California Regulators Trip Magic 3-Year-Payback Tipping Point for Solar Hot Water

January 22nd, 2010 by Susan Kraemer

Solar hot water is finally getting the respect it deserves in California. In some well designed and much awaited legislation, the California Public Utilities Commission has decided, after a lengthy cost-benefit analysis, to go ahead with a nearly statewide program to provide financial incentives to encourage the rapid development of the solar hot water industry in California. For most utility customers, this will bring costs down by 51% to 60%, into 3 year payback territory.

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The measure will bring major greenhouse gas reductions to the state, because all buildings that use the sun to preheat 55 degree city water to about 90 degrees before it gets to the tank; can reduce their natural gas use 25% to 90% with solar hot water. And with these incentives, it becomes cost-effective right away.

Californian customers of the state’s three biggest utilities can now get a 30% rebate for solar hot water. If they add the rebate to the new 30% Federal tax credit (signed into law with the Obama administration’s American Recovery and Reinvestment Act in 2009) they are looking at 60% (or if the tax credit is on the after rebate cost – 51%) off a technology that is not only very effective, but is not that expensive to begin with.

Solar hot water for a typical house is between $4,000 and $7,000, so even with a $1,010 limit, after the 30% tax credit and the 30% rebate, a homeowner could wind up paying only $2,000 to $3,500 to get a greatly reduced carbon footprint and utility bill forever.

Apartment owners get a higher limit; up to $500,000 to defray 30% of the upfront cost of the larger (therefor more expensive) systems that multi-family commercial buildings need to heat water. Commercial buildings would get up to $250,000 off (daytime hot water needs in offices are not as high as when lots of people are living in a building).

This is an incentive that is perfectly designed to trip the tipping point to jump-start a solar hot water industry. It has been commonplace among solar industry professionals that there must be a 3 year payback for large building owners to make any investment, regardless of how much their long term savings are; and in this economy, that position has only hardened.

Despite the fact that solar hot water systems can save literally millions of dollars for apartment owners over 20 years compared with continuing to pay for natural gas, many apartment owners have been loathe to invest long term, and unwilling to wait longer than 3 years for payback to get permanently cheap hot water with a low carbon footprint.

The 30% Federal tax credit got payback to 6 years. This does the rest.

By combining the 30% Federal tax credits with this new 30% California rebate, apartment owners would see break-even very quickly. To sweeten the investment, the 30% tax credit is also available as a cash grant for businesses that owe no tax this year, because the economic apocalypse last Fall felled any profits.

Because this tipping point is now reached, this rebate could create a real boom for Californian green jobs, and these are jobs that many unemployed Californians already know how to do. Solar hot water installations require the skills that plumbers and electricians already have, and construction is currently suffering a 17% unemployment rate.

Most solar estimators agree that solar hot water provides the most cost-effective greenhouse gas reduction pound for pound yearly between solar panels and solar hot water. This even more true when it is used for radiant floor heating, not just hot water. Solar companies do custom calculations of savings over time for free.

Tripping the magic 3 year payback math that makes it commercially acceptable should have an enormous impact in the most populous state in the US.

Related stories:

Feinstein Expands Solar Tax Credit to Include Public Swimming Pools

Consider a New Measure of Carbon Footprint

Image: Sun Light & Power

Source: Todd Woody at NYT

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