Iowa Solar – Everything You Need to Know

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Information about Solar Panels in Iowa

Iowa has huge amounts of wind power. In fact, 34% of all electricity generated in Iowa is wind power. That’s a lot of renewable energy!

Unfortunately, solar generates precious little electricity in the state. There’s actually no large-scale solar farms in Iowa and all Iowa solar comes from small installations owned by homeowners or businesses.

Want to throw your name in with the solar lovers? Want to save some money and decrease your emissions? We’ve got all the information below to help you with your quest!

There’s information on solar savings in Iowa, relevant solar policies, and all the tax credits and exemptions you’re eligible for (and it’s quite a lot!). So start reading and then get out there and install your system!

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#1 Are Solar Panels Worth it in Iowa?

C
Overall Grade
12 years Avg. Payback Time (For Cash Purchase)
7.6 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$14,557 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.

Despite offering a pretty good state tax credit for going solar, Iowa’s low electricity prices mean it takes about 12 years for an average-sized solar installation to pay itself off, leading us to give Iowa solar a grade of C.

#2 Options for Buying Solar Panels in Iowa

Iowa homeowners have two financing options to go solar: cash or loan.

Cash Upfront

Dollar-for-dollar, buying your solar system in cash upfront is the best deal. You save the most money, you get to take advantage of the state and federal tax credits, and your home value increases.

Of course, you also have to pay for the entire installation upfront, which probably isn’t just a walk in the park for most people. With the average installation cost hovering around $3.75 per watt in Iowa, for a 5-kilowatt installation you’re looking at paying about $18,766 before incentives, or $10,321 after applying the state and federal tax credits.

With this $10k investment, though, we estimate you can save about $14,557 after paying off your system, with payback time around 12 years. These savings take into account the utility’s electricity prices, their average increase each year in Iowa (2.6% higher each year), as well as solar panels’ typical drop in production (0.8%) each year due to wear and tear.

Bottom Line: So a $10k investment with total net savings of over $14k? Seems pretty good! Don’t have that kind of money waiting to be invested? Take a look at solar loans.

Leases

While the state of Iowa technically allows power purchase agreements, which along with solar leases are known as third-party ownership, utilities in the state have refused to net meter solar installations financed through leases or PPAs, claiming it’s against the rules.

As of 2017, none of the big national installers like SolarCity or Sunrun (that make their money on solar leases and PPAs) have entered the state yet. Basically, all this means solar leasing in Iowa is dead in the water.

Bottom Line: If you’re looking for a solar lease in Iowa, you’re out of luck. However, you’ll pretty much always see more savings with a cash or loan purchase. In fact, you can enjoy the main benefit of solar leases – going solar for no money down – with a solar loan, but save even more money!

More: Solar Leases

Loans

Loans allow you to purchase your solar installation, but without that upfront cost. You still add value to your home and you still get to benefit from the state and federal tax credits as well. Unfortunately, you’ll also be paying interest for the pleasure of borrowing all that money, and that will cut into your total savings.

Taking out a 15-year loan with 5% interest adds an extra $7,946 in interest to your total investment cost, dropping your savings to $6,611 and increasing your payback time to 20 years.

These savings obviously aren’t as high as with a cash purchase, but ask yourself this question: would you invest a dollar today, if you were guaranteed $1.50 the next day? We certainly would!

Your interest rate, loan length, and fees affect your savings. The shorter the loan and lower the interest rate, the higher your savings will be. Call up a few banks, credit unions, and solar installers to see what kind of terms they offer for solar loans (if they offer loans) so you can get the best deal you can.

Since 1996, the Alternate Energy Revolving Loan Program (set up by the state) has offered Iowa residents fantastic loans for solar installations – funding 246 solar installations, 47 small wind projects, 22 biomass projects, and a handful of others.

For a single project, the program finances 50% of the total cost with a 0% interest loan up to 20 years in length – a fantastic way to decrease your cost to go solar. Unfortunately, the program is currently suspended until further notice, but it certainly doesn’t hurt to check in every so often to see if it’s back up and running!

Bottom Line: Loans offer a great way to go solar while avoiding that huge initial investment. Remember that interest rate, fees and loan length affect your savings, so shop around before deciding.

More: Solar Loans

#3 Iowa Solar Policy Information

Iowa has some great policies to encourage solar in the state, including net metering, RPS goals, and solar access laws.

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Renewable Portfolio Standard

Renewable Portfolio Standard is a complicated name for a very simple idea. When states want to lower their emissions and encourage their local residents, businesses, and utilities to adopt renewable technology, they’ll pass an RPS, which mandates that a certain amount of electricity must be renewably-sourced by a certain time.

