Clean Energy Systems: Clean Energy, Smart Investment

Clean energy systems are great not only for the environment, but also for your pocketbook and bottom line.

Annual returns range from 5% - 30%. This is the financial benefit received each year divided by the amount of initial investment. Where within this range your return will fall depends on a number of factors, such as the technology you install, the characteristics of your property, the area where you are located, and the incentives offered by your state and local governments, or other local organizations.

Annual Return
on Investments
Annual returns for residential and commercial use of installed clean energy systems

Even a return of 5 %—the lower end of the spectrum—is great. Why? Because unlike the returns provided by other types of investments, clean energy systems returns deliver some unbelievable benefits.


HOW DOES CLEAN ENERGY COMPARE WITH OTHER INVESTMENT OPTIONS

While the returns you receive from your clean energy system can be compared to the returns you might get from investing in the stock and bond market, that comparison is not apples-to-apples. There are some differences.

Most significantly, the returns from your clean energy system are actually savings whereas returns from the stock or bond markets are income. (Though in some states you may receive income from the sale of renewable energy credits (RECs)). Also, clean energy systems are not liquid assets – i.e., unlike a bank account or an investment in a stock or a bond, they cannot be turned into cash quickly - so they are not a direct substitute for those investments. Nevertheless, clean energy systems can offer many superior “return” characteristics that make them strong contenders for inclusion in your overall investment strategy. Some of them are listed below:


CONSISTENT, LONG-TERM RETURNS

Clean energy systems are designed to operate for 20-40 years with minimal new investment or upgrades. They’re relatively low risk investments that consistently reduce or even eliminate your recurring energy cost for the 20-40 years that they are operational. Other investment options that are capable of offering consistent, relatively safe returns over a 20-40 year period are few and far between.

The charts below shows the historical returns of the stock and bond markets over the past 20 years. The returns range from 4% for international stocks to 6% for U.S. Bonds to just over 10% for U.S. stocks. Because of federal and state income taxes, the actual income you will receive will be reduced by 20-40% based on your tax bracket. Other factors that impact your return include the timing of your initial investment and exit, and the duration of investment. Over the long-term, the results generated are reasonable, but short-term volatility within these markets requires investors to stay with their stocks and bonds for the long-term.


INCREASING RETURNS EVERY YEAR

Historical trends suggest energy prices will rise 5%-10% each and every coming year. So, as energy costs increase your savings increase, and the returns on your investment increase – because you avoid paying higher energy prices every year.


LIMITED EXPOSURE TO VOLATILE ENERGY COSTS

Once you make your initial investment in a clean energy system, you effectively freeze the level of your energy costs moving forward – and protect yourself from price increases and volatility. That means less worries about what’s happening in the Middle East, or if refineries in the Gulf Coast will be shut down due to hurricanes.


TAX-FREE RETURNS

The returns you receive from your clean energy system are savings, not income, so they are not subjected to federal or state income taxes. That means more money goes into your pocket and stays there. How much more money? Depending on your tax bracket, your clean energy system will deliver 20-35% more money in your pocket than would a taxable mutual fund investment earning a comparable rate of return.

ADDITIONAL TAX BENEFITS

Thirty percent (30%) of the cost of your investment in a clean energy system can be applied as a tax credit to your income tax bill. So, if your system cost $10,000, you can reduce the amount you owe the IRS by $3,000. Some states also allow a 15% tax credit on state income tax bills, and do not charge sales tax on clean energy equipment.

There may be other tax benefits, as well. Most clean energy systems can be financed with a loan (e.g., home equity or other loans) and the interest on these loans may also be tax deductible. Business owners are also eligible to deduct the depreciation they take on their investment over time.


INCREASED REAL ESTATE VALUES

Like you, property buyers are interested in both lowering the amounts they pay to heat, cool and power their properties, and in reducing their impact on the environment. For this reason, properties equipped with clean energy systems are more attractive to buyers and fetch higher prices. The premium you as a seller would receive would allow you to recover a significant portion, if not all of your original investment upon the sale of your property.

If you’d like more information about how a clean energy system can increase your property value, check out these studies:


GOODWILL

Your investment in a clean energy system doesn’t just benefit you. Because your system reduces your impact on the environment, it provides benefits to your whole community. While the increased bonhomie of your neighbors will be hard to measure, the premium you will receive when you sell your property will be tangible. Business owners most likely won’t need to wait for a sale to realize the financial benefits of their goodwill. They may experience a top-line benefit in the form of increased sales from customers who are attracted to their company’s “green” credentials, and demonstrated commitment to clean energy.