According to renewable portfolio standards, it’s mandatory in some states that utilities are required to produce a portion of their generation from solar generators. In the absence of such generation, utilities can buy SRECs (solar renewable energy certificates) from the market or solar panel owners to meet their requirements. One SREC corresponds to 1 mWh (megawatt hour) of solar electricity.
Net metering allows the customers to earn credits for the net excess generation from their solar panels. Excess electricity generated during the daytime is sent to the grid, which is recorded if the house is net metered. This will be credited against the electricity consumed during nighttime. Customers are charged only for the net amount of electricity consumed from the grid.
ITCs (investment tax credits) are dollar-for-dollar reductions on income tax bills. These apply to both residential and commercial deployment of solar systems. The owners of a solar system is eligible for a maximum tax credit of 30% of his investment value in the applicable solar systems—if their construction starts before December 31, 2019. Thereafter, the tax credit amount will gradually be reduced to 26% for construction in 2020, 22% in 2021, and 10% in 2022.
It’s thus important for incumbent solar (TAN) companies like Sunrun (RUN), SolarCity (SCTY), Vivint Solar (VSLR), and Sunpower (SPWR) to plan their project execution in order to take maximum advantage of the tax credits.
Apart from the above-mentioned benefits, owners of solar systems also enjoy accelerated depreciation on their solar assets. This helps in the immediate reduction of the tax burden. Other benefits include property tax exemptions and sales tax exemption in certain states. Some states also offer cash rebates and STCs (state tax credits) to promote the installation of solar systems.
Now let’s examine how SolarCity has been expanding its business.