economics of solar: making the financial case - ongrid solar
TRANSCRIPT
Economics of Solar: Making the Financial Case for Commercial & Residential PV
Agenda (8-9 hours with lunch & breaks)
Check-in (15 minutes before listed start time) Introductions Solar Financial Payback - Overview of the Variables: Incentives Rate Structures
System Performance Solar Financial Analysis Methods: Payback Lifecycle Payback Return on Investment APY and IRR Increase in Resale Value Formal Conclusion, Break, Q & A Interactive Examples (for those who wish to stay)
Diligence:
Heights by great men reached and kept were not obtained by sudden flight, but they, while their companions slept, were toiling upward in the night.
- Henry Wadsworth Longfellow
Andy Black Solar Financial Analyst
(408) 428 0808x1 [email protected]
Economics of Solar: Making the Financial Case for Commercial & Residential PV
Abstract: This class helps PV dealers, installers, and salespeople make the best and most accurate financial case to their customers to help them make more sales and open more eyes to the value of solar systems.
Andy Black will provide an overview of solar electric (PV) system costs and savings for commercial & residential systems in an interactive “adult learning” environment. He will provide detailed information on state & federal incentives available (tailored to the local market) and how to use them. These include rebates, Feed-In-Tariffs, SRECs, performance based incentives, the Federal ITC, state tax credits, and MACRS depreciation. He will explain electric rate structures and how to choose the best alternative given the advantages of each relative to building load profile, system design, and site specifics (shading, orientation, etc).
Andy will discuss the various methods of performing financial analyses in conjunction with the savings realized. Financial analysis methods presented will include Simple Payback, Total Lifecycle Payback, Return on Investment, Annual Percentage Yield (APY, using Internal Rate of Return or IRR), Modified IRR (MIRR), and Increase in Property Resale Value. Interactive examples of residential & commercial cases nationwide will be provided, including discussion of the salient differences and advantages of each method. The assumptions and variables that affect each analysis will also be presented including inflation, maintenance expenses, and interest rates.
If time allows, the audience is invited to bring real world projects to analyze and discuss.
This class qualifies for 7 to 8 NABCEP Continuing Education Credit Hours (depending on class length). All students will receive a one-month Free Trial to the OnGrid Tool to try their own scenarios. Biography: Andy Black is a Solar Financial Analyst and the founder of OnGrid Solar. OnGrid Solar provides financial analysis and sales education & software to solar installers to help them make a strong sales case for solar electricity to their customers. Andy has more than a dozen years of design, consulting, teaching, sales, and research experience in solar. He specializes in demonstrating the financial payback of solar electricity systems. He is a former NABCEP certified solar installer and is a holder of and the initiator of the NABCEP Technical Sales Certification.
Andy Black is a recent member of the Board of Directors of the American Solar Energy Society and of the California Solar Energy Industries Association. He is a member of the Advisory Board of the Northern California Solar Energy Association.
Andy’s formal education includes a Bachelor’s in Electrical Engineering from Penn State University, a Master’s in Electrical Engineering from University of Southern California, and a Marketing Certificate at the University of California. His training in solar electricity includes Solar Energy International’s intensive photovoltaic coursework and more than a dozen specialty courses in solar electric and related fields. He presents regularly on the financial analysis of solar electricity to audiences nationwide.
Andy is also the groundskeeper and servant for a cat at his home in San Jose, CA.
Contact Info: Andy Black, CEO OnGrid Solar 4175 Renaissance Dr #4, San Jose, CA 95134 (408) 428 0808x1 [email protected] www.ongrid.net
Andy Black Solar Financial Analyst
(408) 428 0808x1 [email protected]
Andy Black Solar Financial Analyst
(408) 428 0808x1 [email protected]
Andy Black
Presented at: Solar Power International & PV America Conferences ASES Annual Conferences Solar Energy International Solar Living Institute PG&E’s Pacific Energy Center California Center for Sustainable Energy Northeast Sustainable Energy Association North Carolina Solar Center
Updated: Spring 2014
SOLAR PV ECONOMICS: MAKING THE FINANCIAL CASE
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 2
Facilitator Background M.S. Electrical Engineering SEI graduate NABCEP Certified Technical Salesperson NABCEP Certified Solar PV Installer Emeritus Involved with Solar since 1991 Studying, writing, & discussing Solar Financial
Issues since 2000 Solar Salesperson 2001-2006 Now a Solar Financial Analyst &
Creator of the “OnGrid Tool” solar sales software
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 3
Handouts & Resources Slide Handouts
Acronyms Feedback Form
Resources available at www.ongrid.net Articles & papers on solar “Payback” Upcoming classes & events
Sales for Solar (7-8 hour)* Marketing for Solar (7-8 hour)* Financing Solar Intro including PPAs & Leases (7-8hr)*
Slides from past classes Free Trials of the OnGrid Tool
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 4
Decorum
Questions: Please focus on Solar Economics & Payback Preferred at points marked:
Good environment: Take care of your needs: Bio & Work Cell phones to fun mode Side conversations: Yes or No? Questions & Comments or just Questions? Please help each other
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 5
Agenda
Overview of the Variables Financial Analysis Methods Solar Tools Interactive Examples
Site Logistics & Breaks Facilities Lunch & 2 breaks: Networking
Interactive exercises – Q&A dependent © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 6
Prepare Interactive Examples
Examples in Solar Financial Analysis Tool Please prepare some cases Parameters:
Usage, System Size, Price Inflation Starting & Ending rate schedule % on-peak usage
Free Demo - License Agreements
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 7
Solar Financial Payback
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 8
Financial Payback
Payback on solar isn’t the most important thing…
… it’s the only thing the vast majority of potential solar purchasers care about
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 9
Right or Wrong
95% see energy as a commodity Few will pay more Must meet them on their terms:
$$ FINANCIAL! $$
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 10
Attractive Economics PV systems can be financially attractive to
customers using enough electricity:
Attractive defined as: Rate of Return > 5-10% Property Value Increase > System Cost Cash Flow Positive (Bill Savings > Loan Cost)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 11
Payback Analysis Why is it Needed?
If we’re going to put solar on every roof, it needs to make $ense.
Courtesy Sharp Electronics
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 12
Factors That Can Make Solar Viable
Net Metering High Rates Time of Use Rates Tiered Rates Low System Costs Incentives Sunlight
More Important
(in general)
Less Important
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 13
Proformas
Our goal today – create a “Proforma” My first Proforma
A 20 year financial timeline What does Proforma mean?
“As a matter of form” or “For the sake of form” ??
Practical meaning in business & sales: A “What if …?” analysis
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 14
What if what? What if … “all the factors that affect the
outcome”…, which are?: Cost…
After Incentives & over time Performance…
After System Losses & over time Value Created/Earned, based on…
Electric rates/Net Metering/FIT/SRECs etc, over time
Astute customers will ask a lot of “Where does that number come from?”
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 15
Proforma Analysis
What type of analysis is a Proforma analysis? Cost/Benefit
Costs?: Which variables? Their characteristics?
Benefits?: Which variables? Characteristics?
Lots of variables! © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 16
Variable (& Information) Overload! How to make useful?
How to distill this down to a smaller, more useful (comparable) bit of info? 20-25-30 year timeline Line by line inclusion of each $ factor Calculate a single number:
APY - Annual Percentage Yield for Residential IRR - Internal Rate of Return for Commercial
APY & IRR are comparable to other investments
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 17
A Model Proforma
Year: Year 0 Year 1 Year 2 Year 3 … Year X (12-15-20) …
-System Cost System Cost
+Incentives Rebate PBI 1 PBI 2 PBI 3 … PBI X … +Bill Savings Savings 1 Savings 2 Savings 3 … Savings X …
-Maintenance Maint. 1 Maint. 2 Maint. 3 … Maint. X Inverter …
+Fed Tax Credit Fed ITC +State Tax Credit State ITC
-Fed Cost of State Tax Credit Fed Cost
State ITC
+Fed Depr. Fed Depr Fed Depr Fed Depr … +State Depr. State Depr State Depr State Depr … - Fed Cost of
State Depr Fed Cost of State Depr
Fed Cost of State Depr …
=Net Net 0 Net 1 Net 2 Net 3 … Net X …
Net0 : Net25 line allows us to calculate the IRR or APY using the IRR function in a spreadsheet
The APY or IRR % is comparable to other investments © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 18
Agenda: Your Priorities?
Top Line Cost
Incentives
Savings
Net Cost
Financial Results: - Payback - Resale - Cash Flow - IRR - APY
Financial Variables
Calcs
System Performance
Electric Rates
Usage & Patterns
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 19
Agenda Top Line
Cost
Incentives
Savings
Net Cost
Financial Results: - Payback - Resale - Cash Flow - IRR - APY
Financial Variables
Calcs
System Performance
Electric Rates
Usage & Patterns
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 20
Incentives Pre-Exercise
Common “up-front” incentives (2): _________________________________________
Common incentives received when taxes are filed (3): _________________________________________
Common incentives received over time (3): _________________________________________
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 21
System Price & Cost
Depend on: System size (per watt) Mounting: roof, ground, trellis Special factors
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 22
System Price: Size Typical range $2.50-$7/ STC DC watt
Includes parts, installation labor, profit, warranty Simplest composition shingle roofs: Doesn’t
include “adders” for harder jobs (tile, steep, etc). Commercial & Municipal: $2.00-$6.50 /STC
DC watt <$2.50/W STC is typical for 500kW+
Most residential now: $3.50-$7/STC DC watt Some economies of scale
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 23
PV System Price Trends
Modules price leveled and trending up in 2013 & 2014 © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 24
System Costs: Ongoing?
Maintenance (routine): 0.5% of system gross cost per year, increasing with inflation It’s in there one way or the other (cost of cleaning,
vs. loss in performance from dirty system) Inverter Replacement: ~$700/kW at year ~15 Unscheduled Maintenance Property Tax
Often exempt for original purchaser Fire/Loss Insurance
Ask your insurer, sometimes = $0 Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 25
Incentives
Feed-In Tariffs PBIs & RECs Rebates Tax Benefits & Issues Net Metering (in Electric Rates section)
For incentives in other states see the DSIRE database: www.dsireusa.org
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 26
Financial Incentives for Solar PV. www.dsireusa.org / November 2012.
46 states, + Washington DC
Puerto Rico & the US Virgin Islands, offer financial incentives
for solar PV.
Credit: DSIRE, a project of the N.C. Solar Center and the Interstate Renewable Energy Council (IREC)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 27
Residential Incentives West
State / Province Rebate per W PBI per
kWh SREC per
kWh State ITC FIT per kWh Notes Last update: 3/7/14
AZ - - - 25% to $1K - CA-IOUs - - ~$.01-$.02 - -
CO-Xcel - - $.05 for 10 - - Under 10kW HI - - - 35% to $5K $0.189-$0.218
KS - - - 10% - LA - - 50% to $12.5K -
MN - - - - - MO $1.5 to 25kW - $.10 - - 10 year SREC (closed)
NM - - - 10% to $9K - NV $0 to 10kW - - - -
OR $1.00+ to 10kW - - $2.1/W to 2.9kW - ITC over 4 years
TX $0.00-$1.60 - - - -
DSIRE database: www.dsireusa.org © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 28
Residential Incentives East
State / Province Rebate per W PBI per
kWh SREC per
kWh State ITC FIT per kWh Notes Last update: 3/7/14
CT $1.25 to 5kW - - - - DE $1.25 to 5kW - $.02-$.04 - - SREC auction
FL - - - - - GA - - - - -
MA $0.40+ to 5kW - $.10-$.30 15% to $1K - SREC auction, 10 yr MD $1000 flat - $.12-$.14 - - SREC auction, 15 yr
NC - - - 35% to $10.5K $.10 for 5 NJ - - $.09-$.18 - - SREC auction, 15 yr
NY LIPA $0.66 to 10kW - - 25% to $5K $.22 for 20 yrs Choose Rebate or FIT NY
NYSERDA $1.00 to 25kW - - 25% to $5K -
OH - - $.03-$.05 - - <10kW only, less for larger
ON - - - - CAD$.396 for 20 years
<10kW only, less for larger
PA $.75 to 10kW $.02-$.06 - - SREC auction to 2021 WI - - - - -
DSIRE database: www.dsireusa.org
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 29
Commercial Incentives State /
Province Rebate per W PBI per kWh SREC per kWh State ITC FIT per kWh Notes
Last update: 3/7/14 AZ - - - 10% to $25K -
CA-IOUs $0.00-$0.25 to 1MW
$0.00-$.032 for 5yrs ~$.01-$.02 - ~$.06-$.205 for
20 Choose one of rebate, PBI, or FIT
CO - - $0.05 for 10yr - - Up to 10kW
GA - - - - - HI - - - 35% to $500K $0.189-$0.218
LA - - - 50% to $12.5K - MA $0.40 to 5kW ~$.10-$.30 - - SREC auction, 10 yr
MD $0.06 to 100kW - $.12-$.14 - - SREC auction, 15 yr
MO $1.50 - - - - NC - - - 35% to $2.5M $.10 for 5
NJ - - $.09-$.18 - - SREC auction, 15 yr NM - $0.05 - 10% to $9K -
NY LIPA $.66 to 10kW - - - - NY
NYSERDA $1.00 to 50kW - - - -
ON - - - - CAD$.345 for 20 10-100kW
OR $1.10-$1.40 to 35kW - - 50% to $20M - ITC over 5 years
PA - - $.02-$.04 - - SREC auction to 2021
TX $0.00-$1.60 - - - -
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 30
Performance Related Incentives
Types of Performance Related Incentives: FITs – Feed-In Tariffs PBIs – Performance Based Incentives SRECs – Solar Renewable Energy Certificates
Incentives paid for actual kWh produced Missed production reduces incentive received Motivates attention on the system Monitoring – A Must! – often required
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 31
FITs: Feed-In Tariffs FITs are the only ongoing payment for owning
the system No Net Metering savings (no savings on the electric
bill, which makes FITs different from PBIs and SRECs)
FITs do combine with the Federal Investment Tax Credit
Very popular in Europe, Ontario. Becoming popular in U.S. (FL,VT, HI, … national?)
CA CREST program Risk losing Net Metering
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 32
PBIs & RECs
PBI: Performance Based Incentive REC: Renewable Energy Credits (Green Value),
usually called SRECs
Paid in addition to Net Metering savings on the bill (which makes them different from FITs)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 33
SRECs, Green Tags, TRCs SRECs = Solar Renewable Energy Credits/Certificates TRC = Tradable Renewable Certificates Green Tags = RECs = TRCs = SRECs What are these?
The green value part of a solar kWh The legal rights to greenness Electricity (kWh)
Green Tags (kWh)
Generating Plant (kWh)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 34
REC / SREC Value SRECs have value to other consumers
Those who can’t/won’t get solar directly Green-e Certified RECs: www.green-e.org
Utilities who need to get into compliance with government RPS requirements Programs or government authorized trading boards
Value ranges from 1¢ to 30¢/kWh Depends on location, type & term Depends on state mandate for S-RECs
1kW produces around 1,100-1,600 kWh At 1¢, worth $11 to $16 per year per kW
Requires: aggregation, monitoring, verification
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 35
Residential Incentives West
DSIRE database: www.dsireusa.org
State / Province Rebate per W PBI per
kWh SREC per
kWh State ITC FIT per kWh Notes Last update: 3/7/14
AZ - - - 25% to $1K - CA-IOUs - - ~$.01-$.02 - -
CO-Xcel - - $.05 for 10 - - Under 10kW HI - - - 35% to $5K $0.189-$0.218
KS - - - 10% - LA - - 50% to $12.5K -
MN - - - - - MO $1.5 to 25kW - $.10 - - 10 year SREC (closed)
NM - - - 10% to $9K - NV $0 to 10kW - - - -
OR $1.00+ to 10kW - - $2.1/W to 2.9kW - ITC over 4 years
TX $0.00-$1.60 - - - -
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 36
Residential Incentives East
DSIRE database: www.dsireusa.org
State / Province Rebate per W PBI per
kWh SREC per
kWh State ITC FIT per kWh Notes Last update: 3/7/14
CT $1.25 to 5kW - - - - DE $1.25 to 5kW - $.02-$.04 - - SREC auction
FL - - - - - GA - - - - -
MA $0.40+ to 5kW - $.10-$.30 15% to $1K - SREC auction, 10 yr MD $1000 flat - $.12-$.14 - - SREC auction, 15 yr
NC - - - 35% to $10.5K $.10 for 5 NJ - - $.09-$.18 - - SREC auction, 15 yr
NY LIPA $0.66 to 10kW - - 25% to $5K $.22 for 20 yrs Choose Rebate or FIT NY
NYSERDA $1.00 to 25kW - - 25% to $5K -
OH - - $.03-$.05 - - <10kW only, less for larger
ON - - - - CAD$.396 for 20 years
<10kW only, less for larger
PA $.75 to 10kW $.02-$.06 - - SREC auction to 2021 WI - - - - -
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 37
SREC Stability Compliance SRECs often purchased by
utility 1 year at a time Longer-term contracts emerging:
NJ 3-year contracts ~$.57-$.60/kWh NJ 4th & 5th year pricing ~ $.40-$.45/kWh NJ 6th & 7th year pricing ~ $.20-$.30/kWh
No known contracts signed over 5 years Contracts & sales to aggregators: Pros &
Cons © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 38
Rebates
Up-Front Reductions in System Cost Rebates are paid in addition to savings on the bill
Typically received 30-120 days after inspection Sources of Rebates:
Utility State City U.S. Dept. of Ag or U.S. Dept. of Interior
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 39
Rebate Programs for Renewables. www.dsireusa.org / January 2013.
16 States, + Washington DC and 2 territories offer rebates for
renewables. Notes: This map does not include rebates for geothermal heat pumps, daylighting or other energy efficiency technologies.
Credit: DSIRE, a project of the N.C. Solar Center and the Interstate Renewable Energy Council (IREC) © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 40
Residential Incentives West
DSIRE database: www.dsireusa.org
State / Province Rebate per W PBI per
kWh SREC per
kWh State ITC FIT per kWh Notes Last update: 3/7/14
AZ - - - 25% to $1K - CA-IOUs - - ~$.01-$.02 - -
CO-Xcel - - $.05 for 10 - - Under 10kW HI - - - 35% to $5K $0.189-$0.218
KS - - - 10% - LA - - 50% to $12.5K -
MN - - - - - MO $1.5 to 25kW - $.10 - - 10 year SREC (closed)
NM - - - 10% to $9K - NV $0 to 10kW - - - -
OR $1.00+ to 10kW - - $2.1/W to 2.9kW - ITC over 4 years
TX $0.00-$1.60 - - - -
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 41
Residential Incentives East
DSIRE database: www.dsireusa.org
State / Province Rebate per W PBI per
kWh SREC per
kWh State ITC FIT per kWh Notes Last update: 3/7/14
CT $1.25 to 5kW - - - - DE $1.25 to 5kW - $.02-$.04 - - SREC auction
FL - - - - - GA - - - - -
MA $0.40+ to 5kW - $.10-$.30 15% to $1K - SREC auction, 10 yr MD $1000 flat - $.12-$.14 - - SREC auction, 15 yr
NC - - - 35% to $10.5K $.10 for 5 NJ - - $.09-$.18 - - SREC auction, 15 yr
NY LIPA $0.66 to 10kW - - 25% to $5K $.22 for 20 yrs Choose Rebate or FIT NY
NYSERDA $1.00 to 25kW - - 25% to $5K -
OH - - $.03-$.05 - - <10kW only, less for larger
ON - - - - CAD$.396 for 20 years
<10kW only, less for larger
PA $.75 to 10kW $.02-$.06 - - SREC auction to 2021 WI - - - - -
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 42
CA State Incentive Programs CEC
< 30kW Rebate CPUC / SelfGen > 30kW Rebate
CEC Pilot PBI
1996
2006
CSI IOUs
Commercial, Gov’t / Non-Profit, & Residential Retrofits
CPUC supervised ~$2 Bil
CSI Municipal Utility
Incentive Programs Self Run
~$800 Mil
CEC NSHP Residential New
Construction in IOUs
CEC run/supervised $350 Mil
2007
2016
3,000 MW Total
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 43
CEC NSHP California Energy Commission
New Solar Home Partnership (CEC NSHP) Residential new construction only NSHP Incentive
$1.50/watt base if standard feature in development $1.25/watt base otherwise $2.20/watt for Affordable Housing Adjusted for performance via: NSHP calculator Declines over time as MW targets are reached
Must exceed “Title 24” efficiency Applications & Guidebook at:
www.gosolarcalifornia.org/about/nshp.php © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 44
California Solar Initiative (CSI)
Utility connected systems only Stand alone not eligible
Incentives proportional to performance Must have monitoring / metering on system
Applications & Guidebook at: www.gosolarcalifornia.ca.gov
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 45
CSI for IOUs PG&E, SCE, SDG&E Customers
Commercial, Gov’t / Non-Profit, Residential Retrofits
IOU/CCSE administered CPUC supervised
33% Res, 67% Non-Res
EPBB Rebate ‘Required’ for <10kW Optional for 10-30kW
PBI ‘Required’ for >30kW Optional for 10-30kW
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 46
CSI EPBB Rebate EPBB: Expected Performance Based Buydown
Adjusted for Expected Performance: Tilt, Orientation, Shading, Location, Module
Temperature (due to lack of air flow) EPBB Design Factor Calculator: www.csi-epbb.com Design Factor allows up to 100% of base incentive
Upfront rebate payment to reduce initial cost Only CSI incentive for systems under 10kW Popular option for systems 10kW to 30kW
Energy Efficiency Audit required
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 47 Questions?
CSI PBI: Performance Based Incentive
Paid for all kWh produced for first 5 years Actual performance (risk)
Does not reduce upfront cost (in lieu of rebate) Still get savings on electric bill
Optional for systems 10-30kW Only CSI incentive for systems over 30kW
Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 48
Questions?
CSI Metering & Monitoring Requirements
Metering: All systems must have meter <10kW: Inverter built-in (5% accurate) >10kW also requires monitoring
Monitoring: Required for systems >10kW and all PBI
systems, even with rebate, regardless of cost Performance Monitoring Reporting Service (PMRS) 2% accurate meter (+ $1,000-$2,000 for meter) On-going costs:
$15/mo for PRMS service $15/mo for cellular data service Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 49
CSI Incentive Levels & Steps
2 3 4 5 6 7 8 9 1070 100 130 160 190 215 250 285 350
EPBB Payments (per Watt) PBI Payments (per kWh)
Step Statewide MW in Step
Residential Commercial Government
/ Non-Profit
Residential Commercial Government
/ Non-Profit
1 50 n/a n/a n/a n/a n/a n/a 2 70 $2.50 $2.50 $3.25 $0.39 $0.39 $0.50 3 100 $2.20 $2.20 $2.95 $0.34 $0.34 $0.46 4 130 $1.90 $1.90 $2.65 $0.26 $0.26 $0.37 5 160 $1.55 $1.55 $2.30 $0.22 $0.22 $0.32 6 190 $1.10 $1.10 $1.85 $0.15 $0.15 $0.26 7 215 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19 8 250 $0.35 $0.35 $1.10 $0.05 $0.05 $0.15 9 285 $0.25 $0.25 $0.90 $0.03 $0.03 $0.12 10 350 $0.20 $0.20 $0.70 $0.03 $0.03 $0.10
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 50
EPBB Payments (per Watt) PBI Payments (per kWh)
Step Statewide MW in Step
Residential Commercial Government
/ Non-Profit
Residential Commercial Government
/ Non-Profit
1 50 n/a n/a n/a n/a n/a n/a 2 70 $2.50 $2.50 $3.25 $0.39 $0.39 $0.50 3 100 $2.20 $2.20 $2.95 $0.34 $0.34 $0.46 4 130 $1.90 $1.90 $2.65 $0.26 $0.26 $0.37 5 160 $1.55 $1.55 $2.30 $0.22 $0.22 $0.32 6 190 $1.10 $1.10 $1.85 $0.15 $0.15 $0.26 7 215 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19 8 250 $0.35 $0.35 $1.10 $0.05 $0.05 $0.15 9 285 $0.25 $0.25 $0.90 $0.03 $0.03 $0.12 10 350 $0.20 $0.20 $0.70 $0.03 $0.03 $0.10
EPBB Payments (per Watt) PBI Payments (per kWh)
Step Statewide MW in Step
Residential Commercial Government
/ Non-Profit
Residential Commercial Government
/ Non-Profit
1 50 n/a n/a n/a n/a n/a n/a 2 70 $2.50 $2.50 $3.25 $0.39 $0.39 $0.50 3 100 $2.20 $2.20 $2.95 $0.34 $0.34 $0.46 4 130 $1.90 $1.90 $2.65 $0.26 $0.26 $0.37 5 160 $1.55 $1.55 $2.30 $0.22 $0.22 $0.32 6 190 $1.10 $1.10 $1.85 $0.15 $0.15 $0.26 7 215 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19
8** 250 $0.35 $0.35 $1.10 $0.044 $0.044 $0.139 9** 285 $0.25 $0.25 $0.90 $0.032 $0.032 $0.114 10** 350 $0.20 $0.20 $0.70 $0.025 $0.025 $0.088
CSI Trigger Tracker
Trigger Tracker website: http://www.csi-trigger.com As of 11/26/13 Program Data & Statistics: http://csi.powerclerk.com
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 51
EPBB Payments (per Watt) PBI Payments (per kWh)
Step Statewide MW in Step
Residential Commercial Government
/ Non-Profit
Residential Commercial Government
/ Non-Profit
1 50 n/a n/a n/a n/a n/a n/a 2 70 $2.50 $2.50 $3.25 $0.39 $0.39 $0.50 3 100 $2.20 $2.20 $2.95 $0.34 $0.34 $0.46 4 130 $1.90 $1.90 $2.65 $0.26 $0.26 $0.37 5 160 $1.55 $1.55 $2.30 $0.22 $0.22 $0.32 6 190 $1.10 $1.10 $1.85 $0.15 $0.15 $0.26 7 215 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19 8 250 $0.35 $0.35 $1.10 $0.05 $0.05 $0.15 9 285 $0.25 $0.25 $0.90 $0.03 $0.03 $0.12 10 350 $0.20 $0.20 $0.70 $0.03 $0.03 $0.10
EPBB Payments (per Watt) PBI Payments (per kWh)
Step Statewide MW in Step
Residential Commercial Government
/ Non-Profit
Residential Commercial Government
/ Non-Profit
1 50 n/a n/a n/a n/a n/a n/a 2 70 $2.50 $2.50 $3.25 $0.39 $0.39 $0.50 3 100 $2.20 $2.20 $2.95 $0.34 $0.34 $0.46 4 130 $1.90 $1.90 $2.65 $0.26 $0.26 $0.37 5 160 $1.55 $1.55 $2.30 $0.22 $0.22 $0.32 6 190 $1.10 $1.10 $1.85 $0.15 $0.15 $0.26 7 215 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19
8** 250 $0.35 $0.35 $1.10 $0.044 $0.044 $0.139 9** 285 $0.25 $0.25 $0.90 $0.032 $0.032 $0.114 10** 350 $0.20 $0.20 $0.70 $0.025 $0.025 $0.088
CSI Trigger Tracker
Trigger Tracker website: http://www.csi-trigger.com As of 3/6/13 Program Data & Statistics: http://csi.powerclerk.com
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 52
EPBB Payments (per Watt) PBI Payments (per kWh)
Step Statewide MW in Step
Residential Commercial Government
/ Non-Profit
Residential Commercial Government
/ Non-Profit
1 50 n/a n/a n/a n/a n/a n/a 2 70 $2.50 $2.50 $3.25 $0.39 $0.39 $0.50 3 100 $2.20 $2.20 $2.95 $0.34 $0.34 $0.46 4 130 $1.90 $1.90 $2.65 $0.26 $0.26 $0.37 5 160 $1.55 $1.55 $2.30 $0.22 $0.22 $0.32 6 190 $1.10 $1.10 $1.85 $0.15 $0.15 $0.26 7 215 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19 8 250 $0.35 $0.35 $1.10 $0.05 $0.05 $0.15 9 285 $0.25 $0.25 $0.90 $0.03 $0.03 $0.12 10 350 $0.20 $0.20 $0.70 $0.03 $0.03 $0.10
EPBB Payments (per Watt) PBI Payments (per kWh)
Step Statewide MW in Step
Residential Commercial Government
/ Non-Profit
Residential Commercial Government
/ Non-Profit
1 50 n/a n/a n/a n/a n/a n/a 2 70 $2.50 $2.50 $3.25 $0.39 $0.39 $0.50 3 100 $2.20 $2.20 $2.95 $0.34 $0.34 $0.46 4 130 $1.90 $1.90 $2.65 $0.26 $0.26 $0.37 5 160 $1.55 $1.55 $2.30 $0.22 $0.22 $0.32 6 190 $1.10 $1.10 $1.85 $0.15 $0.15 $0.26 7 215 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19
8** 250 $0.35 $0.35 $1.10 $0.044 $0.044 $0.139 9** 285 $0.25 $0.25 $0.90 $0.032 $0.032 $0.114 10** 350 $0.20 $0.20 $0.70 $0.025 $0.025 $0.088
CSI Trigger Tracker
Trigger Tracker website: http://www.csi-trigger.com As of 2/10/13 Program Data & Statistics: http://csi.powerclerk.com
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 53
Tax Benefit Overview
State Tax Credits Federal Investment Tax Credit (ITC) Federal & State Depreciation Only apply to taxable entities (not schools,
non-profits, gov’t, etc)
Disclaimer: I’m not a CPA or lawyer, and am not providing tax advice. Seek qualified professional help
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 54
State & Local Tax Incentives
Tax Credit vs. Tax Deduction $1,000 Federal tax credit reduces tax owed by $1,000 $1,000 Federal tax deduction reduces income by
$1,000 which reduces taxes owed by $1,000 * tax rate = $1,000 * ~28% = $280
State Tax Credits are worth about 65-80% of face value due to reduced federal deduction of the now reduced state taxes Effectively “federally taxed”
Property Tax Exemption: CA - Com & Res to 2016
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 55
Tax Credits for Renewables www.dsireusa.org / January 2013
Corporate tax credit(s) only
Personal + corporate tax credit(s) Notes: This map does not include corporate or personal tax deductions or exemptions; or tax incentives for geothermal heat pumps.
