Frequently Asked Questions

What Is a Solar Power Purchase Agreement (PPA)?

A Solar Power Purchase Agreement (PPA) is a financial arrangement in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system, and a host customer agrees to site the system on its roof or elsewhere on its property and purchases the system's electric output from the solar services provider for a predetermined period. This financial arrangement allows the host customer to receive stable, and sometimes lower cost electricity, while the solar services provider or another party acquires valuable financial benefits such as tax credits and income generated from the sale of electricity to the host customer.

With this business model, the host customer buys the services produced by the PV system rather than the PV system itself. This framework is referred to as the "solar services" model, and the developers who offer PPAs are known as solar services providers. PPA arrangements enable the host customer to avoid many of the traditional barriers to adoption for organizations looking to install solar systems: high up-front capital costs; system performance risk; and complex design and permitting processes. In addition, PPA arrangements can be cash flow positive for the host customer from the day the system is commissioned.

How do PPAs Work?

A host customer agrees to have solar panels installed on its property, typically its roof, and signs a long-term contract with the solar services provider to purchase the generated power. The host property can be either owned or leased (note that for leased properties, solar financing works best for customers that have a long-term lease). The purchase price of the generated electricity is typically at or slightly below the retail electric rate the host customer would pay its utility service provider. PPA rates can be fixed, but they often contain an annual price escalator in the range of one to five percent to account for system efficiency decreases as the system ages and inflation-related costs increases for system operation, monitoring, maintenance, and anticipated increases in the price of grid-delivered electricity. An SPPA is a performance-based arrangement in which the host customer pays only for what the system produces. The term length of most SPPAs can range from six years (i.e., the time by which available tax benefits are fully realized) to as long as 25 years.

The solar services provider functions as the project coordinator, arranging the financing, design, permitting, and construction of the system. The solar services provider purchases the solar panels for the project from a PV manufacturer, who provides warranties for system equipment. The installer will design the system, specify the appropriate system components, and may perform the follow-up maintenance over the life of the PV system. To install the system, the solar services provider might use an in-house team of installers or have a contractual relationship with an independent installer. Once the SPPA contract is signed, a typical installation can usually be completed in three to six months. An investor provides equity financing and receives the federal and state tax benefits for which the system is eligible. Under certain circumstances, the investor and the solar services provider may together form a special purpose entity for the project to function as the legal entity that receives and distributes to the investor payments from the sale of the systems kWh output and tax benefits.

The utility serving the host customer provides an interconnection from the PV system to the grid, and continues its electric service with the host customer to cover the periods during which the system is producing less than the site's electric demand. Certain states have net metering requirements in place that provide a method of crediting customers who produce electricity on-site for generation in excess of their own electricity consumption. In most states, the utility will credit excess electricity produced from the PV system, although the compensation varies significantly depending on state polices.

Benefits of PPAs

No upfront capital cost. Predictable energy pricing. No system performance or operating risk.
Projects can be cash flow positive from day one.Visibly demonstrable environmental commitment.Potential to make claims about being solar powered (if associated RECs are retained). Potential reduction in carbon footprint (if associated RECs are retained). Potential increase in property value.Support for local economy and job creation.

Solar Investment Tax Credit (ITC) – What You Need to Know

The Solar Tax Credit, also known as the Solar Investment Tax Credit (ITC), is a staple for solar development nationwide since the Energy Policy Act of 2005.

This federal tax credit offers buyers of solar power systems incentives to reduce the amount of taxes owed or pay the following year after their purchase.

Solar ITC helps homeowners, and commercial businesses, to afford solar technology, especially during the beginning when costs were higher than they are now. This article explains the ITC and why it’s crucial to invest before it changes.

How does the Solar Tax Credit work?

Well, first you have to buy a solar system. That fact is probably apparent, but the math fun begins after that. You will bring the “receipt” of your solar system purchase to your tax processor the following year. The amount you claim can be from any of the following areas:

  • Solar equipment (including battery storage)
  • Freight shipping costs
  • Solar consulting fees
  • Professional installer fees
  • Electrician fees
  • Engineer fees
  • Tools bought or rented
  • Wiring, screws, bolts, nails, etc.
  • Equipment purchased or rented (scaffolding or a man-lift, for example)
  • Permitting fees
  • Permitting service costs
  • Contractor Costs (if you hire out instead of installing yourself)
  • Roofing Repairs or Replacement

Even if you install the system yourself, which will have you dealing with the electrical code, approval, and permitting. In that case, you can still claim the equipment purchases and other items on the above list.

