Is Residential Solar a Good Deal for Sterling?

by Susan Aldrich

Solar installations can be a pretty sweet deal. My solar system generates about a megawatt per month, which is in the ball park of what I use. The bill for my all-electric, 2,000 square foot, net-zero energy house is less than $20 per month, on average. Plus, I get about $4,000 per year selling my energy credits, per the Massachusetts SREC-II program. I own the system outright. My system cost $39,000 when I installed it in 2017, and I got $12,000 in federal and state tax credits. I calculate that the system pays for itself in 5-6 years. As a little bonus, according to a Zillow study from 2019, a solar system adds 4.1% to the sale value of  a home. 

I don’t use all the electricity I generate on a sunny day, so SMLD buys the extra at about $0.05 per kWh. And I need to make coffee in the dark and heat my house at night, so I buy electricity from SMLD, at the going rate, around $0.13. This is all invisible to me, managed by a meter.  I am not “off the grid.” If the grid is down, my solar panels shut down, in order that it is safe for people to work on the lines. Being all-electric means I have no heat, light, or cooking if the grid is down. I have a propane generator as backup. 

The Massachusetts renewable energy program that I participate in, SREC-II, applies to systems installed by 2018. In 2020 there are two programs for residential solar:  the SMART program, and the MLP Solar Rebate Program. SMART is funded in part by energy companies, and limited to their customers. The MLP program is for customers of municipal light plants — that’s us, here in Sterling. 

The MLP Solar Rebate Program is funded by the Commonwealth Department of Energy Resources (DOER), Massachusetts Municipal Electric Cooperative (MMWEC), ] Energy New England (ENE), and municipalities to offer a rebate program for the installation of solar photovoltaic systems. Municipal funding is matched by DOER, which has committed $2.3 million to this program to date. 

In 2020, Sterling pledged $12,000 to the MLP Solar program, half of which is provided by DOER. As of August, there are 4 systems that are receiving rebates under this program. The Renewable Energy Credits (RECS) they earn will be owned by SMLD and retired by SMLD for the life of the solar installations.

The rebate is capped at $6,000 per system, calculated at $1.20/watt, with equal contributions from SMLD and DOER. Eligible solar installations must be 10 kW or less, with less than 20% shading, and facing between 90 and 270 degrees. The rebate applies to the first 5 kW of each project. Other restrictions may apply. 

In addition to rebates from the MLP Solar Rebate Program, there are federal and state tax credits. The federal solar tax credit gives you a dollar-for-dollar reduction against your federal income tax. In 2020, the federal tax credit is 26%. It drops to 22% in 2021. After 2021, the tax credit for residential solar ends. The Commonwealth of Massachusetts allows a solar and wind energy credit against personal income tax equal to fifteen percent of the net expenditure for renewable energy source property, or $1000, whichever is less. 

Bottom line, if you spent $30,000 to install a solar system this year, you could deduct $7,800 from the tax you owe to the IRS, and $1,000 from the tax you owe to Massachusetts. And, if you were accepted by the MLP Solar Rebate Program, you’d receive a $6,000 rebate this year. That amounts to more than 40% of the system cost. 

People who don’t want to tie up their own assets can lease a solar installation. There is a variety of companies offering to put panels on roofs, for varying slices of the benefits and costs. Typically, you aren’t paying for the panels or installation. You probably get the federal and state tax credits. Typically, the provider gets the energy credits, and you will pay the provider’s established rate for your electricity. Because our kWh rate is so low in Sterling (about half of National Grid prices), you are unlikely to save on your electric bill. And be aware that any third party putting solar on your roof, by Massachusetts General Law, requires acceptance from the local utility. 

And why is that? What has SMLD to do with your solar project? First and foremost, we need SMLD to protect our long term investment in energy projects and to protect our rates. Solar projects impact both of those goals. How?

First, solar households drive up the total cost of energy that SMLD buys. I remember the decades when the peak price for electricity was a hot sunny summer afternoon, when utilities couldn’t meet demand and we suffered reduced power (a brown-out). No longer! Here in Sterling, our solar systems generate 43.5% of the power we use. So those sunny afternoons are now peak generation, with the cheapest cost per kWh. Evening is now the period when SMLD is paying higher prices for power. And this is the timeframe that solar households consume the most energy. So, solar households consume proportionately more of the higher-cost power, driving up the total amount SMLD spends for power. We all share the cost of that expensive power, because  we all pay the average rate.

Second, the way rates are designed, solar households are not paying their share of distribution costs. Distribution costs are what SMLD spends to manage and deliver energy to all of us. Right now, it is $0.0427 per kWh. But at my solar house, I buy very few kWh, so I am not supporting SMLD’s operations very much. 

Third, solar households require just as much capacity and infrastructure as non-solar households, but as we’ve noted, pay much less into the system. When my solar panels are covered with snow, or it’s cloudy, or hot and hazy, they aren’t delivering the power I need. SMLD has to pick up the slack, spending resources to create and manage the additional peak capacity.  

SMLD’s battery projects change this calculus, by saving all that daylight energy for use later. We already have significant storage online, thanks to SMLD’s terrific team, and we can expect our battery capability to increase over time. 

So what’s the best deal for Sterling? If your concern is protecting our environment, solar anywhere is great. If your concern is keeping Sterling a great and affordable place to live, Community Solar with batteries is a better choice because it provides cheaper power for all of us, and reduces SMLD’s total expenses for energy.  

If your goal is to reduce your energy costs, a heat-pump is a great and relatively simple investment. And the payback! An electric heat-pump is vastly more efficient than other options. The cost of an equivalent amount of heating by propane vs. a heat pump: $4,194 vs. $1,399. Equivalent heat by #2 fuel oil costs $2,754. Even better, in 2020 the heat-pump rebate program is $500 from SMLD plus $500 from Mitsubishi.

My answer: residential solar is great for the environment, and great for the homeowner. It will be great for all of Sterling when we significantly increase our battery storage, and find an equitable algorithm for sharing distribution costs that is based on other factors besides kWh consumption.