Personal tax credit(s) only Puerto Rico
DC
24 states offer tax
credits for renewables
Credit: DSIRE, a project of the N.C. Solar Center and the Interstate Renewable Energy Council (IREC) © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 56
Residential Incentives West
DSIRE database: www.dsireusa.org
State / Province Rebate per W PBI per
kWh SREC per
kWh State ITC FIT per kWh Notes Last update: 3/7/14
AZ - - - 25% to $1K - CA-IOUs - - ~$.01-$.02 - -
CO-Xcel - - $.05 for 10 - - Under 10kW HI - - - 35% to $5K $0.189-$0.218
KS - - - 10% - LA - - 50% to $12.5K -
MN - - - - - MO $1.5 to 25kW - $.10 - - 10 year SREC (closed)
NM - - - 10% to $9K - NV $0 to 10kW - - - -
OR $1.00+ to 10kW - - $2.1/W to 2.9kW - ITC over 4 years
TX $0.00-$1.60 - - - -
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 57
Residential Incentives East
DSIRE database: www.dsireusa.org
State / Province Rebate per W PBI per
kWh SREC per
kWh State ITC FIT per kWh Notes Last update: 3/7/14
CT $1.25 to 5kW - - - - DE $1.25 to 5kW - $.02-$.04 - - SREC auction
FL - - - - - GA - - - - -
MA $0.40+ to 5kW - $.10-$.30 15% to $1K - SREC auction, 10 yr MD $1000 flat - $.12-$.14 - - SREC auction, 15 yr
NC - - - 35% to $10.5K $.10 for 5 NJ - - $.09-$.18 - - SREC auction, 15 yr
NY LIPA $0.66 to 10kW - - 25% to $5K $.22 for 20 yrs Choose Rebate or FIT NY
NYSERDA $1.00 to 25kW - - 25% to $5K -
OH - - $.03-$.05 - - <10kW only, less for larger
ON - - - - CAD$.396 for 20 years
<10kW only, less for larger
PA $.75 to 10kW $.02-$.06 - - SREC auction to 2021 WI - - - - -
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 58
NC Incentives
35% State Tax Credit (max $10,500 Res, $2.5mil Comm)
Duke SRECS $.03/kWh for 5-15 years Progress Rebate: $1/WAC + $4.50/mo/kW (~$.036/
kWh) up to 10kW based on 1500 kWh/kWAC/yr Progress PBI: $.18/kWh for 11-500kWDC NC Green Power: $.10 FIT + ~$.04 PPA = $.14/
kWh but not guaranteed. Bids req’d over 5kW.
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 59
Other Tax Credits
LIHTC – Low Income Housing Tax Credit HTC – Historic Rehabilitation Tax Credit NMTC – New Markets Tax Credit Agricultural Apply in special cases – check DSIRE, IRS,
tax specialists Might be additive to other tax incentives
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 60
Federal Investment Tax Credit - Residential 2009-2016
30% Investment Tax Credit (ITC), Sect 25D No Cap (unlimited) Residential not eligible for conversion to
“Section 1603 Treasury Grant” treatment Systems “placed in service” in 2009-2016 IRS Form 5695 Received on “next year’s” tax return (1 year delay) Unused credit can be carried forward thru at least 2016 Not limited by AMT (Alternative Minimum Tax) Important negative tax interaction with Rebates
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 61
Federal Investment Tax Credit - Commercial
30% Investment Tax Credit Must be “placed in service” during 2006-2016 10% if installed 2017+
“There is no feast which does not come to an end.” - Chinese proverb !
IRS Form 3468 (Sect 48 of Internal Revenue Code) Unused credit can be carried forward 20 years & back 1 Commercial
Including home businesses > 20% sqf - with caution Not limited by AMT (Alternative Minimum Tax) Vests at 20% per year (over 5 years)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 62
1603 Federal Treasury Grant – Closed 2009-2011 ITC can be converted to Treasury Grant Section 1603 Grant in ARRA (Recovery Act) Same general features and intended functionality as the
ITC, but better: Paid < 60 days of “placed in service” or application Usable even if no tax appetite (effectively a refundable ITC
or Federal Rebate) Commercial systems only “Placed in service” in 2009-2011 only, or
Construction Initiated 2009-11, completed by 2016 5% non-refundable cost spent by 2011
Treasury application: https://treas1603.nrel.gov/
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 63
1603 Treasury Grant Limitations Commercial systems only
Limited to IRC Sec 48 and some Sec 45 Pass-thru entities (partnerships, LLCs, S-corps) can
use grant, as long as none of the recipients is non-taxable (and therefore disqualified) I.e. One disqualifies all, regardless of small % ‘Blocker’ C-Corporations can allow
Allows transfer of ownership Recapture of Grant or ITC on permanent cessation Grant may be state taxable in certain cases, see:
http://www.reznickgroup.com/sites/reznickgroup.com/files/papers/rg1078_section1603_state_matrix.pdf
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 64
FMV: Fair Market Value for Grant/ITC
Should not be bargain fixed price (at termination) Determined by independent appraiser at time of
exercise or tax valuation: Method 1 - Cost-Based: Actual cost to build,
including profit & soft costs including only eligible property* Typically 10-20% markup allowed for Sale-Leasebacks Developer fee in basis shouldn’t be more than 3-5%
Method 2 - Market Based: Estimated thru comparable sales of eligible property
Method 3 - Income Based: Discounted value of future cash flow – not considered reliable, but is used regularly in leasing and PPAs
*Most preferred
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 65
FMV: Fair Market Value for Grant/ITC
Determined by independent appraiser: Method 1 - Cost-Based: Actual cost to build,
including profit & soft costs, only for eligible property (most preferred by IRS)
Method 2 - Market Based: Estimated thru comparable sales of eligible property
Method 3 - Income Based: Discounted value of future cash flow – not considered reliable, but is used regularly in leasing and PPAs
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 66
Treasury 1603 Cost Basis Analyses for FMV
!!! Residen(al!Residen(al/!
Small!Commercial!
Commercial!Large!
Commercial/!U(lity!
Size!Range! <10!kW!10=100!kW!
100!=!1,000!kW!
>1!MW!
Typical!Size! 5!kW! 25!kW! 250!kW! 2!MW!
Turnkey!Price!per!WaG!
+/=!$7! +/=!$6! +/=!$5! +/=!$4!
Treasury Guidance Paper: http://www.treasury.gov/initiatives/recovery/Documents/N%20Evaluating_Cost_Basis_for_Solar_PV_Properties%20final.pdf June 2011
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 67
“Placed In Service” IRC: “Ready & available for its intended use” SEIA “Guide to Federal Tax Incentives for
Solar Energy” (Available free to SEIA members at: www.seia.org ): Equipment delivered and construction /
installation completed Minor tasks like painting need not be finished
Taxpayer has taken legal title and control Pre-operational tests demonstrate the equipment
functions as intended Taxpayer has licenses, permits, and PTO
(permission to operate) © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 68
Rebate Tax Interactions Sec 136(b) - No “Double Benefit” If the rebate is non-taxable, the federal ITC is on
amount after rebate
If rebate is taxable, then federal ITC is on amount before rebate
CA PV Rebates are not state taxable in CA, may vary in other states; check w/ enacting law, local SEIA chapter, state energy office
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 69
Rebate May Be Federally Taxable
1099 tax forms have been issued to recipients Section 136(a) of IRS Code:
‘Utility (ratepayer funded) direct or indirect rebates for energy conservation for dwellings (i.e.. residential) are not taxable’ PV is ‘energy conservation’ by precedent
IRS hasn’t publicly ruled on PV rebates from: CCSE & CEC Oregon private letter ruling (PLR) isn’t precedent
Residential rebates from ratepayer funds may be tax exempt because of Section 136
Rebates/grants from state/local general funds probably taxable If rebate requires transfer of RECs, it’s probably taxable (IRS
PLR 201035003) Info courtesy Mark Bolinger, LBL
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 70
Rebate Tax Residential Exercise
Is it better to have a taxable or non-taxable residential rebate?
Why? What does it depend on?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 71
Tax Credit Example 1 30% Tax Bracket (Residential)
Taxed Rebate $100K System Cost -$20K Rebate +$6K Rebate Tax** $86K Net Cost After Rebate -$30K ITC Tax Credit Value* =$56K Net Cost
Non-Taxed Rebate $100K System Cost -$20K Rebate $0K Rebate Tax $80K Net Cost After Rebate -$24K ITC Tax Credit Value* =$56K Net Cost
Questions? Questions?
*30% federal ITC rate **30% federal marginal tax rate (30% tax bracket) Rebate Tax Due even if rebate goes to the installer
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 72
Tax Credit Example 2 20% Tax Bracket (Residential)
Taxed Rebate $100K System Cost -$20K Rebate +$4K Rebate Tax** $84K Net Cost After Rebate -$30K ITC Tax Credit Value* =$54K Net Cost
Non-Taxed Rebate $100K System Cost -$20K Rebate $0K Rebate Tax $80K Net Cost After Rebate -$24K ITC Tax Credit Value* =$56K Net Cost
*30% federal ITC rate **20% federal marginal tax rate (20% tax bracket)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 73
Tax Credit Example 3 40% Tax Bracket (Residential)
Taxed Rebate $100K System Cost -$20K Rebate +$8K Rebate Tax** $88K Net Cost After Rebate -$30K ITC Tax Credit Value* =$58K Net Cost
Non-Taxed Rebate $100K System Cost -$20K Rebate $0K Rebate Tax $80K Net Cost After Rebate -$24K ITC Tax Credit Value* =$56K Net Cost
Questions? Questions?
*30% federal ITC rate **40% federal marginal tax rate (40% tax bracket)
Each 1% shift in tax bracket changes the rebate 1%
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 74
PBI & REC Taxation: Residential
PBI probably taxable* If not, IRS may require NPV of future PBI
payments to calculate reduction in ITC basis? Unknown - How to calculate?
RECs, SRECs probably also taxable Neither is likely to affect the ITC/1603 basis *Suggested by Mark Bolinger, LBL
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 75
PBI & REC Taxation: Commercial
PBI & RECs probably taxable Section 136 is for residential “dwellings”
only No known commercial exemptions
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 76
Federal Depreciation Depreciation = Commercial tax deduction spread over time MACRS 5-Year Accelerated Depreciation (1/2 yr conv.)
MACRS: Modified Accelerated Cost Recovery System IRS Form 4562 Can choose 12 year straight-line depreciation
Equivalent of tax deducting system’s ‘basis’ over 5.5 years Net Value = Depreciation Basis * Tax Rate Net Value = (System ITC basis - 1/2 ITC) * Tax Rate Net Value = System ITC basis * 85% * Tax Rate
2014+ Regular Schedule: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76% Commercial only (including home businesses >50% by sqf) Up to 20 year carry-forward
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 77
Depreciation - CA State
Corporate: 12 Year Straight Line method Non-Corporate: MACRS 5-Year
(Sole-Proprietors, LLP, etc)
State Depr Basis is Top Line Cost minus Rebate & State Tax Credit
Commercial only (including home businesses)
Questions? Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 78
Rebate Tax Commercial Exercise
Is it better to have a taxable or non-taxable commercial rebate?
Why? What does it depend on?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 79
Tax Credit & Depreciation Example (Commercial)
Taxed Rebate $150K System Cost -$50K Rebate +17.5K Rebate Tax (35% Fed rate only) $117.5K Net Cost After Rebate -$45K ITC Tax Credit Value -$52K Depr Value (127.5K * 41%*) =$20.5K Net Cost
Non-Taxed Rebate $150K System Cost -$50K Rebate $0K Rebate Tax $100K Net Cost After Rebate -$30K ITC Tax Credit Value -$35K Depr Value (85K * 41%*) =$35K Net Cost
*41% = combined net federal & state tax rate (35% Federal, 8.84% CA State)
If commercial, want rebate taxable (no choice) Then tax credit and depreciation are on amount before rebate Better to pay tax on rebate, and get more tax credit and depreciation
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 80
Section 179 Expense Section 179 converts some small business depreciable
property into 1st year expense (deduction) Deduction limit: $500K for 2010 & 2011
Enhanced in 2010 Small Business Jobs & Credit Act of 2010 Drops to $25K in 2012 (unless extended)
Phase-out begins at 4x limit: ~$2,000,000 in 2010-11 $1 for $1 reduction, so at 5x, Sect. 179 has no value Phase-out basis is sum of all 179 eligible property put in
service in that year If sum > 5x (>$2.5million), then can’t use 179 at all
Can including PV in Home Businesses if >50% business use of asset (ie > 50% of sqf is for business)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 81
Problems with Section 179 Conflicting language, not 100% clear if available
with ITC or Treasury Grant Few project & customers qualify
Must fit within limits & Aren’t already using it for other property
Can hurt customer too – could cause loss of Sec. 179 on other eligible property
Examples that don’t qualify: Already Section 179 using for other purchases Projects over $500K depending are limited Phased out if total of all is >$2,500,000
Kept out of OnGrid to stay conservative © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 82
Small Business Carry-Back of NOL In 2009(+?), small businesses can carry
back Net Operating Losses up to 5 years $15 Million Gross Receipts limitation Normally only 2 year carry-back
Part of 2009 Economic Stimulus
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 83
Tax Benefits
ITC & MACRS reduce customer cost, but not up-front
Not available to all customers – MACRS Depr. is affected by AMT Ask about customers “tax appetite”
Customers - beware of optimistic sales claims
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 84
Agenda
Overview of the Variables Costs & Incentives Electric Rate Structures System Performance
Financial Analysis Methods Solar Analysis Tools Interactive Examples
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 85
Agenda Top Line
Cost
Incentives
Savings
Net Cost
Financial Results: - Payback - Resale - Cash Flow - IRR - APY
Financial Variables
Calcs
System Performance
Electric Rates
Usage & Patterns
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 86
Electric Rate Structures
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 87
Electric Rate Structures Overview
Options for Solar - Net Metering Customer Classes Types of Rate
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 88
Net Metering
Sell Power to the Utility by Day
Buy Power at Night and Winter
• Exchange at Retail • 100% Efficient Battery • Annual Cycle • $0 minimum bill*
*Different with Calif. AB 920
.
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 89
Net Metering
October May April “SUMMER” “WINTER”
250
500
750
kWh/mo
Roll over
Average monthly usage PV system production
Slide courtesy Pete Shoemaker, PG&E Pacific Energy Center © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 90
October May April “SUMMER” “WINTER”
250
500
750
kWh/mo
Average monthly usage PV system production
The surplus covers the shortfall, and your yearly bill is zero.
Gets more complicated with TOU and Net Metering and AB920 Slide courtesy Pete Shoemaker, PG&E Pacific Energy Center
Net Metering
$/mo
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 91
Net Metering.www.dsireusa.org / July 2013
43 states,+ Washington DC
& 4 territories,haveadopted a net
metering policy.
Note:�Numbers�indicate�individual�system�capacity�limit�in�kilowatts.�Some�limits�vary�by�customer�type,�technology�and/or�application.�Other�limits�might�also�apply.�This�map�generally�does�not�address�statutory�changes��until�administrative�rules�have��been�adopted�to�implement�such changes.�
Credit: DSIRE, a project of the N.C. Solar Center and the Interstate Renewable Energy Council (IREC) © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 92
California AB 920 Excess Net Metering Credit
Payment for excess kWh production Can apply as soon as notification is received ~$.04/kWh, adjusted periodically Excess SRECs go to the utility Properly designed systems going for $min bills
should never be able to take advantage of this if PV & EE are designed/analyzed up front and inconsideration of each other
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 93
Electric Rate Structures Overview Three Customer Classes
Residential, Commercial, Agricultural Types of Rate
Flat: Simple rate, not time or usage dependent Tiered: Rates increase with usage Time of Use (TOU): Rate varies during day -
depends on when energy is used Tiered-TOU: Varies with usage & time of day Demand
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 94
Residential Tiered Rates Residential only (in general)
Penalizes larger residential users
Excellent motivator of efficiency, conservation & PV
Tiers cause Tears - of Joy!
Residential Tiered Usage Before Solar
0¢
5¢
10¢
15¢
20¢
25¢
30¢
35¢
40¢
45¢
375,
Tie
r 1
488,
Tie
r 2
788,
Tie
r 3
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Usage
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 95
PG&E Baseline Territories
Variations: Location: P-Z Season: Summer or
Winter Type: Electric Only or
Both Electric & Gas Baseline = Tier 1 =
50-70% of average user’s use
Tier 1 + Tier 2 � Avg http://www.pge.com/myhome/customerservice/financialassistance/medicalbaseline/understand
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 96
Variations: Locations: 5-10, 13-16
Coast to High Desert Season: Summer or
Winter Type: Electric Only or
Both Electric & Gas Baseline = Tier 1 =
50-70% of average user’s use
Tier 1 + Tier 2 � Avg http://www.sce.com/CustomerService/billing/tiered-rates/baseline-chart-map.htm http://www.sce.com/NR/rdonlyres/02FE720D-956D-44C7-B204-D48F830B79CC/0/Baseline.pdf
Southern California Edison Revised Cal. PUC Sheet No. 45855-E Rosemead, California (U 338-E) Cancelling Revised Cal. PUC Sheet No. 8314-E
MAP SHOWING Sheet 1 BASELINE REGIONS FOR DETERMINING BASELINE QUANTITIES
(To be inserted by utility) Issued by (To be inserted by Cal. PUC) Advice 2386-E Akbar Jazayeri Date Filed Sep 30, 2009 Decision 09-08-028 Vice President Effective 1D10 Resolution
SCE Baseline Territories
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 97
SCE Baseline Quantities (kWh/day)
http://www.sce.com/CustomerService/billing/tiered-rates/baseline-chart-map.htm
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 98
SDG&E Baseline Territories Variations:
Locations: Coast Inland Mountain Desert
Season: Summer Winter
Type: Electric Only Both Electric &
Gas Baseline = Tier 1 =
50-70% of average user’s use
Tier 1 + Tier 2 � Avg http://www.sdge.com/tm2/pdf/ELEC_MAPS_Maps_-_Elec.pdf
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 99
Residential Tiered Usage Before Solar
0¢
5¢
10¢
15¢
20¢
25¢
30¢
35¢
40¢
45¢
375,
Tie
r 1
488,
Tie
r 2
788,
Tie
r 3
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Usage
PG&E Residential Tiered Rates
Tiered Rates: Base is 13¢/kWh Top is 36¢/kWh (Surcharge currently +23¢/kWh for Tier 4)
23¢/kWh surcharge
13¢/kWh base
charge
Examples
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 100
SDG&E Residential Tiered Rates Residential only Penalizes larger residential users Excellent motivator of efficiency, conservation & PV Surcharge currently +14¢/kWh for Tier 4
Base is 14¢/kWh Top is 28¢/kWh
Examples
Residential Tiered Usage Before Solar
0¢
5¢
10¢
15¢
20¢
25¢
30¢
35¢
299,
Tie
r 1
389,
Tie
r 2
629,
Tie
r 3
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Usage
14¢/kWh surcharge
14¢/kWh base
charge
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 101
NJ Residential Tiered Rates
JCP&L Base is 15.3¢/kWh (summer only, 16.7¢/kWh winter) Top is 21.1¢/kWh (summer only, 16.7¢/kWh winter)
PSE&G and ACE are also tiered on Residential Examples
Residential Tiered Usage Before Solar
0¢
5¢
10¢
15¢
20¢
25¢
600,
Tie
r 1
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Usage
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 102
Reverse Tiers Commercial rates:
NY – ConEd: $0.20,!$0.17! PA – Allegheny Power: $0.12,!$0.09,!$0.08,!$.07 PA – PECO GS: $0.25,!$0.13,!$0.09,!$0.05!
Residential Tiered Usage Before Solar
0¢
5¢
10¢
15¢
20¢
25¢
30¢
Cen
ts p
er k
Wh
Usage
xx
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 103
Residential Tiered Usage With Solar
0¢
5¢
10¢
15¢
20¢
25¢
30¢
35¢
40¢
45¢
375,
Tie
r 1
488,
Tie
r 2
788,
Tie
r 3
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Net Usage Production
Small “Net” Use After Solar Marginal Use at 13¢ - 15¢ .
PG&E Tiered Rate System
Use/Bill Before Solar Marginal Use at 36¢
Solar systems offset the most expensive usage first Examples
Residential Tiered Usage Before Solar
0¢
5¢
10¢
15¢
20¢
25¢
30¢
35¢
40¢
45¢
375,
Tie
r 1
488,
Tie
r 2
788,
Tie
r 3
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Usage
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 104
Residential Tiered Usage Before Solar
0¢
5¢
10¢
15¢
20¢
25¢
600,
Tie
r 1
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Usage
Residential Tiered Usage With Solar
0¢
5¢
10¢
15¢
20¢
25¢
600,
Tie
r 1
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Net Usage Production
Small “Net” Use After Solar Marginal Use at 15.3¢ .
NJ: JCPL Tiered Rate System
Use/Bill Before Solar Marginal Use at 21.1¢
Solar systems offset the most expensive usage first Examples
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 105
Residential Tiered Usage With Solar
0¢
5¢
10¢
15¢
20¢
25¢
30¢
35¢
299,
Tie
r 1
389,
Tie
r 2
629,
Tie
r 3
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Net Usage Production
Residential Tiered Usage Before Solar
0¢
5¢
10¢
15¢
20¢
25¢
30¢
35¢
299,
Tie
r 1
389,
Tie
r 2
629,
Tie
r 3
Usage (kWh/mo at top of tier) & Tier
Cen
ts p
er k
Wh
Usage
Small “Net” Use After Solar Marginal Use at 14¢ - 17¢ .
SDG&E Tiered Rate System
Use/Bill Before Solar Marginal Use at 28¢
Solar systems offset the most expensive usage first Examples
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 106
Typical Customers & Loads
What kind of customers are: High in the tiers? Low in the tiers?
What types of loads, appliances, & devices cause high tiers?
How do we profile our customers for Target Marketing?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 107
Simplified Time of Use (TOU, East) Total kWh Usage in each Time Period
Peak rates are Summer All Day - high cost Off-Peak rates are Nights & Weekends - low cost Hours are usually Daylight Savings (vs. Solar Time) Types vary, and not available for all utilities or customers
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 108
Simplified Time of Use (TOU,West) Total kWh Usage in each Time Period
Peak rates are Summer Afternoons - high cost Off-Peak rates are Nights, Mornings & Weekends Hours are Daylight Savings (vs. Solar Time) Types vary, and not available for all utilities or customers
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 109
Time of Use with Annual Net Metering
Net Metering on an annual basis Combined with
Time Of Use metering
Sell at high rate; Buy at low rate Advantage in customer’s favor Can reduce system size
Reduction depends on % on-peak usage & rate schedule shading and orientation
Vote Solar – votesolar.org can help Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 110
PG&E Time Of Use Residential E6
Questions?
Sunday Monday Tuesday Wednesday Thursday Friday SaturdayMidnight - 6am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
6am - 10am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak10am - 1pm Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak1pm - 7pm Off-Peak Peak Peak Peak Peak Peak Off-Peak7pm - 9pm Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak
9pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Residential PG&E "E6" Time-of-Use Pricing Periods
Questions?
Time Period Summer Winter
Peak 28.7¢ /kWh Part-Peak 17.5¢ /kWh 12.1¢ /kWh Off-Peak 10.1¢ /kWh 10.5¢ /kWh
+ tier surcharges
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 111
Time of Use with Annual Net Metering in PG&E
Net Metering on an annual basis Combined with Time Of Use metering
Sell at high rate; Buy at low rate 3:1 in customer favor E6 can reduce system size 0-15%
Reduction depends on % on-peak usage & rate schedule Shading and orientation
No payment for excess production Questions? Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 112
Sunday Monday Tuesday Wednesday Thursday Friday SaturdayMidnight - 10am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
10am - 6pm Off-Peak Peak Peak Peak Peak Peak Off-Peak6pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Residential Time-of-Use Pricing Periods
SCE Time Of Use Residential TOU-D-T
33% of the day is Peak … when most people are away from home Off-Peak rates are Nights, Mornings & Weekends … when most people are home & using
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 113
Time of Use with Annual Net Metering in SCE
Net Metering on an annual basis Combined with
Time Of Use metering
Sell at high rate, Buy at low rate 36¢/kWh peak, 18¢/kWh off-peak
Off-Peak rate is higher than D Tier 1 rate, but much lower than the Tier 4 & 5 rates
Can reduce system size 0-30% Reduction depends on % on-peak, shading and orientation
Questions? Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 114
Sunday Monday Tuesday Wednesday Thursday Friday SaturdayMidnight - 6am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
6am - Noon Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-PeakNoon - 6pm Off-Peak Peak Peak Peak Peak Peak Off-Peak
6pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Residential "DR-TOU" Time-of-Use Pricing Periods
SDG&E Time Of Use Residential DR-TOU
Compare to 14¢/kWh base rate + tier surcharges
Peak rates are Summer Afternoons 17¢/kWh + tier surcharges … when most people are away from home
Off-Peak rates are Nights, Mornings & Weekends 15¢/kWh + tiers
… when most people are home & using
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 115
(summer time periods)Sunday Monday Tuesday Wednesday Thursday Friday Saturday
Midnight - 6am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak6am - 11am Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak11am - 6pm Off-Peak Peak Peak Peak Peak Peak Off-Peak6pm - 10pm Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak
10pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Residential SDG&E "DR-SES" Time-of-Use Pricing Periods
SDG&E Time Of Use Residential DR-SES
Compare to 14¢-28¢/kWh tiered rates
Peak rates are Summer Afternoons 26¢/kWh (no tier surcharges) … when most people are away from home
Part & Off-Peak rates are Nights, Mornings & Weekends 17-18¢/kWh … when most people are home & using
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 116
Time of Use with Annual Net Metering in SDG&E
Net Metering on an annual basis Combined with
Time Of Use metering
Sell at high rate, Buy at low rate DR-SES is good in some cases
26¢/kWh peak vs. 17¢/kWh off-peak DR Tier 1 rate of 14¢/kWh is lower than off-peak rate DR Tier 4-5 rate of 28¢/kWh is higher than on-peak rate DR-SES is best for Tier 4-5 users DR-TOU may also be good Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 117
Sunday Monday Tuesday Wednesday Thursday Friday SaturdayMidnight - 8am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
8am - Noon Off-Peak Peak Peak Peak Peak Peak Off-PeakNoon - 8pm Off-Peak Peak Peak Peak Peak Peak Off-Peak
8pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Residential Time-of-Use Pricing Periods
NY, NJ, PA, CT Time Of Use
Peak rates are Summer Afternoons ~22-43¢/kWh until 8-10pm … when people are mostly away from home
Off-Peak rates are Nights, Mornings & Weekends ~10-11¢/kWh … when most people are home & using
NY: ConEd: ~10am-10pm NJ: JCP&L - 8am-8pm; PSE&G: 7am-9pm PA: MetEd, Penelec 9am-9pm; PPL, PECO 8am-6pm or 7:30pm CT: UI, CL&P 12pm-8pm
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 118
Time of Use with Annual Net Metering in East
Net Metering on an annual basis Combined with
Time Of Use metering
Sell at high rate; Buy at low rate 1:1 to 3:1 in customer favor Can reduce system size up to 0-15%
Reduction depends on % on-peak usage & rate schedule Shading and orientation
No payment for excess production Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 119
Understanding PG&E Rates PG&E E1: Tiered only - no TOU
Rate = Base Rates + Tier Surcharges Base Rate $0.132 per kWh + Tier Increments
PG&E E6: TOU + Tiers Rate = Base Rates + Tier Surcharges
+ Tier Increments (same as above)
Tier 2 increment over Tier 1: $0.018 (= $.150 total rate) Tier 3 increment over Tier 1: $0.187 (= $.319 total rate) Tier 4 increment over Tier 1: $0.227 (= $.359 total rate)
Summer Peak: $0.287 per kWh Summer Part-Peak: $0.175 per kWh Summer Off-Peak: $0.101 per kWh
Winter Part-Peak: $0.121 per kWh Winter Off-Peak: $0.105 per kWh
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 120
Understanding SCE Rates SCE D: Tiered only - no TOU SCE TOU-D-T: 2 Tiers & TOU Rate = Delivery Total + ~75% URG + ~25% DWR
URG = Utility Retained Generation DWR = Dept of Water Resources
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© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 121
Understanding SCE Rates Rate = Delivery Total + ~75% URG + ~25% DWR
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= Delivery+.75* URG+.25* DWR = Total =.07785 +.75*.14929+.25*.06225 = $0.205 =.07785 +.75*.62268+.25*.06225 = $0.560
=.07785 +.75*.02633+.25*.06225 = $0.113 =.07785 +.75*.19049+.25*.06225 = $0.236
!! !
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© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 122
TOU Exercise 1
Switching a customer to a TOU rate schedule with net metering and solar (helps / hurts) their results if they use a lot of electricity during peak hours and their solar system is (small / large) compared to their usage.
Ideally, the solar system will cause their electric meter to spin (forward / backward) at night and (forward / backward) during most of any peak time period.
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 123
TOU Exercise 2
If electricity costs 50¢/kWh in Chicago (45 N Lat) from 7am-11am and 1¢/kWh the rest of the day from November thru February, and 1¢/kWh at all times the rest of the year, the best orientation (direction, such as N, NW, etc) for a solar system to maximize value of electricity produced would be ______ and the best slope would be ______ (within 20°) up from horizontal.
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 124
Go TOU? Courtesy, Pete
Shoemaker, PG&E PEC
25% 75% 50% 100% 0
Low
Med
High
Percentage of yearly usage covered by solar
On-peak usage
Yes
No
Maybe
Solar produce during day Solar peaks during Peak Sufficient PV sizing (but less than total usage offset) must turn
meter backwards on peak At some point in PV size, customer only pays “off-peak” rates TOU is then better if “off-peak” rate is lower than customer’s
average non-TOU rate Daylight Savings: Noon-6pm on meter = 11am-5pm “solar time”
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 125
Estimating Peak Usage How Is Energy Used?