Accounting for all your solar project costs, your tax processor can total those costs and use 30% of that sum to lower your taxes. For example, all said and done, you end up paying $21,000 for your solar energy system. That would give you a $6,300.00 solar tax credit, and you’ll pay $6,300.00 less in federal taxes.

You will get a 30% credit based on your solar system’s total cost, including all the items listed above. You can use this 30% to offset taxes owed, and if you already paid this amount through tax withholdings on your paycheck, you can get it as a refund!

We recommend consulting with your tax professional to ensure you are filing everything correctly. We are not tax professionals, but we provide our customers with the documents and direction they need to get the most out of their solar investment, including this solar power tax credit.

Understanding Federal Solar Investment Tax Credits

To qualify for the 30% Federal Tax Credit:

  • Install your solar system during the year 2022 or after.
  • You must own your home.
  • You must pay or owe federal taxes in order to use the tax credit.
  • You must own your solar, and it must be new. (Leases Not Allowed)

Tax Credit vs. Tax Credit Refund

It is important to understand that this is a federal solar investment tax credit, which means you must pay or owe federal tax. Typically you pay this through your paycheck if you are a W-2 employee. You can only use this tax credit to offset taxes owed or create a refund of taxes already paid through payroll in the installation year. You can not get the money that you did not pay in or owe, meaning you have no tax liability. For example, if you are on permanent disability and it is non-taxed, you have no taxable income, and therefore the tax credit may not apply. However, you can go backward and pay off any owed taxes from previous years.

Qualifying for the Solar Tax Credit

W-2 Employee

Employees with paychecks usually pay taxes through payroll automatically, creating a refund or liability depending on elected withholdings, which are adjustable at any time. You can pay more to the IRS by increasing your withholdings resulting in a larger refund, or you can pay less and withhold the same amount you would get refunded. Instead of paying money to the IRS, divert that money toward the solar system.

Self Employed

If you are self-employed, you typically pay taxes owed on a quarterly or annual basis. You can use the tax credit to offset taxes you owe, and instead of paying money to the IRS, you divert that money toward the solar system

It’s simple, give it to the IRS or Keep it yourself!

It’s important to note that the tax credit can carry forward, which means you can use any remainder from this year as a credit for future years.

Real-World Examples

Solar ITC Example 1:

Homeowner #1 buys a $30,000 solar system, meaning they are eligible for a $9,000 residential energy tax credit (30% of system costs). They owe the government $10,000 in taxes through their employment wages, but the withheld amount was through payroll, so they end up owing nothing when they file because they already paid the liability owed. In this example, when applying the solar tax credit to the $0 balance they owe the government, they receive a tax REFUND of $9,000. They can then take this and apply to their solar loan and pay it down. You are getting to keep $9,000 of your own money.

Solar ITC Example 2:

Homeowner #2 buys a $30,000 solar system, meaning they are eligible for a $9,000 residential energy tax credit (30% of system costs). They owe the government $9,000 in taxes through their employment wages, but this customer did not withhold any money from their paychecks and still owes $9,000 when they file. They will apply for their $9,000 tax credit and offset the $9,000 of taxes owed, which leaves zero taxes owed. In this example, the money they would have had to pay the taxes offsets due to the tax credit, but now that money is available to buy down the solar loan.

If the tax credit is greater than your overall tax liability (taxes owed), then you can carry this over to further years. You can also use tax credits to pay back taxes owed, meaning you can go backward.

How do I use the tax credit to pay down my Solar loan?

You have a 30% solar tax credit amount to utilize, and you can wait till you get a refund or accumulate the funds through higher payroll deductions. You can pay your solar loan down anytime within 18 months, and the finance company will lower your balance resulting in a lower payment. If you have enough cash on hand equal to the 30% tax credit and you’re in a position to apply it to the loan upfront, this will give you a smaller loan and payment and interest savings right now. You reimburse yourself when you receive the tax credit from the two options above.

Important Disclaimer: We understand how the tax credit works, but we are not tax advisors. This information is only for your reference. Everybody has a different financial and tax situation, and the above is intended as an example only. Always talk with your tax advisor.

What is the best solar option: Cash – Finance – Lease – PPA

There are a few options when you invest in a solar energy system. You can buy outright, finance, or choose a lease or PPA. With buying and financing, you own it, get to claim the ITC federal tax credit, and have the highest return on investment (ROI) over leasing and PPA.

