Solar Southwest Florida

As expected, Cape Coral passed the Public Service Tax measure on April 29, 2013. The tax impacts every utility electric customer in the City. The more you use electricity, the more tax you pay.

As I noted in my earlier post, solar energy producers can avoid tax on every kilowatt-hour they reduce or produce with solar energy.

The City of Cape Coral released an online calculator that has a few deficiencies. Most importantly to me is that the calculator ignores solar producing customers using LCEC’s netmetering program (both commercial and residential). If you are a small commercial (non-demand charge) or residential customer with solar electric panels and you have a netmetered account, you pay different rates than standard utility customers. As a result, your tax calculation is different. The City’s calculator only shows large commercial (demand charge) rates, and not small commercial rates.

The good news is that there isn’t much tax difference for netmetered customers, who often pay lower rates than those who don’t produce solar energy. In fact, many residential netmetered customers fall below the 500 kWh tax threshold, so they will pay no tax except tax on the customer charge, or $1.35. Netmetered customers with an energy surplus in any month will also pay just $1.35!

I felt obligated to produce a better calculator that could be used by most commercial and residential netmetered customers who are producing solar energy. This calculator should match Cape Coral’s calculator for residential customers without solar electricity.

If the calculator does not appear below, you may access it directly at: http://szumlanski.com/PST/

Assumptions and Disclaimers: This calculator is based on the 7% Public Service Tax as approved on April 29, 2013 and utility rates are accurate as of May 1, 2013 to the best of my knowledge. SolarSouthwestFlorida and it’s author are not responsible for and errors or omissions in this calculator.  Please use with caution. Results are for approximate reference only. Rounding errors may exist. The City of Cape Coral’s office calculator can be accessed by clicking here.

As a financial analyst by education, I’m surprised at how few posts I’ve made on the investment returns of solar energy products. Residential solar energy systems provide a return on investment that rival investments of similar risk. One factor that is often left out of financial analyses is the impact of personal income taxes, not from the perspective of tax credits, but from the perspective of electricity costs. Let me explain…

When you pay for your utility bill each month, you are probably paying with money from your checking account. This is money upon which you have presumably paid taxes, or will pay taxes. Let’s say your utility bill is $160 this month. Let’s also assume that your marginal tax rate (the rate you pay on your next dollar of earnings) is 20%. How much did you have to earn to pay the $160 utility bill?

$160 / (1-20%) = $200

Let’s assume that you install solar panels that produces enough energy to reduce your electricity bill by $160 this month. You will have “earned” $160, and no taxes are due! Why is this important?

We often compare the investment in solar energy systems with other investments with similar risk profiles. For example, a stock may provide a dividend yield, but that investment income is taxable. We should be looking at pre-tax rather than after-tax cash flows. You would have to earn a $200 dividend to equal a $160 cash savings on your utility bill!

This fact is usually left out of the financial analysis performed when evaluating a solar energy system’s investment performance. Most financial models are too simplistic, understandably so, because there are already a multitude of factors that go into the analysis making it quite complex and sensitive to a few key variables. Moreover, changing and unpredictable tax rates and structures over the 25+ year lifetime of a solar energy system make taxation a difficult and risky factor to include in the analysis. However, savvy investors know that taxation plays a large part in investment planning, and can be an important decision-making factor.

If you are in a higher tax bracket, expect to be in a higher bracket in the future, or expect tax rates to increase, the savings are amplified and the decision to invest in a solar energy system is that much easier!

A recent story about a homeowner in Largo, FL casts a shadow on what happens if a neighbor’s trees shade your roof (ref: http://www.tampabay.com/news/business/energy/solar-powered-largo-homeowners-fights-neighbors-trees-gains-little-ground/1231054).

Microinverters Reduce Effects of Shading on Solar Panels

In Florida, we do not have particularly strong solar access laws with regards to shading. If your neighbor builds a second story or plants a tree that shades your solar panels, you are most likely out of luck. But that does not mean you can’t install solar panels and see benefits!

