Alaska Solar – Everything You Need to Know

alaska-solar

Information about Solar Panels in Alaska

Alaska might be "The Last Frontier" but it is definitely possible to tame the sunlight that pours into this state in the name of solar energy! Despite the seasonal weirdness with daylight hours, relatively low energy needs and high energy prices provide a decent environment for Alaska solar.

Sure, the local oil and gas industries won't be too fond of a movement in renewable energy, but what is better than saving the planet while living right next door to fossil fuel producers?

Read on to find out how you can make a profit by helping the environment in Alaska!

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#1 Are Solar Panels Worth it in Alaska?

C
Overall Grade
12 years Avg. Payback Time (For Cash Purchase)
8.5 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$21,553 Your Net Profit Over 25 Years (Cash Purchase)

* Note that these are estimated values for informational purposes only, and do not take into account the full complexity of all financial projections. They also only apply to cash purchases, which means your numbers will be different if you lease your system or pay for it with a loan (factoring in interest). Also note that we are not financial advisors, so this information should not be construed as financial advice.

#2 Options for Buying Solar Panels in Alaska

When it comes to solar, there really isn’t a wrong way to go about purchasing it, since you will make money in the long run no matter what. We’ll take a look at all of the details to see which method might be the best for you.

Cash Upfront

When it comes to purchasing anything of significant value, cash should always be the first topic of conversation. If you use cash to pay for a solar system, you’ll be able to enjoy all of the financial benefits of ownership, like not having to worry about taking on debt to pay for your system and enjoying more profit in the long term than you would with other options.

We’ll look at the costs and savings associated with installing a typical 5 kW system on a home in Alaska to see how everything breaks down. Comparing several cost averages in Alaska brings us to a starting price of about $17,650 for a new system.

From that point, we can deduct the all-important federal tax credit from the total cost, which brings it down to $12,355. Unfortunately we won’t have any other big deductions from this number, but that is quite a big chunk subtracted right off the bat!

Since your solar system will be generating electricity and saving you more money on your power bill over time, we have to look at the savings side of the equation to get the best picture of buying Alaska solar with cash.

We’ll need to acknowledge the fact that your system’s performance will decline by about 0.8% each year of operation due to age and normal wear and tear.

However, considering how much power your system will produce, along with the high price of electricity in Alaska, shows that you can expect about $945 in savings during the first year alone. Don’t forget, your Alaskan utility is also likely to increase rates by about 3.7 percent each year, which will lead to bigger savings every year down the road!

Running those savings and costs through the entire 25-year lifespan of the systems shows that you should expect to earn about $21,553 in profit, net an 8.5 percent annual return on your initial investment, and pay off the system on paper in about 12 years!

Bottom Line: An 8.5 percent annual return on your initial investment is not to be sneezed at.

Leases

Different from purchasing a solar system outright, solar leases allow someone that doesn’t have the cash or means to procure a loan a chance to get involved with solar.

Typically, you will sign a contract with a solar provider that allows them to install a system on your home. You will then pay that provider for the electricity produced by the system much the same way that you would pay your utility company.

Ideally, your reduced utility bill plus the solar lease payment will be less than your original power bill was. You’ll get to save some money and save the planet at the same time!

Something to point out, though, is that while there can be a real value associated with a solar lease, they also come with a few caveats. Read over the contract carefully to determine how easy it would be to move your system if you decide to sell your home and be careful of ballooning rates that could seriously derail your savings.

Bottom Line: Remember that the solar leasing companies have to make money too, and it is important for everyone involved to get a fair deal.

More: Solar Leases

Loans

If you don’t have a giant pile of cash lying around, don’t worry, because purchasing a solar system with a solar loan is still a completely viable option.

In fact, if you consider that taking out a loan means you aren’t putting any of your own money down, you can expect a decent return from an investment perspective. Remember, this isn’t a new car or another expensive toy that you’re buying that starts depreciating immediately – it’s an energy producing asset!

Paying for solar with a loan still entitles you to all of the other financial benefits that you would enjoy when paying cash, so don’t worry too much about missing out. Really, it’s just the interest on the loan that you’ll have to deal with. If we look at using a 15-year loan at 5% interest, we’ll still end up seeing $14,552 in profit, enjoy a 4.3 percent annual return, and have a paper profit in 17 years.

Bottom Line: $14,552 in profit? Not bad for an initial investment of $0!

More: Solar Loans

#3 Alaska Solar Policy Information

Electricity prices and solar production capability work together to make Alaska solar a pretty good deal on paper. Unfortunately, the legislative body in the state doesn’t seem to be too enthusiastic about laying a solid foundation for renewable energy.

alaska-flag

Renewable Portfolio Standard

To show support for solar and other renewables at the legislative level, many states have chosen to adopt a set of energy goals that mandate a certain percentage of energy must be supplied from renewable sources by a certain date. Called Renewable Portfolio Standards (RPS), these laws often outline the state’s overall vision for renewables and can include milestones to be met at certain points along the way.

RPSs are great because having a goal written into law forces local utilities to put more time and money into building up an infrastructure of their own, as well as subsidizing residential solar systems, to help reach the goal.

