Thoughts on Solar

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.

Before you can ever get a bid for your commercial solar project, you have to contact a solar installation contractor to come out to your location and perform a site evaluation.  Actually, you should contact at least three contractors so that you have a set of bids to compare (more on that process below) - but how do you find them in the first place?  Well, you could choose based on who has the most ads on TV or the Internet, or you could rely on Cousin Billy’s recommendation - but somehow that just doesn’t seem sufficiently scientific for a project like this.  There has to be a better way - and there is.

If you remember that you need to find someone who will work NICELY with you, success is all but assured.  And no, we don’t mean nicely, we mean NICELY - as in:

N - NABCEP Certification
I - Incentive provider (CSI or local utility) connected
C - City building department experienced
E - Electrician on staff
L - Local or national?
Y - Years in business.

Focus on those attributes and you will have found a contractor who will inspire confidence and guarantee a successful project.  Let’s expand on why these particular attributes are so important.

NABCEP Certification

The North American Board of Certified Energy Practitioners - NABCEP for short - provides the most rigorous certification process of solar installation professionals in the industry.  Not to be confused with their Entry Level Letter that merely demonstrates that the person has taken an introductory course in solar,  the NABCEP Certified Solar PV Installer™ credential is the Gold Standard for installers and consumers alike.  Earning NABCEP Certification requires the successful candidate to have an educational background in electrical engineering or related technical areas (such as an IBEW union apprenticeship program), at least two solar installations as the lead installer, and the successful passing of a 4-hour written examination on all aspects of solar power system design and installation.

As NABCEP notes:

When you hire a contractor with NABCEP Certified Installers leading the crew, you can be confident that you are getting the job done by solar professionals who have the “know-how” that you need. They are part of a select group of people who have distinguished themselves by being awarded NABCEP Certified Installer credentials.

NABCEP’s website offers a database of all Certified Solar PV Installers - just enter your zip code to find the installers located near you.  It is with great pride that we point out that at Run on Sun, all three of our owners have earned the designation, NABCEP Certified Solar PV Installer™ - and we know of no other solar power company in Southern California that can make that claim.

Incentive Provider - CSI or Local Utility

A second source of solar installers is the Incentive provider such as the California Solar Initiatives’ Go Solar California website.  Every installer who has done a solar power installation for a CSI utility (i.e., SCE, PG&E or SDG&E) will be included on this list.  Unfortunately, there are no other criteria associated with getting listed - and there is limited verification done to guarantee that the listed installer is reliable.  If your job is in California, your contractor must be on this list - but this is a double-check only - not an ideal starting point for your search.

Another source for information about solar installers is your local utility’s point person for solar rebates.  This person deals with installers on a daily basis, and while s/he won’t give you a specific recommendation, they may be able to warn you off of an installer whom they have learned is less than reliable.

City Building Department

Similarly, the folks in your local building department deal with installers regularly as part of the permitting/inspection process.  Once again, they won’t be in a position to provide referrals, but they may be able to give you a warning if there are red flags associated with a contractor that you are considering.

Local or National?

Solar installation companies come in all sizes - from national organizations that have crews installing systems all across the country, to local operations that only work in a limited geographic region.  To be sure, there are pluses and minuses on both ends — maybe lower prices for the national chain due to economy of scale in their purchasing versus greater attention to detail from a local company that lives or dies based on how well it satisfies its local customer base.  And, of course, money spent on a local company tends to stay in the local economy - another consideration in tough economic times.

Years in Business

The last of the NICELY elements is to look at the number of years the company has been in business.  Again, this is not a perfect indicator – some recent ventures really have their act together and some long-standing enterprises have long since ceased to really care about what they are doing – but at a minimum you want some assurance that the folks you are doing business with know how to run a business. Otherwise you run the risk of having a largely useless warranty and no one to call if things go wrong.

We would recommend a minimum of three-to-five years in the business of doing solar, with preferably a longer track record of running a business.  Expertise in areas beyond just installing solar is also useful such as engineering, management and law.

