Economic Benefits of Federal Tax Credits

Commercial customers may require a better return on investment than a residential customer. Both commercial and residential projects receive state tax credits, but commercial projects also receive federal tax credits (up to 50 percent of net costs) not available to residential customers.

The ERP and SGIP receive applications for systems that are owned and operated by a third-party. This is likely due to the fact that third-party owners of systems installed on homes or public buildings are eligible to take advantage of the federal tax credits.

As shown in the table, tax credits significantly decrease a commercial customer's net cost, as shown in Table 2. However, commercial customers generally face lower rates and different rate structures which are likely to lower the benefit of adding PV. This benefit is further reduced through increased taxes due to lower electricity cost expenses over time. In addition, commercial customers are likely to require a better return on investment than a residential customer. Finally, the tax benefits are reduced, in some cases significantly, for those commercial customers that are not-for-profit or institutional customers, and for those commercial customers whose financial structure does not allow full use of additional tax credits.

Table 2: Impact of State and Federal Tax Credits On Solar Project Costs
Example Calculation	Commercial	Residential
System Price	$9.00	$9.00
Rebate	$3.00	$3.00
State Credit (7.5% to end prior to 2006)	$0.41	$0.38
State Depreciation (~ 6%)	$0.36	$0.00
Federal Credit (10%)	$0.60	$0.00
Federal Depreciation (~ 32%)	$1.94	$0.00
Net Cost to Customer	$2.69	$5.63
Tax Incentives as Percent of After Rebate Cost	55%	7.5%