Solar Water Heater Incentives Go Into Effect 1/1/2008

The Governor recently signed AB 1470, a bill authored by Assemblyman Jared Huffman. It's titled "Solar Water Heating and Efficiency Act of 2007."

The bill establishes a framework for a 10-year program of declining incentives for solar water heating that is similar to the "Million Solar Roofs" initiative, passed in 2006, that has lit a fire under the solar photovoltaic market. The bill covers the use of solar thermal devices to provide domestic hot water and to heat homes, but specifically excludes solar pool heating - see article 2861(h).

One thing that is not yet clear is how big the incentives will be. The stated goal is to encourage 200,000 systems, and the budget for the program will be no more than $250,000,000. That means that the average incentive can be as much as $1,250. However, the incentives are also supposed to decline, just like PV incentives. That implies that incentives in the first year of the program (2008) could be $2,000 or even more. In the recent past the California incentives for solar hot water were $750.

Given that the typical price of a solar hot water system (including installation) is usually $5,000 - $6,500, and the fact that such systems are eligible for a 30% federal tax credit, the cost of installing a solar domestic hot water system in 2008 could be as low as $2,100.

Here's the math:

$5,000 initial cost
-$2,000 state incentive (estimate)
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$3,000 out of pocket
-$ 900 (30% Federal Tax Credit)
-----------------------
$2,100 net cost

That's about twice what I paid recently to buy a conventional 30 gallon storage water heater and have it installed. The ROI on such a system would be high and the payback period low.

Unless I'm missing a big piece of the picture, it sounds like the prudent thing to do is to schedule your solar hot water site evaluation for late 2007 and arrange for installation in early 2008. Unless Congress gets its act together and passes an energy bill that the President will sign, current federal tax credits for solar will drop from 30% to 10% at the end of 2008.

Thanks to Kurt Newick of Horizon Energy Systems for his assistance with the details of this posting.