What is the hidden value of a renewable-energy dollar? Ten years ago, when my wife and I hauled all of our animals and belongings to the mountains to begin a new life beyond the power grid, I would have answered, not much. The renewable energy (RE) landscape was a very different place then. Most utilities looked upon renewable energy as a fly in the ointment; a passing fad embraced by a few diehard ex-hippies and back-to-the-land fanatics. Following the utilities' lead, state governments, by and large, offered nothing in the way of incentive programs, and the feds and most financial institutions turned a blind eye to the whole residential RE issue.

But times change, often quickly and sometimes for the better. In 10 short years, solar and wind energy have emerged as the new clean-energy juggernauts, amidst growing concerns of national security, environmental degradation, and deleterious climate change, all related to our stubborn dependence on non-renewable fossil fuels.

Suddenly the government wants you to want solar panels on your roof. And if you haven't already, the time to oblige them has arrived. The only question is: how sweet of a deal can you expect?

Federal tax credits

Desperate to pass the Wall Street bailout bill last October, a small bipartisan cadre of lawmakers inserted a provision into the bill that, among other things, extends for another eight years the renewable energy tax credits adopted in 2005, and removes the $2,000 cap on residential solar-electric installations. This is welcome news to anyone straddling the fence on whether or not to install a photovoltaic (solar-electric) system now, or to wait for a more propitious time.

Like the Energy Policy Act of 2005, the Emergency Economic Stabilization Act of 2008 provides for a 30 percent tax credit on residential photovoltaic and/or solar hot-water installations. But by doing away with the $2,000 upper limit on photovoltaic installations—which only offered tax relief for systems costing $6,666 or less—the sky is now the limit. Thinking about a $30,000 solar-electric system? Then you can plan on paying $9,000 less in Federal income taxes, once the installation is complete. The tax credit covers both equipment and labor costs, and applies equally to everyone, even well-heeled alternative minimum tax (AMT) filers. And any credit not used up in one year can be carried over into the next.

As an added bonus, the new bill allows a tax credit for the installation of small, residential wind systems: $500 per each half kilowatt, up to $4,000. This means the first eight kilowatts of rated capacity—a sizable installation—is partly on Uncle Sam.

(A note for off-grid hopefuls, or those planning a grid-tied installation with battery backup: the new legislation covers solar and wind equipment and installation costs only. It does not cover the cost of expensive storage batteries. Sorry.)

State and local incentives

At the state and local level you will run into a hodgepodge of programs, generally in the form of rebates, loan programs, tax credits and tax exemptions. Most states, for example, now offer property tax exemptions on residential renewable-energy installations. Even though you may have added considerably to the value of your property by going solar, the tax assessor is required by law to ignore your renewable-energy system(s) when determining how much of your hard-earned money the county or municipality is going to excise from you in any given year. It's a welcome idea. (Our county, unfortunately, seems to assess property values by an arcane blending of divination rituals and computer-aided random-number generation, so we never really know on what we were or were not overtaxed.)

However esoteric the art of property tax assessment may be, sales taxes are straightforward, and nearly half the states in the Union have waived sales taxes on renewable-energy equipment. If you live in one of these states count yourself lucky, because five or six percent on $10,000, $20,000 or $30,000 is hardly chump change.

In addition, several states also offer generous tax credits and rebate programs for new photovoltaic installations. Here are just a few examples, taken at random, from the Database of State Incentives for Renewable Energy website:

Minnesota: $2.50 per installed DC watt of solar-electric capacity.

Oregon: a personal tax credit of $3 per watt on photovoltaic installations, plus an exceedingly generous $2 for every kilowatt hour a new wind turbine produces in its first year of operation, up to 3,000 kWh ($6,000).

Wyoming: half the cost of the installed system, up to $3,000.

Florida: $4 per installed DC watt, up to $20,000.

What lurks in your state's goody bag? Call your state energy office, or visit www.dsireusa.org to find out.

Many states are now offering incentives for renewable energy installations. Visit www.dsireusa.org or call your local utility provider to see what qualifies in your state.

Incentives offered by utilities

In the past few years most states have passed ballot initiatives mandating a gradual switching over from fossil fuels to renewable energy sources. Colorado, where we live, is fairly typical in requiring large utilities to derive, from renewable sources, 20 percent of the power they supply to their customers by the year 2020. Initially, the big power concerns fought this legislation tooth and nail, but now that the people have spoken and the bill has become law, the utilities are scrambling to find renewable-energy installations they can claim as part of their grid. To take one example, Xcel Energy in Colorado is offering their customers $2 per installed DC watt of solar-electric power, plus another $1.50 per watt renewable-energy credit.

This is all good news for those weighing their solar options, because many of these incentives, added on top of the other enticements I've already mentioned, help to make solar energy affordable for almost anyone. To find out what your utility is willing to pay for the privilege of adding your solar and/or wind system to their energy portfolio, give them a call. Or, again, visit www.dsireusa.org.

The bottom line

Chances are you are living in an area where more than half of your new solar-electric and/or wind-electric installation will be paid for out of someone else's pocket. Perhaps you've at last decided to go solar. Congratulations. You'll soon be doing your part to bring some sanity to our energy policy while assisting a perfectly wonderful planet that is currently choking on humankind's excesses.

But that doesn't mean you shouldn't expect a return on your investment. With direct grid-tied solar installations going for about $9 per installed watt, you'll still be heavily invested in solar, even if you only end up paying 40 or 50 cents on the dollar. Where is the payback? Individual circumstances vary, certainly, but a middle-of-the-road example ought to prove helpful.

Let's assume your electrical usage is 25 kWh per day, and you live in an area where you can, over the course of a year, expect the equivalent of five hours of midday sun per day, meaning that for each kilowatt your solar array is rated for, you will produce, again on average, five kilowatt hours of solar electricity. Furthermore, you discover that, with a little conservation (switching to compact fluorescent light bulbs and a more efficient refrigerator, for example) you can easily bring the 25 kWh/day figure down to a more responsible 20 kWh/day. At that rate of usage, a 4-kW solar array should just about bring you to the breakeven point, energy wise. Assuming half of your $36,000 system will be paid for in rebates and tax credits, your out-of-pocket expenses for a direct grid-tie installation will be around $18,000.

If you are now buying electricity at the 2008 national average price of $0.11/kWh and we reasonably assume that electricity prices will continue to rise by at least six percent per year, your $18,000 system will be paid for in 14 years, when your annual electric bill would have been over $1,800.

From that point on it's pure profit. By the time 30 years have passed—a conservative estimate for the life of the system components—you will have avoided paying over $66,000 in electrical bills. All by way of an $18,000 system, on which you never paid a cent of taxes to buy or own.

That's smart investing. Got sun? Go solar.