Thoughts on Solar

Editor’s Note: This is the third in our three-part series on what you need to know about Commercial Solar Power.  Check out the first two parts here:

• Part 1: Understanding Your Bill
• Part 2:  Understanding Rebates and Tax Incentives

Along the path to installing a commercial solar power system, a business or building owner must first understand the hidden details in their current electric bill and the solar power rebates and tax incentives that are available to them - as we previously discussed in the first two installments of this three-part series.  The next step is to actually contact a number of solar power installation companies and assess their bids, choosing the one that will be the best match for you.  That process - finding the right installer by understanding the bids provided to you is the subject of this post.

Finding an Installer

Before you can ever get a bid, you have to contact a solar installation contractor to come out to your site and give you a proposal.  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?  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.  Here are our thoughts on how to identify properly qualified contractors for your job.

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 proves 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 (including 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 are NABCEP Certified Solar PV Installers™ - and we know of no other solar power company in Southern California that can make that claim.  (Try it - click on the link above and enter our zip code: 91105.  There you will find the entries for Brad Banta, Velvet Dallesandro and yours truly!)

CSI - Go Solar California

A second source of solar installers is 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 should also be on this list - but this is a double-check only - not a starting point for your search.

Your Utility and/or Building Department

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.

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.

What to Expect During the Site Evaluation

Congratulations - you have identified three companies to bid on your commercial solar project - what should you expect from the process?  Here are three necessary steps that an installer must do to provide you with a proper proposal.  If any of these steps are missing, be very skeptical of their resulting bid.

1. They will review a year’s worth of your electrical bills - Every proposal begins with an assessment of your needs and that is determined by reviewing your electrical bills.  While some utilities allow you to download your usage and costs from their websites, that is rarely as detailed as the full bill itself.  You will recall from Part 1 of this series - there really can be some nasty surprises hiding in your electric bills.  So plan on having copies ready - or better yet, scan them, have them in a PDF file, and be prepared to email them to your installer when you first contact them.


2. They will go on your roof - Nothing takes the place of actually walking your roof, taking proper measurements, and identifying any shading issues that you might have.  While many commercial roofs appear to be “unshaded", a solar professional knows that appearances can be deceiving and will not rely on a client’s claims but will instead do a proper shading analysis.  (If you have any questions about this, demand that the installer provide you with the output from their shading analysis - if they didn’t perform a shading analysis, that is another red flag.)  Remember - your utility requires a shading analysis as part of the rebate process so if your potential installer didn’t do one, how can they know what your rebate will be?


3. They will check out your electrical system - One of the major variables in commercial solar is the nature of the interconnection between your solar power system and your existing electrical infrastructure.  While in a residential setting this is usually nothing more than adding a circuit breaker to your existing service panel, in a commercial setting this may involve transformers, 3-phase systems and/or line-side taps - all of which increase the cost of the installed system.  A professional installer will review the interconnection issues when they visit your site and adjust their bid accordingly.

Comparing Apples to Apples

You did it!  You found three installers with great credentials who came out to your site and each one did a careful evaluation.  Now you are holding in your hand a thick stack of paper from the three installers and they don’t look anything at all alike!  How to make sense of all of this?

One good way is to have the installer come in and present their proposal to you (and any other decision makers on your team).  A professional installer should be happy to spend some quality time with you and your team to explain the proposal that was given to you - but keep in mind that they are very busy people.  Do your homework first - compile your questions and those of your team (if they will not be participating in the meeting) so that your time together can be as productive as possible.  As part of that due diligence, here are some things to look for as you compare these bids.

Solar Panels

All solar panels are not alike and although they may seem like a commodity to you, there are a number of ways in which one “200 Watt Solar Panel” will differ from another.  Here are the key considerations:

1. Efficiency - The efficiency of a solar panel tells you how much nameplate power per square foot the panel will deliver.  This is a very important attribute if your available space for solar is limited.  However, efficiency is expensive - if you have lots of roof space for solar, the value of this factor drops dramatically.


2. Temperature performance - Somewhat perversely, all solar panels degrade in their performance as they get hotter.  Some panels do much better in the heat than others.  (Sanyo panels have the best temperature performance of any panel that we have seen.)  You will find this on the solar panel data sheet as Power Coefficient/°C.  You would like this number to be zero.  It won’t be, but the smaller the magnitude of this negative number, the better.  But again, better temperature performance comes with a price.


3. Manufacturer reliability - Pretty much all solar panels comes with a 5-year warranty on workmanship and 25 years on performance, but the value of that warranty is entirely dependent on the reliability of the manufacturer.  Lots of cheap solar panels are now on the market from start-up operations in Asia.  If you have a problem five years from now and you want a warranty replacement, how likely is it that the manufacturer will still be in business?  A 25-year warranty issued in 2011 is of no value at all in five years if the company disappears in 2015.  Ask your potential installer about the history of the company that is standing behind that warranty and then do your own homework on this vital reliability factor.  Be prepared to pay more for solar panels coming from the most reputable manufacturers.