  • If you use cash, you can reimburse yourself with the tax credit.
  • If financing, most customers use the tax credit to pay down the loan. Typically customers choose our 2.99% fixed rates program for 12, 20, or 25 years.
  • However, if you lease your solar system, the leasing company gets to claim the solar tax credit and makes money off you. Since you never own it, it’s basically like switching to another electric company at a slightly lower cost.

Solar Cash Purchase

A cash purchase will typically offer the highest return on investment and the shortest payback. Our average customer return on investment is over 16% and less than 5 years of payback time; we have many customers who see over 20% returns and less than 4-year paybacks. The higher the electric consumption and bill, the higher the return. Under this program, you keep your tax credit.

Solar Financing

If you are not in a position to pay cash outright for your system, financing is the best alternative; Under this program, you keep your tax credit. But the tax credit can include all fees, including finance fees and points.

To maximize your total investment, we take the standard 8.99% solar loan rate and buy it down to 2.99%, basically converting long-term interest into upfront points and fees that can be included in your tax credit, thus increasing your total credit. This option allows 30% of all costs, fees, points, etc., and maximizes your entire investment and tax incentive.

PPA or Lease (DON’T DO THIS!)

Some homeowners may consider leasing their solar systems or enter into a PPA, power purchase agreement. We would only recommend these two methods as a last resort and only if financing is not an alternative or the best return on investment for your financial plans or needs. On a lease or PPA agreement, the company keeps YOUR tax credit. Under this program, you do not keep your tax credit. In most cases, we can prove that our financing program will have a better return on your investment, even if you can not get the tax credit.

How do I claim the Federal Tax Credit?

That’s a simple question to answer. You file an IRS Form 5695 with your 1040 Individual Tax Return (full IRS Form 5695 found here).

Key Solar Tax Credit Takeaways

As you read below, here are the key takeaways to remember for the Solar Investment Tax Credit:

  • The Solar Investment Tax Credit has been increased back to 30% and can now be transferred to other taxpayers!
  • The 30% credit applies to both residential and commercial projects, including all projects installed in 2022.
  • Yes, that’s right! Every solar project from this year will be eligible for the 30% tax credit!
  • The 30% tax credit will also be applied to energy storage projects, even if they are not directly tied to a new solar installation.
  • Interconnection costs will also be included in the tax credit for all projects below 5 megawatts in size.
  • In 2025, the Investment Tax Credit will change into a broader credit that can be applied to any emission-reducing project. The solar tax benefits will not change until 2032.

Why act now?

These solar incentives won’t last forever, and expectations are they will go lower and offer fewer benefits. Buying your system before 2023 will be able to grandfather NEM 2.0 for next 15 years to get more electricity buy-back credit from utility providers.

Take advantage of this solar tax credit by giving us a call today at 760-392-1865!

Eco Construction & Energy

Eco Construction & Energy net metering program makes it possible for solar energy system owners who are connected to the grid to receive credit for their excess solar electricity. These credits can be used when your solar panel system isn’t producing enough power to meet the electricity demands for your home or business. However, Eco Construction & Energy net metering isn’t a way to earn extra money – in order to qualify, your solar panel system must be sized to match your electricity needs, but no bigger.

Where does Eco Construction & Energy offer net metering?

Eco Construction & Energy offers net metering across its entire service territory, which includes all of San Diego County as well as southern Orange County.

What are Eco Construction & Energy's' rates and prices for net metering?

The specific rates and pricing for net metering in territory are currently determined based on your property’s electricity rate structure. However, the structure is simple: for each kilowatt-hour (kWh) you feed back to the grid, you get a credit on your bill for the full retail value of that kWh (e.g., the rate that you pay for a utility-generated kWh) minus a few cents per kWh for non-bypassable charges (NBCs), which are primarily environmental benefit programs that all Eco Construction & Energy customers pay for and can’t avoid with solar.

The Eco Construction & Energy net metering program saw some changes under net metering (NEM) 2.0, which began in June 2016. On April 15, 2023, Eco Construction & Energy will switch to a new program, NEM 3.0 (also called the Net Billing tariff, or NBT), which will significantly change how net metering works. Instead of crediting you at the full retail rate, Eco Construction & Energy will provide credits based on how valuable it is to not use electricity during a certain hour, or the “avoided cost rate”. Overall, this means the price that Eco Construction & Energy will pay you for solar you send to the grid is set to drop by about 75%.

