Solar Policy Factors – 50%

Policy is one of the major categories that we use to determine how solar will fare in a state. All told, the 5 policy factors make up 50% of our weighting system. Good solar policy is like the bedrock of the future energy landscape—with a strong bunch of laws and regulations in place, you can be sure a state will be favorable for solar long into the future.The danger here is that state laws can be repealed as control of the legislature changes from one party to another, but we’re not quite ready to analyze the political climate of every state. Instead, we judge states by what the leaders of the past and present have done to encourage renewable development, and leave it at that.

Renewable Portfolio Standards (RPS)

As we mentioned above, 2015 was a landmark year for state RPS laws. In June, Hawaii became the first state in the nation to commit to a 100% renewable energy future, and they’re aiming to do it by 2045. Vermont, too, went nearly all-in on renewables—the Green Mountain State has committed to be 55% renewable by 2017, with a further goal of 75% by 2032. Good job, Vermont!But there was some bad news, too. Kansas and West Virginia became the first two states ever to repeal an RPS, meaning there are now 17 states without goals for future renewable use. The folks over at ALEC and all the utility industry lobbyists are surely feeling pretty good about those nefarious victories, but hopefully the point will be moot in a couple years, and we’ll have a federal standard for the first time ever. We can dream, can’t we?

RPS Solar Carve-Out

There weren’t any changes to state solar carve-outs this year, which is a sad state of affairs, because solar carve-outs are the ideal way to ensure that good incentives are in place. In fact, no state with a decent solar carve-out placed lower than 19th in our overall rankings, and only 7 states without carve-outs made it into the top 20 overall. Let’s hope we see a little more commitment to solar in 2016. The country could use some more robust SREC markets.

Electricity Prices

How can we guarantee that solar will be a success in a state? Electricity prices are the number 1 factor. In states like New York and Massachusetts, electricity prices are so high that solar is a no-brainer, just because it starts saving you money on day 1.

Electricity prices in most states rose about a penny this year. That’s about a 4.4% increase, and it puts us back on trend after last year’s 0.87% increase. We use an estimate of 3.5% increase per year for electricity prices, based on historical data.

We draw data for our estimates from the U.S. Energy Information Administration, which publishes monthly recaps of the total energy picture in the country. At the time we pulled the data for this report, 24 states had seen increases in their electricity prices averaging $0.01/kWh. Conversely, only 2 states saw their electricity prices decrease this year: Michigan and West Virginia.

Net Metering

Ah, net metering. One of the most important factors in determining how well solar will be supported by your state, but not, as it turns out, the end of all that is good and holy, as some solar advocates would have us believe.That’s because even after Nevada did away with net metering, people who install appropriately sized systems can still do well there. As long as you’re not sending a ton of electricity to the grid, you’re still offsetting retail prices. The big problems in Nevada will come when the monthly fixed charges go up. Getting solar sooner is actually a benefit there, even without net metering.

Still , we wanted to accurately reflect the importance of net metering, so this year, we bumped up its weight to 10% of the total grade, and we examined Feed-in Tariff policies in non-net metering states to show where solar still does well despite bad policy. In layman’s terms, that means we look at whether utility companies in states without net metering will still pay you a good price for the solar energy you send to the grid.

In Arizona, another state that just did away with net metering, we’ll probably see a solar payment of $.09/kWh. That’s lower than retail to be sure, but not the end of the world. Again, as long as home solar systems are properly sized (i.e., designed to use power in the home, minimizing what gets sent to the grid), the owners will still cut their bills by the retail rate by replacing their usage.

A replacement for net metering has long been scheduled for Maine, but keeps getting kicked down the road. In good net metering news, Louisiana reinstated it, Michigan and Illinois managed to keep it, and Hawaiian electric prices are still so high, it almost doesn’t matter.

Finally, the way solar and battery prices are going, we think going off-grid will start to be more desirable. In 5 or 10 years, the end result of all these battles over what to pay homeowners for solar electricity could be a move to micro-grids n increasing energy self-reliance movement that sees companies like Tesla offering solar-plus-battery solutions that remove homes from the grid entirely. Technological solutions to the problem of greedy electric utilities are coming soon to a neighborhood near you, and we might not all be the better for it.

Interconnection Standards

This is one place where, thankfully, not much has happened this year on the solar scene. Even Hawaiian electric companies have been forced to back down and get moving on allowing customers to connect to the grid. Hallelujah! Here’s hoping states can keep good policies in place and continue to improve long into the future.

Solar Incentive Factors – 40%

Incentives make up another 40% of our overall weighting system. Generally, good incentives follow from good policy, but that’s not always the case. A couple of the largest utility companies in Missouri, for example, offer good rebates without much of a state RPS to go on, while there are virtually no incentives in Maine, which has one of the most aggressive RPS laws in the country.Incentives are generally temporary monetary tools that help defray the cost of going solar and encourage people to consider solar power over other investments. Incentives are sometimes immediate, as is the case with most rebate programs. Other times, incentives are ongoing, and take the form of SREC markets tied to RPS goals, or tax credits that carry over for a number of years.