In the past, shading a single panel, or even part of a panel in a solar array could have devastating performance impacts. Today we have access to technologies that make solar arrays more shade tolerant. On of those technologies is the microinverter, which converts sunlight to usable household AC power on a panel by panel basis right on the roof. If part of your solar array is shaded, the unshaded panels will continue to perform.

Keep in mind that the sun moves from the east to the the west horizon each day and rises to a varying height in the sky each day dependent on the time of year. Shading may not have the impact you think on a solar array. The best thing to do is have you solar professional do a shading analysis to estimate the impact of an object between your property and the sun throughout the year. Early morning and late afternoon shade typically have a negligible effect on the overall production of a solar energy system.

If you want to learn more about solar access laws, here are some additional resources:

Solar ABCs guide on solar access laws in the US: http://www.solarabcs.org/about/publications/reports/solar-access/pdfs/Solaraccess-full.pdf

Database of State Incentives for Renewables and Efficiency (DSIRE): http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=FL01R&re=1&ee=1

The law is clear in Florida. A homeowner association cannot prevent you from installing solar energy products. This is governed by Section 163.04, Florida Statutes. You have a right to obtain energy from renewable resources on your property

Condo associations similarly cannot prevent you from installing solar energy products on your property. Unfortunately, the roof of a condo and the areas outside your walls are rarely considered your property.

Courts have upheld this law in favor of homeowners to a great extent. The law event extends to clotheslines that use the sun and wind to dry clothing, again, as long as it is on your property. The railing of your porch is not generally considered your property.

3D Model for Homeowner Association

Homeowner associations can tell you where to put solar panels as long as it does not impede the function of the panels. Typically you will want your panels to be on the south side of your home, and there is little a homeowner association can do to stop you.

Most homeowners want to maintain a good relationship with their association, management company, and neighbors. What I do to help smooth things out is prepare a 3D model of the home on a Google Earth map to show the association board of directors how the finished product will look. Our solar advisers discuss options with the homeowner and quantify the effects of suboptimal panel placement on roof faces. In just about every case we can come to a suitable resolution that makes all parties happy.

If push comes to shove, a strongly worded letter citing Florida Statute 163.04 is the ace up our sleeve.

If your homeowner association is giving you a hard time about installing solar panels on your Florida home, let me know!

Here is the full text of FS 163.04:

Energy devices based on renewable resources.-

(1) Notwithstanding any provision of this chapter or other provision of general or special law, the adoption of an ordinance by a governing body, as those terms are defined in this chapter, which prohibits or has the effect of prohibiting the installation of solar collectors, clotheslines, or other energy devices based on renewable resources is expressly prohibited.

(2) No deed restrictions, covenants, or similar binding agreements running with the land shall prohibit or have the effect of prohibiting solar collectors, clotheslines, or other energy devices based on renewable resources from being installed on buildings erected on the lots or parcels covered by the deed restrictions, covenants, or binding agreements. A property owner may not be denied permission to install solar collectors or other energy devices based on renewable resources by any entity granted the power or right in any deed restriction, covenant, or similar binding agreement to approve, forbid, control, or direct alteration of property with respect to residential dwellings not exceeding three stories in height. For purposes of this subsection, such entity may determine the specific location where solar collectors may be installed on the roof within an orientation to the south or within 45 ° east or west of due south provided that such determination does not impair the effective operation of the solar collectors.

(3) In any litigation arising under the provisions of this section, the prevailing party shall be entitled to costs and reasonable attorney’s fees.

(4) The legislative intent in enacting these provisions is to protect the public health, safety, and welfare by encouraging the development and use of renewable resources in order to conserve and protect the value of land, buildings, and resources by preventing the adoption of measures which will have the ultimate effect, however unintended, of driving the costs of owning and operating commercial or residential property beyond the capacity of private owners to maintain. This section shall not apply to patio railings in condominiums, cooperatives, or apartments.

History.-s. 8, ch. 80-163; s. 1, ch. 92-89; s. 14, ch. 93-249.