Currently, 29 states have RPS goals, with most passed in the last 10 to 15 years. Back in 1983, Iowa became the very first state to adopt RPS goals, mandating that MidAmerican Energy and IPL source 105 MW of electricity (enough to power about 17,200 homes) from renewable sources.

Today, about 31% of all electricity produced in Iowa is from wind – one of the highest percentages in the country. Solar makes up a very minute portion of their total electricity production.

More: Renewable Portfolio Standard (RPS)

Electricity Prices

Iowa has low electricity prices. Electricity prices are important because the higher your utility charges for electricity, the more money you can save by installing your own solar system and avoiding that expensive electricity for the next 25 years.

Iowa’s average utility rate is $0.116 per kWh, about 9% less than the national average of $0.126 per kWh. Washington enjoys the cheapest electricity, at $0.09/kWh, thanks to all their hydroelectric projects, while Hawaii sees the most expensive, at $0.296/kWh, since they have to import all their fuel from the mainland.

The current electricity price is only half the battle, though. Since your installation will be up and running for the next 25 years at least, your savings are also dependent upon the rate at which your utility’s prices increase each year. Your utility might be cheap now, but if they raise their prices a lot each year, you’ll end up spending quite a lot.

Looking at EIA data on utility rate increases, we can calculate that Iowa’s utility rates increased an average of 2.6% annually over the last 15 years, right in line with the national average. It’s not a huge increase, but every cent adds up over the course of 25 years!

Net Metering

Net metering at Iowa’s 2 privately-owned utilities (MidAmerican Energy and Interstate Power and Light) is actually pretty good – but it’s only temporary (at least for now – read on for more info).

For each kilowatt-hour of excess electricity solar homeowners put into the grid, these two Iowa utilities credit your account for the same amount. So, if you used 800 kWh last month, but your solar installation produced 900 kWh, you’ll see 100 kWh credited to your account the next month. In essence, this means the utility is crediting you at the full retail rate for electricity, which is about as good as net metering can get!

In 2016, the Iowa Utilities Board (the government organization responsible for regulating the utilities above) ordered MidAmerican Energy and IPL to begin cashing out any leftover credits at the end of the year, typically at the utility’s avoided cost (which is how much it would cost them to produce that electricity, usually around $0.03/kWh). So, if you’ve got 300 kWh in your account at the end of the year, you’d get paid about nine bucks.

This net metering pilot program will last 3 years, at which point the Utilities Board will decide whether or not to continue it indefinitely. It’s all up in the air whether this net metering program will continue past 2019, so we’ll just have to wait and see.

Electric cooperatives and municipal utilities aren’t required by law to offer net metering – though the Iowa Utilities Board strongly encourages them to – so you’ll need to call up your utility to find out if they offer net metering.

More: Net Metering

Interconnection Rules

To simplify the process of going solar, the Iowa Utilities Board mandated that the state’s 2 privately-owned utilities (IPL, MidAmerican) must adopt a standardized interconnection process (the approval process to connect your solar installation to their electricity grid).

Without a standardized process, these utilities can adopt very different applications, fees, and wait times. By creating a standard process, Iowa ensures that all homeowners can go solar easily, quickly, and for as little cost as possible.

The interconnection process is broken up into 4 tiers, based on the size of the installation. Most homeowners installing solar likely fall under Tier 1, which is for installations under 10kW. If you have a larger system, you’ll fall into Tier 2, which is for 10kW to 2MW.

While some states mandate that utilities can’t charge homeowners application fees for interconnection, that’s unfortunately not the case in Iowa. Tier 1 customers must pay a $125 application fee, but aren’t required to have any additional insurance. Tier 2 application fees are $250.

In the end, your solar installer will take care of the interconnection process for you, so it’s not something you need to bother yourself about. Just know that the approval process shouldn’t hamper your installation, thanks to these standardized processes!

Solar Access Rights and Homeowners Associations

While not as strong as other states, Iowa has passed a couple of laws to protect solar access rights. What are solar access rights, you ask? They encompass two key ideas:

First, the right for homeowners to simply go solar. As you can imagine, some organizations don’t like solar panels. Maybe your HOA hates how they look up on roofs or thinks they decrease property value (read more on this in the last section) and when you apply for permission to install your solar installation, you get denied.

To counter this, many states have passed laws banning HOAs, local governments, or other organizations from blocking solar installations. While Iowa hasn’t passed this law statewide, the state does allow local governments the right to ban organizations from blocking solar. While not as good as many other states, it’s better than nothing!

