Thoughts on Solar

Fire rages in Altadena. Photo courtesy Joe Stanek

One week ago, the Eaton fire erupted, apparently at the base of a Southern California Edison (SCE) transmission tower. (SCE denies responsibility). Driven by hurricane force winds, the wildfire spread rapidly during the night and through Wednesday morning. Damage assessments are ongoing, but satellite imaging suggests that more than 7,000 structures have been damaged or destroyed. Large swathes of Altadena - one of our prime service areas - have been reduced to rubble. (To date, only 30% of the fire zone has been inspected to verify the extent of the damage. Los Angeles County has an interactive map that contains the data about inspected properties, including photos to show either the damage or lack thereof. You can find that map here.)

Recovery is going to be long and painful. Here are a few useful facts regarding homes with solar systems in light of the Eaton fire:

• Is your solar system covered by your homeowner’s insurance? YES - the solar system is a fixture on your home and as such it is covered. Of course, limitations on total dollars provided under the policy is another issue, as is whether folks even were able to afford coverage for fires.
  
  
• What happens regarding your SCE interconnection status for NEM or NEM 2.0 - can a replacement system continue under those earlier, and more favorable, net metering arrangements? YES - a replacement system for one that was interconnected under either original NEM or NEM 2.0 can continue under those tariffs for the remainder of the original 20 year term. To qualify, the new system must be in the name of the original owner - properties that are sold do not qualify. The new system can be sized to the prior year’s usage, presumably accounting for the energy that was produced by the solar system as well as what was consumed from SCE. (If you need help documenting that production and you had an Enphase system, we can help with that.) The system must be replaced within four years of the fire. Make sure to photograph the site to be able to prove that the old system was destroyed.
  
  
• What happens if your solar system was leased or under a Power Purchase Agreement (PPA)? Generally, the lease or PPA should be canceled, but be sure to contact the entity financing your system.
  
  
• What about new home construction in the fire area - will it be required to comply with Title 24 in general and its requirements for solar in particular? On Sunday, Governor Gavin Newsom issued an Executive Order (you can read my Substack post on the EO here) that requires state agencies to make recommendations regarding the applicability of Title 24 (and other regulatory schemes including the California Environmental Quality Act, CEQA). In other wildfire disasters, the solar requirement was waived, and that may well be the case here, though folks rebuilding who had solar before will almost certainly want to include it again.

Toward that last point, just before the fire broke out, a client of ours called. Their system was complete and had been tested but was not on as it had not yet received Permission to Operate. It was getting dark, and my client was without power. He wanted to know if we could turn the system on so that they would have power with which to stay informed during the windstorm. I was able to walk him through bringing the system back online and now he had power. Hours later, he was ordered to evacuate. As he put it, “the battery system was critical for us having lights to grab our important things.” Solar and storage for the win!

As we endeavor to adapt to Climate Change - and there can be no doubt that Climate Change played a major role in the extent of this disaster - building more resilient infrastructure will be key. Burying power lines in neighborhoods sure seems like a good idea, particularly in areas where entire city blocks have been destroyed and need to be rebuilt. Residential solar and storage clearly have a role to play here, despite the attacks from the utilities and the CPUC. We look forward to helping with that.

LA Strong!

The Washington Post is out today with a disturbing article titled, Where heat waves may cause blackouts, and no surprise, Southern California is one of those places!  The rationale for the headline is straightforward enough: climate change is bringing more consecutive days of heat wave weather, and those extended days of heat cause stress on the electrical grid, including on those transformers you see on power poles in your neighborhood, maybe even in your own backyard.  When overloaded, by both heat and increased demand (from air conditioning, pool pumps, and increasingly EV charging), those transformers can fail, sometimes spectacularly!

SCE is well aware of this issue.  From the article:

The power company Southern California Edison recently warned that climate change will make it so “existing infrastructure will become less efficient, especially inland, resulting in reduced capacity on lines and higher losses in transformers.”

Even if the transformers do not fail, SCE might be required to cut off power during heat wave events, compounding the impact on consumers who now find themselves without AC - or even a fan - during a high heat crisis!

It doesn’t have to be that way!

Adding solar and sufficient storage is a way to thrive during those heat waves knowing that whatever the grid does, your life will pretty much continue as normal.  We are certified installers of Enphase equipment, including their more powerful 5P battery systems.  Get ahead of the curve and give us a call today.  One of these summer days you will be glad that you did!

Our Four-Part Series on Comparing Commercial Solar Bids concludes today with Part 4: Comparing Return on Investment (ROI) and Levelized Cost of Energy (LCOE). (You can read our earlier installments here: Part One: Comparing Solar Modules; Part Two: Comparing Solar Inverters; and Part Three: Your Utility Savings Analysis.)

