Minnesota's Solar Rebate Slated to Decline After March 31

Combined With Other Incentives, Solar Still a Bargain for Many

PHOTO CREDIT: PAUL DUGINSKI
Minnesota solar owners can use a combination of state and federal incentives to make the sun pay off for them. Above, a summer day on the shore of Minnesota's Pelican Lake.

Published March 23, 2010

Minnesota's rebate program for residential solar photovoltaic systems, which has helped make solar a compelling bargain for well-situated consumers in the state, is about to be stepped down by 25 cents per watt of production capacity.

The reduced rebate amount will take effect with applications submitted on or after April 1, according to state officials. The current state rebate for a system installed by a licensed electrical or general contractor is $1.75 per watt. The existing rebate is $2 per watt for a system installed by a contractor who also holds certification from the North American Board of Certified Energy Practitioners.

On April 1, the rebate for systems installed by contractors who do not have NABCEP certification will decline to $1.50 per watt. Rebates for installers with NABCEP certification will be reduced to $1.75 per watt of installed production capacity.

What this means for a homeowner is that a solar system rated at 5 kilowatts of peak capacity – an average-size household system in the United States – would receive a total state rebate amounting to $1,250 less in either instance.

In addition, the maximum amounts of available rebates will decline for rebate claims submitted after Sept. 30, 2010. If a system is installed by a contractor who does not have NABCEP certification, the maximum rebate for a claim submitted by Sept. 30 is $8,750. For claims submitted after Sept. 30, the maximum declines to $7,500.

If an installer has NABCEP certification, the maximum rebate for a claim submitted before Sept. 30 is $10,000. After Sept. 30, the maximum will drop to $8,750.

State rebate programs are designed so that incentives decline as more solar PV arrays are installed. The programs are intended to help stimulate demand as economies of scale are realized by manufacturers and installers, thereby reducing overall costs. Solar PV costs have declined substantially over the past year worldwide.

In Minnesota, the available combination of the state rebate, a federal tax credit that covers 30 percent of the post-rebate cost of a system, and an incentive of $2.25 per watt offered by Xcel Energy for customers in its service area may cut the long-term cost of solar electricity well below the utility rate for those with access to an unshaded, southerly oriented site.

Even after the reduced state rebate takes effect, many consumers may find that the long-term price for solar electricity at a sunny location is competitive with or below the utility's rate. Minnesota Power, another utility, offers a residential solar incentive program that is most cost-effective for very small systems with capacity ratings of 0.5 to 2 kilowatts.

In Minnesota, an ideally located 5-kw array might be expected to generate as much as 135,500 kilowatt-hours of electricity over a 25-year period. Production figures can be estimated with the help of a calculator called In My Back Yard, provided by the National Renewable Energy Laboratory.

Some installers have been quoting prices for routine installations in Minnesota as low as about $6 per watt of rated capacity. For a 5-kilowatt system, that comes to $30,000. By subtracting the amounts of rebates and other incentives available, a consumer can determine an approximate net cost.

A solar purchase entails buying decades of electricity in advance. During the 25-year warranted production period offered for many solar modules, a system will typically require a new inverter, which converts the DC current of a solar array into the AC current used in the grid.

At today's prices, an inverter for a 5-kw system may cost $3,000 to $4,000. In 10 to 15 years, when a new inverter likely would be needed, costs may be lower. But by adding the replacement cost of an inverter to today's net price, and dividing that total by the expected production in kilowatt-hours, a consumer can determine the approximate lifetime cost of electricity produced by a solar PV system. The figure, in cents per kwh, can then be compared with the utility's price.

For example, a 5-kw system that has a gross installed cost of $30,000, or $6 per watt, would cost $18,750 after the $2.25 per watt rebate from Xcel Energy is applied. The lower state rebate to be available starting April 1, of $1.50 per watt, would trim the price by $7,500, to $11,250. The federal tax credit of 30 percent would reduce the net cost to $7,875. Adding $3,500 as the approximate average cost of a new inverter today (even though it likely would not be needed for years), yields a net 25-year cost of about $11,375.

Dividing the net cost of $11,375 by the anticipated 25-year production output of 135,500 kwh yields a price per kwh of about 8.4 cents.

The output of solar modules declines slowly over time, and manufacturers account for this in their production warranties. The longest working lifetimes of solar modules remain unknown. The oldest mass-manufactured solar-electric panels are now about 30 years old, and many of these are still producing electricity not far below the rates achieved when new.

Every solar installation is different, and long-term prices are affected by many factors, including shade and how clean the modules are kept.

Consumers seriously investigating a solar purchase are advised by many utilities and states to seek bids from at least three installers.

More information about solar rebates and other incentives available in Minnesota (and in every other state) is available from the federally funded Database of State Incentives for Renewables and Efficiency, or DSIRE. Consumers also can get specific, detailed rebate information from the websites of Xcel Energy and the Minnesota Office of Energy Security.

Information also is available from our earlier story, "Newest Minnesota Rebate Makes Solar a Decades-Long Bargain."