The second key right is the right to sunlight. Let’s say you’ve got your solar system installed, but the next day your neighbor plants trees or puts up a new building on their property. Now your new, expensive solar panels aren’t getting any sun at all! (It’s happened more than you think.) Iowa has this covered, too.

Like many states, they allow solar homeowners to create voluntary easements on the airspace next to their solar panels. These easements are entered into with neighbors, but actions must be taken to minimize the impact on neighbors beforehand (that definitely creates some good will, right?).

If you just can’t get your neighbors to agree to a voluntary easement, state law does allow solar homeowners to apply to the local government to create an easement without neighbor approval.

#4 Financial Incentives, Rebates, and Tax Credits

With the federal tax credit and the state tax credit, you can drop your total installation cost considerably.

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Federal Tax Credit

Originally set to expire at the end of 2016 and subsequently extended until 2019, the federal tax credit for solar is a great deal. All US homeowners who purchase and install solar are eligible for the incentive, which as a credit (not a deduction) drops your total taxes by 30% of your installation cost. This, in essence, gives you a 30% discount on your installation. So if your installation costs $18k, your tax credit would equal $5,400.

Homeowners apply for the credit themselves the following tax season. If your tax burden isn’t high enough, you can break the total credit up into smaller chunks over several years.

More: Solar Federal Tax Credit

Iowa State Tax Credit

Iowa started offering tax credits to homeowners installing solar back in 2012. Since 2016, the program has offered credits based on the federal tax credit, offering 50% of the federal tax credit rate, up to $5,000. So, if your federal tax credit is $3,000, your state tax credit will be $1,500.

To be eligible for the credit, you must apply online by May 1st of the year after your installation. You’ll need:

  • An invoice for your installation,
  • A copy of the “utility completion sheet” from your utility,
  • The “Tax Credit Applicant Certification” form provided by the Department of Revenue.

After your application is accepted, you’ll receive a certificate from the Department of Revenue.

Iowa sets aside $5 million each year for this tax credit and it is on a first come, first served basis. If you miss out on the credit one year, you are put on a waiting list for the next year.

Utility Based Incentives

No utilities currently offer solar rebates in Iowa.

Solar Property Tax Exemption

While they certainly don’t tip the scales too much, property and sales tax exemptions for solar installations can still save you a couple thousand dollars over the life of your installation. Thankfully, Iowa has both!

The state offers a property tax exemption on 100% of the value your solar installation adds to your home for the first 5 years it’s on your property. With an average property tax of 1.44%, this means that for an $18,000 solar installation, you could avoid $260 in property taxes in your first year alone!

Solar Sales Tax Exemption

Iowa also exempts solar equipment (not total installation costs) from sales tax as well. Equipment costs account for about 42% (data on p.16) of total installation costs for most solar installations. With Iowa’s state sales tax at 6%, this means you could save $453 in sales tax for a system that cost $18,000. Pretty good savings for something most of us don’t even think about!

General Increase in Home Value

If you buy your installation outright or with a loan, your solar can add some serious value to your home! According to a 2015 study of home values in 6 states (though not including Iowa) from the Lawrence Berkeley National Lab, homebuyers are willing to spend an average of $4/watt more on homes with solar. This means that your 5kW installation can add an extra $20k in value to your home. What a sweet deal!

For more information on home value and solar, check out our article What Do I Need to Know When Buying a House with Solar Panels? as well as Buyers Will Pay More for Solar Homes.

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

#5 Des Moines Solar

If you’re in the Des Moines area, going solar makes a lot of sense. MidAmerican Energy, Des Moine’s local utility company, doesn’t offer any additional financial incentives for solar, but they must follow all the net metering and interconnection guidelines passed by the state.

MidAmerican’s kWh electricity rates are lower than the state average ($0.105/kWh vs $0.116/kWh) (PDF p.215), but there’s an important caveat here. MidAmerican also charges residential customers a basic service charge of $8.50 per month. This means that, even if you use absolutely zero electricity from the utility in a month, you are still charged $8.50 to cover infrastructure costs (maintaining electric poles, wires, etc).

This service charge can slowly eat away at your solar savings. To get an accurate estimate of your own savings, you’ll need to talk to a local installer that is familiar with MidAmerican Energy and can calculate your specific savings using MidAmerican’s rates.

What to Do Next?iowa-bridge

With great net metering, solar access laws, and a handful of incentives, going solar in Iowa is a great idea. You can save money, add value to your home, and decrease your emissions. First things first, though: reach out to a few installers and see what financing is available and what savings you can see.

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

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