Kentucky Solar – Everything You Need to Know

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Information about Solar Panels in Kentucky

Like other states in the south, Kentucky residents don’t have all the great incentives and policies that make KY Solar such a great idea in other areas. To be sure, you can save money by buying and installing solar, but you just can’t save as much as in the northeast and west, where high electricity prices and numerous solar incentives mean big savings.

Interested in how to save money by going solar in Kentucky? Take a look below for information on solar policy, incentives, and savings estimates for both purchasing solar in cash and through loans.

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#1 Are Solar Panels Worth it in Kentucky?

D
Overall Grade
15 years Avg. Payback Time (For Cash Purchase)
5.4 % Estimate IRR (Return on your investment on cash purchase over 25 years)
$13,225 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.

Kentucky’s done a few things right for solar. They’ve established a very good net metering policy, adopted interconnection standards, and even created solar easements to protect solar homeowners’ access to sunlight.

However, these are just a small part of the equation and they’ve missed huge chunks of regulations that work together to create strong solar policy. There’s no RPS, no financial incentives, and they’ve outright banned solar PPA financing.

Kentucky gets a D rating until they take steps to seriously encourage solar growth in the state.

#2 Options for Buying Solar Panels in Kentucky

Kentucky homeowners have two options when it comes to financing solar: cash or loan.

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Cash Upfront

If you’re looking to save the most money possible, paying for your installation in cash at the beginning is your best option. There are less fees and no interest payments. Plus, as the owner of the installation, you benefit from the 30% federal tax credit as well. Of course, you have to pay the entire cost upfront, which can be a doozy for some.

How much does it cost to install solar in Kentucky? For an average-sized 5kW installation, you’re looking at spending about $12,985 after applying the federal tax credit ($18,550 before the tax credit). We calculated this cost by looking at Kentucky solar installation costs from several sources and finding the average ($3.71/watt). Obviously, this installation cost is pretty high, but let’s see how much you can save.

By installing this 5kW installation, you can save $13,225 over 25 years (the estimated life of most solar installations). We calculated these savings by comparing the total installation cost against what it would cost to continue purchasing the same amount of electricity from the utility, accounting for both the average increase in utility prices (4.2% each year in Kentucky) as well as your solar panels’ production loss (0.08% each year).

Bottom Line: Without the financial incentives common in other states, financial payback is a bit longer -15 years- but after that, you’ll be enjoying clean, absolutely-free renewable energy for the rest of your installation’s life!

Leases

Kentucky is one of only 9 states that has an outright ban on power purchase agreements (PPAs), and the state also doesn’t allow solar leases either. This means that the financing mechanisms that allowed solar to boom in other states just aren’t permitted here.

It’s not necessarily a terrible thing – you’ll save more money if you go with a cash or loan purchase – but it does mean that the national solar installers that make their money on leases and PPAs are hesitant to enter the state.

Bottom Line: If you want to go solar in Kentucky, you’ll have to go full ownership, which is fine as you save more money anyway!

More: Solar Leases

Loan

If you just don’t have the cash to pay outright for a solar installation, loans are the next best option. You’ll be paying interest, which certainly cuts into your savings, but you’ll successfully avoid that upfront payment.

Taking out a 15-year loan with 5% interest effectively adds $7,855 to your costs, with your investment totaling $20,840 after incentives for the same 5kW installation as above.

Obviously, this higher cost affects your total savings, dropping it down to $5,370 with a payback period of 22 years.

Bottom Line: Your savings are pretty thin with a solar loan, but if reducing emissions is just as important to you as saving money, a solar loan is still a good investment!

More: Solar Loans

#3 Kentucky Solar Policy Information

Kentucky has adopted great solar policies like net metering, interconnection standards, but has left a huge hole with their lack of an RPS.

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Renewable Portfolio Standard

RPSs are simply mandates that state governments pass to encourage the growth of renewable energy and curb emissions. They do this by setting mandatory goals that a certain percentage of all electricity sold in the state must come from renewable sources by a specific date.

The onus to meet these mandates falls on utilities, which typically build wind and solar power plants, encourage their customers to install solar on their roofs, or buy Renewable Energy Credits.

Kentucky is one of just 13 states that have yet to adopt RPS goals, along with Alabama, Mississippi, Georgia and other mostly southern states. More than any other legislation, RPSs encourage the growth of solar, especially when the state mandates that a certain percentage of the renewable energy must come from solar (known as a solar carve-out).

Better late than never, and if Kentucky really wants to push forward with renewable energy, they need to seriously consider adopting RPS goals.

More: Renewable Portfolio Standard (RPS)

Electricity Prices

With electricity prices at $0.10 per kWh, Kentucky has cheap energy. It’s 30% less than the US average’s $0.13 per kWh and miles away from California’s $0.17 per kWh, Rhode Island’s $0.19 per KWh and Hawaii’s achingly high $0.30 per kWh.

What does electricity price have to do with solar? Everything!

If your electricity prices are high, you can save a lot of money by ditching the utility and producing your own clean, low-cost solar-sourced electricity.

On the other hand, if your prices are low (like in Kentucky) you’re going to have a harder time saving money. You’ll have to take advantage of all the incentives available and choose your financing carefully to ensure you’ll come out on the right end financially.

Net Metering

Kentucky has implemented a strong net metering policy similar to other pro-solar states like California.

All utilities operating in the state (except TVA) must offer net metering to solar customers. At the end of each month, if you’ve put more electricity into the grid than you’ve taken, your utility will give you a bill credit equal to the electricity retail rate. This means that, if your utility rate is $0.10 per kWh and you produced an extra 50 kWh this month, you’d receive a bill credit for $5 the following month.