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

UPDATE - Read Part 2 of our series here: Who’s Hot and Who’s Not?

One year ago we wrote a three-part series analyzing six months worth of CSI data that turned out to be our most read blog posts ever. So back by popular demand, here is our analysis of the first half of 2012 CSI data in the SCE service area.

Methodology

First a brief review of our methodology.  We started by downloading the Working CSI data set dated August 22, 2012.  (Here’s a link to the CSI Working Data download page, and here’s a link to the data set (8MB zip file) that we used for our analysis.)  As we did a year ago, we limited our analysis to just the data from the SCE service area.  To limit our time period to the first half of 2012 (equivalent of what we did last year), we took the latest of a series of milestone dates in the CSI data (from First Reservation Date to First Completed Date) and used that as our Status Date and limited that date to values from 1/1/2012 to 6/30/2012.  Collectively, that accounted for 9,669 projects, an increase of 53% over the same period last year!

So that we can compare apples to apples, our analysis uses CSI AC Watts as the measure of system size (except where noted) instead of the more commonly reported DC or Nameplate Watts.  Why did we do that?  Well, not all 5kW Nameplate Watts systems are the same.  Some systems use less efficient inverters whereas others have panels that have very poor temperature performance (as indicated by their PTC rating), and some sites are poorly oriented or have substantial shading.  CSI AC Watts values take all of those factors into consideration - thereby giving a truer measure of the system’s actual performance.

Overview

Apart from the dramatic jump in the number of projects over the same period last year, how does the overall data for the first half of 2012 compare to that data from last year?  Here’s what we found:

Even though the number of projects increased dramatically from the same time period last year, the potential installed capacity of the projects declined significantly.  This may well reflect the expiration of the federal 1603 Treasury Grant program as it became harder to finance new commercial projects after the first of the year.  Here’s how the averages changed from 2011 to 2012:

The average system size in the 2012 data dropped 46% from the same period in 2011.  Likewise, rebate expenditures per Watt fell from $1.33 to $0.94, or 29%.  At the same time, the system cost per Watt also declined, but far less dramatically, from $6.37 to $6.13/Watt.  We will have more to say about system costs later.

Altogether, the data reflects a total of 519 different solar contractors, of which 213 (41%) were responsible for only one project.

Delisted by Design?

One intriguing item we noted last year was the significant number of projects - a full 11% - that were categorized as “delisted” meaning that they had been cancelled for one reason or another.  How did that number fare in our new data?  It dropped significantly down to just 4.2% of all projects, 6.3% of the potential installed capacity.

Of course, projects can be cancelled for a host of reasons.  Nevertheless, we decided to see if there were any companies that jumped out as having an unusually high rate of delisted projects.  We listed all of the companies that had any projects flagged as delisted (a total of  113 different companies) and compared that to their total number of projects.  We extracted those companies that had ten or more delisted projects and rank ordered them by the percentage of all projects that were delisted.

Here’s what we found:

Holy smokes, what is going on here?  Either Remodel USA, Herca Solar and A1 Solar Power are really unlucky, or something about how they create projects would seem to be problematic.  We will have more to say on this point in a subsequent post in this series.

Oh and a note to Do-It-Yourself’ers - you have a one in twelve chance of not completing your solar project.  Maybe solar really is something better left to the pros!

Is Bigger Still Better? (Or at least Cheaper?)

We closed Part 1 last year by looking at how the size of a system drives down the cost, and we wondered if the same would hold true this year?  To find out, we excluded delisted projects from our data and divided the remaining projects based on system size with one category being systems below 10kW and the other being between 10kW and 1MW.  (Strangely, we had to exclude some real outliers from our “small” system category - can you believe it, we found systems priced at over $30/Watt?  Again, much more to say about that in a subsequent post.)