In any case, many of the most aggressive incentive programs have come and gone. And they’ve done a good job, too. Incentives are responsible for the health of the solar industry in places like California, New Jersey, and Arizona, because they’ve served to increase competition in the marketplace and drive costs down. But there are still some fine incentive programs to be found, in states as different as Louisiana, North Carolina, and Washington. Here’s what you’ve got to look forward to for incentives in 2016:

Tax Credits

There were a few big changes in state tax credit availability in 2015. Of note, New Mexico and Louisiana ended their tax credit programs. In all, there are now only 7 states with solar tax credits that meet our “B” grade criteria. Ouch.Looking ahead, Iowa and Oregon will see their tax credit programs disappear in just a couple short years. Luckily, the federal solar tax credit will keep kicking at 30% through 2019, then step down after until it disappears for homeowners after 2022. That is unless Donny Trump uses whatever tiny pen will fit in his hands to sign a bill ending the tax credit. Which would suck.

Rebates

If expiring tax credits aren’t fun enough for ya, how about expiring rebates? Most of the juicy solar rebate programs of the past have all but dried up, as utility companies approach the RPS goals set by the states earlier in the century. There are just 8 states with grades of “B” or higher on rebates. Without increases to those RPS goals, expect the trend to continue.Again, we’ve seen big decreases in prices for solar installations that have basically brought prices down to where they had been while rebates were still big. Incentives have worked wonders to kickstart the solar industry, so why stop here? We’d like to see states re-commit to more aggressive RPS goals, complete with new rounds of rebates, or better yet, SREC markets.

Performance Payments

SREC markets are pretty much the gold standard for incentives, because they’re a market-based financial tool that incentivizes solar production by making utilities prove they’re meeting the goals set forth under an RPS solar carve-out. SREC markets work great to get homeowners into solar as an investment strategy, because, believe it or not, it’s cheaper for a utility to pay people for their SRECs every year than it is for them to buy land and build their own solar farms.In that way, solar becomes a win-win-win-win. Homeowners win by reducing their electric bills and getting paid for their SRECs, utility companies win by having a perfect, on-demand source of local electricity and by saving money on expensive capital investments, solar companies win by getting paid to do the installing, and everyone in the community wins because solar power reduces our carbon footprint, saving the planet for future generations. We call that a good system.

Now, in order to see more SREC markets, we need to get more states enact aggressive RPS laws with robust solar carve-outs. Call your local legislators, people!

Property Tax Exemptions

There were no appreciable changes to property tax exemptions in the country for 2015. That’s good, but not good enough. You see, there are 29 states up there with property tax exemptions that earn less than an “A” grade. Ideally, we’d like to see everyone earn the highest possible grade, but we’ll start with wishing those 18 states without any property tax exemption get their acts together and pass something, stat.

Sales Tax Exemptions

Ditto the lack of change in the sales tax exemption outlook. In this case, there are 18 states without any sales tax exemption for solar purchases, which we’d love to see fixed as quickly as possible. Notice again how every one of the states that earned an “A” overall have sales and property tax exemptions for solar panels? That’s the kind of leadership all states can look to.

Outcome Measurement Factors – 10%

The final two factors are described as “outcome measurements,” because that’s exactly what they are. If a state has a good RPS, high electricity costs, and decent rebates, you’d expect these outcomes to follow. But that doesn’t always happen, like in the case of Georgia. The state does poorly on almost ever measure of solar-friendliness and earns a “D” overall, but Georgia Power’s uniquely great solar payments plan makes the payback and internal rate of return (IRR) for a solar investment better than some “B” states.Similar effects happen from quirky policies in Utah, South Carolina, and Texas, and we couldn’t just ignore the fact that, despite predictive measures looking bad in those states, a solar investment performs well, for any number of reasons our other analysis didn’t capture. So we added some weight to these outcomes to reward states that go against the odds. 10% of weight, to be exact, distributed evenly to the 2 factors.

System Payback Time

We made some changes in our calculations this year that increased the average system payback time. Specifically, we put in a 0.7% decrease in panel efficiency per year, which we hadn’t accounted for in past estimates. Because of the change, our estimated average system payback for a 5-kW solar array in the United States went up by almost exactly one year, from 11.8 to 12.8 years.That increase might seem shocking, but it’s important to note that 0.7% is actually a conservative estimate for panel degradation. Most panels these days degrade by only about 0.5% per year, and last for at least 30 years before they’ve fallen below 80% efficiency. That’s pretty sweet, no?

Internal Rate of Return

There was a similar dip in rate of return across the board, with our estimates now showing an average of 9.4% IRR for solar investments. Last year, we estimated an average IRR of 10.9% for the country as a whole. Much of the decrease can be explained by the changes to the panel degradation number, and also huge changes in IRR for Louisiana (which ended net metering and its very large tax credit) and Hawaii (which ended net metering).Let’s be clear here that an investment in solar still averages a return of 9.4%. That number is higher than the historical performance of the stock market, meaning solar is a better-than-average-investment, right now, right here (well, most places). Those kinds of returns are in jeopardy as states start to hit those RPS numbers, change net metering policies, and/or end incentive programs, but for now, solar is about as much of a sure thing as there is.