If you’re on a Time-of-Use rate, you’re compensated at the rate when your excess electricity goes into the grid. So, if you produce excess electricity during peak times when prices are higher, you’ll be compensated at that higher price!

These credits never expire and simply continue to roll over month-to-month. Additionally, you aren’t required to hand over your renewable energy credits (RECs) to the utility, so you can keep them and sell them off if possible.

If you’re a TVA customer, don’t worry! Take a look at the section below on TVA’s Green Power Providers to learn more about this program.

More: Net Metering

Interconnection Rules

The interconnection process (in other words, the approval process to gain permission to connect your solar installation to your utility’s grid) is standardized across the state of Kentucky, thanks to legislation passed by the state in 2008.

The process is based on the size of the installation, breaking down into two levels:

Level 1: Systems under 30 kW. All but the largest residential solar installations fall into this category. Regulations guarantee that utilities can’t charge application fees (or any other fees) and they must notify the homeowner within 20 days if the application has been approved or denied.
Level 2: Only for special circumstances (unusual equipment or inverter-less systems). Utilities can charge application fees upwards of $100 and perform impact studies to see how the installation could affect the utility’s grid if needed. The utility has 30 days to respond to the application.

For all but the most unusual installations, homeowners will fall into Level 1, guaranteeing an easy interconnection process. On top of this, your installer will most likely fill out and submit the paperwork on your behalf. (But be sure to ask if they will take care of this for you.)

Homeowners Associations

Kentucky passed regulations in 1982 creating easements for solar installations. This allows solar homeowners to apply for an easement added to their property to protect the sunlight hitting their solar panels. Once an easement is in place, their neighbors can’t build or plant trees that shade their solar panels.

The law notes that the easement can be ‘acquired and transferred’, assumably to a neighbor so they can cancel the easement or to new homeowners who want to continue to protect the solar panels on the roof.

#4 Financial Incentives, Rebates, and Tax Credits 

Other than the federal tax credit, Kentucky homeowners aren’t eligible for any other solar financial incentives.

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Federal Tax Credit

Kentucky homeowners who install solar are eligible for the 30% federal tax credit, which is a dollar-for-dollar discount on the total cost of your installation. And just to reiterate, it’s an actual tax credit, not a tax deduction, so you get to write off the entire 30% of the installation cost!

This tax credit goes a long way to dropping your total cost. For example, let’s say you spent $20,000 on your installation. At tax time, you’d get $6,000 back!

Unlike net metering and interconnection applications (which your installer should fill out for you), you’ll need to apply for this tax credit yourself.

It was originally meant to expire in 2016, but federal lawmakers saw the importance of this credit towards further encouraging the growth of renewables and extended it until 2019 when the credit drops to 26% until 2021. It then drops to 22% until 2022, at which point it permanently ends.

More: Solar Federal Tax Credit

State Tax Credit (Expired)

From 2008 to the beginning of 2016, the state of Kentucky offered a tax credit up to $500 for residential solar installations. Unfortunately, this incentive is no longer available. 

TVA Green Power Providers

If your utility is part of TVA, they might offer the Green Power Provider program (many Kentucky-based TVA affiliates offer this program, so take a look at the list of participating utilities to see if yours is one of them).

This program is designed to be an alternative to net metering. Instead of crediting your account for your excess electricity, TVA will purchase all your electricity (and, by extension, your Renewable Energy Credits). The electricity then goes to their Green Power Switch program, which allows non-solar homeowners to buy renewably-sourced electricity.

TVA will pay you the full retail amount for that electricity for the 20-year length of the agreement. So, if your 5kW installation produces 6,676 kWh this year and your electricity rate is $0.10/kWh, they’d pay you $667.

With utility rates consistently increasing each year, this is a great way to ensure a nice return on your investment by the end of 20 years. However, there’s a big caveat: you don’t get the satisfaction of using your own renewable electricity!

So say hello to financial savings, but not to your own energy independence. 

Property Tax Exemption

Unlike other pro-solar states, Kentucky does not offer a property tax exemption for solar installations. While the savings are generally fairly low – only around $100 for the first year – it’s something that Kentucky should consider adopting to further encourage the growth of the solar industry in the state.

Sales Tax Exemption

Many states also offer sales tax exemptions for solar equipment and installations. Unfortunately, Kentucky does not offer this tax exemption either. With state sales tax at 6%, you’d save about $1,110 with this exemption for a 5kW installation. Maybe one day….

General Increase in Home Value

Installing solar on your roof can add value to your property, but it greatly depends on what type of financing you choose.

Purchasing your installation in cash or through a loan adds quite a bit of value to your home, since you are the owner of the installation and it’s a value-added asset on your roof. The Lawrence Berkeley National Laboratory (LBNL) studied home values in six different states (though not in Kentucky) and found that home buyers were willing to pay an additional $4.51 per watt on average for solar installation. At this rate, a 5kW installation could then add an extra $20k to your home’s value.

Leases and PPAs don’t bring the same value as cash or loan purchases, as you aren’t the owner of the installation. A different study by Lawrence Berkeley National Lab shows that leases and PPAs don’t add to or subtract from the value of the home or it’s time on the market.

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.

What to Do Next?

Is it wise to install solar in Kentucky? Yes! As long as you choose the right financing (preferably cash), enroll in net metering, and take advantage of the federal tax credit. And be sure to apply for that solar easement too!

Image Credits under CC License via Flickr - 1, 2, 34

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