October 31, 2018
Is Solar Right For Your Business?
California is far and away the United States’ leader in solar energy, hosting nearly 40% of the nation’s solar capacity. If you’re into gigawatts – which is how solar is measured on a large scale – California has 21 of the 53 gigawatts of solar installed in the United States at the end of 2017. There are now nearly 800,000 solar installations in California generating more than 15% of the state’s electricity. Some of those eye-popping numbers are obviously due to California’s large size and population, but to a larger extent, solar’s success has been driven by government policies – and financial incentives that support those policies – to encourage widespread solar development.
So while solar may be right for 800,000 of your fellow Californians, the question is: Is solar right for you?
Let’s look at the facts
In answering this question, we’re going to focus on what’s known as behind-the-meter, net-metered solar photovoltaic, or PV, systems. These are systems installed on the rooftops of buildings (although they can also include ground-mounted systems installed on land near the building, or on canopies over the building’s parking lots) to replace the electricity those buildings are buying from their local utility with clean, renewable power which is generated onsite. To be sure, there are other solar technologies available, including solar thermal (which uses the sun’s rays to heat water or air that can then circulate through a building) and passive solar (which uses architectural design features to maximize a building’s sun exposure), but solar PV is the technology that most businesses install to help lower their energy costs while reducing their carbon footprint.
Behind-the-meter refers to the fact that these solar systems are designed to serve only the electric needs of the building on which they are installed. Solar systems that are designed to serve the grid as a whole are known as direct grid supply or utility-scale systems – the so-called “solar farms” that can be seen on large tracts of land or in the California desert.
Net metered refers to the way your utility bill is calculated when you have a solar system. The number of kilowatts your system generates is “netted” against the number of kilowatts you draw from the grid. You’ll pay only for the net difference between those numbers. Net metering allows you to receive full retail credit for every kilowatts your system generates, even if your building isn’t using the power at the time. Electricity your system produces in excess of your building’s needs is sent back into the grid – your meter literally spins backwards – and credited to your account. You’re essentially drawing on those credits at times (like at night) when your building is using electricity but your solar system isn’t producing any.
How much does a solar system cost…and how much will it save?
Let’s start off with some good news: The cost of solar PV has gone down steadily over the last decade, thanks largely to an increase in demand for solar panels that reduced manufacturing costs and advances in technology that improved efficiency. The Solar Energy Industry Association estimates that prices for solar systems in California have tumbled 55% in the last five years, while data from the state’s utilities shows an average cost in 2017 of $3.77 per watt for solar systems larger than 10 kilowatts, down from $4.56 per watt just two years earlier. Using those figures, a 50-kilowatt system (which would satisfy the needs of a business using about 6,500 kilowatt-hours a month) would cost about $188,500 before tax credits or other financial incentives.
The Solar Investment Tax Credit, or ITC, allows the owners of commercial solar systems to claim a 30% credit against their federal income tax liability. For example, a business owner who spends $188,500 on a system can take $56,550 off their federal income taxes. However, the ITC will begin stepping down for commercial customers in 2020 until it reaches 10% in 2024. Commercial customers may also qualify for accelerated depreciation on their solar systems. On the state level, California’s three major investor-owned utilities (PG&E, SCE and SDG&E) no longer offer rebates for solar. However, several the state’s municipally-owned utilities and co-ops still offer their own rebate programs.
The cost of a solar system may also influenced by several factors, including the system size (economies of scale and fixed costs associated with each system make larger systems less costly on a per-kilowatt-hour basis than smaller ones), the quality of the equipment and the physical characteristics of your building. Other issues may also come into play, such as the federal government’s recent decision to impose tariffs on imported solar panels.
Your solar installer can crunch all the numbers, showing you exactly what your system will cost, how much money you’ll save on your electric bills and how quickly your investment will be repaid. But you’ll not only be saving money – you’ll be saving the planet, too. By using solar, you’ll be avoiding the burning of fossil fuels in power plants that produce carbon dioxide and other harmful emissions. And you can’t put a price on that.
Other options for going solar
If you’re not in a position to finance the purchase of a solar system, you can still go solar with a lease or Power Purchase Agreement, or PPA. Under this scenario, a solar developer installs a system on your business’ roof in return for a monthly payment (lease) or a fixed price for each kilowatt-hour generated (PPA). The developer owns and maintains the system, and generally collects any tax credits or incentives the system may be eligible for. Leases and PPAs are also popular with schools, religious institutions and non-profits that can’t take advantage of the tax credits.
Whether you’re looking to buy or lease a rooftop system, you’ll want to make sure that your roof is in good shape. A solar system has a lifespan of 25 years or more, so it doesn’t make sense to install a new system on a roof that will need replacing in the next few years. You’ll also want to make sure that your roof isn’t shaded by nearby trees or buildings that are taller than yours, and is free of obstructions (like rooftop HVAC systems, water towers or stairway exits) that can take up space and cast shadows.
If your roof isn’t suitable for solar, there’s still another alternative you can explore. California is among a small but growing number of states that have adopted a concept called Community Shared Solar. California calls its program GTSR, an acronym for Green Tariff/Shared Renewables. GTSR allows a business owner to buy or lease a share of a large-scale solar system that is owned by a utility company or private developer and is installed at a remote location. The business owner’s monthly electric bill is then credited for the amount of electricity produced by their share of that system.
When is the right time to install solar?
While a solar system is a great green energy solution for most businesses, it’s not the only step – and definitely not the first – that business owners should take to reduce their energy costs, become more energy-efficient and shrink their carbon footprint. Think of solar as the third step in a three-step process to achieve those goals.
Before thinking about buying or leasing a solar system, business owners should do whatever else they can to reduce their business’ energy demand. That’s because solar systems are generally sized to meet the customer’s demand, so buying a solar system before bringing your demand down to the lowest possible level through other means is going to result in spending more money on an oversized system.
The first step in reducing demand is practicing energy conservation. This involves doing no-cost, common sense things like turning off lights and equipment when they’re not in use, or raising the thermostat a few degrees during air conditioning season and lowering it a few degrees during heating season. The payback on energy conservation measures is immediate, because it doesn’t require any capital investment.
Once you’ve reduced your energy usage through conservation, it’s time to look at energy efficiency. Energy efficiency measures – including items like LED lighting, high-efficiency HVAC systems and upgrades to equipment specific to your business – require some capital investment. However, Taper can identify government and utility-sponsored incentive programs which offer rebates and/or financing options that will significantly reduce the cost of installing those measures and shorten your payback period.
Once you’ve lowered your business’ energy usage as much as possible through conservation and efficiency, it’s time to think about going solar.