What should we ask about? Who’s home during Peak? What are they doing? Air Conditioning Climate? Into the evening? Ability/willingness to shift usage? Solar Pool Heating? Large Base-load usage is good:
Refrigeration, electronics, servers, hot tub © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 126
Getting Perspective (West) Only 6 to 8 hours are peak: 25% - 33% Even w/ AC, what’s a reasonable peak %
40-50%-60% max in homes Much higher in businesses
Note: The other 67-75% of the day also needs energy Impact of being off 5-10% in peak estimation
Examples
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 127
Getting Perspective (East) 8-12-14 hours are peak: 50-60%, including evening With AC & evening activity, what’s a reasonable
peak %? 50%-60%-80% in homes
Higher in many businesses Note: The other 20-50% of the day also needs energy
Impact of being off 5-10% in peak estimation
Examples © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 128
Utility Typical Rate Before Solar
Usually Best Rate For Solar*
TOU Summer Period Other Common Rates
AZ - APS E-12 (tiered) ET-2 (TOU) 1pm-8pm ET-1 (closed)
CA - PG&E E-1 (5 tiered) E-6 (TOU, 5 tiered) 1pm-7pm E-7 (TOU, 5 tiered, closed), E-8 (5 tiered, closed), E-9 (EVs, TOU, 5-tiered)
CA - SDG&E DR (5-tiered) DR-TOU (TOU, 5 tiered) or DR-SES (TOU)
12pm-6pm 11am-6pm EV-TOU, DM
CA – SCE D (5-tiered) TOU-D-T (TOU, 2 tiered) 10am-6pm TOU-D-1 (TOU, 2 tiered, closed), TOU-D-2 (TOU, closed), TOU-EV-1, TOU-D-TEV (EVs)
CO – Xcel R (flat) RTOU (TOU) 2pm-8pm RD CT – CL&P Rate 1 (flat) Rate 7 (TOU) 12pm-8pm Rate 5 FL – FPL RS-1 (flat) RST-1 (TOU) 12pm-9pm
HI – HECO Res (flat) Res (flat) MA – NSTAR A1 (R-1) (flat) A5 (R-4) (TOU) 9am-6pm
MD – BGE R (flat) RL-2 (TOU) 10am-8pm NC – Progress RES (flat) R-TOUD (TOU) 10am-9pm
NJ - JCPL RS (2 tiered) RT (TOU) 9am-9pm NJ – PSE&G RS (2 tiered) RLM (TOU) 8am-10pm NY - ConEd SC1-Rate I (tiered) SC1-Rate II (TOU) 10am-10pm SC7 PA – PPL RS (flat) RTD R (TOU) 8am-6pm
TX – Oncor Residential (flat) Residential (flat)
* Best Rate for Solar if PV is large enough compared to load and depending on consumption and production patterns
Residential Rates
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 129
Utility Rate Type Rate Range in Pesos / US$ TOU Summer Period
MX--DAC (Baja California) Flat $3.06-$3.88 / $.23-$.30
MX--DAC (Baja California Sur) Flat $3.06-$3.88 / $.23-$.30
MX--DAC (Central) Flat $3.06-$3.88 / $.23-$.30
MX--DAC (Noroeste) Flat $3.06-$3.88 / $.23-$.30
MX--DAC(Norte y Noreste) Flat $3.06-$3.88 / $.23-$.30
MX--DAC (Sur y Peninsular) Flat $3.06-$3.88 / $.23-$.30
MX--HS (Baja California) Time-of-Use $0.97-$2.46 / $.07-$.19 2pm-6pm
MX--HS (Baja California Sur) Time-of-Use $0.97-$2.46 / $.07-$.19 12pm-10pm
MX--HS (Central) Time-of-Use $0.97-$2.46 / $.07-$.19 7:30pm-10pm
MX--HS (Noroeste) Time-of-Use $0.97-$2.46 / $.07-$.19 7:30pm-10pm
MX--HS (Norte y Noreste) Time-of-Use $0.97-$2.46 / $.07-$.19 7:30pm-10pm
MX--HS (Sur y Peninsular) Time-of-Use $0.97-$2.46 / $.07-$.19 7:30pm-10pm
For large residential users
Mexican Electric Rates
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 130
Electric Rate Structures Overview
Options for Solar - Net Metering 3 Customer Classes (Res, Com, Ag) 2 Types of Rate (Flat, TOU)
TOU: Time of Use Demand Charges for Commercial
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 131
Demand Charges Usually applies only to Large users
Commercial and Agricultural On a per kW basis (load, not usage)
Size of the wire, power plant for peak usage
Based on highest 15-30 minute peak load average any time during the last 1-12 billing months
Questions? Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 132
Demand Profile vs. Solar Production
7am 12noon 5pm HOUR
DEMAND &
PRODUCTION IDEAL SOLAR
PRODUCTION
TYPICAL BUILDING DEMAND
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 133
Reducing Demand Charges
Difficult for solar to offset demand Clouds, spikes in usage not during solar hours,
inverters tripping offline Add control systems ~$30K-$150K+ Some rates have no/low demand charges
And sometimes high peak (sell) rates Benefits depend on Size: Usage ratio and demand &
usage patterns with respect to rate schedule hours
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 134
Utility Common Commercial Rate Schedules
Common Ag Rates
AZ - APS E-32, E-32 TOU CA - PG&E A1, A6, A10, E19, E20 AG1, AG4, AG5 CA - SCE GS-1, GS-2, TOU-GS-3, TOU-8 PA-1, PA-2
CA - SDG&E A, AL-TOU, A6-TOU, DG-R PA CO - Xcel C CT - UI GS FL – FPL GS-1
GA – GaPwr GS-4, TOU-EO-4 HI - HECO G MD – BGE G Type 1 NJ - JCPL GS, GST, GP, GT NJ – PSEG GLP, LPL, HTS
NY - ConEd SC2-I, SC2-I (NYC or Westchester) PA – PPL GS-1
Common Commercial Electric Rate Schedules
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 135
Rate Max Demand
Flat Rate TOU Rate Demand Charge
A1 <20kW 15-21¢ Flat None
A6 Any* 49¢ Peak
14¢ Off-Peak None
A10 <500kW 11-15¢ Flat High
A10 TOU <500kW 16¢ Peak
10-13¢ Off-Peak High
E19**/E20 >500kW 14¢ Peak
7-8¢ Off-Peak High
*If not required to be on another rate schedule **Required schedule if measured demand is >500kW
Commercial Rates (PG&E)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 136
Time Of Use Commercial PG&E A6 & A10
Sunday Monday Tuesday Wednesday Thursday Friday SaturdayMidnight - 6am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak6am - 8:30am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak8:30am - Noon Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-PeakNoon - 6pm Off-Peak Peak Peak Peak Peak Peak Off-Peak
6pm - 9:30pm Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak9:30pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Commercial "A6" & "A10" Time-of-Use Pricing Periods
Use and/or Sell On-Peak @ up to 49¢/kWh on A6 More usage on peak, less benefit from TOU
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 137
Commercial Rates (SCE)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 138
SCE Commercial Time Of Use
Sunday Monday Tuesday Wednesday Thursday Friday Saturday11pm - 5am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak5am - 8am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak8am - Noon Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-PeakNoon - 6pm Off-Peak Peak Peak Peak Peak Peak Off-Peak6pm - 11pm Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak
SCE Commercial Time-of-Use Pricing Periods
Use and/or Sell On-Peak @ 24-32¢/kWh on Option R Part-Peak @ 14-19¢/kWh
More usage on peak, less benefit from TOU Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 139
Commercial Rates (SDG&E)
Rate Max Demand
Flat Rate TOU Rate Demand Charge
A <20kW 15-19¢ Flat None
AL-TOU >20kW 10¢ Peak 6¢ Off-Peak
High
A6-TOU >500kW 10¢ Peak 6¢ Off-Peak
High
DG-R <2MW 19¢ Peak
9¢ Off-Peak Low
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 140
Time Of Use Commercial SDG&E AL-TOU & DG-R
Sunday Monday Tuesday Wednesday Thursday Friday SaturdayMidnight - 6am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
6am - 11am Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak11am - 6pm Off-Peak Peak Peak Peak Peak Peak Off-Peak6pm - 10pm Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak
10pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Commercial "AL-TOU" & "DG-R" Time-of-Use Pricing Periods
DG-R: Use and/or Sell On-Peak @ 19¢/kWh Part-Peak @ 9-11¢/kWh
More usage on peak, less benefit from TOU Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 141
Utility Rate Size TOU Rate Demand Charge
PG&E A6 Any* 49¢ Peak
14¢ Off-Peak None
SCE GS-2-TOU R <200kW 24¢ Peak
6¢ Off-Peak Low
SCE TOU-GS-3 R <500kW 32¢ Peak
7¢ Off-Peak Low
SDG&E DG-R <2MW 19¢ Peak
9¢ Off-Peak Low
*If not required to be on another rate schedule
Reducing Demand Charges
Questions? Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 142
Time of Use with Annual Net Metering
Net Metering on an annual basis Combined with
Time Of Use metering
Sell at high rate, Buy at low rate 2:1 or 3:1 in customer favor Can reduce system size 0-30%
Reduction depends on % on-peak usage & rate schedule Commercial is usually small reduction if any Sometimes worse to switch to TOU Shading and orientation Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 143
1 - Energy Efficiency & Conservation
2 - Demand Response & Load Control
3 - Renewables
4 - Clean Fossil
California PUC Loading Order
Least GHG, Least Total Cost (including new power plants) 1a. Customer Awareness
via Energy Audits and Analysis
1b. Efficiency Rebates Eg: programmable thermostats and
lighting controls, CFLs, etc. 2a. TOU & Super-Peak Rates 2b. Demand Charges 2c. Utility Control Systems
with large critical customers
2d. Advanced Metering 2e. “Flex Your Power” Ads 2f. PV
Greater System Reliability
& Overall Cost Effectiveness
3. California Solar Initiative (PV), other RE programs
There are and will be lots of incentives for Energy Efficiency
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 144
Electric Rate Escalation & Inflation
CA Electric Rate Compound Annual Average Increases: 6.7% /yr from 1970-2001 2.9% /yr from 2001-2010
U.S. Average: Rates Grew 3.8%/yr from 2001-2010 Large Shale Bed Methane discoveries may limit
escalation CPI/Inflation has been 3.1% /yr since 1982
CPI-U: Urban Consumer Price Index
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 145 Source: California Public Utilities Commission: Prepared by the CPUC Energy Division. Dataset from Energy Information Administration (EIA), DOE/EIA-0376(95), State Energy Price and Expenditure Report, 1995, Tables 36-38. 1996 through 2000 reflects AB 1890 frozen rates. 2001 rates include 4 cent increase in SCE and PG&E Rates.
=!
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Residen(al!!2.23!! !7.67!! !11.61!! !11.32!! !14.40!!Small!Business!!1.71!! !7.43!! !10.26!! !9.78!! !14.37!!Large!Business!!0.99!! !7.25!! !7.37!! !6.93!! !11.42!!
1970% 1982% 1995% 1998% 2001%
Residential
Small Business
Large Business
1982
Cen
ts p
er k
ilow
att-h
our
Residential, Small Business, and Large Business Sectors 1970 to 2001 for SCE and PG&E
California Electric Rates
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 146
State 2013 Rate
¢/kWh
2004-2010
CAGR
2001-2010
CAGR
1990-2010
CAGR
US 11.7 5.0% 3.8% 2.1%
AZ 11.0 4.1% 2.5% 1.1%
CA 16.5 4.3% 2.9% 2.2%
CO 11.4 4.9% 4.4% 2.3%
HI 36.6 8.2% 6.3% 5.2%
MN 11.3 4.7% 3.2% 2.1%
NM 10.9 2.7% 1.4% 0.6%
NV 12.3 4.4% 3.8% 4.4%
OR 10.0 3.9% 4.3% 3.3%
TX 11.3 3.8% 3.6% 2.4%
WA 8.6 4.5% 4.0% 3.2%
2013 Average Residential Electric Rates &
Escalation (West, partial) 2010 U.S. Average Retail Price per kWh is 9.83 Cents
Average Retail Price (Cents per Kilowatt-hour) Source: DOE Energy
Information Administration
Shale Bed Methane discoveries may limit escalation CPI-U/Inflation has been 3.1% /yr since 1982
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 147
State 2013 Rate
¢/kWh
2004-2010
CAGR
2001-2010
CAGR
1990-2010
CAGR US 11.7 5.0% 3.8% 2.1%
CT 17.6 8.4% 6.7% 3.5% DC 12.5 8.0% 5.0% 4.9%
DE 12.7 9.1% 6.1% 2.8% FL 11.4 4.4% 2.9% 2.0%
GA 10.2 4.3% 3.1% 1.5% MA! 20.1 4.7% 2.1% 2.4%
MD! 13.4 10.6% 6.2% 3.8% NC! 10.5 3.5% 2.6% 1.4%
NJ! 15.3 6.7% 5.5% 2.3% NY! 18.2 5.1% 3.5% 2.7%
OH! 11.2 4.9% 3.0% 1.7% PA! 12.8 5.3% 3.3% 1.8%
2013 Average Residential Electric Rates &
Escalation (East, partial) 2010 U.S. Average Retail Price per kWh is 9.83 Cents
Average Retail Price (Cents per Kilowatt-hour) Source: DOE Energy
Information Administration
Shale Bed Methane discoveries may limit escalation CPI-U/Inflation has been 3.1% /yr since 1982
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 148 Source: California Public Utilities Commission: Prepared by the CPUC Energy Division. Dataset from Energy Information Administration (EIA), DOE/EIA-0376(95), State Energy Price and Expenditure Report, 1995, Tables 36-38. 1996 through 2000 reflects AB 1890 frozen rates. 2001 rates include 4 cent increase in SCE and PG&E Rates.
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Residen(al!!2.2!! !7.7! !11.6! !11.3! !14.4!
1970% 1982% 1995% 1998% 2001%
Residential
1982
Cen
ts p
er k
ilow
att-h
our
Residential 1970 to 2001
California Electric Rates What Happened 2001 to 2010?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 149
=!
2.0!
4.0!
6.0!
8.0!
10.0!
12.0!
14.0!
16.0!
Residential
1982
Cents%pe
r%kilowa6
7hou
r%
Peaked!@!49¢!!!!!!!Tier!4!&!5,!40¢!!!Tier!3,!29¢!!!!!!!!!Tier!2,!13.9¢!Tier!1,!12.2¢!PG&E!2011!
asa s asf sf asdf f f df asf a sdf
PG&E%2001%Tier!5,!26¢!Tier!4,!24¢!Tier!3,!17¢!Tier!2,!13¢!Tier!1,!11¢!
• Deregulation in 1995 froze Tier 1 & 2 • AB1X during 2001 Power Crisis created Tier 3-5, which have risen 5x faster than ‘average’ rates needed to rise to compensate for Tier 1&2 • SB 695 (Kehoe) unlocks and raises Tier 1 & 2 rates 1% faster than ‘average’, up to 5% per year
• Tier 3,4,5 might now drop
Residential 1970 to 2001 plus 2001 to 2010 tiers California Electric Rates
Source: California Public Utilities Commission, EIA, PG&E
Residen(al!!2.2¢! !7.7¢! !11.6¢! !11.3¢!!
1970% 1982% 1995% 1998% PG&E%2010%Tier!5,!49¢!Tier!4,!41¢!Tier!3,!27¢!Tier!2,!13¢!Tier!1,!11.5¢!
Questions? Questions?
Be cautions about future rate hikes – 2-3% max
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 150
Cost / Value Overview - System Cost + Rebate / PBI / State Tax Credits - Federal Tax on Rebate / PBI / State Tax Credits + 30% Fed Tax Credit / Treasury Grant + ~41% Depreciation * 85% (Commercial only) + Savings & Inflation on savings (pre-tax value if Residential)
- Lost Electric Bill Tax Deduction (Commercial) - Maintenance & Inflation on maintenance - Inverter Replacement Cost + REC Value (less taxes), Green Marketing, Morale ------------------------------------------ = Net Cost (needs to be net benefit
including the SRECs to be attractive)
Questions? Questions? -$12,000 $2,000+$1,000
-$250 $3,000
$0 $25,000
$0 -$2,000 -$1,400 $5,000 ---------------
=+20,350 over 25 yrs
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 151
Agenda
Overview of the Variables Costs & Incentives Rate Structures System Performance
Financial Analysis Methods Solar Analysis Tools Interactive Examples
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 152
Agenda Top Line
Cost
Incentives
Savings
Net Cost
Financial Results: - Payback - Resale - Cash Flow - IRR - APY
Financial Variables
Calcs
System Performance
Electric Rates
Usage & Patterns
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 153
System Performance
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 154
System Performance Pre-Exercise
What are the 5 major and 4 minor solar system loss factors, and what are their typical ranges?
Major: (range) Minor: (range) _______________________ _______________________ _______________________ _______________________ _______________________ _______________________ _______________________ _______________________ _______________________
Major means possibly greater than 10% loss
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 155
System Performance
System Output = Effective Sun Hours for the Location * Number of Modules * Loss Factors
Several Types of Loss Factors: Component Based Location Specific Reliability & Monitoring Related Customer or Designer Influenced
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 156
Sun Hours Sun Hours = equivalent noon sunlight
hours by month or year round averages of 30 years of data Varies by tilt & tracking (fixed, 1 axis,
2 axis) Sun Hours for location (Redbook)
http://rredc.nrel.gov/solar/pubs/redbook/ Weather varies +/- 11%
Examples: (hours equivalent) San!Francisco:!!5.4!Boulder,!CO:!!5.5!Los!Angeles:!!5.6!Phoenix,!AZ:!!6.5!
Buffalo,!NY:!4.1!PiGsburg,!PA:!4.2!Chicago,!IL:!4.4!Newark,!NJ:!!4.5!Boston,!MA:!!4.6!Bal(more,!MD:!!4.6!Raleigh,!NC:!!5.0!Miami,!FL:!!5.2!Aus(n,!TX:!!5.3!
±!~20%!
Add HI, OR, MT, IL
9=10¢!9=17¢!6=12¢!8=20¢!10=20¢!10=17¢!9=10¢!9=14¢!6=12¢!
9=36¢!8=14¢!9=31¢!9=20¢!
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 157
Factors That Can Make Solar Viable
Net Metering High Rates Time of Use Rates Tiered Rates Low System Costs Incentives Sunlight
More Important
(in general)
Less Important
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 158
System Size Ratings? STC System Size = Module STC or DC rating *
Number of Modules No loss factors counted
CEC System Size = Module PTC rating * Inverter CEC Efficiency * Number of Modules
CEC AC Size rating ~ 83% of STC Size rating (aka DC Size rating) 5kW CEC AC ~ 6kW STC DC (approximately)
CEC AC Size is still missing many other loss factors
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 159
Component Performance
Module PTC ~ 83-93% Based on real-world operating temperatures in Davis, CA
instead of the STC rating flash tested at the factory Varies by product and technology
Inverter CEC Efficiency ~ 93-97% Module & Inverter equipment & ratings listed at:
http://www.gosolarcalifornia.org/equipment/pvmodule.html http://www.gosolarcalifornia.org/equipment/inverter.php
Manufacturer Production Tolerance: 5% (0-5%) Module Mismatch: 2% AC & DC Wiring: 3% (1-5%)
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 160
Unavoidable Location- Specific Performance Factors
Dust & Dirt for location: 7% (5-20%) Module Performance & Spectral Response: 0% (0-10%)
Photon magazine reporting test results frequently Temperature in location (as varies from Davis, CA)
Temperature Performance loss: 0.5% per °C temp rise See CEC publication for more:
A Guide to Photovoltaic (PV) System Design and Installation
http://www.energy.ca.gov/reports/2001-09-04_500-01-020.PDF
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 161
Reliability & Monitoring Related Performance Factors
Module Degradation (~0.5% to 0.75%/year) New linear performance guarantees Starts ~97% then drops ~0.7% per year for 25 years
Uptime / Availability: 98% (2% loss) Reliability:
If monitored: ~100% If not monitored (after 3+ years): ~0%
Sandia AZ 400kW utility project experience © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 162
Customer or Designer Influenced Performance Factors Customer aesthetics preferences:
Orientation (Tilt Angle & Azimuth) Temperature by mounting type
Up to 10% loss if <6” clear venting behind array Shading
Courtesy Solmetric, Inc.
Solmetric SunEye 210
Solar Pathfinder
Precigeo ->
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 163
Time of day
shading analysis
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 164
Orientation vs. Shading
How much can be lost from Shading? What % of energy do you get on:
(un-shaded, in most of the continental U.S.) South facing at 20° slope? West facing at 20° slope? North facing at 20° slope?
Which is better?: South with 50% shade North with 0% shade
95-99% 80-90% 60-75%
South
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 165
Summary of Performance
Loss Performance Variable Factor Factor 7-17% 83-93% Module Temperature (PTC) 3-11% 89-97% Inverter Efficiency 0-5% 95-100% Manufacturer Production Tolerance 1.5-2.5% 97.5-98.5%* Module Mismatch 1.5-5% 95-98.5%* Wiring (AC & DC) 5-15% 85-95% Dust & Dirt 0-10% 90-100% Module Performance & Spectral Response 7-15% 85-93% Module Degradation over 20 years 2-10% 90-98% System Availability (uptime) 25-35% 65-75% Typical Totals for the Best Systems 0-40% 60-100%* Orientation & Tilt 0-100% 0-100%* Shading Questions?
Future - Which ones are benefited by uInverters What’s built into PVwatts & how to understand the .77 factor
Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 166
Agenda
Overview of the Variables Costs & Incentives Rate Structures System Performance
Financial Analysis Methods Solar Analysis Tools Interactive Examples
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 167
Financial Analysis Pre-Exercise
Alternative analyses/answers to the “Payback” question (4): _________________________________________ _________________________________________ _________________________________________ _________________________________________
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 168
Agenda Top Line
Cost
Incentives
Savings
Net Cost
Financial Results: - Payback - ROI - IRR / APY - Resale - Cash Flow (other class)
Financial Variables
Calcs
System Performance
Electric Rates
Usage & Patterns
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 169
Agenda Overview of the Variables Financial Analysis Methods
Simple Payback: In reasonable time Total Lifecycle Payback
Gives back lots more than cost over time Return On Investment (ROI): Correct method Rate of Return (IRR or APY): 4-10%+ returns Increase in Appraisal Valuation
Appraises for more than it cost Solar Analysis Tools Interactive Examples
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 170
Watt’$ the Payback?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 171
Time to cash “Payback” What’s “reasonable?” Poor Test: Doesn’t value savings/losses after “payback” Isn’t comparable to other investments (stocks, etc)
Not interest rate based Taxable vs. non-taxable earnings
Simple Payback
Initial Cost
Questions? Questions?
Pay
back
Yea
r
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 172
Total Lifecycle Payback
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 173
More fair presentation Shows Total Savings (whole area) compared to Initial Cost
Could also be called the: “Savings / Investment Ratio” Drawback: Doesn’t reflect the time value of money:
Today’s $ are worth more than future $
Total Lifecycle Payback Initial Cost
Total Savings
Lifecycle Payback = 25-year Gain from InvestmentCost of Investment
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 174
Utility Pre-Solar Bill
kWh Usage per
Month
PV System Size & Rating
Final Net Cost w/ Tax Benefits
& Rebates
Cumulative Savings Over First 25 Years (including inflation)
Years To Payback
Lifecycle Payback
Ratio CA--SDG&E $115 550 kWh 3 kW CEC $10K $31K 8.6 3.0x CA--SDG&E $505 1,650 kWh 9 kW CEC $27K $149K 4.9 5.5x CA--PG&E $95 550 kWh 3 kW CEC $10K $25K 10.4 2.4x CA--PG&E $485 1,650 kWh 9 kW CEC $27K $142K 5.1 5.3x TX--Oncor $89 800 kWh 5 kW STC $12K $14K 22.6 1.2x LA--EntergyLA $79 800 kWh 5 kW STC $6K $14K 9.5 2.3x CO--Xcel $93 800 kWh 5 kW STC $10K $13K 21.4 1.3x NM--SPS $71 800 kWh 5 kW STC $11K $15K 20.2 1.4x MO--KCP&L $92 800 kWh 5 kW STC $7K $16K 10.2 2.2x WI--WEPCO $120 800 kWh 5 kW STC $11K $33K 8.3 3.0x MA--NSTAR $142 800 kWh 5 kW STC $10K $32K 8.2 3.0x CT--UI $170 800 kWh 5 kW PTC $10K $30K 8.2 3.0x NY--ConEd $186 800 kWh 5 kW STC $7K $40K 4.3 6.0x NJ--JCP&L $116 800 kWh 5 kW STC $12K $19K 19.5 1.5x NC--Progress $90 800 kWh 5 kW STC $7K $15K 11.7 2.2x FL--FPL $81 800 kWh 5 kW STC $12K $14K 23 1.1x AZ--APS $112 800 kWh 5 kW STC $12K $27K 10.6 2.3x HI--HECO $276 800 kWh 5 kW STC $9K $71K 3.4 8.0x
Residential Total Lifecycle Payback
3/7/14
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 175
Residential Total Lifecycle Payback
Utility Pre-Solar Bill
kWh Usage per
Month
PV System Size & Rating
Final Net Cost w/ Tax Benefits
& Rebates
Cumulative Savings Over First 25 Years (including inflation)
Years To Payback
Lifecycle Payback
Ratio CA--SDG&E $115 550 kWh 3 kW CEC $10K $31K 8.6 3.0x CA--SDG&E $505 1,650 kWh 9 kW CEC $27K $149K 4.9 5.5x CA--PG&E $95 550 kWh 3 kW CEC $10K $25K 10.4 2.4x CA--PG&E $485 1,650 kWh 9 kW CEC $27K $142K 5.1 5.3x TX--Oncor $89 800 kWh 5 kW STC $12K $14K 22.6 1.2x LA--EntergyLA $79 800 kWh 5 kW STC $6K $14K 9.5 2.3x CO--Xcel $93 800 kWh 5 kW STC $10K $13K 21.4 1.3x NM--SPS $71 800 kWh 5 kW STC $11K $15K 20.2 1.4x MO--KCP&L $92 800 kWh 5 kW STC $7K $16K 10.2 2.2x WI--WEPCO $120 800 kWh 5 kW STC $11K $33K 8.3 3.0x MA--NSTAR $142 800 kWh 5 kW STC $10K $32K 8.2 3.0x CT--UI $170 800 kWh 5 kW PTC $10K $30K 8.2 3.0x NY--ConEd $186 800 kWh 5 kW STC $7K $40K 4.3 6.0x NJ--JCP&L $116 800 kWh 5 kW STC $12K $19K 19.5 1.5x NC--Progress $90 800 kWh 5 kW STC $7K $15K 11.7 2.2x FL--FPL $81 800 kWh 5 kW STC $12K $14K 23 1.1x AZ--APS $112 800 kWh 5 kW STC $12K $27K 10.6 2.3x HI--HECO $276 800 kWh 5 kW STC $9K $71K 3.4 8.0x
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 176
Residential Total Lifecycle Payback
*In Pesos
Utility Pre-Solar Bill
kWh Usage per
Month
PV System Size & Rating
Final Net Cost w/ Tax Benefits
& Rebates
Cumulative Savings Over First 25 Years (including inflation)
Years To Payback
Lifecycle Payback
Ratio MX--DAC (Baja California) $2,728* 800 kWh 5 kW STC $258K* $788K* 9.7 3.1x
MX--DAC (Baja California Sur) $2,857* 800 kWh 5 kW STC $258K* $852K* 9.1 3.3x
MX--DAC (Central) $3,013* 800 kWh 5 kW STC $258K* $759K* 10 2.9x
MX--DAC (Noroeste) $2,824* 800 kWh 5 kW STC $258K* $886K* 8.7 3.4x
MX--DAC(Norte y Noreste) $2,756* 800 kWh 5 kW STC $258K* $616K* 12.1 2.4x
MX--DAC (Sur y Peninsular) $2,801 800 kWh 5 kW STC $258K* $664K* 11.3 2.6x
PR--PREPA $206 800 kWh 5 kW STC $9K $58K 4.5 6.7x AZ--APS $112 800 kWh 5 kW STC $12K $31K 10.2 2.6x CA--PG&E $94 550 kWh 3 kW CEC $10K $29K 10.1 2.7x CA--PG&E $483 1,650 kWh 9 kW CEC $27K $162K 5.1 6.0x CO--Xcel $90 800 kWh 5 kW STC $6K $10K 21.6 1.7x FL--FPL $82 800 kWh 5 kW STC $6K $17K 8.3 3.0x MO--KCP&L $92 800 kWh 5 kW STC $6K $19K 7.6 3.4x NY--ConEd $179 800 kWh 5 kW STC $6K $45K 3.9 7.5x TX--Oncor $90 800 kWh 5 kW STC $12K $17K 20.4 1.4x
Mexico 11/1/13
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 177
28% federal tax bracket, corresponding state tax bracket Facing south, 22° pitch, simple composition shingle roof by full
service provider, no complications Slightly conservative real system performance, no shade Final Net Cost = total installed system costs - Rebate (if any) -
2013 Fed 30% ITC + $500 Permit + $0 Utility Fee System maintenance cost is 0.25% of gross system cost per year,
adjusted for inflation 2.0% electric inflation Module: Sanyo Electric HIP-215NKHA6 , degradation: 0.75%/yr Inverter: SMA America SB3000US (240V), Replacement costing
$700/kW occurs in year 15
General Residential Variables & Assumptions
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 178
Western Utility Specific Residential Assumptions
Utility Insolation AC kWh
Production per rated kW per year
~2014 Cost per rated Watt
Staring/Ending Rate Schedule, Peak %
Incentives Last update: 3/7/14
30% Fed ITC + AZ - APS Phoenix 1772 / STC kW $3.50 STC E-12 / ET-2, 50% 25% State Tax Credit
CA - PG&E San Francisco 1654 / CEC kW 3kW: $4.75 CEC 9kW: $4.25 CEC
E1XB / E6XB, 35% - CA - SCE Los Angeles 1717 / CEC kW D-10-Basic -
CA - SDG&E San Diego 1749 / CEC kW DR-Coastal-Basic / DR-SES, 28% -
CO - Xcel Boulder 1460 / STC kW $3.50 STC R $.05/kWh HI - HECO Honolulu 1566 / STC kW $3.50 STC Res 35% St TC
MO - KCP&L Columbia, MO 1341 / STC kW $3.50 STC R / R-TOD, 32% 1.50/W Rebate NM-SPS Albuquerque 1742 / STC kW $3.50 STC Rate 1A / Rate 1B $9K State Tax Credit TX-Oncor Fort Worth 1483 / STC kW $3.50 STC Residential -