Unfortunately, Alaska doesn’t currently have a real RPS. And, as we typically see when there are no standards, the solar landscape in Alaska isn’t as friendly as other places. Without mandated performance quotas, utilities aren’t exactly lining up to move away from their fossil fuels.

Even more frustrating is the fact that Alaska enacted House Bill 306 back in 2010 which stated that the state should produce 50 percent of its power from renewable sources by 2025, but it doesn’t appear anywhere in codified statutes. What a waste!

More: Renewable Portfolio Standard (RPS)

Electricity Prices

We mentioned this briefly in the cost breakdown of purchasing a solar system for your home, but we want to touch on electricity prices again. The price that you are already paying for electricity is hugely important because you will be directly offsetting the cost of that electricity when you produce your own.

With that in mind, the more electricity costs in your state, the more you will be able to save with your solar system. Since utilities tend to increase their rates over time, you’ll also save more and more each year that you are operating your system!

In Alaska, you are paying an average of $0.2230 per kWh through the average utility (as of July 2017).  This cost is almost double the national average of $0.1312 per kWh, which means you’ll be able to save almost twice as much as the rest of the country!

Net Metering

For owners of residential solar, there are many opportunities for them to produce more power with their system than they are currently using.

If you think about the fact that solar will be producing the most energy during the middle of the day, a time when most people are at work or school and not using much energy, it is very likely that you’ll generate more electricity than you need in the daylight hours and using more than you make in the night.

At the end of the month, depending on the size and performance of your system, it is possible to encounter a situation in which you have actually supplied more power to the local utility than you used! In this case, you’ll care a lot about how your state handles this excess power generation with its net metering rules.

In Alaska, the net metering law was passed back in 2010 and states that all systems under 25 kW (this will include most residential systems) that fall within the area of major utilities must be compensated for this power at the “non-firm power rate.” This rate will vary from utility to utility, so be sure to check out your local rates!

Currently, there are 10 utilities that are covered:  Alaska Power Company, Homer Electric Association, Bethel Utilities Corporation, TDX North Slope Generating, Inside Passage Electric Cooperative, Alaska Electric Light & Power, Municipal Light & Power, Matanuska Electric Association, Golden Valle Electric Association and Chugach Electric.

Although the rate is decent, we’d like to see them offer the same deal to larger systems so that larger businesses can get in on the action!

More: Net Metering

Interconnection Rules

The energy sector is a highly regulated one, with good reason, because of all of the dangers involved with generating and transmitting large amounts of electricity. In the spirit of safety and regulatory compliance, most states require residents with solar systems to connect them to the existing electrical grid powered by the local utility.

Luckily, there isn’t much of a downside to this requirement unless you truly want to live independently from the rest of civilization. In fact, unless you have a big solar system and a hefty battery backup, you’ll likely be using energy from the grid at night when your panels lie dormant.

In Alaska, there is not one single interconnection policy to rule them all, but rather a set of guidelines that the major utilities must follow on top of national safety standards. Namely, liability insurance can be required if it is reasonably inexpensive, no external disconnect switch is required as long as the utility can disconnect the load when it is needed, and the application page must be simple and less than two pages long.

Also, only systems up to 25 kW are able to be connected, which is a cap that we would like to see removed!

Solar Access Rights & Homeowners Associations

Despite the fact that the sun’s bountiful rays are free to everyone, it doesn’t mean that accessing sunlight comes hassle-free. You could imagine a scenario in which you’ve put a shiny new solar system on your roof only to have your neighbor build a sun-blocking tree house next door or receive an angry letter from your homeowner’s association asking you to remove the “eyesore.”

These two situations are very realistic and is why many states adopt laws, called solar access rights, that help protect the right to sunlight in your own backyard.

In the case of Alaska, their solar easements don’t mandate an automatic right to use the sunlight but they do allow people to engage in solar easement contracts that can guarantee sufficient exposure. Be sure to check into this if you think there might be a potential issue in your area!

As far as homeowner’s associations, there is no specific rule that prohibits them from banning solar systems within their area of influence. This would be a nice benefit to have as solar continues to work its way towards the mainstream, but until we have it, be sure to check with your own HOA before writing a check!

#4 Alaska Solar Incentives, Rebates, and Tax Credits

Incentives are usually the most exciting part about looking into going solar because this is where all the money is found! Unfortunately, except for the federal tax break and one lone utility’s performance payments, there isn’t much to show here. Not to worry, however, because you can still make a good return on Alaska solar!

alaska-capitol

Federal Tax Credit

When it comes to financial incentives for going solar, we have to start with the best. The federal residential renewable tax credit is the single-most important way to save money on your solar installation. Currently, the incentive offers a 30 percent tax credit based on the purchase and installation costs of your solar system.

With this incredible benefit, a $20,000 system would net a $6,000 credit to go towards next year’s tax bill. Unlike some other tax credits, this one is nonrefundable — so if you don’t normally have a big tax bill, you won’t be able to get the difference back as a refund. You will, however, be able to spread the credit out over several years in order to get the maximum amount.