Here’s our results for the small system category:

Our trend is still downward as system size gets larger, but the slope is not nearly as steep as it was in our corresponding graph last year.  Costs start at $8.59/Watt for the smallest systems and decline to an average of $6.41/Watt for systems just under 10kW.  That’s a rate of decline of $0.24/Watt per kilowatt of system size increase, in constrast to a rate of decline of $0.34 last year. Certainly as component costs decrease, their related economies of scale would likely flatten out and that is what this data appears to be showing.

Finally, then, let’s turn to the “big” systems - those between 10kW and 1MW - how did our system costs do in that group?

Again, another outlier as our highest system cost here is higher than it was a year ago - $16.50 vs $15.50/Watt.  Overall, we continue to see the downward trend as system size increases, but again, not as pronounced as it was a year ago.  This year, we see the average cost of a 100 kW system coming in just below $6/Watt whereas a year ago the 100 kW benchmark was closer to $6.80/Watt.  So our trend line is lower, but flatter than a year ago.

Moreover, we see far few systems in the 500kW and up category compared to last year.  Specifically, this year we have only 24 projects that crossed that threshold (10.98 MW total capacity), compared to 32 last year (21.6 MW).  Bottom line - projects have gotten smaller and really large projects have dropped off substantially.  Without the pull of those larger systems, it is not surprising that we are not seeing the same downward pressure on costs for larger systems.

Preview of Coming Attractions…

That’s enough to get us started.  Yet to come: whose equipment is hot and whose is not?  Any significant new kids on the block (be they installers or products)?  And who are our outliers this year?  (Hint - you’ve already seen some of those names!)  So stay tuned as we name names and follow the data wherever it may lead!

And of course, if you have thoughts on cuts of the data that you would like to see, please let us know in the comments.

Readers of this blog will know all about the 52.3kW solar project that Run on Sun just recently completed installing at Pasadena’s renowned Westridge School for Girls.  Now that project has become the cover story in the Annual “Green Issue” of Pasadena Weekly.

Titled, “Solar Flair: New solar installation at Westridge School brings environmental lessons to life,” the piece features interviews with Westridge’s Head of School, Elizabeth McGregor, Facilities Manager Brian Williams, and three students who are part of the school’s environmental group known as the Green Guerrillas.  The story reveals the school’s deep commitment to sustainability in everything from solar power to drought tolerant plants.

This first of what we hope will be many solar projects at Westridge really highlights the value of these projects for all schools, especially those in the Pasadena Water and Power service territory.  Good rebates and a solar company that really understands your goals makes a solar power system installed by Run on Sun a “no-brainer.”

Contact us today and let’s get going with YOUR solar project!

In Part 1 of this series about Installing Solar at Westridge School, we looked at the process of putting our materials together for the rebate application.  With the rebate safely reserved, it was time to turn to pulling the permits for the job.  A solar project of this size involves two separate permits - building and electrical - but four points of inspection - fire, electrical, building, and utility.  We had already provided the utility, PWP, with the materials they needed but now we needed to load up for the permit center.

Assembling the Necessary Materials

The permit process addresses an entirely different need than does the rebate application.  The permit process is intended to guarantee that the proposed system, as designed, satifsfies all applicable codes and standards.  In theory, once you have successfully pulled the permit, the inspection process should simply be a matter of showing the inspector that you built the system as it was approved when you pulled the permit.

It looks conventional enough!

This project presented one signficant challenge - the actual attachment of the system supports to the roof.  While the roof looked conventional enough, that was not a wooden truss underneath those shingles.  To the contrary, our roof was built from a 20 gauge “Type B” steel deck with two layers of 5/8″ plywood, followed by 3″ of solid foam insulation, followed by 3/4″ of plywood to which the roofing materials themselves - membrane, felt and shingles - were attached.  So the question arose: what would be a sufficient way to attach our standoffs to this roof to provide the requisite resistance to wind loads - the effect of which had recently been demonstrated in Pasadena in such a disastrous fashion?