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 179
Eastern Utility Specific Residential Assumptions
Utility Insolation AC kWh
Production per rated kW per year
~2014 Cost per rated Watt
Staring/Ending Rate Schedule, Peak %
Incentives Last update: 3/7/14
30% Fed ITC + CT – UI Hartford 1271 / PTC kW $4.00 PTC R $1.25/W
FL – FPL Miami 1439 / STC kW $3.50 STC RS-1 - LA-EntergyLA Baton Rouge 1337 / STC kW $3.50 STC RS-1W 50% State Tax Credit MO - KCP&L Columbia, MO 1341 / STC kW $3.50 STC R / R-TOD, 32% $1.50/WRebate
MA – NSTAR Boston 1225 / STC kW $3.50 STC A1(R-1) / A5 (R-4) $0.40/W, SRECS 10¢/10yrs
NC - Progress Raleigh 1356 / STC kW $3.50 STC RES / R-TOUD, 55% 35% State Tax Credit
NJ - JCPL Newark 1208 / STC kW $3.50 STC RS / RT, 58% SRECs: 4¢/1yr, 3¢/14yrs
NY - ConEd New York City 1233 / STC kW $3.50 STC SC1-I / SC1-II TOU, 75%
$1.00/W + 25% State Tax Credit
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 180
Utility Specific Residential Assumptions
Utility Insolation AC kWh
Production per rated kW per year
~2013 Cost per rated Watt
Staring/Ending Rate Schedule, Peak %
Incentives Last update: 10/31/13
MX - CFE Mexicali 1479 / STC kW $52 Peso / STC DAC Baja -
MX - CFE San Jose Del Cabo 1527 / STC kW $52 Peso / STC DAC Baja -
MX - CFE Morelia 1313 / STC kW $52 Peso / STC DAC Baja - MX - CFE Hermosillo 1629 / STC kW $52 Peso / STC DAC Baja - MX - CFE Monterrey 1178 / STC kW $52 Peso / STC DAC Baja - MX - CFE Chetumal 1245 / STC kW $52 Peso / STC DAC Baja -
PR - PREPA San Juan 1518 / STC kW $4.00 / STC DAC Baja 30% + $1.40 Rebate
AZ - APS Phoenix 1772 / STC kW $3.50 / STC E-12 / ET-2, 50% 30% + 25% State Tax Credit
CA - PG&E San Francisco 1654 / CEC kW 3kW: $4.75 CEC 9kW: $4.25 CEC E1XB / E6XB, 35% 30% ITC
CO - Xcel Boulder 1460 / STC kW $3.50 / STC R 30% ITC +$.07/kWh FL - FPL Miami 1439 / STC kW $3.50 / STC RS-1 30% ITC
MO - KCP&L Columbia, MO 1341 / STC kW $3.50 / STC R / R-TOD, 32% 30% + $2/W Rebate
NY - ConEd New York City 1233 / STC kW $3.50 / STC SC1-I / SC1-II TOU, 75%
30%, $1.30/W Rebate,!25% StateTC
TX-Oncor Fort Worth 1483 / STC kW $3.50 / STC Residential 30% ITC
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 181
35% federal tax bracket, corresponding state tax bracket Facing south, 14° pitch, simple composition shingle roof by full
service provider, no complications Slightly conservative real system performance, no shade Final Net Cost = total installed system costs - Rebate (if any) -
2013 Fed 30% ITC + 50% Depr + $800 Permit + $0 Utility Fee System maintenance cost is 0.25% of gross system cost per year,
adjusted for inflation 2.0% electric inflation Module: Sanyo Electric HIP-215NKHA6, degradation: 0.75%/yr Inverter: SMA America SB3000US (240V), Replacement costing
$700/kW occurs in year 15 Solar only - no Energy Efficiency included
General Commercial Variables & Assumptions
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 182
Facing south, 14° pitch, simple composition shingle roof by full service provider, no complications
Slightly conservative real system performance, no shade Final Net Cost = total installed system costs - Rebate (if any) +
$800 Permit + $0 Utility Fee System maintenance cost is 0.25% of gross system cost per year,
adjusted for inflation 2.0% electric inflation Module: Sanyo Electric HIP-215NKHA6, degradation: 0.75%/yr Inverter: SMA America SB3000US (240V), Replacement costing
$700/kW occurs in year 15 Solar only - no Energy Efficiency included
General Gov’t/Non-Profit Variables & Assumptions
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 183
Utility Specific Commercial Assumptions
Utility Insolation AC kWh
Production per rated kW per year
~2014 Cost per rated Watt
Staring/Ending Rate Schedule
Peak%/ PP% Demand
Incentives Last update: 3/7/14
30% Fed ITC +
AZ - APS Phoenix 1724 / STC kW $3.00 STC E-32 / E-32TOU, 64% 10% State Tax Credit
CA - PG&E San Francisco 1587 / CEC kW
10kW: $4.25 CEC 50kW: $3.75 CEC
A1 / A6 47%/35% -
CA - SCE Los Angeles 1590 / CEC kW GS2 / GS2R
48%/43% 2x Min Demand
$0.25/W Rebate or 3.2¢/kWh PBI
CA - SDG&E San Diego 1700 / CEC kW AL-TOU / DG-R
39%/51% 2x Min Demand
$0.25/W Rebate or 3.2¢/kWh PBI
CO - Xcel Boulder 1390 / STC kW $3.00 STC C 5¢/kWh SREC/PBI CT - UI Hartford 1221 / STC kW $3.50 PTC GS -
FL – FPL Miami 1420 / STC kW $3.00 STC GS-1 - HI - HECO Honolulu 1553 / STC kW $3.00 STC G 35% State Tax Credit LA-Cleco Baton Rouge 1318 / STC kW $3.00 STC GS-Non-Demand 50% State Tax Credit
NM – PubSvc Albuquerque 1679 / STC kW $3.00 STC 2A / 2B $.05 PBI for 10 yrs
NJ - JCPL Newark 1161 / STC kW $3.00 STC GP SRECs: 4¢/1yr, 3¢/14yrs
NY - ConEd New York City 1186 / STC kW $3.00 STC SC2-I (NYC) $1.00/W Rebate
TX-Oncor Fort Worth 1450 / STC kW $3.00 STC Commercial -
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 184
Utility Specific Commercial Assumptions
Utility Insolation AC kWh
Production per rated kW per year
~2013 Cost per rated Watt
Staring/Ending Rate Schedule, Peak %
Incentives Last update: 10/31/13
MX - CFE Mexicali 1451 / STC kW $52 Peso / STC DAC Baja -
MX - CFE San Jose Del Cabo 1512 / STC kW $52 Peso / STC DAC Baja -
MX - CFE Morelia 1311 / STC kW $52 Peso / STC DAC Baja - MX - CFE Hermosillo 1624 / STC kW $52 Peso / STC DAC Baja - MX - CFE Monterrey 1173 / STC kW $52 Peso / STC DAC Baja - MX - CFE Chetumal 1247 / STC kW $52 Peso / STC DAC Baja -
PR - PREPA San Juan 1518 / STC kW $4.00 / STC DAC Baja 30% + $1.40 Rebate AZ - APS Phoenix 1724 / STC kW $3.50 / STC E-12 / ET-2, 50% 30% + 25% StateTC
CA - PG&E San Francisco 1575 / CEC kW 3kW: $4.75 CEC 9kW: $4.25 CEC E1XB / E6XB, 35% 30% ITC
CO - Xcel Boulder 1390 / STC kW $3.50 / STC R 30% ITC +$.07/kWh FL - FPL Miami 1420 / STC kW $3.50 / STC RS-1 30% ITC
MO - KCP&L Columbia, MO 1289 / STC kW $3.50 / STC R / R-TOD, 32% 30% + $2/W Rebate
NY - LIPA New York City 1186 / STC kW $3.50 / STC SC1-I / SC1-II TOU, 75%
30%, $1.30/W Rebate,!25% StateTC
TX-Oncor Fort Worth 1450 / STC kW $3.50 / STC Residential 30% ITC
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 185
Commercial Total Lifecycle Payback
Utility Pre-Solar Bill
kWh Usage per Month
PV System Size & Rating
Final Net Cost w/ Tax Benefits
& Rebate
Cumulative Savings Over First 25 Years (including inflation)
Lifecycle Payback
Ratio
Years To Payback
CA--SDG&E $357 2,000 kWh 10 kW CEC $13K $28K 1.2x 11.3 CA--SDG&E $1,057 10,000 kWh 50 kW CEC $56K $77K 0.8x 20.3 CA--PG&E $380 2,000 kWh 10 kW CEC $15K $43K 1.6x 8.9 CA--PG&E $1,861 10,000 kWh 50 kW CEC $65K $222K 1.9x 7.8 TX--Oncor $980 10,000 kWh 50 kW STC $61K $103K 1.1x 17.4 LA--Cleco $1,253 10,000 kWh 50 kW CEC $47K $116K 1.5x 9.4 CO--Xcel $1,023 10,000 kWh 50 kW STC $56K $99K 1.1x 16.9 NM--PNM $1,257 10,000 kWh 50 kW STC $27K $141K 3.0x 5.9 MO--KCP&L-G $1,354 10,000 kWh 50 kW STC $32K $119K 2.2x 6.3 WI--WPSC $1,165 10,000 kWh 50 kW STC $52K $88K 1.0x 17.4 MA--NatlGrid $1,600 10,000 kWh 50 kW STC $52K $162K 1.7x 6 CT--UI $2,135 10,000 kWh 50 kW PTC $62K $197K 1.8x 7.9 NY--LIPA $1,985 10,000 kWh 50 kW STC $36K $178K 2.8x 5.3 NJ--JCP&L $1,274 10,000 kWh 50 kW STC $52K $101K 1.1x 10.7 NC--Duke $1,500 10,000 kWh 50 kW STC $20K $145K 4.3x 4.4 FL--FPL $1,045 10,000 kWh 50 kW STC $56K $86K 0.9x 18.5 AZ--APS $1,220 10,000 kWh 50 kW STC $44K $123K 1.6x 8.5 HI--HECO $3,180 10,000 kWh 50 kW STC $20K $404K 11.7x 2.6
3/7/14
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 186
Commercial Total Lifecycle Payback
Utility Pre-Solar Bill
kWh Usage per Month
PV System Size & Rating
Final Net Cost w/ Tax Benefits
& Rebate
Cumulative Savings Over First 25 Years (including inflation)
Lifecycle Payback
Ratio
Years To Payback
MX--HS (Baja California) $19,578* 10,000 kWh 50 kW STC $1482K* $1898K* 0.8x 20.6
MX--HS (Baja California Sur) $20,734* 10,000 kWh 50 kW STC $1482K* $2138K* 0.9x 18.7
MX--HS (Central) $15,858* 10,000 kWh 50 kW STC $1482K* $1416K* 0.6x >25
MX--HS (Noroeste) $15,858* 10,000 kWh 50 kW STC $1482K* $1795K* 0.8x 21.5
MX--HS (Norte y Noreste) $15,858* 10,000 kWh 50 kW STC $1482K* $1251K* 0.5x >25
MX--HS (Sur y Peninsular) $15,858* 10,000 kWh 50 kW STC $1482K* $1339K* 0.6x >25
PR--PREPA $2,986 10,000 kWh 50 kW STC $-33K $295K -2.7x 1 AZ--APS $1,210 10,000 kWh 50 kW STC $44K $111K 1.5x 9.9 CA--PG&E $375 2,000 kWh 10 kW CEC $15K $50K 1.9x 8.7 CA--PG&E $1,837 10,000 kWh 50 kW CEC $65K $255K 2.2x 7.6 CO--Xcel $990 10,000 kWh 50 kW STC $56K $112K 1.2x 16.1 FL--FPL $992 10,000 kWh 50 kW STC $25K $88K 2.1x 6.9 MO--KCP&L-GMO $1,354 10,000 kWh 50 kW STC $24K $140K 3.4x 5
NY--LIPA $1,961 10,000 kWh 50 kW STC $48K $203K 2.4x 6.6 TX--Oncor $990 10,000 kWh 50 kW STC $61K $122K 1.3x 16
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 187
Total Lifecycle Payback Gov’t/Non-Profit vs. Commercial
Differerences between Gov’t/Non-Profit & Commercial? - Taxes!
Tax deduction for electricity Commercial tax deduction lowers the
value of a kWh saved by solar Commercial gets tax credit & depreciation
Questions? Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 188
Lifecycle Payback Exercise
Lifecycle Payback analysis is superior to Simple Payback because it shows ( current / future) savings (after Payback) in the analysis, which is important because savings (grow / shrink ) over time due to (rate escalation / module degradation ).
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 189
Watt’$ the Return On Investment or ROI?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 190
ROI: Return On Investment ROI means Return on Investment
Ratio of the Net Gain compared to the Cost
Similar to Lifecycle Payback
PV has long paybacks ROI is only useful over the longer term or for liquid
investments Not useful/accurate in 1st or early years Solar is not a 1 year investment or liquid Questions? Questions?
€
ROI =(Gain from Investment - Cost of Investment)
Cost of Investment
Lifecycle Payback = Gain from InvestmentCost of Investment
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 191
Return On Investment Analysis Commonly misused creating misleading results Wrong method:
Attempts to calculate “1st year ROI” On a simple 10 year payback case, implies 10%
(incorrectly) Correct method:
The true 1 year ROI of this case is -90% Solar is not a 1 year investment Questions? Questions?
ROI = (Gain - Cost)Cost of Investment
=($1,000 - $10,000)
$10,000=
-$9,000$10,000
= −90%
Incorrect ROI = Annual Savings from InvestmentCost of Investment
=$1,000$10,000
=10%
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 192
Best Tests of Solar’s Viability
Tests for financial viability: Simple Payback Total Lifecycle Payback Return on Investment Rate of Return (APY) analysis Increase in Appraisal Valuation
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 193
Watt’$ the Rate %f Return APY or IRR?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 194
Rate of Return Analysis
Means: Finding the effective interest rate yield on the solar investment or APY APY is Annual Percentage Yield Uses Internal Rate of Return (IRR) analysis
Is the Compound Annual Rate of Return Useful for comparison with other
investments w/ known Rates of Return I.e. Stocks, Savings, etc.
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 195
Set Up & Inclusions
20-25-year timeline - yearly cash flows Include cost and benefit components
System cost & rebates Tax benefits and consequences Electric bill savings, Inflation Cleaning, maintenance, inverter replacement,
panel degradation Assume $0 terminal scrap value or disposal
cost © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 196
IRR / APY Analysis
Rate of Return easy to calculate Still easy to calculate
Rate of Return needs IRR analysis to calculate
100!
10! = 10% RoR = 10% IRR!
100!
10! = ??% RoR = ??% IRR!
100!
110!
= 10% RoR = 10% IRR!
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 197
APY & IRR vs. MIRR MIRR is Modified Internal Rate or Return IRR (& APY) provides free cash during term
Doesn’t stay fully invested, OR… Assumes reinvestment at IRR rate to stay
fully invested (main criticism of IRR) MIRR allows for reinvestment at ‘safe’ rate
Considered more conservative IRR more commonly used in commercial
APY widely understood in residential © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 198
IRR vs. NPV for Commercial
NPV is Net Present Value Discount Rate – what to use?
WACC – weighted average cost of capital Best alternative investment Must ask customer what they think it is – slows
analysis NPV = $0 when the Discount Rate is set
equal to the IRR If IRR > Discount Rate, NPV will be positive
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 199
NPV has its uses
NPV is useful when there are multiple discount rates
NPV analysis can illustrate better NPV at lower discount rates even for projects w/ lower IRR depending on project cash flows. You might chose the lower IRR because it’ll
have a higher NPV if your discount rate is very low depending on project characteristics (cash flows).
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 200
IRR / APY Timeline & Analysis
Year: Year 0 Year 1 Year 2 Year 3 … Year X (12-15-20) …
-System Cost System Cost
+Incentives Rebate PBI 1 PBI 2 PBI 3 … PBI X … +Bill Savings Savings 1 Savings 2 Savings 3 … Savings X …
-Maintenance Maint. 1 Maint. 2 Maint. 3 … Maint. X Inverter …
+Fed Tax Credit Fed ITC +State Tax Credit State ITC
-Fed Cost of State Tax Credit Fed Cost
State ITC
+Fed Depr. Fed Depr Fed Depr Fed Depr … +State Depr. State Depr State Depr State Depr … - Fed Cost of
State Depr Fed Cost of State Depr
Fed Cost of State Depr …
=Net Net 0 Net 1 Net 2 Net 3 … Net X …
IRR is function of Net0 : Net25 line [ example formula: =IRR(F10:F36) ] Inverter replacement: $700/kW in yr ~ 12-20 PBI, Savings, Maintenance adjust for inflation and/or module degradation
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 201
Year: Year 0 Year 1 Year 2 Year 3 … Year 15 …
-System Cost -$12,000 +Incentives $2,000 $1,000 $995 $990 … $0 …
+Bill Savings $1,000 $1,025 $1,051 … $1,448 …
-Maintenance -$30 -$32 -$33 … -$59 -$1,400 …
+Fed Tax Credit $3,000 +State Tax Credit $1,000
-Fed Cost of State Tax Credit -$250
+Fed Depr. +State Depr. - Fed Cost of
State Depr
=Net -$10,000 $5,970 $1,738 $2,008 … -$11 …
IRR / APY Example
Assume: 2kW system, $6/Watt before incentives, 1,000 kWh/yr/kW, $700/kW inverter, $1/W rebate, $.50/kWh PBI or SREC for 5 years, $.50/kWh electric rate
Utility rate escalation: 3% 30% Fed ITC Module degradation: 0.5% 10% State ITC up to $2K Maintenance inflation: 5% 25% Fed Tax Rate
Maintenance: 0.25% of Gross Cost
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 202
Example Answers
Year: Year 0 Year 1 Year 2 Year 3 … Year 15 …
-System Cost -$12,000 +Incentives $2,000 $1,000 $995 $990 … $0 …
+Bill Savings $1,000 $1,025 $1,051 … $1,448 …
-Maintenance -$30 -$32 -$33 … -$59 -$1,400 …
+Fed Tax Credit $3,000 +State Tax Credit $1,000
-Fed Cost of State Tax Credit -$250
+Fed Depr. +State Depr. - Fed Cost of
State Depr
=Net -$10,000 $5,970 $1,738 $2,008 … -$11 …
Assume: 2kW system, $6/Watt before incentives, 1,000 kWh/yr/kW, $700/kW inverter, $1/W rebate, $.50/kWh PBI or SREC for 5 years, $.50/kWh electric rate
Utility rate escalation: 3% 30% Fed ITC Module degradation: 0.5% 10% State ITC up to $2K Maintenance inflation: 5% 25% Fed Tax Rate
Maintenance: 0.25% of Gross Cost
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 203
xxx
xxx
Andy Black OnGrid Solar (408) 428 0808
Compound Annual Rate of Return Detail
Year:0 1 2 3 4 5 6 7 8 9 10 11 12
2,574 2,606 2,664 2,671 2,758 2,848 2,940 3,036 3,134 3,236 3,341 3,450 391 389 193 191 190 189 187 186 184 183 182 180 (72,854)
2
(500) (179) (184) (190) (196) (201) (207) (214) (220) (227) (234) (241) (248) (250) (258) (265) (273) (281)
(73,353) 2,536 2,553 2,402 2,394 2,465 2,829 2,914 3,001 3,092 3,186 3,282 3,383
(163) (161) (80) (79) (79) (78) (78) (77) (77) (76) (75) (75)
72,854 21,856
61,926 72,853 60.0% 16.0% 9.6% 5.8% 5.8% 2.9%20.0% 32.0% 19.2% 11.5% 11.5% 5.8%
13,004 3,468 2,081 1,246 1,246 629 1,456 2,329 1,397 837 837 422 (509) (815) (489) (293) (293) (148)
13,951 4,982 2,989 1,790 1,790 903
(751) (757) (773) (771) (796) (924) (954) (985) (1,018) (1,051) (1,085) (1,121) (214) (216) (221) (220) (227) (264) (272) (281) (290) (300) (310) (320)
75 76 77 77 80 92 95 98 102 105 108 112
(73,353) 37,290 6,475 4,394 3,191 3,233 2,558 1,705 1,756 1,809 1,864 1,920 1,979 (73,353) (36,062) (29,587) (25,193) (22,002) (18,770) (16,212) (14,507) (12,751) (10,942) (9,078) (7,158) (5,179)
| <----- <----- <----- next 13 years follow below <----- <----- <----- <----- <----- <----- <-----v
Year:13 14 15 16 17 18 19 20 21 22 23 24 253,562 3,678 3,797 3,921 4,048 4,180 4,316 4,456 4,601 4,750 4,905 5,064 5,229
179 178 176
(255) (263) (271) (279) (287) (296) (305) (314) (323) (333) (343) (353) (364) (11,137)
3,486 3,593 (7,434) 3,642 3,761 3,884 4,011 4,142 4,277 4,417 4,562 4,711 4,865
(74) (74) (73) (1,157) (1,195) 2,664 (1,275) (1,316) (1,359) (1,404) (1,450) (1,497) (1,546) (1,597) (1,649) (1,703)
(330) (341) 760 (364) (376) (388) (401) (414) (427) (441) (456) (471) (486) 116 119 (266) 127 132 136 140 145 150 154 160 165 170
2,039 2,102 (4,349) 2,131 2,200 2,272 2,347 2,423 2,503 2,584 2,669 2,756 2,846 (3,139) (1,037) (5,387) (3,256) (1,055) 1,217 3,564 5,987 8,490 11,074 13,743 16,499 19,345
ANNUAL RATE OF RETURNEffective After-Tax Rate of Return
3.6% IRR (After-Tax Rate of Return)Net Present Value with 3% Discount Rate
For comparison with other investmentsAdditional value as a hedge against future electric rate increases
Operating Profit (loss):
After-Tax Cash Flow, Cumulative
Avoided Electricity Purchases / Annual Savings
Operating Expenses:
Inverter Replacement at $700 per kW in Year 15System Maintenance at 0.25% of gross system cost per year
System Cost & Incentives:Performance Based IncentiveEnergy Efficiency Net Expense
REC (Green Tag) Income
After-Tax Net Annual Profit/Loss for IRRAfter-Tax Cash Flow, Cumulative
Operating Savings:
System Maintenance at 0.25% of gross system cost per year
Value of lost Federal tax deduction of electricity expenseValue of lost State tax deduction of electricity expenseFed Tax Benefit on State deduction loss of electricity expense
MACRS 5 year Accelerated State Depreciation Fed Tax on State DepreciationTotal Depr Value:
After-Tax Net Annual Profit/Loss for IRR
Monitoring Cost
Federal & State Tax Effects:
Value of lost Federal tax deduction of electricity expenseValue of lost State tax deduction of electricity expense
Federal Tax on Rebate. Federal and State Tax on RECs.
MACRS 5 year Accelerated State Depreciation (%)
Fed Tax Benefit on State deduction loss of electricity expense
$2,413
.
.
.
MACRS 5 year Accelerated Federal Depreciation
State Depr Basis: System Cost after rebate and feesMACRS 5 year Accelerated Federal Depreciation (%)
Nittany Lion, Tussey Mtn Corp
Operating Savings:Avoided Electricity Purchases / Annual SavingsREC (Green Tag) Income
Federal Depr Basis: Fed Tax Credit Basis minus 1/2 the Fed Credit
Federal Tax on Rebate. Federal and State Tax on RECs.
Rebates & Grants
Operating Expenses:
Inverter Replacement at $700 per kW in Year 15Monitoring Cost
Federal & State Tax Effects:
Operating Profit (loss):
Federal Tax Credit Basis30% Federal Tax Credit
Commercial After-Tax Analysis
System Cost & Incentives:System Capital Cost with Fees, before Rebates
Performance Based IncentiveEnergy Efficiency Net Expense
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xxx
xxx
Andy Black OnGrid Solar (408) 428 0808
Compound Annual Rate of Return Detail
Year:0 1 2 3 4 5 6 7 8 9 10 11 12
2,574 2,606 2,664 2,671 2,758 2,848 2,940 3,036 3,134 3,236 3,341 3,450 391 389 193 191 190 189 187 186 184 183 182 180 (72,854)
2
(500) (179) (184) (190) (196) (201) (207) (214) (220) (227) (234) (241) (248) (250) (258) (265) (273) (281)
(73,353) 2,536 2,553 2,402 2,394 2,465 2,829 2,914 3,001 3,092 3,186 3,282 3,383
(163) (161) (80) (79) (79) (78) (78) (77) (77) (76) (75) (75)
72,854 21,856
61,926 72,853 60.0% 16.0% 9.6% 5.8% 5.8% 2.9%20.0% 32.0% 19.2% 11.5% 11.5% 5.8%
13,004 3,468 2,081 1,246 1,246 629 1,456 2,329 1,397 837 837 422 (509) (815) (489) (293) (293) (148)
13,951 4,982 2,989 1,790 1,790 903
(751) (757) (773) (771) (796) (924) (954) (985) (1,018) (1,051) (1,085) (1,121) (214) (216) (221) (220) (227) (264) (272) (281) (290) (300) (310) (320)
75 76 77 77 80 92 95 98 102 105 108 112
(73,353) 37,290 6,475 4,394 3,191 3,233 2,558 1,705 1,756 1,809 1,864 1,920 1,979 (73,353) (36,062) (29,587) (25,193) (22,002) (18,770) (16,212) (14,507) (12,751) (10,942) (9,078) (7,158) (5,179)
| <----- <----- <----- next 13 years follow below <----- <----- <----- <----- <----- <----- <-----v
Year:13 14 15 16 17 18 19 20 21 22 23 24 253,562 3,678 3,797 3,921 4,048 4,180 4,316 4,456 4,601 4,750 4,905 5,064 5,229
179 178 176
(255) (263) (271) (279) (287) (296) (305) (314) (323) (333) (343) (353) (364) (11,137)
3,486 3,593 (7,434) 3,642 3,761 3,884 4,011 4,142 4,277 4,417 4,562 4,711 4,865
(74) (74) (73) (1,157) (1,195) 2,664 (1,275) (1,316) (1,359) (1,404) (1,450) (1,497) (1,546) (1,597) (1,649) (1,703)
(330) (341) 760 (364) (376) (388) (401) (414) (427) (441) (456) (471) (486) 116 119 (266) 127 132 136 140 145 150 154 160 165 170
2,039 2,102 (4,349) 2,131 2,200 2,272 2,347 2,423 2,503 2,584 2,669 2,756 2,846 (3,139) (1,037) (5,387) (3,256) (1,055) 1,217 3,564 5,987 8,490 11,074 13,743 16,499 19,345
ANNUAL RATE OF RETURNEffective After-Tax Rate of Return
3.6% IRR (After-Tax Rate of Return)Net Present Value with 3% Discount Rate
For comparison with other investmentsAdditional value as a hedge against future electric rate increases
Operating Profit (loss):
After-Tax Cash Flow, Cumulative
Avoided Electricity Purchases / Annual Savings
Operating Expenses:
Inverter Replacement at $700 per kW in Year 15System Maintenance at 0.25% of gross system cost per year
System Cost & Incentives:Performance Based IncentiveEnergy Efficiency Net Expense
REC (Green Tag) Income
After-Tax Net Annual Profit/Loss for IRRAfter-Tax Cash Flow, Cumulative
Operating Savings:
System Maintenance at 0.25% of gross system cost per year
Value of lost Federal tax deduction of electricity expenseValue of lost State tax deduction of electricity expenseFed Tax Benefit on State deduction loss of electricity expense
MACRS 5 year Accelerated State Depreciation Fed Tax on State DepreciationTotal Depr Value:
After-Tax Net Annual Profit/Loss for IRR
Monitoring Cost
Federal & State Tax Effects:
Value of lost Federal tax deduction of electricity expenseValue of lost State tax deduction of electricity expense
Federal Tax on Rebate. Federal and State Tax on RECs.
MACRS 5 year Accelerated State Depreciation (%)
Fed Tax Benefit on State deduction loss of electricity expense
$2,413
.
.
.
MACRS 5 year Accelerated Federal Depreciation
State Depr Basis: System Cost after rebate and feesMACRS 5 year Accelerated Federal Depreciation (%)
Nittany Lion, Tussey Mtn Corp
Operating Savings:Avoided Electricity Purchases / Annual SavingsREC (Green Tag) Income
Federal Depr Basis: Fed Tax Credit Basis minus 1/2 the Fed Credit
Federal Tax on Rebate. Federal and State Tax on RECs.
Rebates & Grants
Operating Expenses:
Inverter Replacement at $700 per kW in Year 15Monitoring Cost
Federal & State Tax Effects:
Operating Profit (loss):
Federal Tax Credit Basis30% Federal Tax Credit
Commercial After-Tax Analysis
System Cost & Incentives:System Capital Cost with Fees, before Rebates
Performance Based IncentiveEnergy Efficiency Net Expense
© OnGrid Solar and/or OnGrid Solar
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 205
xxx
xxx
Andy Black OnGrid Solar (408) 428 0808
Compound Annual Rate of Return Detail
Year:0 1 2 3 4 5 6 7 8 9 10 11 12
2,574 2,606 2,664 2,671 2,758 2,848 2,940 3,036 3,134 3,236 3,341 3,450 391 389 193 191 190 189 187 186 184 183 182 180 (72,854)
2
(500) (179) (184) (190) (196) (201) (207) (214) (220) (227) (234) (241) (248) (250) (258) (265) (273) (281)
(73,353) 2,536 2,553 2,402 2,394 2,465 2,829 2,914 3,001 3,092 3,186 3,282 3,383
(163) (161) (80) (79) (79) (78) (78) (77) (77) (76) (75) (75)
72,854 21,856
61,926 72,853 60.0% 16.0% 9.6% 5.8% 5.8% 2.9%20.0% 32.0% 19.2% 11.5% 11.5% 5.8%
13,004 3,468 2,081 1,246 1,246 629 1,456 2,329 1,397 837 837 422 (509) (815) (489) (293) (293) (148)
13,951 4,982 2,989 1,790 1,790 903
(751) (757) (773) (771) (796) (924) (954) (985) (1,018) (1,051) (1,085) (1,121) (214) (216) (221) (220) (227) (264) (272) (281) (290) (300) (310) (320)
75 76 77 77 80 92 95 98 102 105 108 112
(73,353) 37,290 6,475 4,394 3,191 3,233 2,558 1,705 1,756 1,809 1,864 1,920 1,979 (73,353) (36,062) (29,587) (25,193) (22,002) (18,770) (16,212) (14,507) (12,751) (10,942) (9,078) (7,158) (5,179)
| <----- <----- <----- next 13 years follow below <----- <----- <----- <----- <----- <----- <-----v
Year:13 14 15 16 17 18 19 20 21 22 23 24 253,562 3,678 3,797 3,921 4,048 4,180 4,316 4,456 4,601 4,750 4,905 5,064 5,229
179 178 176
(255) (263) (271) (279) (287) (296) (305) (314) (323) (333) (343) (353) (364) (11,137)
3,486 3,593 (7,434) 3,642 3,761 3,884 4,011 4,142 4,277 4,417 4,562 4,711 4,865
(74) (74) (73) (1,157) (1,195) 2,664 (1,275) (1,316) (1,359) (1,404) (1,450) (1,497) (1,546) (1,597) (1,649) (1,703)
(330) (341) 760 (364) (376) (388) (401) (414) (427) (441) (456) (471) (486) 116 119 (266) 127 132 136 140 145 150 154 160 165 170
2,039 2,102 (4,349) 2,131 2,200 2,272 2,347 2,423 2,503 2,584 2,669 2,756 2,846 (3,139) (1,037) (5,387) (3,256) (1,055) 1,217 3,564 5,987 8,490 11,074 13,743 16,499 19,345
ANNUAL RATE OF RETURNEffective After-Tax Rate of Return
3.6% IRR (After-Tax Rate of Return)Net Present Value with 3% Discount Rate
For comparison with other investmentsAdditional value as a hedge against future electric rate increases
Operating Profit (loss):
After-Tax Cash Flow, Cumulative
Avoided Electricity Purchases / Annual Savings
Operating Expenses:
Inverter Replacement at $700 per kW in Year 15System Maintenance at 0.25% of gross system cost per year
System Cost & Incentives:Performance Based IncentiveEnergy Efficiency Net Expense
REC (Green Tag) Income
After-Tax Net Annual Profit/Loss for IRRAfter-Tax Cash Flow, Cumulative
Operating Savings:
System Maintenance at 0.25% of gross system cost per year
Value of lost Federal tax deduction of electricity expenseValue of lost State tax deduction of electricity expenseFed Tax Benefit on State deduction loss of electricity expense
MACRS 5 year Accelerated State Depreciation Fed Tax on State DepreciationTotal Depr Value:
After-Tax Net Annual Profit/Loss for IRR
Monitoring Cost
Federal & State Tax Effects:
Value of lost Federal tax deduction of electricity expenseValue of lost State tax deduction of electricity expense
Federal Tax on Rebate. Federal and State Tax on RECs.
