by Todd Sandford, Direct Energy Business
It is important not to overlook one of the simplest ways a company can affect its bottom line positively: managing energy costs. As companies focus more on cutting costs, better managing energy usage and price can be crucial to lowering overhead and gaining a competitive advantage. And increasingly, solar is becoming part of that equation.
Solar installations are at an all-time high, and it’s easy to see why: Solar panel prices never have been lower, government incentives are available and the technology has become highly efficient.
Installation of a solar array represents a long-term, known, fixed rate for electricity in an economy of volatile energy prices. Existing state and federal tax incentives for solar can help push electricity costs below current utility costs in many states, in addition to providing more long-term price stability.
Innovative financing options are available, too, which might cover most or all up-front capital investment. Companies also might be able to take advantage of solar renewable energy certificates (SRECs). Selling SRECs in states that have renewable portfolio standard (RPS) legislation increases the economic value of a solar investment and might help offset solar technology costs. Thus, solar can help meet any company sustainability goals or initiatives. As a result, now is an ideal time for businesses to invest in solar.
Solar Myths and Realities
Myth No. 1: We should wait until solar becomes an even better deal. Reality: There is a good chance that time is now. After years of oversupply-driven price reductions in the solar panel manufacturing sector, prices are stabilizing and are not expected to continue to fall as dramatically as in recent years, according to an annual briefing prepared jointly by the Lawrence Berkeley National Laboratory and the National Renewable Energy Laboratory, “Photovoltaic (PV) System Pricing Trends: Historical, Recent, and Near-Term Projections–2013 Edition.”
If the price of solar panels stabilizes, then the role of federal and state tax incentives is increasingly more important. Some rebates already have declined and others are approaching their decline or expiration.
The solar investment tax credit (ITC), a 30 percent tax credit for solar systems on residential and commercial properties that reduces the tax liability for property owners that purchase qualifying solar energy technologies, is only available at its current levels through Dec. 31, 2016.
A business’ solar panel system must be installed before the 2016 ITC deadline to be able to take advantage of it. The lead time from analyzing your solar options to an operational solar array might take many months, so Dec. 31, 2016, is not that far away.
Myth No. 2: My business is in a state where the sun doesn’t always shine. Reality: State and federal tax incentives might outweigh the sunshine when it comes to investing in solar. SRECs are a market mechanism for trading the environmental benefits of solar projects in some states, even if sunshine is lacking. An SREC represents the production of 1,000 kWh-or 1 MWh-by a qualified solar panel system. As mentioned, selling SRECs increases the economic value of a solar investment and can assist with covering the cost of a solar installation. In conjunction with state and federal incentives, owners of solar systems may be able to recover their investment in solar by selling SRECs. SRECs are lucrative in Massachusetts, Maryland, New York and New Jersey but are subject to change.
Massachusetts and New Jersey were the fourth and fifth top solar states in 2013, according to the Solar Energy Industries Association (SEIA). Data from the U.S. trade association shows Massachusetts’ solar installations equated to 47 solar panels for every seat at Fenway Park, or some 1.7 million solar panels. In the same year, New Jersey got 100 percent of its new electrical capacity from solar.
Aggressive solar targets in Massachusetts are spurring demand for SRECs and, in turn, driving SREC prices higher and creating additional value to every solar installation in the state. For a business customer that is evaluating a potential solar installation, higher SREC increases the return on investment or decreases the time to break even on the project. Alternatively, in a no-money-down solar power purchase agreement (PPA), higher SREC prices have a downward effect on the price of energy paid by a customer.
Through the New Jersey Clean Energy Program established in 2001, the state has a strong RPS and excellent net metering standards, which make it easier for projects to connect to the distribution system and be compensated for their contribution. An SREC model provides energy certificates and additional long-term financing for those who invest in solar.
In 2012, Maryland utilities were charged with sourcing at least 0.10 percent of their power from solar, up from zero percent just six years earlier; purchasing SRECs is one way to meet that requirement. That percentage increases annually until 2020. In addition, Maryland “closed its borders” so that RPS-eligible RECs may come only from in-state resources. Although this does not provide price certainty in the forward-looking REC market, a closed-border approach has proved effective in other states at reducing the possibility that future REC prices can be diluted by a flood of out-of-state RECs.
Before the solar carve out being implemented in the Maryland RPS in 2008, there were few, if any, state-level incentives to install solar in the state. Now, with a strong Maryland market for SRECs, solar power is competitive with traditional grid electricity, and Maryland businesses stand to benefit by installing solar.
New York also made the top 10 list for solar states at No. 9 with enough installed solar to power 10,731 homes.
Much of New York’s demand for renewable energy has been spurred by the state’s RPS-29 percent by 2015-with roughly one-third of it derived from customer-sited renewables. In addition, the NY-Sun Initiative, managed by NYSERDA and supported by $762 million in funding, is intended to support the installation of 3.175 GW worth of solar PV capacity in the state, with incentives’ fading as megawatt goals are reached, according to the Database of State Incentives for Renewable Energy.
Myth No. 3: My business can’t afford solar. Reality: Actually, you can. Maybe businesses couldn’t afford solar three or five years ago, but solar prices have declined dramatically. Overall, the average price of a solar panel has dropped some 60 percent since the beginning of 2011, according to SEIA.
Lower costs, robust incentives and financing options can make solar attractive for many businesses-even when compared with current energy prices. Factor in current and future energy market volatility, and solar is a more affordable decision today.
Many businesses were hit hard by skyrocketing energy prices-results of the polar vortex, the Northeast’s natural gas shortfall and Texas’ drought (see Figure 1). Businesses can control energy prices better by investing in solar, which gives them the opportunity to replace unpredictable grid costs with stable pricing. With a solar lease or PPA, businesses enjoy fixed monthly prices per kilowatt-hour and might be able to achieve this with little or no up-front capital investment.
|Figure 1 – Your Energy Bill is Rising Faster Than the Morning Sun|
Solar offers other financial benefits, as well. Businesses may be able to sell excess power produced by their panels back to the grid, depending on the state’s net metering rules. Solar also can help reduce a business’s capacity obligation-a charge several grid operators impose-which is based on a business’s high-use periods during the previous year and directly affects a business’s capacity charges if located in a capacity market.
Myth No. 4: Solar panels won’t work on our roof. We lease our building, so we can’t install solar panels. Reality: Solar panels do not have to be on your roof; they can be installed elsewhere. Sometimes solar is built in an adjoining field or parking lot, or the panels might not be on the property at all. Instead, a business may participate in what’s known as aggregated solar, community solar, shared renewables or solar gardens.
Often, several parties contract for the solar power from off-site developments. As a supporter of the solar facility, a business is rewarded with a fixed-rate contract at a cost that might be lower than what the business currently pays for power.
Rules for community solar vary by state and are changing. Figure 2 shows the location of several community solar projects.
|Figure 2 – States That Allow Community Solar Projects|
Community solar is ideal for buildings with older or shared roofs and for businesses that lease their facilities.
Deciding about solar for your business is complex, and many variables must be addressed beforehand: geography, historical power prices, weather, tax incentives and much more.
Regardless, now is a great time for any business to examine the benefits of distributed solar generation.
Solar adoption is rising as costs are falling, and critical tax incentives are nearing expiration.
Todd Sandford is the vice president of solutions and customer operations for Direct Energy Business. He has been with Direct Energy for 11 years in various roles. Reach him at [email protected].