Obama Stimulus Makes Green Remodeling Pay Big Time

This is my 10/1/09 Bloomberg column:

Homeowners Get Easy Money From Green Renovations

Commentary by John F. Wasik

Oct. 1 (Bloomberg) — Can you profit from being an eco- investor?

There are really only two ways of doing it now. You can buy a risky sector fund or stock and hold on to it for dear life over the next few years. Or you can invest in your home.

Of the two, I prefer a home investment because the incentives have never been better and there’s no market risk. All the green funds got creamed last year.

Yet it’s unlikely your broker will tell you about the multiple tax breaks available through state and federal governments. Nor will he mention that eco-improvements will lower your cost of living.

If you do this right, not only will you be cutting your energy costs and greenhouse gases, but you can realize immediate savings in energy costs. Solar panels, for example, will save you money every year and have a steady rate of return that’s almost guaranteed, depending on the state incentives.

As part of the U.S. stimulus plan, also known as the American Recovery and Reinvestment Act, there are a raft of generous tax breaks for everything from replacing doors to installing geothermal heating systems.

Whether you are contemplating a complete makeover or just replacing a furnace, you have until the end of next year to put in service a number of improvements to qualify for the federal tax credits.

What You Can Do

Fixing up your home has never made so much economic sense. Uncle Sam is subsidizing lots of green remodeling this year.

The Treasury will give you a tax credit of 30 percent of the cost (a maximum of $1,500) for energy-efficient windows, doors, insulation, conventional heating/cooling systems, water heaters and biomass stoves.

As with any tax break, only certain types of improvements qualify, although this is the most generous range of incentives in recent memory. See www.energystar.gov/taxcredits for specifics. Even if you rent or own a condo, apartment or co-op, you can save on energy costs by buying Energy Star appliances.

Even better credits are available on geothermal heat pumps, solar panels/heaters, small wind energy systems and fuel cells. There’s no limit on the 30 percent write-off for these items through 2016.

So if you purchase a $20,000 solar-electric system, you can get federal credit for $6,000 that will knock the price down to $14,000. And that’s before state tax breaks apply, so this is not your final price.

Although state programs vary, there are additional incentives for installation and actual purchase of the clean power you generate.

Figuring a Payback

When doing the numbers on your home-improvement project, you will need to see what your state is offering you to go green and make a few assumptions.

Let’s say you want to install a 5,000-kilowatt solar electric system on a full-sun, south-facing roof in New Jersey, which has a generous alternative energy program. The retail price is $38,000, but after a state rebate of $8,750 and $8,775 federal credit, your net price is $20,475.

Since the state will compensate you for the solar power you generate, you will receive renewable energy credits once you produce at least 1,000 kilowatt hours of electricity.

According to a payback analysis at www.thesolarcenter.com, you will receive $2,750 in annual state energy credits while paring about $1,000 in electricity costs for a saving of $3,845.

Know Your Energy

If power rates drop, then the payback will be less generous. One reasonable prediction, though, is that climate- change legislation will penalize fossil-fuel power producers and force their rates higher, so it also pays to know if your electricity is generated by nuclear, coal, gas or hydroelectric.

Another consideration is the cost of solar equipment, which has been dropping, so that may also shorten your payback time.

No matter which course you choose, I’m generally optimistic about the future of investing in what I call eco-tech, a category that includes clean power, energy efficiency, green buildings, biofuels and nanotechnology.

As the nation’s largest venture-capital entity, the Obama administration has provided more than $37 billion in seed money for numerous projects in alternative energy, clean fuels and electric vehicles through the stimulus plan. That means the cost of these products will come down as they are mass-produced.

Few would dispute that eco-tech will gain even more traction as the United Nations Climate Conference convenes in December and carbon-trading exchanges are established.

No matter which eco-technologies win out, one concept won’t change: If you have a chance to reduce your living costs, why not do it now?

Global climate-change solutions will require time, capital and mass political acceptance. Paybacks on your home improvements will materialize at a much less glacial pace.

(John F. Wasik, author of “The Audacity of Help: Obama’s Economic Plan and the Remaking of America,” is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.

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