MACRS 5 year Accelerated State Depreciation (%)
Fed Tax Benefit on State deduction loss of electricity expense
$2,413
.
.
.
MACRS 5 year Accelerated Federal Depreciation
State Depr Basis: System Cost after rebate and feesMACRS 5 year Accelerated Federal Depreciation (%)
Nittany Lion, Tussey Mtn Corp
Operating Savings:Avoided Electricity Purchases / Annual SavingsREC (Green Tag) Income
Federal Depr Basis: Fed Tax Credit Basis minus 1/2 the Fed Credit
Federal Tax on Rebate. Federal and State Tax on RECs.
Rebates & Grants
Operating Expenses:
Inverter Replacement at $700 per kW in Year 15Monitoring Cost
Federal & State Tax Effects:
Operating Profit (loss):
Federal Tax Credit Basis30% Federal Tax Credit
Commercial After-Tax Analysis
System Cost & Incentives:System Capital Cost with Fees, before Rebates
Performance Based IncentiveEnergy Efficiency Net Expense
© OnGrid Solar and/or OnGrid Solar
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 206
Residential Pre-Tax Most investments are taxable
Stocks, Bonds, Savings interest, etc. Long-term stock market
~8.5% compounded annually over the last 80 years to Dow Jones 13,500 in 2007
~7.5% to Dow 8,000 in 2009 Total returns, dividend reinvested, pre-tax
Convert solar analysis to pre-tax values to put on an even playing field comparable with other investments
Must convert to the appropriate pre-tax values for savings, tax benefits, etc.
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 207
Convert all costs & benefits to pretax value as appropriate Initial capital cost is not increased This is the “principal”
All other values get adjusted:
Example: Tax Rate = 50% (unrealistic; easy for illustration) After-tax savings = $100
More realistically $100 after-tax => $140-$160 pre-tax
€
PreTax =AfterTax1− TaxRate
Residential Pre-Tax Conversion
€
PreTax =AfterTax1− TaxRate
=$1001− 50%
=$1001− .50
=$100.50
= $100*2 = $200
Questions? Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 208
Residential Rates of Return
Utility Pre-Solar Bill
kWh Usage per
Month
PV System Size & Rating
System Gross Cost
Final Net Cost w/ Tax Benefits
& Rebate
Pre-Tax Annual Return
Lifecycle Payback
Ratio
Years To
Payback CA--SDG&E $115 550 kWh 3 kW CEC $14K $10K 21.2% 3.0x 8.6 CA--SDG&E $505 1,650 kWh 9 kW CEC $38K $27K 35.4% 5.5x 4.9 CA--PG&E $95 550 kWh 3 kW CEC $14K $10K 17.5% 2.4x 10.4 CA--PG&E $485 1,650 kWh 9 kW CEC $38K $27K 34.0% 5.3x 5.1 TX--Oncor $89 800 kWh 5 kW STC $17K $12K 6.0% 1.2x 22.6 LA--EntergyLA $79 800 kWh 5 kW STC $17K $6K 28.3% 2.3x 9.5 CO--Xcel $93 800 kWh 5 kW STC $17K $10K 7.6% 1.3x 21.4 NM--SPS $71 800 kWh 5 kW STC $17K $11K 10.0% 1.4x 20.2 MO--KCP&L $92 800 kWh 5 kW STC $17K $7K 16.0% 2.2x 10.2 WI--WEPCO $120 800 kWh 5 kW STC $17K $11K 20.5% 3.0x 8.3 MA--NSTAR $142 800 kWh 5 kW STC $17K $10K 20.9% 3.0x 8.2 CT--UI $170 800 kWh 5 kW PTC $20K $10K 20.2% 3.0x 8.2 NY--ConEd $186 800 kWh 5 kW STC $17K $7K 40.6% 6.0x 4.3 NJ--JCP&L $116 800 kWh 5 kW STC $17K $12K 9.6% 1.5x 19.5 NC--Progress $90 800 kWh 5 kW STC $17K $7K 20.1% 2.2x 11.7 FL--FPL $81 800 kWh 5 kW STC $17K $12K 5.8% 1.1x 23 AZ--APS $112 800 kWh 5 kW STC $17K $12K 15.4% 2.3x 10.6 HI--HECO $276 800 kWh 5 kW STC $17K $9K 51.1% 8.0x 3.4
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 209
Residential Rates of Return
Utility Pre-Solar Bill
kWh Usage per
Month
PV System Size & Rating
System Gross Cost
Final Net Cost w/ Tax Benefits
& Rebate
Pre-Tax Annual Return
Lifecycle Payback
Ratio
Years To
Payback MX--DAC (Baja California) $2,728 800 kWh 5 kW STC $257K $258K 14.4% 3.1x 9.7
MX--DAC (Baja California Sur) $2,857 800 kWh 5 kW STC $257K $258K 15.5% 3.3x 9.1
MX--DAC (Central) $3,013 800 kWh 5 kW STC $257K $258K 13.8% 2.9x 10
MX--DAC (Noroeste) $2,824 800 kWh 5 kW STC $257K $258K 16.2% 3.4x 8.7
MX--DAC(Norte y Noreste) $2,756 800 kWh 5 kW STC $257K $258K 11.1% 2.4x 12.1
MX--DAC (Sur y Peninsular) $2,801 800 kWh 5 kW STC $257K $258K 12.0% 2.6x 11.3
PR--PREPA $206 800 kWh 5 kW STC $20K $9K 61.4% 6.7x 4.5 AZ--APS $112 800 kWh 5 kW STC $17K $12K 16.3% 2.6x 10.2 CA--PG&E $94 550 kWh 3 kW CEC $14K $10K 18.2% 2.7x 10.1 CA--PG&E $483 1,650 kWh 9 kW CEC $38K $27K 34.8% 6.0x 5.1 CO--Xcel $90 800 kWh 5 kW STC $17K $6K 8.3% 1.7x 21.6 FL--FPL $82 800 kWh 5 kW STC $17K $6K 17.4% 3.0x 8.3 MO--KCP&L $92 800 kWh 5 kW STC $17K $6K 21.9% 3.4x 7.6 NY--ConEd $179 800 kWh 5 kW STC $17K $6K 44.1% 7.5x 3.9 TX--Oncor $90 800 kWh 5 kW STC $17K $12K 7.2% 1.4x 20.4
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 210
Commercial Analysis
Ideal commercial customers can see after-tax IRRs in the 3% to 8% range Comparable to other business investments Plus has green marketing and morale
benefits Depends heavily on system cost
Must properly factor all benefits and costs
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 211
Commercially Attractive? IRR must exceed a hurdle rate
> “Risk Free Rate” + ~1-2% = Risk Free Rate + Sum of Risks Source: Photon International, Aug07, p114
“Risk Free” interest rates: 1 Year LIBOR ~ 0.6% As of 3/7/2014 Treasury: 10yr = 2.8%, 30yr = 3.7% As of 3/7/2014
∴ Commercially Attractive >= 4-7%? Changes in attitude? Maybe only cash buyers w/ other motives
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 212
Complete Commercial Analysis Proper commercial analysis is after-tax A. Extra incentives:
Federal Tax Depreciation B. Loss of electric expense tax deduction A & B approximately offset each other
Net results are comparable to residential, but are “after tax” values, so sometimes appear smaller.
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 213
Commercial Rates of Return
Utility Pre-Solar Bill
kWh Usage per Month
PV System Size & Rating
System Gross Cost
Final Net Cost w/ Tax Benefits
& Rebate
After-Tax Annual Return
Lifecycle Payback
Ratio
Years To Payback
CA--SDG&E $357 2,000 kWh 10 kW CEC $42K $13K 4.8% 1.2x 11.3 CA--SDG&E $1,057 10,000 kWh 50 kW CEC $187K $56K 1.7% 0.8x 20.3 CA--PG&E $380 2,000 kWh 10 kW CEC $42K $15K 7.5% 1.6x 8.9 CA--PG&E $1,861 10,000 kWh 50 kW CEC $187K $65K 8.9% 1.9x 7.8 TX--Oncor $980 10,000 kWh 50 kW STC $150K $61K 3.6% 1.1x 17.4 LA--Cleco $1,253 10,000 kWh 50 kW CEC $150K $47K 6.2% 1.5x 9.4 CO--Xcel $1,023 10,000 kWh 50 kW STC $150K $56K 3.9% 1.1x 16.9 NM--PNM $1,257 10,000 kWh 50 kW STC $150K $27K 10.0% 3.0x 5.9 MO--KCP&L-G $1,354 10,000 kWh 50 kW STC $150K $32K 9.4% 2.2x 6.3 WI--WPSC $1,165 10,000 kWh 50 kW STC $150K $52K 3.5% 1.0x 17.4 MA--NatlGrid $1,600 10,000 kWh 50 kW STC $150K $52K 9.8% 1.7x 6 CT--UI $2,135 10,000 kWh 50 kW PTC $175K $62K 8.6% 1.8x 7.9 NY--LIPA $1,985 10,000 kWh 50 kW STC $150K $36K 12.4% 2.8x 5.3 NJ--JCP&L $1,274 10,000 kWh 50 kW STC $150K $52K 4.7% 1.1x 10.7 NC--Duke $1,500 10,000 kWh 50 kW STC $150K $20K 11.8% 4.3x 4.4 FL--FPL $1,045 10,000 kWh 50 kW STC $150K $56K 2.9% 0.9x 18.5 AZ--APS $1,220 10,000 kWh 50 kW STC $150K $44K 7.1% 1.6x 8.5 HI--HECO $3,180 10,000 kWh 50 kW STC $150K $20K 26.5% 11.7x 2.6
3/7/14
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 214
Commercial Rates of Return
Utility Pre-Solar Bill
kWh Usage per Month
PV System Size & Rating
System Gross Cost
Final Net Cost w/ Tax Benefits
& Rebate
After-Tax Annual Return
Lifecycle Payback
Ratio
Years To
Payback MX--HS (Baja California) $19,578 10,000 kWh 50 kW STC
$2279K $1482K 1.6% 0.8x 20.6
MX--HS (Baja California Sur) $20,734 10,000 kWh 50 kW STC
$2279K $1482K 2.5% 0.9x 18.7
MX--HS (Central) $15,858 10,000 kWh 50 kW STC
$2279K $1482K -0.3% 0.6x >25
MX--HS (Noroeste) $15,858 10,000 kWh 50 kW STC
$2279K $1482K 1.3% 0.8x 21.5
MX--HS (Norte y Noreste) $15,858 10,000 kWh 50 kW STC
$2279K $1482K -1.1% 0.5x >25
MX--HS (Sur y Peninsular) $15,858 10,000 kWh 50 kW STC
$2279K $1482K -0.6% 0.6x >25
PR--PREPA $2,986 10,000 kWh 50 kW STC $175K $-33K 40.4% -2.7x 1 AZ--APS $1,210 10,000 kWh 50 kW STC $150K $44K 6.3% 1.5x 9.9 CA--PG&E $375 2,000 kWh 10 kW CEC $42K $15K 8.7% 1.9x 8.7 CA--PG&E $1,837 10,000 kWh 50 kW CEC $187K $65K 10.2% 2.2x 7.6 CO--Xcel $990 10,000 kWh 50 kW STC $150K $56K 4.8% 1.2x 16.1 FL--FPL $992 10,000 kWh 50 kW STC $150K $25K 8.8% 2.1x 6.9 MO--KCP&L-GMO $1,354 10,000 kWh 50 kW STC $150K $24K 13.2% 3.4x 5
NY--LIPA $1,961 10,000 kWh 50 kW STC $150K $48K 11.3% 2.4x 6.6 TX--Oncor $990 10,000 kWh 50 kW STC $150K $61K 4.9% 1.3x 16
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 215
IRR Exercise
The IRR of a project gets better when: Top-line cost of the project is (higher / lower). Incentives & tax benefits are received (sooner / later)
(timeframe) because of the ?____Value of Money. The system produces (more / less) kWh and generates
(greater / lesser) savings on the electric bill. Electric rates (rise / fall ) consistently and rapidly but
maintenance costs don’t.
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 216
Best Tests of Solar’s Viability
Tests for financial viability: Simple Payback Total Lifecycle Payback Return on Investment Rate of Return analysis Increase in Appraisal Valuation
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 217
Watt’$ the Resale Value?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 218
Commercial Resale Based on actual savings and cost of borrowing - Cash Flow
in disguise Also known as “Cap Rate” or “Capitalization Rate”
Cap Rate varies from 4% to 10% by client & market climate
No commercial data or studies are known for solar, but is a standard commercial real estate valuation mechanism
Commercial Resource: Sandia
€
Resale Increase =Annual Savings
Cap Rate
€
=Annual Savings
.06
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 219
Commercial Equity Increase
Utility Pre-Solar Bill
kWh Usage per Month
PV System Size & Rating
Final Net Cost w/ Tax Benefits
& Rebate
Annual Savings
Appraisal Equity / Resale Increase in First
Year (Cap Rate 6%) CA--SDG&E $357 2,000 kWh 10 kW CEC $13K $1,896 $32K CA--SDG&E $1,057 10,000 kWh 50 kW CEC $56K $8,221 $98K CA--PG&E $380 2,000 kWh 10 kW CEC $15K $2,777 $46K CA--PG&E $1,861 10,000 kWh 50 kW CEC $65K $14,201 $237K TX--Oncor $980 10,000 kWh 50 kW STC $61K $6,745 $113K LA--Cleco $1,253 10,000 kWh 50 kW CEC $47K $7,819 $131K CO--Xcel $1,023 10,000 kWh 50 kW STC $56K $6,837 $114K NM--PNM $1,257 10,000 kWh 50 kW STC $27K $13,259 $157K MO--KCP&L-G $1,354 10,000 kWh 50 kW STC $32K $8,055 $135K WI--WPSC $1,165 10,000 kWh 50 kW STC $52K $6,358 $106K MA--NatlGrid $1,600 10,000 kWh 50 kW STC $52K $14,502 $150K CT--UI $2,135 10,000 kWh 50 kW PTC $62K $12,606 $211K NY--LIPA $1,985 10,000 kWh 50 kW STC $36K $11,471 $192K NJ--JCP&L $1,274 10,000 kWh 50 kW STC $52K $8,554 $110K NC--Duke $1,500 10,000 kWh 50 kW STC $20K $9,580 $160K FL--FPL $1,045 10,000 kWh 50 kW STC $56K $6,138 $103K AZ--APS $1,220 10,000 kWh 50 kW STC $44K $8,292 $138K HI--HECO $3,180 10,000 kWh 50 kW STC $20K $24,105 $403K
3/7/14
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 220
Residential Increase in Appraisal Valuation Solar electric systems add value to homes by:
Reducing/eliminating electric energy operating costs
Nevin in the Appraisal Journal states: ‘The increase in appraisal value for a home is about twenty (20) times the annual reduction in operating costs due to energy efficiency measures.’
Electric bill savings: $1,000 per year = Increased appraisal value: $20,000
http://www.ricknevin.com/uploads/Nevin-Watson_1998_APJ_Market_Value_of_Home_Energy_Efficiency.pdf
http://www.ricknevin.com/uploads/Nevin_etal_1999_More_Evidence_of_Rational_Market_Values.pdf
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 221
The Rationale The $1,000 not spent on electricity, is available
to be spent on an equity loan payment… … at no net change in the cost of living (to the future owner)
Analysis from ‘98 and ‘99 Seems Dated Rationale is timeless…
http://www.appraisalinstitute.org/education/green_energy_addendum.aspx http://www.appraisalinstitute.org/education/downloads/
AI_82003_ReslGreenEnergyEffAddendum.pdf See also Johnson, R, 1983 “Housing Market Capitalization of Energy-Saving Durable Good Investments” And summary in: Laquatra, J, 2002 “Housing Market Capitalization of Energy Efficiency Revisited”
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 222
20:1 Ratio Based on 5% after tax cost of money
Interest on $20K = $1K/yr at 5%/yr Typical long term mortgage average rates
(~8.3% before tax) Depends on mortgage loan rates Has varied from 10:1 to over 25:1 Rates are <8% now, so ratio is >20:1, but Unfair to assume high ratio in future when
home will be sold Use 20:1 to be conservative Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 223
Residential Equity Increase
Utility Pre-Solar Bill
kWh Usage per
Month
PV System Size & Rating
Final Net Cost w/ Tax Benefits
& Rebate
Annual Savings
Appraisal Equity / Resale Increase in
First Year CA--SDG&E $115 550 kWh 3 kW CEC $10K $1,166 $23K CA--SDG&E $505 1,650 kWh 9 kW CEC $27K $5,364 $107K CA--PG&E $95 550 kWh 3 kW CEC $10K $955 $19K CA--PG&E $485 1,650 kWh 9 kW CEC $27K $5,124 $102K TX--Oncor $89 800 kWh 5 kW STC $12K $626 $13K LA--EntergyLA $79 800 kWh 5 kW STC $6K $606 $12K CO--Xcel $93 800 kWh 5 kW STC $10K $738 $15K NM--SPS $71 800 kWh 5 kW STC $11K $654 $13K MO--KCP&L $92 800 kWh 5 kW STC $7K $679 $14K WI--WEPCO $120 800 kWh 5 kW STC $11K $1,252 $25K MA--NSTAR $142 800 kWh 5 kW STC $10K $1,468 $24K CT--UI $170 800 kWh 5 kW PTC $10K $1,169 $23K NY--ConEd $186 800 kWh 5 kW STC $7K $1,514 $30K NJ--JCP&L $116 800 kWh 5 kW STC $12K $830 $19K NC--Progress $90 800 kWh 5 kW STC $7K $592 $14K FL--FPL $81 800 kWh 5 kW STC $12K $615 $12K AZ--APS $112 800 kWh 5 kW STC $12K $1,043 $21K HI--HECO $276 800 kWh 5 kW STC $9K $2,555 $51K
3/7/14
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 224
Residential Equity Increase
Utility Pre-Solar Bill
kWh Usage per
Month
PV System Size & Rating
Final Net Cost w/ Tax Benefits
& Rebate
Annual Savings
Appraisal Equity / Resale Increase in
First Year MX--DAC (Baja California) $2,728 800 kWh 5 kW STC $258K $24,055 $481K
MX--DAC (Baja California Sur) $2,857 800 kWh 5 kW STC $258K $25,966 $519K
MX--DAC (Central) $3,013 800 kWh 5 kW STC $258K $23,170 $463K
MX--DAC (Noroeste) $2,824 800 kWh 5 kW STC $258K $26,998 $540K
MX--DAC(Norte y Noreste) $2,756 800 kWh 5 kW STC $258K $18,849 $377K
MX--DAC (Sur y Peninsular) $2,801 800 kWh 5 kW STC $258K $20,298 $406K
PR--PREPA $206 800 kWh 5 kW STC $9K $1,861 $37K AZ--APS $112 800 kWh 5 kW STC $12K $1,036 $21K CA--PG&E $94 550 kWh 3 kW CEC $10K $934 $19K CA--PG&E $483 1,650 kWh 9 kW CEC $27K $5,097 $102K CO--Xcel $90 800 kWh 5 kW STC $6K $857 $14K FL--FPL $82 800 kWh 5 kW STC $6K $615 $12K MO--KCP&L $92 800 kWh 5 kW STC $6K $679 $14K NY--ConEd $179 800 kWh 5 kW STC $6K $1,459 $29K TX--Oncor $90 800 kWh 5 kW STC $12K $631 $13K
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 225
Remodeling Online capital recovery rates
Source: www.remodeling.hw.net, 2009-2010 Cost vs. Value Report
Other Home Improvements
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 226
Comparison to Solar (PG&E) Pre-Solar
Bill System
Size Net Cost
Equity Increase
% Return
$95 3kW $10K $19K 182% $485 9kW $27K $102K 379%
Wood Deck Addition $10.6K $8.6K 81% Bathroom Remodel $16.1K $11.5K 71%
Window Replacement $11.7K $9.0K 77% Kitchen Remodel $57K $41K 72%
Would a homebuyer pay up to 279% more for a used solar system on an existing home?
Geographic dependence? Questions? Questions?
3/7/14
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 227
Factors in Resale Value Over Time
. . .
.
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 228
Resale Value Exercise
The immediate increase in the property’s resale value (does / does not ) depend on system cost and up-front incentives received, reducing net cost, and (does / does not ) depend on how fast electric rates go up in the future.
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 229
Proof Is Coming!
Most systems are new (< 8 years old) 90% installed in last eight years
Average home owner occupancy is 11 years http://www.census.gov/population/www/pop-profile/geomob.html
(Excluding renters who move more often) Most have not been offered for sale Many solar homeowners may be planning on staying
longer than average Need a comprehensive study and more evidence…
Questions? Questions? © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 230
Research Available Hoen, Klise, Graff-Zivin, Thayer, Seel and Wiser,
“Exploring California PV Home Premiums”, Nov 2013, http://emp.lbl.gov/publications/exploring-california-pv-home-premiums
Hoen, Wiser, Cappers, & Thayer, “An Analysis of the Effects of Residential Photovoltaic Energy Systems on Home Sales Prices in California”, Apr 2011, http://emp.lbl.gov/sites/all/files/REPORT%20lbnl-4476e.pdf
Dastrop, Zivin, Costa, & Kahn, "Understanding the Solar Home Price Premium:”, December 2010, www.uce3.berkeley.edu/WP_001.pdf
Eichholtz, Kok, & Quigley “Doing Well by Doing Good? Green Office Buildings”, 2011, papers.ssrn.com/sol3/papers.cfm?abstract_id=1480215
NREL “Zero Energy Homes”, 2004, www.nrel.gov/docs/fy04osti/35912.pdf
- very small study
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 231
Resale Proof Hoen, Wiser papers: “Exploring California PV Home
Premiums” & “An Analysis of the Effects of Residential Photovoltaic Energy Systems on Home Sales Prices in California” Most recent: Nov 2013, April 2011 Most comprehensive: 1,894 PV home sales compared to
72,000 non-PV homes Resale Value Conclusions:
Retrofit adds ~$5.50/watt DC ($3.90-$6.40) or between 14:1 to 22:1 compared to estimated savings
Limitations: California only – which is dominant $5.50 or 14:1? Estimated savings is fuzzy
New proof coming: CSI Zipcode calculator: http://www.gosolarcalifornia.org/tools/save.php
Sandia new tool Appraisal Institute will help find an appraiser to value green attributdes
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 232
Biases
It has to look good too
Courtesy Sharp Electronics
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 233
© Alan Wood!
If It’s Weird…
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 234
Best Tests of Solar’s Viability Tests for financial viability:
Simple Payback Total Lifecycle Payback Return on Investment Rate of Return analysis Increase in Appraisal Valuation
Questions? Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 235
Agenda
Overview of the Variables Financial Analysis Methods Solar Analysis Tools Conclusion Interactive Examples
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 236
Analysis Tools PV Watts - the standard performance model
http://www.nrel.gov/rredc/pvwatts/
Solar Advisor Model – NREL’s new modeling tool https://www.nrel.gov/analysis/sam/
Clean Power Estimator - general customer educ. http://www.consumerenergycenter.org/renewables/estimator
RETscreen – Internationally respected model http://www.retscreen.net
PV Design Pro - hard core analysis http://www.mauisolarsoftware.com
PVSYST - study, sizing, simulation and analysis http://www.pvsyst.com
OnGrid Tool - design & analysis portion
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 237
Deepen Your Knowledge Run your own scenarios Build your own tools Include & maintain:
Electric Rates Rebate, PBI, REC & other incentive info Tax incentive info Module & inverter info
Accuracy & completeness © 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 238
Resale Value Over Time
$-
$50,000
$100,000
$150,000
$200,000
$250,000
1 3 5 7 9 11 13 15 17 19 21 23 25
Res
ale
Valu
e
Effective Resale Value20 times Annual SavingsRemaining savings within 25 years
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1 3 5 7 9 11 13 15 17 19 21 23 25
Ann
ual S
avin
gs
Annual Savings Before PaybackAnnual Savings After PaybackPayback Year (Occurs at 8.5 Years)
Annual Savings Before and After Payback
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25Year
Ann
ual S
avin
gs
Annual Savings Before PaybackPayback Year (Occurs at 9.7 Years)Annual Savings After Payback
The OnGrid Tool Does everything discussed today:
Incentives & 1175 Rates in 185 utilities in 50 U.S. states, 6 provinces, Mexico, +
Predicts system performance & calculates optimum system size
Estimates customer savings & income, including tax effects
Calculates all the discussed financial results Illustrate Financing options for Loans, Lease, PPA,
PACE Annual Costs: Solar plus Financing vs. No
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
1 3 5 7 9 11 13 15 17 19 21 23 25Years
Ann
ual C
ost
Old Utility Bill w/ 4.0% inflation Solar Cost w/ Financing
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 239
The OnGrid Tool Completely portable with stand-alone operation Keep track of leads and the sales team's progress
with a web interface (OnGrid Sky) Go deep and change every variable, or stay at
the top level and do a quick analysis Choose from a huge library of proposal
templates or design a custom proposal Create a quote in seconds
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 240
The OnGrid Tool Easy to learn and use Built by solar pros for solar pros (we’ve held or
hold NABCEP installer & tech sales certificates & initiated the Technical Sales Certification).
Balance profitability and competitiveness with the interactive pricing worksheet
Get lots of free user support
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 241
Agenda Overview of the Variables Financial Analysis Methods Solar Analysis Tools Brief Final Q&A Conclusion Interactive Examples
Questions?
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 242
Conclusion
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 243
Conclusion Notes Challenging topics - Congratulations! Appreciate the questions on:
System Performance Electric Rates Estimated Savings Incentives Net Costs
5 Analysis Methods: Payback Lifecycle Payback Return on Investment (ROI) Rate of Return (IRR or APY) Resale Value
Suggestion: Play Politician!
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 244
Continue Learning Free at OnGrid.net: Papers and Publications,
Slides, upcoming Classes and the OnGrid Tool: Sales for Solar (7 hour) Marketing for Solar (7 hour) Financing Solar Intro including PPAs & Leases (7hr)
OnGrid Tool Free Trial: An excellent learning vehicle to practice Includes free Q&A sessions twice a week Firmly root the knowledge that is key to your
success
© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 245
Andy Black The OnGrid Tool
Solar Financial Analysis & Sales Software
(866) 966-5577x1 [email protected]
www.ongrid.net - Tools, Classes, Articles, & Papers
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 1 of 19
Solar electric systems can be a good financial
investment for homeowners and businesses,
depending on a variety of factors including system
performance, electric rates, favorable utility rate
structures, and incentives. Several US states have the
right combination of conditions to strongly encourage
end-consumer investment in solar electric systems
based on economics alone.
In places where solar is economically attractive, rates of return
from 9% to 15% or better are common. If financed, the monthly
net loan cost is usually less than the monthly utility bill savings.
And if the home is sold, the solar system should increase the
resale value by more than the system cost to install.
The above claims are big, so rigorous treatment and critical
analyses from several angles including Compound Annual Rate
of Return, Cash Flow, Lifecycle Payback, and Appraisable
Resale Value need to be considered to do a fair assessment.
Using the above analysis methods helps compare the solar
investment to other investments on an even basis.
IN THIS ARTICLE: ! What factors need to be considered to determine the
economic payoff of solar, including rates, rate structures,
systems performance, solar RECs, and incentives
! How to test the economic value in the ways listed above
This article also includes “Policy Discussion” paragraphs to
help individuals and policy makers in locations without strong
economics understand the issues around creating solar-friendly
policies, which motivate and leverage individual investment.
WHY DOES SOLAR PAY OFF NOW? Good system performance, high electric rates, Net Metering
and Time-Of-Use rate structures, Solar Renewable Energy
Certificates (SRECs) and government incentives have
contributed to the financial viability of solar electricity. How
these factors come together varies significantly by location.
Some locations have the combination of factors that yield
excellent results; in others, it makes no economic sense to go
solar, especially when including the maintenance and inverter
replacement costs.
The key element for most analyses is the ongoing value
generated by the solar system (the savings on the electric utility
bill or the monetary value of system output that can be sold). A
properly sited, sized, designed, and installed solar system can
usually eliminate most or all of a customer’s total annual
electric bill.
The next pages will discuss system performance, electric rate
structures, and incentives. The pages following will detail how
the economics can then be analyzed using Rate of Return,
Payback and Lifecycle Payback, Property Value Increase, and
Cash Flow when Financing.
SYSTEM PERFORMANCE: Lots of Sunlight is just one of the many factors that must be
included in a system performance calculation. Across much of
the United States, the amount of available sunlight is
surprisingly uniform, with most areas within ± 20% of the
sunlight level of Miami, Florida, as can be seen in Fig. 1. The
National Renewable Energy Laboratory (NREL) has data on
239 locations across the U.S. and its territories available at:
http://rredc.nrel.gov/solar/pubs/redbook/ and its PVWatts
calculator will determine performance for a user specified PV
Equivalent Noontime Sun Hours per Day (Annual Average):
Portland, OR 4.0 Buffalo, NY 4.1 Chicago, IL 4.4 Newark, NJ 4.5 Boston, MA 4.6 Baltimore, MD 4.6 Raleigh, NC 5.0 Miami, FL 5.2 Austin, TX 5.3 San Francisco, CA 5.4 Boulder, CO 5.5 Los Angeles, CA 5.6 Phoenix, AZ 6.5
Fig. 1. Most U.S. locations are ± 20% of Miami’s sunlight level. Sources: NREL: http://rredc.nrel.gov/solar/pubs/redbook/ and http://www.nrel.gov/gis/solar.html
!"#$#%&"'(#)(*#+,-(!+."/-&"(*0'/.%'()#-(1#$'2%.-'3(
4,05,"6(,$7(#/8.-(9&$,$"&,+(:.'/'(By Andy Black
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 2 of 19
system: http://www.nrel.gov/rredc/pvwatts/.
There are numerous loss factors that affect real system
performance including component performance, wire losses,
soiling, module degradation, module mismatch, system uptime
and reliability, manufacturer production tolerance, and system
design factors such as tilt, orientation, shading, and air flow. The California Energy Commission has produced “A Guide To
Photovoltaic (PV) System Design And Installation” available at:
http://www.energy.ca.gov/reports/2001-09-04_500-01-020.PDF
and is an excellent overview of system design considerations.
Fig. 2 lists performance loss factors, and the significance of
potential relative losses from tilt, orientation, and shading.
Inverters aren’t 100% efficient, with most achieving 94-96%
efficiency. Similarly, PV modules in operation put out
approximately 7-14% less power at realistic operating
temperatures compared to the Standard Test Conditions (STC)
commonly measured in factory or laboratory settings. The State
of California provides lists of module and inverter ratings at: http://www.gosolarcalifornia.org/equipment.