Keep in mind that this credit might not be around forever. Even though you’ll be able to cash in on 30 percent right now, starting in 2020 it will go down to 26 percent, then 22 percent in 2021, and then fade away completely in 2022. It’s possible that lawmakers will vote to save the credit as they’ve done in the past, but we can’t count on it!

More: Solar Federal Tax Credit

State Tax Credits/Rebates

In addition to the federal tax credit, some states have also taken it upon themselves to offer financial incentives at their level as well. Unfortunately, we mentioned earlier that a weak or missing RPS can drastically reduce the number of local incentives available because utilities have no real consequences for not offering them.

In Alaska, this has proven to be correct. There are no state or local rebates to take advantage of at all, as of the time of this writing. Because the state has no income tax of its own, there can be no state tax credits for potential solar buyers.

Hopefully, the state legislature will decide to craft a bill that has some teeth if they truly want to see growth in renewable energy in the future. With electricity prices like the ones here, they should probably act fast!

Utility Based Incentives

Finally, a small glimmer of hope exists in the realm of utility-based incentives. When utilities are hit with a quota for renewable energy, such as one imposed by a state’s RPS, they will sometimes offer performance payments, rebates, or other incentives to get its residents to build the solar infrastructure for them.

In the case of Alaska, one of the major utilities, Golden Valley Electric Association, created a program in 2005 called Sustainable Natural Alternative Power. This program tries to connect people that want to support solar power with people that want to become producers in their local area. With state and community contributions, it will provide up to an insanely-high $1.50 per kWh generated.

Contribution totals are allowing for a much-more reserved $0.085 per kWh  – about 1/3 of the average electricity price – as of the time of this writing (it changes quarterly). For our earlier example that produces 4,242 kWh per year, that’s about $360 each year. You’ll also have to pay for the privilege with a $110 sign up fee and a $3.65 per month metering fee. Still, not a bad perk of generating your own energy and saving the planet!

Property Tax Exemption

We’ve discussed how expensive solar systems can be, and although up until this point we’ve focused on the cost and savings aspects of going solar, it is also important to consider what happens to the value of a home with a $17,650 system mounted on the top. We’ll go into a little more detail below, but let’s just say that a lot of that cost will translate nicely into increased home value.

To help further incentivize residential solar, many states have included provisions to exempt the value of solar from a home’s value for the purposes of property taxes. This will allow homeowners to get all of the benefits of solar energy savings and home value improvement without having to pay the price!

In Alaska, these property tax exemptions exist but the law doesn’t mandate them across the board. Instead, it gives local municipalities the right to choose whether or not they will allow it. Be sure to check with yours before your purchase to see if you’ll qualify!

Sales Tax Exemption

Like property taxes, a sales tax exemption is a great way for a state to get involved with providing financial incentives to its residents. In the case of Alaska, there is no state sales tax so there isn’t a way to save in this category! Of course, without an RPS, there probably wouldn’t be cause for a sales tax exemption anyway. Have we mentioned how important an RPS is yet?

General Increase in Home Value

We hinted at this earlier in the property tax section, but here we’ll look at exactly how much you could expect to see the value of your home increase if you decided to add a solar system.

According to a recent study by the Lawrence Berkeley National Lab, you can expect to net around a $4 per watt premium from your homeowner-owned solar system compared to similar homes without solar. This value increase stems from the fact that your home will enjoy substantial savings in energy for the 25-year lifespan of the system.

If we use the 5 kW system from our earlier examples, we could be talking about a $20,000 increase in home value!  If you live in one of the municipalities that provide property tax exemptions then you will be able to enjoy this value without any financial repercussions.

When you sell the house you’ll end up recouping at least the same amount of money that you spent to install the system so it’s a win-win!

More: Buyers Will Pay More for Solar Homes

If you’d like to dig even more on local incentives and rebates, check out the DSIRE database.

#5 Juneau Solar Informationjuneau-alaska

Juneau might be named after a gold prospector, but the sun’s golden rays are definitely a better deal these days! This deal is despite the fact that there really aren’t any extra perks for going solar here compared to other parts of the state. The primary power company in Juneau is the Alaska Electric Light and Power Company, and they do not participate in any rebates or grants.

If you are looking for a city that offers special perks, check out the Fairbanks metropolitan area, as it is serviced by the Golden Valley Electric Association. As mentioned previously, you’ll be able to get about $360 per year in performance payments from that utility!

What to Do Next?solar-in-alaska

Alaska might not be the sunniest state in the Union or the one most politically primed to hand out solar incentives, but there are still good reasons to consider going solar here – most notably the high cost of electricity. Hopefully there will be a change of heart with lawmakers and they will decide to prioritize their commitment to renewable energy in the future. Until that time, you’ll still be able to make a good profit with the switch!

As per usual, any information that we’ve compiled here should be used just as a baseline for your research into solar. Reach out to local installers and neighbors that have purchased systems of their own to get a feel for what to expect and how expensive the project will be.

If you are currently living in Alaska and have solar or want it, leave some comments below!

Image Credits under CC License via Flickr - 1, 3 & Pixabay - 2, 4, 5

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