A recently established tariff on solar modules has lots of San Antonians talking about how it will affect commercial and residential projects.
Who knew tariffs were so interesting? When they pertain to shaping a cleaner future for our city, it appears.
On Jan. 22, 2018, U.S. Trade Representative Robert Lighthizer announced that President Donald Trump approved recommendations by the U.S. International Trade Commission to impose safeguard tariffs on solar cells and modules. The tariff took effect on Feb. 6, 2018 and will run through Feb. 6, 2022.
While potential home buyers, business owners, and local utilities may speculate how the tariff will impact them, solar installation companies fear the loss of prospective customers and jobs.
Will the San Antonio community continue to buy solar despite the increased cost?
Hopefully, because distributed solar generation helps stabilize San Antonio’s power grid. CPS Energy already has shown its support for distributed solar energy by offering one of the more generous solar rebates in the United States.
Here’s another common question: Does a solar array increase the property value for houses and businesses because replacement costs for the solar system are now slightly higher?
The answer is maybe.
Before looking at the financial metrics on a typical residential solar project in San Antonio, let’s recap the tariff. The tariff on solar panels and cells starts at 30 percent in 2018 and will decline annually in 5-percent increments through 2022. The first 2.5 megawatts imported each year are tariff-free.
First, we need to state a few assumptions. The average cost of solar in San Antonio in 2017 is $3.70 per watt, which is higher than national average of $3.09 per watt. If a solar installation company charges more than $3.25 per watt, consider using another company. For this exercise, we’ll assume the gross system cost is $3.25 per watt and the system size is 8 kilowatts. CPS Energy provides a 60-cent-per-watt rebate, with an additional 8-cent-per-watt rebate if you buy locally manufactured Mission Solar Energy solar panels.
Going back to the original question: How will the solar tariff affect local solar projects? Let’s look at the numbers.
Since we also want to calculate the long-term cash flow and return on investment, we need to project the cost of electricity five, 10, 15, and 20 years in the future. According to the U.S. Energy Information Administration, the average compound annual growth rate for electricity across Texas is 4.7 percent. CPS Energy has relatively low and stable rates, with an annual growth rate of 2 percent. Finally, high-quality, locally manufactured solar panels from Mission Solar Energy cost approximately 67 cents per watt (wholesale). With the 30-percent tariff the wholesale cost of the modules increases by 20 cents to 87 cents per watt. For the solar geeks out there, that is close to the price of solar panels in 2014.
Keep in mind that the tariff doesn’t add 30 percent to the total cost of the solar project, only to the cost of the panels. The 8 kilowatt system contains 27 solar panels. The wholesale costs pre- and post-tariff are in the table below.
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The tariff slightly changes factors such as tax credits and depreciation, so let’s look at the total cost structure.
Based on the analysis, the 30 percent solar tariff on the modules increases the net project cost by approximately $1,115, or 8 percent. Most households and businesses will likely still make the buying decision even with slightly higher costs. For potential commercial solar customers, the tariff’s effect to the overall cash flow decreases due to additional tax incentives for equipment depreciation.
Despite the new tariff, the local solar market looks great. On Jan. 18, CPS Energy announced plans to ask its board of trustees for an additional $15 million for its solar rebate program. The utility also released a Request for Proposals for the next phase of the successful 2015 Roofless Community Solar program. Community solar allows CPS Energy customers without roof access – renters, condo owners, or those with rooftops unsuitable for solar due to shade trees – to buy and deploy solar panels at an offsite location.
The bottom line: If you’re considering solar for your home or business, don’t let the tariff get in the way – it’s still a great investment. Ask lots of questions, find a company that you trust, and make a few calls to get multiple opinions. Mission Solar Energy will tell you which local solar installation companies use their solar panels. You can also find resources online to help guide you in the right direction.
Correction: A previous version of this story included outdated Mission Solar Energy prices, provided by author Jason Pittman. The information has been updated.