Soiling, module degradation, and module mismatch also must
be accounted for. The designer and installer have some control
over wire losses, but by code, must not exceed 5%.
Manufacturer production tolerance losses result from some
modules having a performance specification of +X%, -Y%. If
there is a negative tolerance, the customer can be sure she will
be on the losing end of that bargain to at least some extent.
The system designer in coordination with the property owner
has control over how the modules are mounted, especially how
far off the roof, affecting how much airflow occurs. Thermal stagnation starts to occur with less than 6” clear airflow space
behind the modules and can reduce performance up to 10% at
0” air gap.
The designer and property owner also have control of solar
system orientation (tilt angle or ‘altitude’ above horizontal and
direction or azimuth), and usually some control over shading.
Shading and/or orientation are usually the #1
underestimated system performance loss factors except in
locations where incentive programs specifically (directly or
indirectly) include these in the calculation of the incentive to be
paid. It is critical that the site analyst / installer use a shade
analysis tool to accurately determine shade. Quality shade tools include the Solar Pathfinder (http://www.solarpathfinder.com/),
Solmetric SunEye (http://www.solmetric.com/), and the Wiley
ASSET (http://www.we-llc.com/ASSET.html). It is impossible
to estimate shading by eye, and even a few percent can be
significant. Avoiding shading is often the most important
criteria, even over selecting a south-facing roof.
System availability (uptime) is dependent on system
reliability and monitoring. A well-designed system with
known reliable components (particularly the inverter) is
important. Placing inverters in shaded, well-ventilated locations
that won’t accumulate ventilation-inhibiting debris will eliminate many common overheating-related problems (reduced
power output due to thermal protection or shortened component
lifetime). Placing the inverter close to the utility connection
point will eliminate many common utility interconnection
related problems (long wires can have a kind of ‘voltage
buildup’ in the wiring causing the inverter to think the utility is
not safe to connect with, requiring it to shut down for at least 5
minutes). The only way to know if a system is operating
reliably is to monitor it as often as possible. Monthly
observations via the electric bill savings are a crude minimum but can take 45 days or longer to make even a simple problem
(sometimes only requiring a simple reset of the inverter) visible,
resulting in over 12% of a year’s energy to be lost. Active
continuous real-time monitoring and automated alerting
solutions are available that should more than pay for themselves
in increased savings, peace of mind, and owner satisfaction.
System Performance Factors Policy Discussion: Including
predicted or actual system performance in determining the level
of incentive to be paid (then actually verifying compliance with
the approved design) is an excellent way for incentive agencies
to improve system quality. Before California adopted the
requirements of the new California Solar Initiative (CSI)
program, a significant fraction of sold and installed systems
had major shading or other site-selection design problems,
often only disclosed to the customer with a hand-wave of
“you’ll lose a little performance due to shading…” The CSI has
received a lot of criticism because of the increased level of
paperwork, scrutiny and repercussions for “failures” from
those who would rather do things the old, easy, loosey-goosey
way, but in the author’s opinion, the new level of accountability
is the best thing that could have happened to raise the quality of
installations in the state. This higher level of quality is nothing
new to those in some other states such as Colorado and in some
municipal utilities like SMUD. Going forward, the author has
grave concerns about the quality of systems that will be
installed as a result of the expansion of the federal Investment
Tax Credit, which has no performance or quality safeguards.
Typical Loss and Performance Factors:
Loss Factor
Performance Factor
Variable
9-12% 88-91% Module Temperature
3-11% 89-97% Inverter Efficiency
1.5-5% 95-98.5% Wiring (AC & DC combined)
5-15% 85-95% Dust & Dirt
5-10% 90-95% Module Degradation over 20 years
1.5-2.5% 97.5-98.5% Module Mismatch
0-5% 95-100% Manufacturer Production Tolerance
~27-33% ~67-73% Typical Totals for the Best Systems
Additional Design-Dependent Factors:
0-10% 90-100% Air Flow
0-40% 60-100% Orientation & Tilt
0-100% 0-100% Shading
2-100% 0-98% System Availability (uptime)
Fig. 2. Summary of Performance and Loss Factors
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 3 of 19
State
2008 Rate
¢/kWh
2004-2008
CAGR
2001-2008
CAGR
1990-2008
CAGR
US 11.4 6.1% 4.1% 2.1%
AZ 10.3 4.9% 3.1% 0.7%
CA 14.4 4.2% 2.5% 2.1%
CO 10.1 4.8% 4.5% 2.1%
CT 19.4 13.6% 8.5% 3.7%
DC 12.7 12.2% 7.2% 4.1%
DE 13.9 12.2% 7.1% 2.8%
FL 11.7 6.8% 4.5% 2.3%
GA 10.1 6.4% 3.4% 1.7%
HI 32.5 15.8% 10.3% 6.6%
MA 17.5 10.5% 5.0% 3.4%
MD 13.8 15.4% 8.8% 3.7%
MN 9.8 5.4% 3.7% 2.0%
NC 9.7 3.6% 2.6% 1.2%
NJ 16.0 9.2% 6.6% 2.4%
NM 10.0 3.7% 2.0% 0.6%
NV 11.9 5.3% 4.0% 4.2%
NY 18.8 6.6% 4.3% 2.8%
OH 10.1 4.6% 2.8% 1.3%
OR 8.5 4.4% 4.4% 3.3%
PA 11.4 4.4% 2.4% 1.2%
TX 12.8 7.2% 5.4% 3.3%
WA 7.6 4.4% 4.2% 3.1%
ELECTRIC RATE STRUCTURES:
High Electricity Rates are an expensive fact of life in a
number of US states and can be worse still in other countries.
Hawaii has the highest electric rates in the U.S. topping out at
32¢/kWh for the average residential consumer (certain islands
are higher), however, rates are also very high in Connecticut,
California, New York and other states (Fig. 3).
Rates have risen fast across the land since 2001 and especially
fast since 2004 (Fig. 3). Electric rate increases will likely be
tempered by the Great Recession of 2009. Future rate hikes can only be guessed at, as they depend on many factors.
In comparison, the Consumer Price index (CPI-U) has been
increasing at 3.1% on average since 1982. One might ask, how
is it that electric rates have continuously increased faster than
the CPI – wouldn’t electricity become a bigger and bigger
portion of our consumer
expenses, until eventually
something brought it into
check? The answer lies in
the fact that we are
continuously getting more efficient with how we use
electricity, so we are able
to produce more economic
value per unit of electricity.
We are therefore able to
spend more per kWh.
One of the ways consumers
can be motivated to be more
efficient with how she uses electricity is to charge more for it,
but there are limits to how this can be applied
without disadvantaging lower income
consumers. Many utilities have adopted a
tiered pricing structure, as can been see in Fig.
5, where the first part of a consumers
consumption is charged at a lower rate, but
if the consumer uses more than a
“baseline” allocation (an amount deemed
to be required to cover a consumer’s “basic needs”) she will pay more for
the next part of her usage. The
more she uses, the more each
kWh costs. The more tiers there
are in the system, the more the
rates
Fig. 3. The graphic above shows the 2007 U.S. average electric rates for all sectors. The table at right shows 2008 average residential electric rates for selected states and their Compound Annual Growth Rates (CAGR) for three time periods before 2008. Source: U.S. Energy Information Administration: http://www.eia.doe.gov/fuelelectric.html
Fig. 4. Residential electric rates in California from 1970 to 2001 increased at a 6.7% compound annual rate (source: CPUC “Electric Rate Compendium” Nov. 2001 from EIA data). Since 2001, there has been no change in Tiers 1 & 2, but an exaggerated increase in Tiers 3-5. Enactment of AB413 and expiration of AB1X may alter these trends. Note: this graphic is to scale.
2007 U.S. Average Retail Price per kWh is 9.13 Cents
Average Retail Price (Cents per kWh)
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 4 of 19
can be fine-tuned, but also, the more complicated billing
becomes. Fig. 5 illustrates a “progressive” pricing model for
rates (similar to progressive tax structures), which attempts to
discourage large use while protecting smaller using consumers. The progressive model encourages conservation, efficiency, and
conveniently for the solar industry, solar installations as well.
The graphic in the right half of Fig. 5 shows how a solar system
makes a user look like a smaller consumer (the green area is
solar generation, the red area is the remaining net usage), and
offsets the most expensive electricity first, yielding the greatest
savings first, boosting the economics of solar. This particular
case is saving 44¢/kWh for the first set of production, 38¢/kWh
for the next set, and so on. Not all utilities use the above
“progressive” pricing model. Some utilities offer discounts for
buying in bulk – the larger the use, the less expensive the cost of
the next kWh. This may be rational in some utility cost models, but it doesn’t encourage conservation, energy efficiency or solar
installation.
Fig. 4 shows the California rate history since 1970. From 1970
to 2001, rates increased at a compound annual average rate of
6.7%, as can be seen in the lower left portion of the graphic.
Things got considerably more complicated in 2001 because of
the California Power Crisis in conjunction with the deregulation
process that affected rates starting in 1996.
During the power crisis California’s AB1X legislation froze
the rates for residential users using at or below the average
usage for their local climate zone (which equals usage at or below the top of Tier 2), but at the same time, created Tiers 3, 4
and 5 at much higher rates (17-26¢/kWh). The users using well
above average found their bills almost doubled upon
implementation of the change. It had the desired effect: high
using residential consumers quickly became motivated to
reduce their usage by conservation, efficiency, and some turned
to solar systems, dramatically increasing the solar market.
Rate escalation in California got more complicated thereafter
as well. Because state law AB1X prohibits changes to the rates
for Tier 1 and Tier 2, all the increase must be borne in Tiers 3, 4
and 5. If revenue needs to increase by 10%, Tier 3, 4 & 5 rates
must increase approximately 50%. That happened on January 1st, 2006 to PG&E residential customers, as seen in Fig. 4.
Rates in Tier 3, 4 & 5 have gone up and down dramatically
since 2001, with a recent average rate of increase that has been
very high (double digit). This high average will not continue
forever because of the eventual expiration of California AB1X (the date of this is unknown for a variety of complicated
reasons, but may be soon, depending on what happens with
AB413). When this happens, it is anyone’s guess how the
politics will fall, but one of three possibilities is likely: 1. Rates
in all tiers will move in lock step at a more normal rate of
escalation, 2. Rates in Tier 3-5 will be frozen while Tier 1 & 2
catch up, or 3. Rates in Tier 3-5 will be reduced and rates in
Tier 1 & 2 will move up to compensate.
A conservative approach to electricity escalation suggests a
5% annual escalation – anything more than that might be
viewed as “optimistic” which may cause customers to become
concerned. The scenario examples depicted later will assume 5% except as noted. The goal of this article is to provide a
conservative set of assumptions and a “bullet-proof” analysis
methodology, that if followed, will be acceptable to the broad
majority of serious potential customers, and provide them and
their financial advisors a solid basis for making an informed
decision.
Tiered Rate Policy Discussion: Progressive Tiered Rates are
excellent motivators of conservation and energy efficiency (and
conveniently, solar), but they may also be the government and
utility officials ‘public relations friend’ as well. By creating
multiple tiers, policy makers can shift some of the burden of
future rate increases to the larger (above average), more
wasteful users (residential only) and thereby lighten the burden
on the users who are at or below average consumption. This
works well for residential usage, because it is easy to quantify
the average consumption per typical household, however
average consumption per business would be meaningless in this
context, since most communities want their local business to
grow (efficiently) from year to year, so penalizing ever growing
usage would be counterproductive.
High electric rates are among the most important factors
determining who will have the best economics with solar,
however, high rates are only valuable if the customer can also enjoy Net Metering, a regulatory structure set up for solar
$269/mo
$43/mo bill at top of Tier 1
$59/mo
$127/mo
Fig. 5. Progressive tiered rate pricing penalizes large users most with a marginal electricity cost at ever increasing rates. In these cases, solar offsets the highest tier usage first, making the solar customer look like a smaller user with a lower marginal cost. The graphic on the left indicates which tier a user is in for a given monthly electric usage (1650 kWh) and bill ($499) in San Jose, CA. On the right, the green area represents how much is offset by solar (1225 kWh and $463 out of $499).
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 5 of 19
electricity producers (and sometimes certain other renewable
producers depending on the state) in 42 of the 50 U.S. states.
Under Net Metering, full retail value is credited when excess
electricity is produced and “sold” back to the utility, offsetting the customer’s electric bill (Fig. 6). There are a variety of Net
Metering forms, the implementation of which vary by state and
utility. An older form is “Monthly Net Metering,” whereby a
solar producer can eliminate her monthly electric bill, and any
excess production would typically be paid to the producer at the
utility’s “avoided cost” or “fuel cost” per kWh (approximately
1-3¢/kWh). The problem is that solar production varies
substantially by season, so it is hard to design a system that
balances a user’s needs in each of the 12 months without under-
producing in one season (usually winter) and over-producing in
the other. Under-production results in large bills charged at high
retail costs of electricity. Over-production creates small credits based on the “avoided cost” value of the excess energy.
The solution is the newer “Annual Net Metering,” which
allows summer excess production to offset winter shortfalls,
with the goal of allowing the customer (or her knowledgeable
and experienced designer/installer) to right-size the system to
fully offset the annual electric bill, but not over-size it. With
annual Net Metering, the utility ends up looking like a 100%
efficient battery that can store energy for up to a year at no loss
or penalty. The other half of this compromise is that any excess
production credit after the 12th month is given to the utility,
discouraging over-sizing of systems and simplifying the utility’s accounting and saving them the processing costs of sending a
check or carrying a credit.
Time-Of-Use (TOU): Most residential electricity is billed to
customers on a flat (or time independent) rate schedule, where
electricity costs the customer the same at any time of the day.
However, utilities often have increased demand for electricity
during certain times of the day and certain days or months of the
year. When this “Peak” demand occurs usually depends on local climate factors. For example, Arizona and California have their
peak times near 4-6pm Monday thru Friday during the summer,
because that’s the overlap of the workday and home activity,
which both use air conditioning, which is one of the largest
loads. At night and in the morning, because of the dry climate, it
cools off, so the load is less. Eastern U.S. utilities see their peak
demand all day long because the humidity keeps consumers
using their air conditioning 24/7 in the home, and during the
workday at work, so a typical peak period is 9am-9pm.
To solve the increased demand regardless of when it occurs,
utilities could build more power plants, but those plants would
only run during peak times, which is only a relatively few hours of the year, and would therefore be an expensive solution on a
per kWh produced basis because of the capital costs. Another
solution is to encourage conservation during or load-shifting
away from those “Peak” time periods.
To create this encouragement, some utilities offer Time of Use
(TOU) or Time of Day (TOD) rates, where the cost of
electricity depends on the time of day and sometimes on the
season of year. The TOU time periods and rates are usually
labeled something like “Peak”, “Part-Peak” and “Off-Peak” and
often have a “Summer” and a “Winter” season.
The upper graphic in Fig. 7 shows the TOU pricing periods for the PG&E E6 rate in California illustrating peak, part-peak,
and off-peak time periods. Notice that there are also part-peak
rates on weekends. The lower graphic shows the typical
(approximate) time periods of many Eastern U.S. utilities, such
as in New Jersey, New York, and Pennsylvania.
High rates during peak periods encourage consumers to use
less or to change behavior and instead, consume the electricity
during off-peak periods. Easy ways to shift usage are changing
what time of day laundry is done or when the pool filter pumps
run at home. Small business sometimes have choice over
whether to take service under a TOU rate schedule, and if so,
they may be able to save money by shifting how or when they do things, such as change to 2 or 3 shifts of work hours, or
change when they make ice or pump water or do other energy
intensive activities. Large businesses and many agricultural
(pumping and refrigeration) operations have no choice and must
take TOU service, so are always encouraged in a financial way.
TOU rate differentials between Peak and Off-Peak can range
from just a cent or two, to up to 20¢/kWh or more, depending
on the utility’s need to motivate change. In PG&E territory in
California, a further twist is that the tiered rate structure is
applied on top of the TOU rates (residential only), so off-peak
Tier 1 rates are as low as 9-10¢/kWh depending on season, but the summer peak Tier 5 rate can be over 61¢/kWh. That sounds
expensive, and it is, and one might question the wisdom of even
considering switching to a TOU rate schedule, but there is a
convenient opportunity that solar customers can apply in their
favor.
Fig. 6. Net Metering allows the exchange of electricity produced or purchased to be valued at retail rates allowing the grid to act like a 100% efficient battery for the consumer to “store” her excess production during the day or over a season until she needs it at night or during another season.
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 6 of 19
Combining Net Metering with TOU allows a solar customer
to take advantage of the benefits of Net Metering on a TOU rate
schedule and, if timing and consumption patterns allow, “sell”
energy to the utility during peak periods at the high rate, then
buy energy during off-peak hours. The customer gets credited or
charged for the value of the electricity when it is bought or sold
(at its prevailing retail rate at that time). The utility then looks
like a >100% efficient battery because in many cases, most
solar electricity is produced during peak hours, and most is
consumed in a residence during part-peak and off-peak hours.
The customer gets more value for the same kWh produced, and therefore needs a smaller solar system to offset her electric bill.
The greater the differential in peak to off-peak rates, and the
better the solar production matches peak hours, and the better
the homes consumption matches off-peak hours, the greater the
benefit of opting for the TOU rate schedule upon adding the
solar system.
This approach often (but not always) works well in utility
areas that have large daytime summer peak loads (often due to
air conditioning load), such as in the Eastern, Southern, and
Southwestern U.S., because this usually matches solar
production well. However, some northern utilities are winter
night peaking because their peak load is caused by electric heating loads of homes. In these cases, solar is a poor match.
TOU Net Metering works best if the customer can mount her
solar array in a way that maximizes production during the peak
period, for example facing southwest or south at an angle near
25 degrees up from horizontal (equal to a 6:12 roof). Slopes
from 5 to 40 degrees and southeast and west arrays generally
also work quite well. Note: it is usually not economically
feasible to tilt a solar array away from parallel with the roof’s
surface to optimize performance, because the gain in production
(bill savings) is often not worth the additional mounting
hardware and labor cost or the aesthetic penalty.
TOU Policy Discussion: Time-of-Use rates are a powerful
tool to motivate customers to voluntarily use less power during
predictable times of shortage. The greater the differential
between peak and off-peak, the more motivated the user will be
(solar or not) to conserve during peak pricing periods. Effective
TOU rate implementations help flatten out the utility’s load
profile, requiring fewer “peaker” power plants which operate
at very high cost per kWh delivered (once capital costs/debt
service are included), because such plants run only a few hours
per year. In the right locations, solar can provide some of this
“peaker” benefit. Solar advocates can use this to encourage
their Public Utility Commissions and Legislatures to adopt pro-
TOU policies.
Rate Structure vs. (Cash) Incentives Policy Discussion:
Economically viable solar systems are incentivized thru both
cash or cash equivalent (tax saving) payments and electric rate-
based (or regulatory) savings. Solar-friendly rate structures are
incentives because they provide a higher value benefit to solar
customers compared to the “commodity” value of the electricity
producers could otherwise sell into the power pool at
commodity rates (as QFs or Qualifying Facilities). Using cash
incentives to encourage solar is easy to understand, but it is
also highly visible, and there are several drawbacks compared
with solar-friendly rate structure incentives. Cash and cash
equivalent incentives can and do come and go depending on the
political winds. Even long-term incentive programs, such as
German EEG law or the California Solar Initiative could be
overturned or modified with a change in government or its
attitude. Spain is learning this the hard way after the summer
and fall of 2008. The U.S. solar market became painfully aware
of its dependence on the extension of the 30% Federal
Investment Tax Credit which was due to expire at the end of
2008 but was passed at the last moment as part of the
Emergency Economic Stabilization Act of 2008. Regulatory
incentives are much more difficult to achieve, however, once
won, they are also much more difficult to lose. Any state with
Net Metering, TOU, or Tiered rates is likely to have them for a
long time and it will be a huge battle to take them away.
Fig. 7. Time-of-Use rate structures showing typical peak, part-peak and off-peak time periods for Western and Eastern U.S. utilities.
Sunday Monday Tuesday Wednesday Thursday Friday Saturday
Midnight - 9am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
9am - Noon Off-Peak Peak Peak Peak Peak Peak Off-Peak
Noon - 9pm Off-Peak Peak Peak Peak Peak Peak Off-Peak
9pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Eastern U.S. Typical Residential Time-of-Use Pricing Periods
Sunday Monday Tuesday Wednesday Thursday Friday Saturday
Midnight - 6am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
6am - 10am Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
10am - 1pm Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak
1pm - 7pm Off-Peak Peak Peak Peak Peak Peak Off-Peak
7pm - 9pm Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak
9pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Residential PG&E "E6" Time-of-Use Pricing Periods
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 7 of 19
INCENTIVES: There are several ways the government (in its various forms)
can provide incentives for solar. Already discussed were the
regulatory forms of incentive via favorable rate structures. Here,
we discuss the various “Cash” or “Cash Equivalent” incentives,
which include: ! Tax Credits and the U.S. Treasury Grant
! Accelerated Depreciation
! Sec. 179 Tax Deduction interaction with the ITC & Grant
! Cash Rebates and Buy-downs
! Performance Based Incentives (PBIs)
! Feed-In Tariffs
! Tax abatements (waivers of sales and/or property taxes)
! SRECs (Green Tags) mandated by state law
The Database for State Incentives for Renewable Energy (The
DSIRE database, http://www.dsireusa.org/solar/) is a database
of all state and federal incentive programs around the country
for all types of renewable energy and also energy efficiency, and provides specific details and links state by state and at the
federal level.
The Solar Energy Industries Association (SEIA) has put
together an excellent and well researched “Guide to Federal Tax
Incentives for Solar Energy”, available free to members as a
membership benefit. Learn more at: http://www.seia.org/.
Tax Benefits such as Tax Credits and Depreciation may be
available to certain taxpayers who install solar energy
equipment. The information in this article regarding taxes, tax
credits and depreciation is meant to make the reader aware of
these benefits, risks and potential expenses, and help avoid overblown claims by aggressive salespeople. It is not tax
advice, and the author is not a qualified tax professional.
Please seek professional advice from a qualified tax advisor
to check the applicability and eligibility of incentives for a
particular situation.
Tax Credits come in several forms: Federal, State and Local.
Thru the end of 2008, the Federal Investment Tax Credit
(ITC) for Residential (individual tax filers) was 30% of system
cost basis, capped at $2,000 for systems installed before the end
of 2008. From 2009 thru 2016 it is a full 30% (without cap).
The residential ITC can be found in Sec. 25D of the Internal
Revenue Code (IRC) and can be claimed using IRS form 5695.
The residential ITC will expire at the end of 2016 if not
extended. Federal taxability of state, local, or utility rebates
affect the ITC system cost basis significantly, so please see the
“No Double Benefit” section of this article (below) that
discusses Sec. 136(b) of the IRC.
The Federal Investment Tax Credit (ITC) for Business
owned systems (IRS Schedule C business tax filers) is 30% of
net system cost with no cap for systems that are “placed in
service” by the end of 2016 (IRC Sec. 48). After 2016, if not
extended, the tax credit will revert to the previous permanent
level of 10%. The IRS current federal form is 3468 available at http://www.irs.gov/formspubs/.
“Placed in service” as defined by the SEIA “Guide to Federal
Tax Incentives for Solar Energy” occurs when all of the
following have occurred:
! Equipment delivered and construction / installation
completed. Minor tasks like painting need not be finished
! Taxpayer has taken legal title and control
! Pre-operational tests demonstrate the equipment functions
as intended
! Taxpayer has licenses, permits, and PTO (permission to operate)
Both the residential (Sec. 25D) and commercial (Sec. 48) ITC
are one-time credits received when filing taxes for the year the
system was placed in service. If not completely useable in the
system installation tax year, in theory, the residential ITC can be
carried forward indefinitely but may run into the practical
difficulty that the 5695 tax form may no longer exist after the
2016 tax year unless the IRS makes it available. SEIA is
working to address this with the IRS. The ITC can be carried
forward only by necessity, and must be claimed as soon as
possible (i.e. can’t be carried forward simply for convenience).
The business credit can be carried forward 20 years and may be able to be carried back for certain businesses under the Net
Operating Loss rules.
As part of the American Recovery and Reinvestment Act of
2009 (ARRA), in order to stimulate the economy, and in
particular, the solar industry, commercial solar systems (Sec. 48
ITC only) are able to convert the ITC that would normally be
received at the end of the tax year, and only if there was tax
appetite, into a U.S. Treasury Grant that can be received as
early as 60 days after project completion or application
(whichever is later). Only projects placed in service in 2009 or
2010, or projects started in 2009 or 2010 and placed in service before the end of 2016 are eligible for Grant treatment. This
solves the lost “time value of money” due to lengthy carry-
forwards for taxpayers with limited ability to use the ITC.
Most of the rules and eligibility for the Grant are the same as
for the ITC, except as noted above. More information is
available at: http://www.treasury.gov/recovery/ and
http://www.treasury.gov/recovery/1603.shtml.
Although the ITC is received effectively “up-front” when the
system is installed (or at the end of that tax year), it is actually
earned over 5 years in equal 20% increments. If the property
becomes ineligible for the ITC (is disposed of or sold by the
taxpayer, taken out of service, or taken outside of the U.S.), IRC Sec. 50(a)(1) stipulates that the taxpayer must repay the
unearned portion via the recapture mechanism. For example, if
the taxpayer sells the system after 2.8 years of ownership, she
has only earned 2 of 5 years (40%) of the ITC, and must repay
60%.
The U.S. Treasury Grant has the same recapture mechanism,
but is slightly more relaxed. If the property is sold to another
eligible party, the original party receiving the grant is not
subject to recapture as long as the receiving party maintains the
property’s Grant eligibility for the remainder of the 5 years. If
they don’t, the original party will suffer the recapture event.
In 2008, home-based businesses (if >20% business allocation
of the home) typically qualified for the ITC as well. Because the
credit applies on both individual (residential) and business tax
returns, but was capped on residential, it needed to be properly
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 8 of 19
apportioned on each part of the tax return to ensure the right
credit amount is claimed. Home-based businesses are typically
apportioned based on percentage of square footage attributed
exclusively to the business. To figure the credit, one typically
applies the percentages to the two separate calculations then
sums the results. From 2009 to 2016 with the uncapped ITC, this distinction is probably no longer relevant.
Beginning in 2009 taxpayers (individuals and businesses) will
be able to claim the federal ITC even if they are subject to the
Alternative Minimum Tax (AMT). Systems placed in service
before the end of 2008 can suffer AMT limitation because the
solar ITC (and Accelerated Depreciation discussed in the next
section) are ‘Tax Preference Items’ that can cause AMT and
limit the enjoyment of the ITC benefit, even if the taxpayer
wasn’t subject to AMT before getting the solar system. Even
with the ITC “AMT relief” starting in 2009, the Accelerated
Depreciation may still cause an AMT situation for businesses.
There is an open question in the solar industry about the application of the ITC to “property used for lodging”. Sec.
50(b)(2) indicates that the Federal ITC is not available for
“property used for lodging”. This sentence has created a fair bit
of concern for the solar industry, because it appears to exclude
hotels/motels and rental property. However, Sec. 50(b)(2)(D)
seems to exempt “Any energy property” (which solar is as
defined in Sec. 48(a)(3)(A)(i) “equipment which uses solar
energy to generate electricity”) from this exclusion. The author
has not received a definitive answer from a qualified tax
professional or the IRS as to whether hotels and rentals are
eligible. Thanks to Chad Blanchard and Michael Masek for helping research this.
Please seek qualified tax advice before accepting anyone’s
claims of applicability of these or other tax benefits to a
particular situation.
State Income Tax Credits are available in several states,
such as Oregon, Hawaii, New Mexico, and New York, and can
be quite generous. However, potential recipients should be
aware that if they itemize their federal tax deductions, a state tax
credit isn’t worth its full face value. When itemizing, state taxes
are usually deductible off federal taxable income. Reducing
state taxes by the state tax credit means that federal taxable net
income will go up. In effect, federal income tax will be paid on the value of the state tax credit. For most people, a state tax
credit is worth about 65-85% of its face value.
Depreciation and Accelerated Depreciation may be a
possibility for business owned systems. Depreciation is a
method of ‘writing-off’ expenses for long lasting (durable)
goods such as cars, computers, etc. The ‘write-off’ is generally
required to be spread over several years, depending on the type
of property. Since depreciation is a write-off, it reduces taxable
income, and thus reduces tax liability. The net federal benefit of
depreciation is the federal tax rate times the federal depreciation
basis. The federal depreciation basis amount is the federal ITC basis, minus one-half the federal ITC amount (85% of the ITC
basis in the case of the current 30% ITC). For example, a
system costing $100K (ignoring any rebate for this example)
would have a tax credit basis was $100K, and thus receive a
$30K federal ITC (30%). Its federal depreciation basis would be
$85K ($100K minus one half of the $30K ITC). If the
customer’s federal tax rate were 28%, the federal depreciation
benefit would be approximately $24K ($85K times 28%).
The state depreciation benefit is the state tax rate times the
state depreciation basis, which may be different from the federal
depreciation basis, and may be affected by any state rebates received. Unfortunately, for the same reasons that state income
tax credits aren’t really worth their face value, similarly, the
state depreciation net benefit must factor in the effective federal
taxation effect of reducing state taxes.
Federal depreciation for solar uses the MACRS 5-year
Accelerated Depreciation schedule and is calculated on IRS
form 4562. MACRS stands for Modified Accelerated Cost
Recovery System, and is a way of allowing businesses to
depreciate some property more quickly than the normal
schedule, to receive the write-off sooner (accelerate the benefit).
Though it is called “5 year MACRS” it generally uses the “half-
year convention” assuming the property is placed in service in the middle of the tax year, which allows a lesser share of the
write-off in the first year and extends the write-off into the 6th
year. Different numbers may apply if the property was placed in
service late in the tax year. Home-based business systems may
also qualify for proportional depreciation (if the business use of
the property is greater than 50%).
In 2008 and 2009 only, as part of the Economic Stimulus Act
of 2008 and the ARRA of 2009, businesses can also receive
‘50% Bonus Depreciation’ meaning that they can further
accelerate half the future depreciation amounts into the first
year (2008 or 2009) the project was placed in service (it does not mean they are getting 50% extra depreciation, just getting
half of it even sooner). The 5-Year MACRS schedules (half-
year convention) are:
State depreciation sometimes depends on the type of business.
In California, it is split between “Corporate” and “Non-
Corporate” businesses. Non-Corporate businesses use the regular federal MACRS 5-year accelerated depreciation
(without the 50% bonus). California corporate businesses use
12-year straight-line depreciation for state depreciation. Please
check the DSIRE database for the applicable depreciation for
other states.
