companies, and those who miss the target would be charged with heavy fines. California has excellent net metering law, and any surplus electricity from solar panels would reflect in credits earned.

For the low income segment, the Single-Family Affordable Solar Homes (SASH) offers incentive of $3/W. As mentioned above, this is the typical installation cost for residential. This means households can go solar at little to none cost. SASH incentives are also available for house owners below 80% of the area median income, and the property must be classified as affordable housing. The benefit applies for customers of the three largest power companies in California which are, Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E) and Southern California Edison (SCE).

Financing Options for Solar Power in California

California, along with Florida, is one of the 2 states that offers Property Assessed Clean Energy (PACE) program. These loans can have a repayment tenure of up to 25 years, and are charges along with property taxes. The interest rates of PACE loans vary, but can be as low as 2.5% while the typical rates are below 10%. The major drawback of PACE loans is property lien, which is only removed after the loan is fully paid. This means, selling a property with a lien would be much more difficult. For this reason, PACE loans are only recommended if you have no plans of moving.

Other financing options include a Home Equity Line of Credit (HELOC) and a PowerSaver Second Mortgage from the Federal Housing Administration (FHA). Even though these loans are not exclusive for California, they can provide better options if PACE loans are not favourable for you. The typical repayment tenue for HELOC is 10-15 years, and up to 20 years for PowerSaver Second Mortgage. The interest rates for HELOCs are below 5% depending on your credit record, and between 4.99% to 9.99% for PowerSaver Second Mortgage.

For going solar, loan financing is an excellent option and the 26% federal tax credit can be claimed even when the solar panel system is financed with a loan. Also, as the electricity savings start right away after deploying solar panels, the savings can be used to pay the loan as well. This would mean the solar power system would essentially pay for itself.

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