Unirac Fastfoot Attachment

To help answer that question we turned to the structural engineer (SE) who had originally done the load calcuations for our building.  Could we use a “FastFoot” and simply put multiple screws into the wooden decking materials?  Surely with enough screws - the FastFoot will allow for up to eight - we could reach the required pull-out resistance.  Unfortunately, that wouldn’t work since the engineer could not guarantee the manner  by which the plywood materials were secured to the underlying steel deck.  In other words, while we could be sure that our array would remain attached to the plywood, we couldn’t be sure that the plywood would remain attached to the building!  Images of Wizard of Oz roofs flying through the air filled my mind - clearly we would need another way!

The engineer suggested that we could use carriage bolts that ran all the way through the steel roof and were bolted together on the back side.  Certainly such an approach would guarantee that our array and the roofing materials stayed connected, and indeed, you would have to separate the steel deck from the steel framework of the building for that method to fail.  Unfortunately, that wouldn’t work either since there was no way to access the back side of the roof in order to complete the connection.

“Nine-Inch Nails” Meet 8-Inch Screws!

There was one other approach - a company by the name of Triangle Fasteners sells some very strong, very long, self-tapping screws (called “Concealor screws“) that could drill their way into the steel deck and provide us with the required pull-out resistance. The bad news - our distributors only sold screws up to 7″ long - and that would not be long enough to guarantee that our screws made it through the decking. A call to the manufacturer revealed that in fact, they did make 8″ screws, they even made 9″ screws!  Excellent!  We now had a solution that our SE could bless.  It was time to go pull our permits.

Fear and Loathing at the Permit Center

Anyone who has ever pulled a permit knows the combination of emotions that you encounter upon entering the building: fear that something you haven’t considered will suddenly become A Really Big Deal, loathing for the interminable waiting, and of course, the pain of paying for it all.  Dentists’ waiting rooms tend to be cheerier places.

Pasadena’s permit center is certainly better than most: it is a comfortable old building across the street from the beautiful City Hall.  They have a clever scheduling system that routes you among the different windows: Building and Safety, Zoning, Historical Preservation (very big in Pasadena but not a factor for solar projects), Fire, Permit Processing and, last but certainly not least, the Cashier.  A solar project applicant must navigate their paperwork through every one of those windows before exiting with your Grail - a stamped set of plans and a bright Yellow permit folder where inspection sign-offs will be recorded.

First stop - Building and Safety.

Building and Safety

The building and safety folks are responsible for reviewing your plans for conformity with state and local codes and standards - a really important task.  First, however, you have to speak with someone who knows what you are showing them and on our first trip to the permit center, no such person could be found!  The gentleman behind the B&S desk was very polite, and you could tell that it pained him to inform us that after our thirty minute wait, he couldn’t help us.  Moreover, none of the people who “understood solar” were available - we would have to come back tomorrow.

Tomorrow dawned cloudy but we were determined to press forward.  This time our 35 minute wait was rewarded with an appearance before someone who was prepared to pass judgment on our plans!  We walked him through each of our sixteen 24″ x 36″ pages, explaining as we went exactly what we were doing and where the answers to his questions could be found.

All seemed fine, but then he started throwing us some curves.

Our SE had done his calculations for a basic wind speed of 85 mph - the same wind speed we had always used for load calculations in Pasadena.

“No,” said the man behind the desk, “You have to use 100 mph.”

“Really?  Since when?”

“Since the windstorm in Pasadena at the end of November,” we were told. (Never mind that the wind speed never reached 85 mph in Pasadena, let along 100 mph, during that terrible event.)

“Really?  Where was that published?”

“It wasn’t,” he conceded, but simply told us that we needed to revise our calculations for 100 mph or he wouldn’t approve them.  That meant another iteration with our SE and another trip back to the permit center.

Now the good news here is that we were certain that our system would easily handle 100 mph winds (or 120 mph, for that matter) so this change in policy did not pose a danger to the project going forward.  But changing the basic wind speed for an area from 85 to 100 mph is something of a big deal and will add to the expense of many projects that need permitting.  Shouldn’t there be a more public process before such a change is implemented?