Net metering 1.0
(before June 2016)
Net metering 2.0
(starting June 2016)
Net metering 3.0
(starting April 15, 2023)
Credits for exported electricity Full retail rate Full retail rate minus NBCs Avoided cost rate
Non-bypassable charges (NBCs) Paid for the net electricity consumed in a year (imports minus exports) Paid for the net electricity consumed in a metered interval (one hour for residential customers) Paid for all electricity imports
System size regulations System must be no larger than customer’s electricity needs, and less than 1,000 kW System must be no larger than customer’s electricity needs, but no restriction on size System can be up to 50% larger than customer’s electricity needs, if the customer attests to needing it in the future
Billing Annual billing, both charges and credits roll over for 12 months Annual billing, both charges and credits roll over for 12 months Monthly billing, only credits roll over for 12 months
Interconnection fee None $132 for systems under 1,000 kW $132 for systems under 1,000 kW
Electricity rate Standard Time-of-use (variable based on time of day and season) Specific “electrification” time-of-use rates (variable based on time of day and season)

You still have time to lock in net metering 2.0

Under NEM 2.0, you’ll save about 60% more over 20 years compared to NEM 3.0 as a Eco Construction & Energy customer. Luckily, you still have time to lock in NEM 2.0 rates for 20 years before NEM 3.0 takes effect! You just need to sign a contract with an installer and ensure they have enough time to submit the interconnection application by April 14, 2023. From there, you have three years to actually get your system installed. If you currently have solar, no need to worry – as long as you aren’t planning on adding any capacity to your system, you’ll remain on your current net metering plan for 20 years after your original interconnection date (at which point you’ll be switched to NEM 3.0).

What is Eco Construction & Energy’s net metering cap?

Under California’s original net metering policy, Eco Construction & Energy had a net metering cap of 5% of total peak electricity demand in the utility’s territory. However, as of June 2016 there is no cap on net metering in Eco Construction & Energy territory.

Is Eco Construction & Energy net metering the best in California?

Eco Construction & Energy’s net metering program is structured the same way as the two other largest utilities in the state, Pacific Gas & Electric and Southern California Edison. The economics of the net metering program for these three utilities will be very similar.

However, there are some other electric utilities (such as Los Angeles Department of Water & Power) in California that offer simpler net metering policies because they don’t require solar system owners to enroll in time-of-use (TOU) rates. Because Eco Construction & Energy’s net metering program uses TOU rates, solar homeowners won’t always get the maximum value out of their solar electricity – grid electricity during the early to mid-afternoon hours will cost less, so the solar electricity sent back to the grid during those times will receive a lower net metering credit. That being said, a good solar installer can help you design a solar system that generates more power during the high-cost peak hours, reducing your monthly utility electricity needs.

What will happen to my excess Eco Construction & Energy net metering bill credits?

If you install a solar panel system that is sized to meet your electricity needs for the entire year, there will be some months where your panels produce more electricity than you need and some months where your panels produce less.

When your panels produce more energy than you can use over the course of a month, you will receive bill credits on your Eco Construction & Energy bill that can be used in future months. If your panels produce more electricity than you use over the course of twelve months, you are credited for the extra kilowatt-hours at the wholesale compensation price.

To set the value of the wholesale compensation price, Eco Construction & Energy calculates a per-kilowatt hour value for each month based on electricity market prices. At the end of 12 months, you will receive a bill credit for any extra electricity at the average rate during that month.

Does Eco Construction & Energy offer solar incentives?

Eco Construction & Energy doesn’t offer solar incentives for every homeowner. However, the California Solar Initiative has two rebate programs that low-income households in Eco Construction & Energy’s service territory can qualify for: the Single-Family Affordable Solar Housing (SASH) and Multi-Family Affordable Solar Housing (MASH) programs.

Low-income customers can also enroll in the California Alternate Rates for Energy (CARE) program, which allows them to receive a 30-35% discount on their electric bills or the Family Electric Rate Assistance Program (FERA), which offers an 18% discount on electric bills – under both programs, customers will receive net metering incentives to make their solar payback period shorter. Learn more about these and other California rebates & incentives with EnergySage’s California Solar Incentives guide.

Eco Construction & Energy solar interconnection policies and costs

The last step to have your solar panels connected to the grid is to submit an interconnection request, which your solar installer will often do on your behalf. The interconnection request ensures that Eco Construction & Energy is aware that your property has a solar power system and that your system is safe to operate. Under NEM 2.0 and NEM 3.0, the interconnection request fee is $132 for Eco Construction & Energy customers.

Why Eco Construction & Energy

We run a courteous and professional service. Our experts take the requirements of our customers seriously.

At Eco Construction & Energy, we aim to provide our customers San Diego service that suits their requirements the best. All our products come with extended warranties to ensure they last a lifetime. Contact us for a free consultation.