ROI

We learned in Part Three what should be contained in a Utility Savings Analysis - power and energy production over the system lifetime, savings in Year 1, and savings over the subsequent years as a function of guesstimated utility cost increases over time.  Given the energy saving starting in Year 1, the cost of the system, any Operations & Maintenance costs, the anticipated rebate from the utility, and the tax benefits anticipated for the system, your prospective solar contractor should map out for you the cash flows associated with your system.

The O&M piece is worth pausing on for a moment as the system design will play a major role in estimating what your annual O&M costs will be.  It is true that for the most part, solar power systems require little or no maintenance.  Indeed, the solar modules will most likely still be producing plenty of power long after everyone associated with the project is long gone!  (NREL has solar modules that have been producing power for forty years with no sign of stopping and the modules being manufactured today - at least from the top tier manufacturers - are of much higher quality than what was available in the 1970’s.)

The inverter(s), however, are another story.  There is a reason that central inverters and string inverters come with relatively short warranties - typically five years standard for central inverters and ten years for string inverters - and that reason is heat.  Since large inverters process very large amounts of power they also generate a lot of heat and that ultimately takes its toll on the electronics.  If you add in adverse environmental conditions - high humidity, dust, the occasional rodent, etc., and sooner or later that inverter will fail.  A proper ROI analysis will factor in the cost of inverter replacement over the lifetime of the project.  If the included warranty is ten years, then inverter costs should appear every ten years.  If the warranty is five, then replacement costs should be included every five.

Conversely, one of the main selling features of microinverters in the commercial marketplace is the length of the warranty provided.  At a full twenty-five years, that means that inverter replacement is covered over the modeled lifetime of the system.  (Of course, offering a warranty and being able to honor that warranty are two different things and there are few inverter companies that have been around for twenty-five years.)  If you can reduce or eliminate inverter replacement costs, that will have a significant impact on O&M costs over the lifetime of the system.

Other O&M items include system monitoring (if not included in the purchase price), security (if conditions warrant), and cleaning (a very nominal expense).

For commercial systems the O&M expense is often modeled as a percentage of the purchase price per year, rather than discrete payments representing replacement events.  In this way the O&M expenditure is actually more like a set-aside for a maintenance fund to be used as needed over time.  It should accumulate to at least the value of inverter replacement within the inverter warranty period.

The other wildcard element in this analysis involves calculating the cash value of any received tax benefits.  While we don’t provide tax advice (and accountants shouldn’t be designing solar power systems, either!), we can say that aspects of tax benefits to be considered are: the 30% federal investment tax credit, plus state and federal depreciation, the latter elements being a function of the tax rate of the system owner who will try to utilize the benefits.  Of course, if the client is a non-profit, there will be no tax benefits to consider - the primary reason why the payback on solar for non-profits is so much longer.

The final piece - the rebate from the utility - should be factored in either as a lump-sum payment if the rebate is an EPBB rebate, or in annual payments over time (typically five years worth) if it is a PBI rebate.  In California, these will be based on the output from the CSI rebate calculator, and those calculations should be made available.

Put all of that together over time and you have a series of cash flows, positive and negative, from which an Internal Rate of Return can be calculated and, more importantly, the payback period determined.  Keep in mind, however, that this calculation is dependent in part upon assumptions about utility rate changes which, while possibly quite accurate in the short term, become increasingly speculative over time.  Still, if the calculation is done in a manner where the assumptions are properly identified, the ROI calculation should provide a reasonable means of comparing competing bids as to relative value.

Levelized Cost of Energy

While it is common in the solar industry to express the cost of the system in dollars/Watt, that is a misleading statistic at best since it masks variables affecting real world performance.  A far better metric - and one that your installer should be able to provide you - is the cost per kWh for the energy that will be produced by the system over its anticipated lifetime.

The calculation is actually quite simple - determine the total out-of-pocket costs for the system owner over the system’s lifetime (including purchase price less rebate and tax credits, plus all O&M costs) and divide it by the total amount of energy to be produced (allowing for the system’s performance degradation over time).

We prefer this number because it reflects the real world performance and it allows for direct comparisons against the client’s previous costs for energy. Indeed, we typically find costs per kWh in the 8-10¢ range compared to utility costs of 15-25¢ starting in Year 1. But because the energy cost for the solar power system is fixed over its entire lifetime versus the cost of energy from the utility which is constantly rising (even if we don’t know how fast), the comparison is quite compelling.

LCOE: Comparing System to Utility Cost

Note that by applying an agreed upon (or at least disclosed) rate for utility increases, a graphical comparison over time can be produced – but the underlying LCOE is not at all dependent upon future utility rate changes.  This gives the client the ability to compare multiple proposal against a true value proposition – how much will the energy from the proposed system cost?  From a financial perspective, this is the best comparison point that we have been able to identify.  A potential solar contractor who balks at providing this should, you guessed it, be scratched from your list!

The preceding is an excerpt from Jim Jenal’s upcoming book, “Commercial Solar Step-by-Step,” due out in July.