The other curve sent our way was really just odd.

We did a detailed drawing showing our attachment method as it penetrated the various layers of roofing materials and made contact with the steel deck beneath.  We drew that straight up on the page and included multiple elevations  in our sixteen pages that showed the pitch of the roof and indicated that the array was installed on top of our attachment method, parallel to the roof.

“Not good enough,” we were told.

“Why?  What’s missing?”

“You need to show the attachment at the slope of the roof.”

“Really?  We show you the slope of the roof, we gave you the detail of how the attachment connects to the roof and we told you that the array is parallel to the roof.  How is that not sufficient?”

“You need to add a drawing that shows the array attachment and which reflects the slope of the roof.”

“Really?  So what you want is for me to rotate the image of our attachment 13° to reflect how it will be pitched on the roof?”

“Yes.”

Sigh.  Ok, back to the drawing board (or more accurately, the computer screen).

Fortunately, our SE was able to redo his calculations in short order.  And not surprisingly, it was also pretty easy to take our attachment image and rotate it.  We printed up the revised plans and headed back to the permit center.

Surprise - there was yet another person behind the counter this time.  Whereas his predecessor seemed to be actively looking for little things to complain about, this fellow could not have been more helpful. He looked at our revised load calculations - veryifying that they had been done for 100 mph and that the SE had concluded that all was well - and then proceeded to stamp our plans.  (I had pointed out our added, rotated drawing, but it was clear that he wasn’t interested in that at all.)  After he stamped our plans, he then took them himself to the zoning and historical preservation desks and secured those sign-offs as well! Wow!  He saved us an hour of waiting in those queues and he seemed genuinely helpful and concerned.  What a pleasant contrast!  We were well on our way with just one real substantive hurdle remaining - the Fire department.

Fire

The California State Fire Marshall developed a set of guidelines that provide guidance as to how fire departments should permit and inspect solar installations.  The guidelines call for space to be set aside for pathways around the array and for venting of smoke in case of a fire.  The guidelines call for different restrictions based on the size and shape of the roof and whether it is a residential or commercial building.

(While the document from the Fire Marshall is labeled “guidelines", most localities seem to treat it as gospel.  Even more curious, the guidelines clearly say that they are just that, guidelines that do not have the force of law until a local jurisdiction passes an ordinance adopting the guidelines as regulations.  We have yet to see such an ordinance.)

Our building plan included a three-foot set aside around both sides of the array and from the ridge, and was augmented by automatic smoke ventillation devices already built into the roof.  But that was not sufficient - the fire official wanted us to provide a four-foot clearance on all three sides.  Yet another trip to the computer.

We returned with our revised drawing, showing four feet of clearance as requested.  But now there was another concern - the same fire official now wanted us to open a walkway in the middle of the array.  (We already had access paths for potential maintenance, but they were not wide enough to be considered a walkway.)  No matter that our roof was not at all like the flat roof with parapet shown in the guidelines, we still needed to provide a walkway.  There was only one way to do that - take out a column of panels.  Together we X-ed out seven panels and thereby created a walkway.  The fire official was now satisfied - she signed off on our plans.

Done

And just like that, we were done.  Well, not quite - there was still the little matter of paying for all this.  Here we made out surprisingly well.  Unlike some cities that gouge solar applicants (and you know who you are!), Pasadena’s fees were quite reasonable.  Total cost for our now 52.25kW solar project?  $732.  Sadly, we know of residential projects one tenth that size in other cities where the permit fees have exceeded $1,000!  (But that’s a story for another day.)

Altogether, it took us four separate trips to the permit center, three plan revisions, and a little over $900 in expenses to secure our permit.

Now all we needed to do was get the materials to the job site on time, and complete the installation in the two week window that we had to mesh with the School’s schedule.  The real work was about to begin…