economics of solar: making the financial case - ongrid solar

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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]

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Page 1: Economics of Solar: Making The Financial Case - OnGrid Solar

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]

Page 2: Economics of Solar: Making The Financial Case - OnGrid Solar

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]

Page 3: Economics of Solar: Making The Financial Case - OnGrid Solar

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

Page 4: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Andy Black
Page 5: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 6: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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?

Page 7: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 8: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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 - - - - -

Page 9: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 10: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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?

Page 11: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 12: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 13: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 14: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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)

Page 15: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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?

Page 16: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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?

Page 17: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 18: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

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

Page 19: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

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

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

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

10¢

15¢

20¢

25¢

30¢

Cen

ts p

er k

Wh

Usage

xx

Page 20: Economics of Solar: Making The Financial Case - OnGrid Solar

© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 103

Residential Tiered Usage With Solar

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

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

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

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

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

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

Page 21: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 22: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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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Page 23: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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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V'M',!G!A$R!%#!F;Sc!#.!W+1',-)'B S4SS9<_ S4S9T<S S4SSFN8 S4SSS9T S4SS9NS S4SS8TF S4SSSN8 S4S__<9 S4SN:;; S4S:NN9V'M',!GG!AH#('!%&+)!F;Sc!#.!W+1',-)'B S4SS9<_ S4S9T<S S4SSFN8 S4SSS9T S4SS9NS S4SS8TF S4SSSN8 S4S__<9 S4FTS8T S4S:NN9

]-)%'(!"'+1#)!=!2)=5'+OV'M',!G!A$R!%#!F;Sc!#.!W+1',-)'B S4SS9<_ S4S9T<S S4SSFN8 S4SSS9T S4SS9NS S4SS8TF S4SSSN8 S4S__<9 S4S;F9S S4S:NN9

V'M',!GG!AH#('!%&+)!F;Sc!#.!W+1',-)'B S4SS9<_ S4S9T<S S4SSFN8 S4SSS9T S4SS9NS S4SS8TF S4SSSN8 S4S__<9 S4NS;N: S4S:NN9]-)%'(!"'+1#)!=!2..=5'+O

V'M',!G!A$R!%#!F;Sc!#.!W+1',-)'B S4SS9<_ S4S9T<S S4SSFN8 S4SSS9T S4SS9NS S4SS8TF S4SSSN8 S4S__<9 S4SF_8S S4S:NN9V'M',!GG!AH#('!%&+)!F;Sc!#.!W+1',-)'B S4SS9<_ S4S9T<S S4SSFN8 S4SSS9T S4SS9NS S4SS8TF S4SSSN8 S4S__<9 S4F:S;: S4S:NN9

W+1-C!*&+(3'!=!abH'%'(bE+K"-)3,'=I+?-,K!>'1-0')C' ! S4SNT ! S4SNTH$,%-=I+?-,K!>'1-0')C' ! S4SNN ! S4SNN

H-)-?$?!*&+(3'`!=!abH'%'(bE+K!"-)3,'=I+?-,K!>'1-0')C' S4S9T S4S9TH$,%-=I+?-,K!>'1-0')C' S4S88 S4S88

*+,-.#()-+!L,%'()+%'!>+%'1!.#(/)'(3K!E-1C#$)%!=!c FSS4SS`` FSS4SS``

5'+O!D-?'!>'J+%'!=!aO]&5'+O!D-?'!>'J+%'!! AS4_9BYb')+J,-)3!%'C&)#,#3K!=!abO]& AF4N9B

E',-M'(K!"'(M-C' ^')'(+%-#)T

!!!!!

© 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

Page 24: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 25: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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?

Page 26: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 27: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 28: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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¢!

Page 29: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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 ->

Page 30: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 31: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

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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

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  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

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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?

Page 35: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 36: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

© OnGrid Solar and/or OnGrid Solar

© 2014 OnGrid Solar, All Rights Reserved. Economics of Solar PV - 204

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

Page 37: Economics of Solar: Making The Financial Case - 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

Page 38: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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?

Page 39: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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?

Page 40: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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.

Page 41: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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?

Andy Black
Andy Black
Page 42: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 43: Economics of Solar: Making The Financial Case - OnGrid Solar

© 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

Page 44: Economics of Solar: Making The Financial Case - OnGrid Solar

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

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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

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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)

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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).

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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.

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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

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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

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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.

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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.

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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.

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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),

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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.

Page 56: Economics of Solar: Making The Financial Case - OnGrid Solar

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

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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.

Page 58: Economics of Solar: Making The Financial Case - OnGrid Solar

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.

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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.

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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

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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

Page 62: Economics of Solar: Making The Financial Case - OnGrid Solar

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.

Page 63: Economics of Solar: Making The Financial Case - OnGrid Solar

The OnGrid Solar Financial Analysis & Sales Tool

Simplify Solar Sales: Qualify and Close in Less Than a Day!

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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

Page 64: Economics of Solar: Making The Financial Case - OnGrid Solar

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®

Page 65: Economics of Solar: Making The Financial Case - OnGrid Solar

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]