The Sec. 179 Deduction has a negative interaction with the
federal ITC and U.S. Treasury Grant. If the taxpayer uses either
the ITC or the Grant for part or all of the property, they may not
also claim the Sec. 179 deduction for that part. The ITC or
Grant benefit, combined with MACRS depreciation are much
more valuable than the Sec. 179 Deduction. In previous
situations (typically Commercial Economics classes), the author
Year 1st 2nd 3rd 4th 5th 6th
Not 2008 or 2009
20% 32% 19.2% 11.52% 11.52% 5.76%
2008 and 2009 only
60% 16% 9.6% 5.76% 5.76% 2.88%
Fig. 8: MACRS Federal Depreciation Schedules for 2008 and 2009 and years other than 2008 or 2009.
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 9 of 19
incorrectly suggested that Sec. 179 may also be available and
might be able to be used with caution in certain situations.
Rebates, Buy-downs, and Grants provide direct cash
incentives to purchasers or their installers. These types of
incentives are usually proportional to system size based on the
rated wattage of the system, and are often limited to a percentage of total system cost and/or a fixed total dollar
amount. The rating systems vary by program, using the CEC,
PTC, or STC rating systems. In cases where a rebate is received,
the customer can usually also enjoy savings via Net Metering on
her electric bill.
Rebate programs are usually run and/or overseen by either a
state agency or a utility, often in compliance with a state law or
voter initiative.
Rebate payments are paid and received up front, and are not
based on actual system performance. At best, they can be
adjusted to account for expected performance. Expected
performance rebates may be adjusted by the expected relative system performance compared to an optimal or ideal system,
taking into account reductions in performance due to shading,
tilt, orientation, and/or geographic location (to account for
variations in sunlight levels due to location).
Performance Based Incentives (or PBIs) provide incentive
payments based on actual delivered system performance, and so
automatically account for shading, tilt, orientation, and
geographic location, as well as the other factors mentioned in
Fig. 2. The PBI amount is usually a set value in cents per kWh
(commonly 10-40¢/kWh) paid for each kWh produced,
measured, and reported by the system for a set number of years (commonly 1, 3, 5, 10, 15, or 20 years) from the date the system
is first placed in service. Usually PBIs are received in addition
to the customer savings via Net Metering of her electric bill.
Since PBI payments are paid over time the customer must
wait for payment, and bear the risk that something will interfere
with system performance. Because of the time value of money,
and this additional risk, the total of the PBI payments must be
more than a rebate would have been in order to provide an equal
time- and risk-adjusted incentive. This increases the cash cost of
the incentive program to the incentive provider, but increases
customer attention to her system (in order to receive payment),
so per kWh delivered, PBIs may be more cost effective to the incentive providing agency and funding parties than rebate-type
incentives.
There is a major marketing benefit to PBI programs as well.
Unlike rebates, which are received one-time up-front when the
customer is already excited about her system, PBIs are received
at regular intervals (usually every 1, 3, or 6 months) providing
the customer a reminder of her solar system and a reason to
smile (or call for warranty service). A smart installer or
salesperson will time her follow-up communications to the
customer to ensure the customer got her PBI check, and also to
make sure she is remembered for referrals. This residual benefit can last for years, generating many new sales.
Taxability of Rebates and PBIs: Depending on the structure
of the program, and the type of taxpayer (residential or
commercial), rebates, PBIs, and grants may be taxable income
at either the federal or state level, or both. Contrary to what was
written in previous versions of this article, there appear to be
significant grounds for individual (residential) taxpayers in
some states to claim the rebate payment is non-taxable. Sec.
136(a) of the IRC specifies that ‘direct or indirect utility
payments (i.e. from ratepayer funds) for energy conservation measures may be excluded from taxable income, where energy
conservation measures reduce the consumption of energy in a
dwelling.’ PV systems are energy conservation measures
(source: Wiser & Bolinger, Lawrence Berkeley Lab - LBL).
Therefore it seems clear that utility direct paid rebates for PV to
homeowners are non-taxable, such as in most of California,
Colorado, New Jersey, and some other states.
Other states, such as Florida, or cities such as San Francisco,
pay rebates from general funds collected from taxpayers (not
ratepayers). In these cases, Sec. 136 would probably not apply,
and the rebate payments would probably be taxable.
Less clear are rebates that are funded from ratepayer sources, but paid by non-utility administrators, such as the California
Energy Commission or the Energy Trust of Oregon. In a private
letter ruling an IRS administrative law judge found that the
Energy Trust of Oregon rebate was indeed tax exempt, but the
reader is cautioned to note that private letter rulings are not
precedents and do not bind a different IRS administrative law
judge to the same finding, nor do they apply to any other
taxpayer than the one named in the ruling. It is not expected that
the IRS will make a public ruling, so it’s likely to remain a grey
area for now.
Some state agencies, such as the California Energy Commission have issued 1099 tax forms to rebate recipients.
Simply receiving a 1099 tax form may not require payment of
tax on the amount. Such a 1099 may be advisory and a way for
the issuer to cover itself and ensure compliance with IRS rules,
even if Sec. 136 applies. On the other hand, not receiving a
1099 doesn’t excuse the taxpayer from tax liability if due (i.e. if
Sec. 136 doesn’t apply). Please check with a qualified tax
professional when making these important decisions.
It was mistakenly suggested in previous writings of this article
that if the installer accepted the rebate on the customer’s behalf,
it might eliminate the customer’s rebate tax liability. The author
has been informed that this is not true, and that tax is due when value is received (including non-monetary value in the form of
part of a PV system), unless specifically exempted (as may be
the case if Sec. 136 applies) (source: Wiser, LBL).
Despite this, there are other reasons why it is still better for
the customer to have the installer accept the rebate as part of
payment for the project: 1. Less cash is required (by the
customer) during the project, and 2. The customer has greater
leverage over the installer should the installer do a substandard
job (if either the customer or inspector doesn’t sign off on the
job, the rebate may be withheld). This is less attractive for the
installer because it hurts her cash flow, but might provide her a sales advantage over a competitor. It doesn’t impact the
installer’s tax return because the rebate is part of the job’s
revenue whether received directly or thru the customer, and all
job revenue minus expenses is already subject to taxation.
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 10 of 19
A sales and cash flow optimization strategy is to have the
customer pay full price and receive the incentive directly unless
she requests otherwise, optimizing installer cash flow on as
many jobs as possible, while providing the sales flexibility to
match the competition upon customer request.
Non-profits, governments and schools don’t pay income taxes, so incentives received are generally not taxable.
Business/commercial solar system rebates are likely subject to
taxation, as Sec. 136 applies only to systems installed on the
dwellings of individual taxpayers. There is no known exemption
for business taxpayers, but it turns out that, in general, a
business wouldn’t want to use it – more on this later.
No Double Benefit: Sec. 136(b) states that if the rebate is tax
exempt, then the taxpayer will need to reduce the tax credit
basis for any related ITC, and will then get less tax credit. On
the other hand, if she does pay tax on the rebate, then she does
not deduct the rebate amount when she calculates the tax credit
basis (and therefore get relatively more tax credit benefit).
For residential taxpayers, the above interaction and the
importance that Sec. 136 apply to any rebate she has received
was much more significant before 2009, because the Federal
ITC was capped at $2,000. Now that the Federal ITC is an
uncapped full 30%, the impact is usually far less, and depends
on the marginal tax rate of the customer. If the taxpayer’s
bracket is 30%, then it makes no difference to the customer
whether the rebate is federally taxable or not, since she will gain
the same amount either in no tax on the rebate or in higher ITC
value. See the 4 cases illustrated in Fig. 9. If her tax bracket
were lower than 30%, then she would prefer the rebate be
taxable (if she had a choice or if she and her tax advisor feel
there is enough uncertainty in the applicability of Sec. 136)
because she would then pay less in rebate tax than she would
gain in getting the full ITC. On the other hand, a taxpayer in a
tax bracket over 30% would prefer the rebate to be non-taxable. Each 1% of difference between the customer’s tax bracket and
30% makes 1% difference in the net value of the rebate to them.
For most taxpayers, this isn’t going to be very much in absolute
dollars either way compared to the total cost of a PV system, as
is evidenced by the examples.
For business taxpayers, Sec. 136 does not apply, and there is
no other known section of the IRC that might exempt the rebate
from federal taxation. This turns out to be convenient, because
while paying tax on the rebate is a cost, not only does it allow a
larger ITC to be enjoyed, but since the depreciation basis is
proportional to the ITC basis, it allows more depreciation to be
enjoyed as well. The larger amounts of both ITC and depreciation far more than compensate for the tax on the rebate.
See Fig. 10 for a comparison of the two results.
Even when the rebate is taxed, it is usually only taxed by the
federal government. State governments that have enacted
rebates in support of solar generally don’t tax their own
incentives, however, tax laws vary by state, so check with your
state taxing authority.
PBI Taxation: Since PBIs are paid over time and the total
value that will be received is unknowable at the time the federal
ITC needs to be calculated, the interaction between them and
the ITC is less straightforward. For businesses, PBIs are almost certainly taxable.
For residential customers however, one might be able to argue
that Sec. 136 should also make PBIs paid from ratepayer funds
for PV systems non-taxable, but this would create the difficulty
of calculating how much to reduce the ITC basis by, since it
would require the impossible task of calculating the present
value of the unknowable stream of PBI payments that will be
received as and if the PV system produces electricity. Even if
Case 1: Non-Taxed Rebate $150K System Cost -$50K Rebate -$30K Tax Credit Value (30% of $100K) -$35K Depreciation Value (85K * 41%) =$35K Net Cost Case 2: Taxed Rebate $150K System Cost -$50K Rebate +17.5K Rebate Tax ($50K * 35% Fed Tax) -$45K Tax Credit Value (30% of $150K) -$52K Depreciation Value (127.5K * 41%) =$20.5K Net Cost 41% = combined net federal & state tax rate (35% Federal & 8.84% CA State) Fig. 10. Commercial examples of rebate/ITC interactions.
Case 1: Non-Taxable Rebate $100K System Cost -$30K Rebate -$21K Tax Credit Value (30% of $70K after rebate cost) =$49K Net Cost Case 2: Taxable Rebate at 30% Federal Tax Bracket $100K System Cost -$30K Rebate +9K Rebate Tax ($30K * 30% Fed Tax) -$30K Tax Credit Value (30% of $100K) =$49K Net Cost Case 3: Taxable Rebate at 20% Federal Tax Bracket $100K System Cost -$30K Rebate +$6K Rebate Tax ($30K * 20% Fed Tax) -$30K Tax Credit Value (30% of $100K) =$46K Net Cost Case 4: Taxable Rebate at 40% Federal Tax Bracket $100K System Cost -$30K Rebate +$12K Rebate Tax ($30K * 40% Fed Tax) -$30K Tax Credit Value (30% of $100K) =$52K Net Cost Fig. 9. Residential examples of rebate/ITC interactions.
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 11 of 19
you could agree with the IRS on a discount rate for PBI
payments to be received in the future, no one can know how
many kWh will actually be produced until it has happened,
which is usually well after the ITC needs to be calculated and
submitted with a tax return. Guidance from Mark Bolinger at
LBL (not a qualified tax professional, but someone who has studied this in greater depth than the author, see “Further
Reading” at end for more info) is to assume PBIs are taxable for
residential customers as well as businesses, to be on the safe
side.
Of course, the ideal and much more valuable result would be
for the IRS to accept an argument that the PBIs are non-taxable
to homeowners due to Sec. 136, but also not challenge the
higher claimed amount of the ITC since there was no rebate
received up front to reduce it. The author is not advocating this
potentially risky strategy, and a competent qualified tax
professional should be consulted before considering this
maneuver. However, it is fairly certain that even if the IRS would to approve such an approach, they aren’t likely to chase
the taxpayer around attempting to provide a refund unless she
files her taxes in this way.
Feed-In Tariffs (FITs) are very similar to PBIs in that they
provide a payment to the customer for each kWh delivered to
the grid. The difference being that usually a Feed-In Tariff is the
only benefit received from owning the solar system – there is no
Net Metering benefit, so the customer continues to pay her
regular electric bill. In order to make Feed-In Tariffs attractive,
the payment per kWh needs to be higher than a comparable PBI
because of the lost Net Metering. Common feed-in tariff terms are 10, 15, and 20 years.
Gainesville, Florida and Ontario, Canada have implemented
feed-in tariffs. Gainesville’s tariff of 32¢/kWh for 20 years was
very popular and used up the first allocation of money quickly.
Ontario’s first attempt at CAD 42¢/kWh for 20 years was not
high enough to be strongly popular, so in May 2009 revised
incentives of CAD 44-80¢/kWh depending on system size and
mounting type were proposed (not yet finalized).
Feed-In Tariff Policy Discussion: Feed-In Tariffs (FITs) are
very simple incentives for solar, and are very popular in
Germany and Spain because they have very quickly created
large markets in each of those countries. There are a number of
risks associated with FITs however:
! The incentive is 100% visible, and makes solar look
expensive, making it an easy target for solar detractors,
whereas Net Metering ascribes value to the publicly received
benefit of the electricity generated and delivered when the
utility needs it. The cost to the ratepayer is equal, so it’s a
matter of perceptions and visibility, however Net Metering
better reflects the public benefits.
! The entire incentive for solar becomes vulnerable to political
changes – FITs can come and go with a change of elected or
appointed officials, creating potentially large changes in
fortunes of the solar industry. Germany and Spain both found
their incentives aggressively cut back in the summer of 2008
when they started to be viewed as too expensive. Spain’s solar
industry (which was over 40% of the world solar market in
2008) is effectively completely shut down as of 2009.
! Solar benefits some customers much more than others
(customers high in the rate tiers, those with avoidable
demand charges, and/or those who can benefit from Time-of-
Use rates), each of which is a hidden artifact of Net Metering.
Losing the Net Metering benefit levels the playing field, which
is democratic, but removes a lot of existing sales
opportunities for those who know where to look, and may
completely eliminate the market if the FIT is set too low.
! FITs have no ‘End Game’ unless the customer can switch
back to Net Metering (without other incentive) at her choice.
This means that if only FITs are available (without Net
Metering), the FIT payment can never be reduced to 0¢/kWh
because the customer will always need some payment to make
it worth going solar (since she won’t be saving on her electric
bill). This makes the solar industry perpetually dependent on
the existence of FITs and their future renewal. If the customer
can always choose between a FIT or Net Metering, then this
problem goes away, because once the Net Metering benefit
becomes greater than the FIT payment, customers will chose
Net Metering.
Tax Abatements are offered by some taxing jurisdictions in
the form of Sales Tax or Property Tax exemptions. Many states
exempt solar systems from being included in the assessed value
of a home, so installing a solar system doesn’t cause the
homeowner’s property taxes to increase. For example, solar
systems installed in California between January 1, 1999 and
January 1, 2017, are exempt from triggering Property Tax reassessments (California Taxation Code, Sec. 73). Sales Tax
exemptions help reduce the up-front cost of the solar system.
Solar Renewable Energy Credits/Certificates (often known
as SRECs, S-RECs, sRECs, RECs, or Green Tags) are a new
and growing way to value the greenness of the energy from a
solar energy system. SRECs represent the bundle of legal rights
to the green part of each kWh produced by a solar system. This
green part can be sold for a value, which generates additional
revenue for the seller.
SREC value is created in two common ways. The first is the
“voluntary” market, where individuals buy SRECs as a way of
“greening” their world by paying extra to someone else to install some new solar capacity, often because they can’t or
chose not to make the large, long-term investment themselves.
This is common for apartment dwellers and business renting the
space they occupy. Business such as Kinko’s, Wal-Mart, Whole
Foods, and White Wave (the makers of Silk soy milk) have
bought SRECs to offset some of the emissions from their
operations.
Voluntary SREC purchases do actually “green” the grid if
they result in net new solar (or wind or other renewable
generation depending on the type of REC or Green Tag
purchased) that wouldn’t have been installed if the SRECs weren’t purchased for the agreed price. For example, a solar
‘farmer’ wants to build a solar farm on some open land or on
the roof she has access too. If the value of the electricity she
will be getting from the utility (via sales or Net Metering),
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 12 of 19
combined with the incentives discussed (excluding SRECs)
above isn’t enough to provide the rate of return the ‘solar
farmer’ is looking for, the investment won’t happen. If the
‘farmer’ can sell the SRECs to a buyer for enough extra value
(1-5¢/kWh is common in ‘voluntary’ locations), the total
investment may become attractive, and the ‘farmer’ will invest the money and effort to make it happen, and Voila! – net new
generation happened in part because of the SREC value.
The second common (and very important) way SREC value is
created is thru the regulatory “compliance” market where state
law or voter initiative has required that a certain percentage of
electricity in a given geographic or territorial area must come
from solar sources. Often, the percentage is set to rise over time.
Fourteen states have Renewable Portfolio Standards (RPS) with
such a requirement. In these states, the utilities must either build
and own solar installations (if allowed), or buy SRECs from
producer/owners. Usually, there is an Alternate Compliance
Payment (ACP) that sets a maximum on the value of the SREC value, whereby, if the utility isn’t able to buy SRECs for less
than the ACP, they can pay the ACP as a penalty for failure to
do so.
New Jersey is the best known of the states where its solar
program is supported mostly by SREC value. Currently, the
ACP in New Jersey is the equivalent of 71.1¢/kWh. The market
in which the NJ utilities can buy SRECs is set up as a bid-
auction market, so supply and demand rule the price of SRECs
at any given moment, with the artificial cap of the ACP. As of
June 2009, the auction market in NJ had set the price of SRECs
at 60-65¢/kWh. This value may continue for the short-, mid- or long-term, but there is no assurance of it. The price could also
collapse if an oversupply of SRECs becomes available,
depending on the rate of installation of solar systems compared
to the increasing requirements of the NJ RPS.
SREC Policy Discussion: The New Jersey style incentive
using SRECs is one of the author’s favorites, because it allows
market mechanisms to automatically readjust the incentive
(SREC) level to changes in market conditions. For example, the
uncapping of the federal ITC provided a lot more federal
incentive for solar, and so would require less state support and
would allow the SREC level to decline, all things being equal.
Similarly, the recent rapid decline in solar module prices has
lowered end-customer costs, again requiring less support to be
required in the form of SRECs. The U.S. economy of 2009 is in
such bad shape that the above two have not actually manifested
in substantially increased solar purchasing and supply of
SRECs yet, but the Rate of Return on a solar investment in NJ
has been increasing due to the two events. Eventually, the
return will get good enough, and the economy will get stable
enough, that individuals will start to buy systems and put new
SRECs on the market, creating more supply to satisfy an
inelastic demand, causing SREC values to come down at least
somewhat.
The missing element in the New Jersey program has been
long-term contracts whereby solar customers can get an
assurance of future SREC value. Without such an agreement, a
potentially oversupplied SREC auction market could cause the
traded price to plummet, so customers installing systems need
to insist on a risk-premium. This is starting to shift. With the
assurance of long-term agreements, the customers (homes and
businesses) installing solar don’t need to be paid as much for
their SRECs because they know the value is locked, which also
saves the utilities in the short term, and probably also in the
long term, because the risk-premium is eliminated.
Maryland has a 2009 ACP of 40¢/kWh which will decline over time (see the DSIRE Database for current details).
Pennsylvania and other states will likely also have similar
arrangements. There is no guarantee that actual value will be
anywhere near the ACP unless the ultimate buyer (the utility)
agrees to it.
Colorado has an RPS as well, but rather than paying for each
SREC as it is produced, the two main utilities, Xcel and Black
Hills Energy (formerly Aquila) buy 20 years worth of the SREC
output from smaller systems for $1.50/W STC of installed
capacity (looking more like a rebate) in addition to the regular
$2/W rebate. This equates to an approximate SREC value of 5-
7¢/kWh depending on sunlight levels and system performance.
California and several other states have Renewable Portfolio
Standards too, but these RPSs don’t have requirements that any
of the energy be sourced from solar, so it is likely that most will
come from wind and other sources, which are currently less
expensive. That means that the SREC market in these states is
voluntary (including some speculators buying or trading SRECs
on the bet that they will become more valuable if/as the
government and industry take on global warming). Current
voluntary SREC values are estimated to be in the range of 1-
5¢/kWh, which is not insignificant compared to Net Metered
electricity value that is sometimes as low as 6-20¢/kWh.
The only way an SREC has any real value though, is to ensure
that the bundle of legal rights to the greenness it represents has
only been sold once to its ultimate consumer for “retirement”,
the same way as a publicly traded company can only sell a fixed
number of shares of its stock. Within a state RPS compliance
market, this is usually done by an administrator who tracks all
the production, sales, and retirements. In voluntary markets,
SRECs should be certified by a certifier such as Green-e (a
service of the Center for Resource Solutions) http://www.green-
e.org/, which is the nation's leading independent consumer
protection program for the sale of renewable energy and
greenhouse gas reductions in the retail market. Only then can the consumer be sure she is buying something of value.
One should take care to consider whether she really wants to
sell the SRECs her system generates. By selling them, she loses
the right to claim she is using any of the clean green energy
generated by the system. That right would belong to the new
SREC owner. The system owner could claim she is a host for
the generation, but not a user. The distinction is important in
order to prevent double counting of the SRECs, which is
important to maintaining their value.
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 13 of 19 !
PreTax =AfterTax
(1"TaxRate)
HOW IS THE SOLAR PAYOFF PROVEN?
Independent tests of the financial viability of solar energy
include:
! Rate of Return for comparison to other interest rate based
investments
! Payback in a reasonable time ! Total Lifecycle Payback
! Net increase in property value compared to solar system cost
! Positive cash flow when financing the project
All of the analyses and analysis methods presented here apply
only to residential scenarios. Different mechanisms,
assumptions, and accepted financial and accounting practices
apply to commercial cases, which are not discussed here. For
example, commercial analyses must be done on an after-tax
basis, which has important consequences relating to the loss of
the electric bill tax deduction a business otherwise would have
enjoyed, and commercial property resale valuation is done using
Capitalization Rate, rather than the method discussed here. Future versions of this article may include this material, so
check back later please.
RATE OF RETURN: Compound Annual Rate of Return on an investment is
another term for effective interest rate or yield, which is a way
of comparing one investment to another. For example, a savings
account might pay 0.5%-1% interest, and the long-term (80
year) Dow Jones Industrial Average of the stock market,
assuming dividend reinvestment had earned 8.5% per year
(CAGR) to its height of 13,500 in 2008. At its level of 8,000 in
June 2009, the long-term CAGR of the Dow has been 7.5%.
The author chose 10% as the test point for solar, because that
compares favorably to other long term investment average
returns from common, readily accessible, higher yielding
investments such as stocks and bonds and provides a slight
premium to compensate for solar’s lack of familiarity to much
of the public.
To properly value the savings from a solar system, it should
be noted that solar saves after-tax expense, while most other
investments earn pre-tax income. In order to compare solar to
other investments, all investments should be placed on the same
side of the tax equation. Since most investments are taxable (i.e.
stocks, savings interest, etc.), and because most people think about their investments on the pre-tax side, it is most
meaningful to convert solar savings to its taxable equivalent
value (i.e. PreTax value).
AfterTax dollars are worth more to a taxpayer than the same
number of PreTax dollars, because PreTax dollars are subject to
taxation. Therefore, an AfterTax dollar saved (with solar) is
worth more than $1 on a PreTax basis, by an amount
proportional to the taxation rate. To make this conversion from
AfterTax value to PreTax value, the following equation can be
used (where TaxRate is the net total effective income tax rate):
To illustrate this with an example, let’s assume a Tax Rate of
50% (unrealistically high, but easy to illustrate with) and an
after-tax savings of $100. The example would then be
calculated as follows:
Meaning that $100 after-tax is equivalent to $200 pre-tax at a 50% tax rate. To put it in context of a solar system: if a
customer were choosing between investing $15K in a solar
system that would save them $100/month on her electric bill
(tax-free), vs. $15K in a taxable investment, the taxable
investment would need to earn them $200/month so that after
she paid taxes on the $200, she would have $100 left over to
pay the electric bill, for the two choices to be considered
equivalent. In reality, combined federal and state tax rates are
currently lower than 50%, with an effective rate of 20-40% for
most taxpayers. At these rates, $100 after-tax savings would be
equal to $125-$165 pre-tax equivalent.
Once the value of the savings, maintenance costs and other amounts are properly adjusted to their pre-tax values, they can
be inserted into a 25-year financial timeline (the warranted life
of most solar electric/PV modules) representing the cash flows
for each year, to calculate the Compound Annual Rate of
Return. This allows the accurate inclusion of all relevant cost
and benefit components.
The initial capital cost is the only amount that doesn’t get
adjusted. That amount is the net system up-front cost (total out
of pocket), and is unaffected by the taxation or lack thereof of
future savings in the utility bill. Consider it the same as
principal that is invested anywhere. The principal is not taxed upon its departure or return.
Tax savings and consequences, inverter replacement,
maintenance, and other significant financial events can be
included at their appropriate places on the timeline. Inflation,
escalation, and module degradation are also easily included. For
each year, the values can be summed, creating a 25-year
timeline of net expense or net savings by year. The Internal Rate
of Return (IRR) function in most spreadsheets can then
calculate the IRR, which is the same as the Compound Annual
(interest) Rate of Return (CARR) for the investment.
One should note that there is a significant and very important
difference between Compound Annual Rate of Return and average return or total return divided by the number of years an
investment is held. Average return does not factor in
compounding of interest, and may make an investment look
more attractive than it really is. This article uses CARR for all
items under consideration (solar, stocks, savings, etc).
The difference becomes more visible the longer the time
horizon. A brief example: Suppose an investment doubles every
year. Its CARR would be 100% because you get 100% increase
each year on your investment. No matter how long you hold it,
its CARR is 100% because you need to compound for the
number of years it’s held. Alternatively, if you were to look at the “average rate of return”, over 1 year, it would still be 100%.
However, if you held it 3 years, your investment would be
800% of the original, or a total return of 800%
!
PreTax =AfterTax
1" TaxRate=$100
1" 50%=$100
1" .50=$100
.50= $100*2 = $200
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 14 of 19
Investment Type
Net Investment
Amount
Interest Earned or Net Electric Bill
Savings
After-Tax Value the First Year
After-Tax Value the
Eighth Year
Payback / Time-to-Doubling including taxes & inflation
Savings $30,000 $300 (at 1% rate) $196 $196 153 years Stocks $30,000 $2,400 (at 8% rate) $1,567 $1,567 19.1 years
Solar – CA PG&E 5.5 kW $30,000 $2,321 (1st year) $2,321 $3,176 10.4 years Fig. 11. Investment Payback Comparisons: Solar savings grow due to escalation (4.5% net w/ degradation). Assumed 28% federal & 9.3% state tax rates play a big role in the different outcomes. Stocks & savings are more liquid, but it’s clear why Wall Street and banks don’t talk “Payback”.
(100%>200%>400%>800%). The average annual return would
be 800%/3years-100% or 167%, which looks great, but isn’t
representative, because it isn’t factoring in the compounding.
This faulty method of analysis is highlighted here because
unfortunately there are several inaccurate (misleading) solar
analyses and sales presentations being given to the public that use averaging, rather than compounding.
Please see Fig. 14 for example analyses from several states
and their Compound Annual Rates of Return. These cases are
for full service residential system installations, using typical
installed system costs on a simple composition shingle roof.
Utility & state specific assumptions for the examples are listed
in Fig 13. General variables and assumptions are:
! 28% federal tax bracket, corresponding state tax bracket
! Facing south, 22° pitch, simple composition shingle roof by
full service provider, no complications
! Slightly conservative real system performance, no shade
! Final Net Cost = total installed system costs - Rebate (if any)
- 2009 Fed 30% ITC + $500 Permit + $0 Utility Fee
! System maintenance cost is 0.25% of gross system cost per
year, adjusted for inflation
! 5.0% electric escalation (2.2% in CO)
! Module degradation 0.5% per year ! Module PTC/STC Ratio: 89.6%, Inverter Efficiency: 95.0%
! Inverter replacement costing $700/kW occurs in year 15
These analyses were performed using the OnGrid Tool,
available at http://www.ongrid.net/payback. Other tools are
listed in the Design and Analysis Tools section at the end.
PAYBACK: What about calculating the payback? Payback is a simple but
crude tool for comparing investments. Solar is an inflation-
protected investment but many others are not. This improves the
payback for solar (electric rates double every 15 years at 5%
escalation). To properly calculate the solar payback, it is
necessary to add in the rate escalation adjusted savings of each
successive year, less the reduction due to module degradation
and maintenance costs, until payback has been achieved.
Savings in the latter years are larger than savings in the first
years, so the payback is faster than simply dividing the cost by the savings. See Fig. 12 for an illustration.
Payback analysis on an after-tax basis does not reflect the true
value of the saved utility expense, because after-tax savings are
worth more on a pre-tax basis. However, trying to do payback
using the pre-tax value gives an unrealistically optimistic view
of when “payback” has occurred. The examples in Fig. 11 show
how long paybacks on other investments really are in
comparison to solar, when taken on an after-tax basis.
There are numerous other flaws in using payback for a
residential long-term investment; it does not properly include
the tax savings and consequences, it does not account for
maintenance or inverter replacement expenses, and it makes it
difficult to compare to other investments such as stocks, savings, etc. because of inflation and other factors.
TOTAL LIFECYCLE PAYBACK: Comparing the savings of a solar electric system over 25 years
of operation to its initial cost is a better way of looking at
payback, because it more fairly values the savings due to the
compounding effect of electric rate escalation. Because of this
effect, the savings in the later years is much greater than the
savings in the first few years. Typical systems give back 1.5 to 3
times their initial cost. See Fig. 14 for several examples and Fig.
12 for an illustration. One drawback to this analysis is it fails to
account for the time value of money. A dollar saved in the
future isn’t worth as much as a dollar saved today, so that a total lifecycle payback isn’t worth quite as much as it might initially
appear. The better methods of comparing solar as an investment
are the Compound Annual Rate of Return, Increase in Property
Value, and Cash Flow.
INCREASE IN PROPERTY VALUE: Solar electric systems increase property value by decreasing
utility operating costs. According to the Appraisal Journal
(Nevin, Rick et al, “Evidence of Rational Market Valuations for
Home Energy Efficiency,” Oct 1998 (available at various
locations on-line, including at
http://www.icfi.com/Markets/Community_Development/doc_files/apj1098.pdf), a home’s value is increased by $20,000 for
every $1,000 reduction in annual operating costs from energy
efficiency.
Total Lifecycle Savings is
several times Initial Cost Initial Cost paid
back in 8 years
Fig. 12. Simple Payback vs. Total Lifecycle Payback. Total Lifecycle Savings over 25 years is several times the initial cost represented by the area up until year 8. Year 15 shows diminished savings due to inverter replacement.
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 15 of 19
Utility Insolation
AC kWh Production per rated kW per
year
Installed Cost per rated Watt
(~October 2008)
Staring/Ending Rate Schedule, Peak %
Incentives
AZ - APS Phoenix 1660 / STC kW $8.25 STC E-12 / ET-2, 50% $2.40/W Rebate (net) 25% State Tax Credit
CA - PG&E San Francisco 1630 / CEC kW E1XB / E6XB, 35% $1.55/W Rebate
CA - SCE Los Angeles 1675 / CEC kW D-10-Basic /
TOU-D-1, 36% $1.90/W Rebate
CA - SDG&E San Diego 1700 / CEC kW
3kW: $9.50 CEC 6kW: $9.25 CEC 9kW: $9.00 CEC
DR-Coastal-Basic / DR-SES, 28%
$1.55/W Rebate
CO - Xcel Boulder 1398 / STC kW $8.25 STC R $3.50/W Rebate & SREC
CT - UI Hartford 1262 / PTC kW $8.75 PTC R / RT, 45% $1.75/W Rebate
FL – FPL Miami 1345 / ST kW $8.25 STC RS-1 $4/W Rebate
HI - HECO Honolulu 1460 / STC kW $8.25 STC Res 35% State Tax Credit
MD – BGE Baltimore 1236 / STC kW $8.25 STC R / RL-2, 65% $1.20/W Rebate (net),
SRECs: 10¢/5yrs, 5¢/10yrs
NC - Progress Raleigh 1260 / STC kW $8.25 STC RES / R-TOUD, 60% 35% State Tax Credit
NJ - JCP&L Newark 1140 / STC kW $8.25 STC RS / RT, 58% SRECs: 48¢/1yr, 30¢/12yrs, 10¢/12yrs; $1.55/W Rebate
NY - ConEd New York City 1178 / STC kW $8.25 STC Rate I / Rate II TOU,
75%
$2.81/W Rebate (net) 25% State Tax Credit
PA – PPL Philadelphia 1217 / STC kW $8.25 STC RS / RTD R, 70% $2.25/W Rebate,
SRECs: 10¢/5yrs, 5¢/10yrs
Fig. 13. Utility specific residential assumptions. Module prices have dropped since October 2008, and selling prices are declining, but still in a state of flux. For now, the analyses assume 10/2008 pricing.
Before Solar Size & Net Cost Results, Savings, and Benefits
Net Monthly Cash Flow Compared to 8% 30-yr
Loan Utility
Pre-Solar Bill
kWh Usage per
Month
PV System Size & Rating
Final Net Cost w/
Tax Benefits & Rebate
Cumulative Savings
Over First 25 Years (including inflation)
Lifecycle Payback Ratio
Years To
Payback
Pre-Tax Annual Return In First
Year In Fifth Year
Annual Savings
Appraisal Equity / Resale
Increase in First Year
AZ - APS $77 800 5 kW STC $18K $22K 1.2x 22.2 6.6% $-31/mo $-38/mo $539 $11K
CA - PG&E $74 550 3 kW CEC $17K $28K 1.7x 18.6 10.0% $-11/mo $-15/mo $671 $13K
CA - PG&E $258 1100 6 kW CEC $33K $120K 3.6x 9.7 19.5% $100/mo $123/mo $2,761 $55K
CA - PG&E $499 1650 9 kW CEC $48K $234K 4.9x 7.8 24.6% $259/mo $320/mo $5,355 $107K
CA - SCE $85 550 3 kW CEC $16K $36K 2.2x 15.5 12.9% $6/mo $6/mo $835 $17K
CA - SCE $414 1650 9 kW CEC $45K $193K 4.3x 8.5 22.1% $193/mo $238/mo $4,446 $89K
CA - SDG&E $97 550 3 kW CEC $17K $38K 2.2x 15.4 12.9% $6/mo $7/mo $877 $18K
CA - SDG&E $455 1650 9 kW CEC $47K $206K 4.4x 8.4 22.4% $207/mo $255/mo $4,722 $94K
CO - Xcel $72 800 5 kW STC $17K $13K 0.7x 31.9 3.1% $-47/mo $-46/mo $521 $10K
CT - UI $183 800 5 kW PTC $25K $57K 2.3x 15.2 11.9% $-20/mo $1/mo $1,333 $27K
FL – FPL $89 800 5 kW STC $15K $24K 1.6x 19.3 7.5% $-35/mo $-25/mo $591 $12K
GA - GaPwr $88 800 5 kW STC $21K $20K 0.9x 27.0 6.9% $-80/mo $-67/mo $493 $10K
HI - HECO $164 800 5 kW STC $25K $62K 2.5x 13.2 15.1% $-10/mo $16/mo $1,442 $29K
MD – BGE $131 800 5 kW STC $25K $39K 1.6x 18.4 9.3% $-25/mo $-30/mo $1,262 $17K
NC-Progress $80 800 5 kW STC $21K $25K 1.2x 23.2 9.6% $-66/mo $-51/mo $601 $12K
NJ - JCP&L $143 800 5 kW STC $24K $66K 2.8x 9.3 19.4% $71/mo $85/mo $2,947 $22K
NY – ConEd $134 800 5 kW STC $16K $40K 2.6x 12.4 16.5% $-2/mo $16/mo $956 $19K
PA – PPL $95 800 5 kW STC $21K $32K 1.5x 18.9 8.5% $-22/mo $-30/mo $1,100 $14K
Fig. 14. Example residential cases with their net costs and financial benefits.
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 16 of 19
Home Improvement Type
Investment Amount /
Net System Cost
Resale Value
Increase
% Return
CA PG&E Solar 3 kW $17K $13K 76% CA PG&E Solar 6 kW $33K $55K 167% CA PG&E Solar 9 kW $48K $107K 223%
Deck Addition $6.3K $6.7K 104% Bathroom Remodel $10.1K $9.1K 89%
Window Replacement $9.6K $8.2K 85% Kitchen Remodel $44K $33K 75%
Fig. 16. Resale value comparison of various home improvements.
The rationale is that the money from the reduction in
operating costs can be spent on a larger mortgage with no net
change in monthly cost of ownership. Nevin states that average
historic mortgage costs have an after-tax effective interest rate of about 5%. If $1,000 of reduced operating costs is put towards
debt service at 5%, it can support an additional $20,000 of debt.
To the borrower, total monthly cost of home ownership is
identical. Instead of paying the utility, the homeowner (or future
homeowner) pays the bank, but her total cost doesn’t change.
Since the Nevin article is from 1998, is it dated? No more than
2+2=4 is dated - the rationale is mathematical, not based on
market whims, so it is timeless.
Please see the column labeled “Appraisal Equity Increase” in
Fig. 14 for examples of the increase in home value. In some
cases, a solar system can increase home value by more than its
cost to install. This effectively reduces the payback period to 0 years if the owner chose or needed to sell the property
immediately. It could even lead to a profit on resale.
There are two limits to the increase in resale value over
system net installed cost. First, why should a homeowner pay in
total more for a home with a solar system, when she could buy a
non-solar home, and solarize it for less money? Yet this
happens with other remodels. Decks, on average across the
nation, return 104% of their cost upon resale. However, in
certain markets like St. Louis, San Francisco, and Boston, decks
add more than 215% of their value upon resale (Alfano, Sal,
“2003 Cost vs. Value Report”, Remodeling Online –
www.remodeling.hw.net downloaded March 5, 2004). Other
types of remodels like kitchens and bathrooms had similar
results related to geography. So it makes sense that in certain
geographies where the sun shines brightly and the electric rates are high, solar would return more than its installed cost, while in
other states with less sun and lower rates, the return might be
much lower, with a national average comparable to other types
of remodel. Fig. 16 lists projected resale value of various solar
systems, compared with nationwide averages for some other
home improvements.
The increase in property value is currently theoretical. A very
high fraction of the grid-tied solar electric systems in California
were installed since the state’s Power Crisis and the
Deregulation fiasco in 2001. Most of these homes have not been
sold and there are no broad studies of comparable resale values
available. However, some evidence is beginning to emerge that there are significant jumps in resale value being realized by
some solar home sellers.
It is also interesting to note that PV systems will appreciate
over time, rather than depreciate as they age. The appreciation
comes from the increasing annual savings the system will yield
as electric rates and bill savings rise. All the calculations in this
article assume electric rate escalation will be 5%. If so, the PV
system will save 5% more value each successive year, and thus
gain from the 20:1 multiplier effect. The resale value will then
increase 5% per year compounded, less 0.5% module
degradation.
This cannot continue forever, as the increase in resale value
runs into the second limit, which relates to the remaining life
left in the system. For these analyses, the system is assumed to
be worthless at the end of 25 years. This is probably very
conservative, since the panels are warranted to be working at
least 80% of their new performance. So if the system is
worthless at the end of 25 years, the only value the system has
as it nears that time, are the remaining savings it can generate
before the end of the 25th year. Fig. 15 shows both the
increasing value due to increasing annual savings and the
remaining value limitation that takes over at approximately year
11. If the system does have additional resale value, so much the better.
Still, the skeptical homebuyer might question the above
assertions in light of the lack of hard evidence. Perhaps the best
evidence to present would be a stack of old bills showing usage
and cost before solar, and a stack of new bills showing a
substantial savings. The question might be posed, “What are a
continuous, if not growing, stream of these savings worth to the
prospective buyer?” That sort of evidence can’t easily be
ignored. Of course, other factors will weigh heavily in the
value. How attractive is the home? A tidy, attractive installation
should add all of the value shown above, but like a spa, some prospective buyers may not care or value it, while others may
love it.
Fig. 15. Resale value increases over time because savings get larger each year. Total remaining lifetime savings in the system declines annually, putting a limit on the increase in resale value after year 11.
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 17 of 19
CASH FLOW WHEN FINANCING: Financing a solar system makes the purchase achievable to
more consumers. If the situation is right, the savings on the
electric bill can more than compensate for the cost of the loan
and maintenance, making it a cash-positive maneuver. That is,
compared to the occupant’s current cost of energy (her current
electric bill), going solar but paying for it entirely with a loan
(no money down) can actually be less expensive on a monthly
basis.
Electric rates and electric bills are subject to electric rate
escalation, as can be seen in the top graphic in Fig. 17, where the cost of energy increases steadily over the years, doubling
approximately every 15 years. While interest rates might vary
depending on the loan type, loans are not subject to inflation or
rate escalation, so the loan payments do not increase
continuously. This means that the difference between what the
electric bill will become and what the loan & maintenance costs
will become continues to move in the customer’s favor. Even if
a customer didn’t start out cash-positive in the first year, she
may become cash positive after a few years.
In the top graphic of Fig. 17, the lower line labeled “8% Loan
(net cost), New Smaller Bill, & Maintenance” represents all the new costs compared to the old Utility Bill cost. While the loan
rate is fixed at 8% and the monthly loan payments are steady,
there are 3 components to this new set of costs that do increase
over time: 1. The new maintenance cost will rise with inflation.
2. The new small electric bill will rise with electric rate
escalation. 3. In fixed amortization loans, each loan payment
has 2 parts: principal and interest. As the balance is paid down,
the interest portion of each successive payment is reduced, so
the tax deduction benefit is also reduced. In after-tax terms, the loan is least expensive in the first year when the borrower is
enjoying the maximum tax deduction for interest paid.
The difference between the two lines in the top of Fig. 17 is
the amount the scenario is cash-positive (or cash-negative) for
the customer, and is reflected in the lower graphic, which shows
“Net Annual Savings” by having purchased a solar system with
a loan (put no money down). In this case, the savings are
substantial even before the loan is paid off in the 20th year, and
gets even better after that. The Net Annual Savings can be
accumulated as shown in Fig. 18 to show how much extra cash
a purchaser will have in her pocket before the inverter needs to be replaced in year 15, or before the loan is paid off in year 20,
or before the equipment is out of warranty in year 25.
The uncapping of the residential federal ITC has made it more
difficult to figure out how much a customer should borrow. The
problem is that the ITC is a significant incentive, but it isn’t
received until the customer files her taxes, which can be a year
or more after the system needs to be paid for.
In what one might call the “Optimistic Loan” scenario, the
customer would borrow the net cost after all incentives
(including the ITC) have been received. This would produce the
lowest loan payments, and have the best chance of being cash-
positive from the start, making the salesperson happy. However, the customer would need to have the cash to cover the ITC
amount or get a bridge loan until the ITC is received because of
the optimistically low loan & payments.
In an “Inefficient Loan” scenario, the customer would borrow
the net cost after all other incentives, except the ITC. This will
allow them to acquire the system with no money down.
However it will also result in a lot of cash on hand once the ITC
is received, which she is paying interest on, which is expensive
and not very efficient. It is also less likely to be cash-positive,
which will be a disadvantage for the salesperson.
The solution is what OnGrid Solar calls “Smart Financing” where the customer uses a “line of credit” financing source that
she can borrow from and repay without pre-payment penalty.
Assuming the ITC will be received in a year, and that she can
Fig. 17. Effect of a solar system financed at a fixed 8% interest rate over 20 years showing a cash-positive result from the first day of ownership, including maintenance costs and the inverter replacement at year 15.
Fig. 18. Accumulated net savings of solar system financed over 20 years, including all costs, thus showing pure cash profit accumulated over time with no additional expense.
Utility Bill w/o Solar at 5% escalation
8% Loan (net cost), New Smaller Bill, & Maintenance
Accumulated Savings
Net Annual Savings
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 18 of 19
apply it to the principal of the loan at that time, one can
calculate the necessary loan payment that allows them to pay off
the loan in the desired number of years including interest. The
calculation is complex, and is not a standard function in most
spreadsheets, but can be done. The resulting loan payment will
be somewhere between the Inefficient Loan and the Optimistic Loan, typically tending to be pretty close to, but slightly more
expensive than the Optimistic Loan.
Results of Smart Financing can be seen in Fig. 17. A subtle
feature of it is the slight dip in savings in the 2nd year. In the 1st
year the loan principal is very high because it includes the ITC
amount causing the interest cost to be quite high. This allows
for a large 1st year tax deduction benefit, even though the loan
payments are fixed and steady. Once the ITC is received and
applied to reduce the principal, the interest is reduced, so the tax
deduction shrinks, effectively raising the cost of the loan
compared to the fixed loan payments.
Refer to Fig. 14 for several examples showing the initial and 5th year monthly cash flow assuming 100% Smart Financing of
a solar system using a 30-year loan. Because of the 2nd year dip,
the 5th year monthly cash flow isn’t always better than the 1st
year’s, but is a basis for continuous improvements in cash flow
going forward. Note, we use the 5th year because most
depreciation (in commercial systems) and PBI benefits (both of
which are applied to loan principal in the same way as the ITC)
have been received and included by then.
Sources of financing funds can include:
! Unsecured
! Home equity ! Community Financing
! Power Purchase Agreements (PPAs)
! Leases
Unsecured financing can include credit cards or other types of
unsecured loans. These are generally a terrible idea for any kind
of long term financing because they usually have high interest
rates and the interest is not tax deductible. It may be reasonable
to consider them to temporarily finance the rebate or tax credit
until it is received, however, it requires discipline to ensure the
loan is paid off as soon as the incentive is received.
Home equity sources of funding can include 1st mortgage
refinances, 2nd mortgages, Home Equity Loans, and Home Equity Lines of Credit (HELOCs). In general, home equity
borrowing is tax deductible, has the best unsubsidized interest
rates, and has the longest repayment terms, all of which allow
for lowest monthly costs. However, the decline in real estate
values have hurt Loan-to-Value (LTV) ratios for most
homeowners, and the tight credit market in 2009 have put strict
limits on LTV ratios, credit scores, and income requirements,
making use of home equity difficult. Only the Line of Credit is
likely to work with Smart Financing. Other loans tend to be less
flexible on borrowing and repayment term. Attractive FHA
Energy Efficient Mortgages (EEMs) may be available from the U.S. Dept of Housing and Urban Development (HUD) at:
http://www.hud.gov/offices/hsg/sfh/eem/energy-r.cfm.
A new idea and source of funds are local loan programs called
“Community Financing” developed by funding sources in
partnership with cities, whereby a citizen property owner can
receive a loan for a solar system and have it collateralized and
paid back on her property tax bill. The program was pioneered
in Berkeley, California, and is now available in several cities
thanks to AB811, the “Community Financing” bill.
The loans are obligations to the city, the interest is tax deductible, and the property tax bill shows the itemization of the
loan amount, the principal and interest. The interest rate is set
by the city and their partner bank and is generally at market
rates. However, even if the financing was at what might be
considered a subsidized level, because of the ARRA of 2009,
there is no longer any negative interaction with the ITC (there
used to be a tax rule that allowed one but not both of an ITC or
subsidized energy financing to be enjoyed). The loans are
generally transferable to a future buyer of the property if she is
willing to agree to assume the loan payments.
These loans pose little risk to the city and their funding
partner, because property taxes are considered to be in “1st position” to get paid in cased of a foreclosure. This has caused a
controversy in the banking community because this now places
more risk on the holder of the 1st mortgage (who is in 2nd
position), and the lawsuits have started. The mortgagees insist
these loans be in at least 3rd position to protect their mortgages.
Depending on how they are structured, that may work for the
cities. Stay tuned, it’s developing as this is written.
There are also two commercial financing products being
applied to residential situations: Power Purchase Agreements
(PPAs) and leases. PPAs are the agreement for one party to sell
power to another at agreed upon terms. The sale is for kWh of energy only. The leases for solar are rentals, where a customer
rents (leases) a solar system from another party. In both
products, the parties owning the systems have large investors
who have money to finance systems and who can use both the
ITC and depreciation.
In the typical PPA scenario, the site occupant agrees to a PPA
for electricity kWh at a certain price and in exchange allows a
solar system to be placed on her roof. In residential applications
of a PPA, the homeowner usually pays a deposit of anywhere
from $2,000 to 25% to 50% of the cost of the system in addition
to the price she will pay for the electricity. Naturally, the more
she puts down as a deposit, the lower the price of the electricity. The contract lengths are typically 15-20 years, and there may be
a buyout cost at the end if the homeowner wishes to purchase it
at that time, or she may have to pay a removal fee if she doesn’t.
The price of electricity may be fixed by the agreement, or it
may have an escalator, causing it to get more expensive over
time. There is usually a guaranteed minimum performance, but
the customer must purchase any extra electricity, whether she
wants it or not.
A typical residential solar lease is similar, in that there is often
a deposit paid and a long-term agreement to rent a system for
placement on the customer’s roof. The monthly rent may include an escalator, increasing costs over time, and may
include a buyout clause and termination costs. The buyout
clause must not allow the system to be purchased for less than
Fair Market Value (FMV) at the end of the term, and that the
FMV must be determined at the end of the term, otherwise the
Economics of Solar Electric Systems !2009, Andy Black. All rights reserved.
July 2009 - 19 of 19
lease will fail to satisfy IRS tax rules. The system usually comes
with a performance guarantee, and the homeowner enjoys any
extra production at no extra charge.
Things a customer should watch out for regarding leases &
PPAs: 1. High escalators in the contracts and their compounding
nature. These vehicles can be good hedges against future rate inflation, but a customer should be cautious about overpaying
for that hedge. Rates may not rise fast in the future for any
number of reasons, and are certainly not likely to rise much
faster than 6% per year over the long term. Currently, state or
federal government does not regulate these products, so there is
a lot of risk of customers agreeing to very expensive terms over
the long term. 2. Large deposits without performance guarantees
and without clarity in the contract on what happens to the
system in the event of the provider’s bankruptcy. 3. Large
buyout charges or removal costs at the end of the term.
Leases and PPAs with $0 deposits are easy to understand and
sell if the monthly costs or $/kWh are less than the customer’s current costs. Otherwise the customer must figure out how soon
the deposit amount will be recovered.
Leases and PPAs can be attractive to customers who have no
other way of financing a system, or who can’t use the ITC. But
if she has her own cash, or can get her own financing, she can
usually do better and keep more of the benefits for herself,
rather than sharing them with the financing party and the
provider. Customer shouldn’t be taken in by claims that these
products are a lot less expensive because of the depreciation –
effectively the depreciation offsets the taxability of the revenue
received the provider. These deals are currently a goldmine to developers and providers, but are just “ok” for the consumer,
and will be until more competition comes along.
CONCLUSION: It is important to compare the solar investment to other
investments on an even basis. Rigorous treatment and critical
analyses from several angles including Compound Annual Rate
of Return, Cash Flow, and Resale Value need to be considered
to do a fair assessment.
Solar will make economic sense for many, but only a hard look at the numbers will tell. The reader is encouraged to check
it out. Run the numbers, get evaluations and proposals from at
least 3 solar providers, and take them to a CPA to check them
out. That way the smile on your wallet can be as big as the
smile on your face!
SUGGESTED ADDITIONAL READING: ! OnGrid Solar’s papers, publications, and presentation slides:
http://www.ongrid.net/papers
! “A Guide To Photovoltaic (PV) System Design And
Installation” http://www.energy.ca.gov/reports/2001-09-
04_500-01-020.PDF, California Energy Commission
! Bolinger, Wiser, et al, LBL papers and presentations at: http://eetd.lbl.gov/ea/emp/re-pubs.html, particularly:
o Shaking Up the Residential PV Market: …
o The Impact of Retail Rate Structures on the Economics of
Commercial Photovoltaic Systems in California
And at: http://eetd.lbl.gov/ea/emp/cases/EMP_case.html
o Property Tax Assessments as a Finance Vehicle for
Residential PV Installations: …
o Exploring the Economic Value of EPAct 2005's PV Tax
Credits
! SEIA “Guide to Federal Tax Incentives for Solar Energy”
http://www.seia.org, Solar Energy Industries Association ! Utility Tariff and Rate Tables (see desired utility’s website) –
great for insomnia
DESIGN & ANALYSIS TOOLS: ! OnGrid Tool, which incorporates all of the elements of this
paper, plus up-to-date rates and incentives, to allow the user
to design and analyze PV systems at a high level. It also
produces proposals and sales documentation:
http://www.ongrid.net/payback
! Clean Power Estimator:
http://www.consumerenergycenter.org/renewables/estimator.
! PVWatts: http://www.nrel.gov/rredc/pvwatts
! PVSyst: http://www.pvsyst.com ! RETscreen: http://www.retscreen.net
! PV Design Pro: http://www.mauisolarsoftware.com
! QuickQuotes: clean-power.com/quickquotes/products.aspx
! CPF Tools: http://www.cpftools.com
ACKNOWLEDGEMENTS: Thank you to the following that have provided invaluable
insights knowledge, corrections, and review:
Michael Bishop, OnGrid Solar
Chad Blanchard
Mark Bolinger, Lawrence Berkeley Laboratory (LBL)
Keith Martin & John Marciano, Chadbourne & Parke LLP Ryan Wiser, Lawrence Berkeley Laboratory (LBL)
!Copyright 2009, Andy Black. All rights reserved. This
information changes periodically. The author maintains an
updated version of this article at:
http://www.ongrid.net/papers/PaybackOnSolarSERG.pdf. For more info on solar payback, analysis tools, upcoming classes,
and other papers and articles, see http://www.ongrid.net.
Andy Black is a Solar Financial Analyst and CEO of OnGrid
Solar, creator of the OnGrid Tool, and educator on the
financial aspects of solar electric systems. He is a former
NABCEP Certified PV Installer, is on the Advisory Board of the
NorCal Solar Association, and is a recent past board member of
the American Solar Energy Society. He can be contacted at
(408) 428-0808x1 or [email protected] for questions about the
payback on solar.
The OnGrid Solar Financial Analysis & Sales Tool
Simplify Solar Sales: Qualify and Close in Less Than a Day!
(866) 966-5577 www.ongrid.net
Show Your Customers
Their internal rate of return (solar vs. stock market or interest-based investment)
Their cash flow for financed systems (positive and increasing over time)
System’s total lifecycle payback and savings (show how much they save over time)
Their increased resale value (often is more than system cost & increases over time)
Simplify Your Sales
Identify and screen hot leads (guides salespeople through the entire sales process)
Size PV systems accurately (time of use, shading, tilt, orientation, incentives and more)
Price systems considering all factors (e.g., tile roof, custom mounting, etc.)
Create proposals, price quotes quickly, onsite (one button form generation, documentation, includes CSI)
Use customer data to paint them a picture. Example Output*:
*See website for detailed description and comprehensive list of customizable outputs and displays.
Example Sales Call
FREE Trial / Examples: www.ongrid.net/payback 2010 OnGrid Solar
9:00 a.m.
Receive Incoming Sales Call
9:30 a.m.
Qualify, Gather Data,
Email Estimate
11:00 a.m.
Site Visit
12:00 p.m.
Update Estimate
Print All Docs (on site)
12:30 p.m.
Present Bid, Contract &
Docs
1:00 p.m.
Close the Sale
1:30 p.m.
Turn in Closed Sale
Cash Flow: Annual Costs: Solar with Loan vs. No Solar
Loan cost, Maintenance, Inverter Replacement, & new small electric bill
Lifecycle Payback: Annual Savings Before & After Payback
Utility Bill w/o Solar at 5% rate
escalation
Lifetime savings are typically 2-3.5 times system cost
Payback
Resale: Resale Value Over Time
Resale Value increases due to increasing annual savings
Res
ale
Val
ue
Cash Flow: Net Annual Savings When Financed
Net Annual Savings
A
nnua
l Sav
ings
2010 OnGrid Solar
The OnGrid Solar Financial Analysis & Sales Tool for Commercial & Residential PV Sales
A Time-Saving, Comprehensive
Tool for Solar Sales
(866) 966-5577 www.ongrid.net
Helps Create & Close More Sales Calculates TOU Value with Shading Proves Payback for the Customer Prepares Rebate & Utility Docs Easily
The OnGrid Solar Sales Tool Helps Commercial & Residential Salespeople: (See www.ongrid.net for comprehensive lists of all details and options)
Identify and Screen Hot Leads, guide them successfully thru
the entire sales process
Perform Multiple Solar Financial Analyses, option to generate a
Variety Of Proposals
Fill out Closing Sales Paperwork and Documents (including CSI)
with the touch of a button
Size PV systems based on customer needs, incentive
programs and site data
Upload shading device data for accurate Time-of-Use value analysis
Develop Accurate Price Quotes,
including all material, regulatory and job-site factors
Demonstrate the financial benefits of a solar electric system to your customer with customized calculations. Tailor and brand your printouts. Use them for direct presentations as your sales materials.
PV System Size & Production Current & Future Electric Bills Cost, Rebate & Tax breakdowns
Financing & Cash Flow Resale Calculations & Graphics Rate of Return Calculations
The OnGrid Tool is offered on a subscription basis and is updated frequently with current Rate Schedules, Incentive, Tax and Product information, and periodically with new tool features and benefits. Download the free trial. Then, contact Andy Black at [email protected] or (866) 966-5577 to start closing more sales.
(866) 966-5577 FREE Trial / Examples: www.ongrid.net/payback
Solar Pathfinder® SunEye®
Acronyms Used In Sales, Marketing, Economics & Finance Classes
AC: Alternating Current (standard AC wall power) ACP: Alternative Compliance Payment ACEEE: American Council for an Energy Efficient Economy A.K.A.: Also Known As AMT: Alternative Minimum Tax APY: Annual Percentage Yield ARRA: American Recovery and Reinvestment Act ASES: American Solar Energy Society CA: California CAD: Computer Aided Design CalSEIA: California Solar Energy Industries Assn CAGR: Compound Annual Growth Rate CARR: Compound Annual Rate of Return CCSE: California Center for Sustainable Energy CEC AC: California Energy Commission AC rating CEC: California Energy Commission CEO: Chief Executive Officer CFO: Chief Financial Officer CHEERS: California Home Energy Efficiency Rating System CL&P: Connecticut Light & Power COO: Chief Operating Officer CO2: Carbon Dioxide CoSEIA: Colorado Solar Energy Industries Assn CPI-U: Consumer Price Index-Urban CPUC: California Public Utilities Commission CRES: Colorado Renewable Energy Society CRM: Customer Relationship Management CSI: California Solar Initiative DC: Direct Current (what comes out of PV modules) DER: Distributed Energy Resource/Renewable DGR: Distributed Generation Resource DOE: Department of Energy (U.S.) DSIRE: Database for State Incentives for Renewable Energy:
www.dsireusa.org DWR: Department of Water Resources EPBB: Expected Performance Based Buydown EEM: Energy Efficient Mortgage EIA: Energy Information Administration (of DOE) EPBI: Expected Performance Based Incentive FASB: Financial Accounting Standards Board FHFA: Federal Housing Financing Agency FICA: Social Security Payroll Tax FinCap: Finance or Capital (lease) FIT: Feed-In Tariff FMV: Fair Market Value HELOC: Home Equity Line of Credit HERS: Home Energy Rating System IDR: Interval Data Recording (meter) IG: Investment Grade IID: Imperial Irrigation District IOU: Investor Owned Utility IRC: Internal Revenue Code IRR: Internal Rate of Return IRS: Internal Revenue Service ISO: Independent System Operator ITC: Investment Tax Credit JCP&L: Jersey Central Power & Light kWh: kilowatt-hour
LADWP: Los Angeles Department of Water & Power LBL: Lawrence Berkeley Laboratory LTV: Loan-To-Value MACRS: Modified Accelerated Cost Recovery System MIRR: Modified Internal Rate of Return NABCEP: North American Board of Certified Energy
Practitioners NCSC: North Carolina Solar Center NESEA: North-East Sustainable Energy Association NJCEP: New Jersey Clean Energy Partnership NLP: Neuro-Linguistic Programming NOL: Net Operating Loss NOx: Nitrous Oxides NPV: Net Present Value NREL: National Renewable Energy Laboratory NSHP: New Solar Homes Partnership PACE: Property Assessed Clean Energy PBI: Performance Based Incentive PEC: PG&E’s Pacific Energy Center PG&E: Pacific Gas & Electric PPA: Power Purchase Agreement PSE&G: Public Service Electric & Gas (NJ) PTC: PVUSA Test Conditions PUC: See CPUC PURPA: Public Utility Regulatory Policies Act of 1978 PV: Photovoltaics (Solar Electricity) PVUSA: PV for Utility Scale Applications QF: Qualifying Facility REC: Renewable Energy Certificate/Credit ROI: Return On Investment ROR: Rate of Return RPS: Renewable Portfolio Standard SB1: CA Senate Bill 1, the law that created the CSI SCE: Southern California Edison SDG&E: San Diego Gas & Electric SDREO: San Diego Regional Energy Office (aka CCSE) SEI: Solar Energy International SEIA: Solar Energy Industries Association SEO: Search Engine Optimization SLI: Solar Living Institute SMUD: Sacramento Municipal Utility District SOx: Sulfur Oxides S-REC, sREC: Solar Renewable Energy Certificate STC DC: Standard Test Conditions DC rating STC: Standard Test Conditions SVP: Silicon Valley Power SWOT: Strengths, Weaknesses, Opportunities, Threats TEI: Tax Equity Investor TOD: Time Of Day TOU: Time Of Use TPO: Third Party Owner or Ownership TRC: Tradable Renewable Certificate (aka REC, Green Tag) TruTaxOp: True Tax Operating (lease) UI: United Illuminating Co. (CT) URG: Utility Retained Generation WACC: Weighted Average Cost of Capital WIIFM: What’s In It For Me
Andy Black OnGrid Solar
Solar Financial Analyst (866) 966 5577x1 [email protected]