Inverters

Commercial inverters range from large, central inverters to a collection of string inverters to even micro-inverters (one inverter per solar panel) in some settings.  You should check for: a) the efficiency of the inverter (should be in the 95-97% range with the higher the number the better); b) whether monitoring is built into the inverter or must be added; c) the warranty period applicable to the inverter; and d) the manufacturer’s reliability.  Inverter recalls in the solar industry are rare, but they have been known to happen.

There are trade-offs associated with the different approaches - a central inverter consolidates your equipment in one place and makes for a clean, cost-effective and efficient system, often with sophisticated monitoring capabilities built-in.  Yet a central inverter represents a single point of failure for your entire system - if the central inverter fails, your system will produce nothing until it can be repaired.  In contrast, using a series of smaller string inverters may look more cluttered, and interconnecting them for monitoring purposes may be more complicated and costly.  However, by distributing the inverter function over a number of devices, you have diversified your risk - if one inverter fails, the others are unaffected and you will continue to produce some energy while the faulty device is repaired or replaced.  Most commonly, small commercial systems - those below 50 kW - may well benefit from using multiple, smaller inverters.  As system sizes increase, however, the cost-savings and ease of installation of the central inverter probably makes it the preferred approach.

Inverter configuration is ultimately a design choice and your installer should be able to explain to you why they have made the choice that they are recommending.

Warranties

We already touched on the value of warranties from equipment manufacturers, but what about the warranty from your installer?  In California, an installer is required to offer a 10-year warranty on their workmanship.  However, a company that has only been in the solar business for a couple of years (or less!) cannot offer proper assurances that they will be there to back-up that warranty.  Here’s one hint - if your potential solar installer was in the business before the recession hit, they are probably in this for the long haul (and they have demonstrated enough business savvy to survive the worst economic climate in more than fifty years - not a bad credential).

Rebate Calculations

Your installer should have done a calculation based on your utility’s rebate structure to estimate what your rebate will be.  These estimates should be comparable from one bid to another but if they are not, demand that your potential installers provide you with the output from the rebate calculator that they used to produce the estimate.  If they refuse, or if the rebate calculation shown doesn’t square with the rest of their bid, you can scratch them off your list of potential candidates.

Are You Comfortable?

You cannot be completely comfortable making such an important decision until you have had all of your questions answered.  Your potential installer should be happy to spend whatever time you reasonably need to be assured that you have all of the information in hand.  (But please remember, these are very busy folks so use their time wisely.)

The following are the analyses that you should insist on receiving, and having explained to you before you make your decision:

Utility Savings Analysis

You want to know what your savings will be from your new solar power system and this analysis should answer that question.  Specifically, it should consist of an estimate of the solar energy (in kWh) per month that the system will produce (usually tied to the output of the utility’s rebate calculator or some comparable method) and the value of that energy based on the utility’s rate schedule applicable to your site.  A simple-minded analysis that assumes that all kWh’s of energy are worth the same fails to meet this standard, as we explained back in Part 1.

Return on Investment
Internal Rate of Return

Given the energy saving starting in Year 1, the cost of the system, any O&M costs, the anticipated rebate from the utility, and the tax benefits anticipated for the system, your installer should map out for you the cash flows associated with your system.  That analysis should indicate when the system will break even and what the internal rate of return over the lifetime of the project will be.  There are several variables in this analysis - the amount of annual energy cost increases from the utility, the degradation of the system’s output over time, and the marginal tax rate (federal and state) for the system owner, to name a few.  A competent analysis will identify the assumptions used in each of these areas.

Cost per kWh

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 (again, usually assumed to be 25 years).  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/grant, 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 10-11¢ range compared to utility costs of 15-19¢ 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, the graphical comparison is quite compelling.

Just Do It!

Now it is up to you - you have all the information you could possibly want from one or more highly qualified solar installers.  Now is the time to pull the trigger and Go Solar Now!  There will never be a better time and every day that you wait is costing you money.  Give us a call and we will get you started!

(Editor’s Note: Part 1 of this series - Understanding Your Bill can be found here.)

Commercial solar power systems are economical now - and in the first part of our series we explained how understanding your bill is the key to understanding what is currently driving your costs and how much you will be able to save.

Now we turn to the next step in preparing to install a commercial solar power system - understanding the applicable rebates and tax incentives.  We have written at great length before about these topics, including a blog post summarizing the year-end state of all solar power rebates in the Run on Sun service area and our solar tax incentives page provides great detail into this topic for all types of system owners - commercial, residential and non-profit.  In this post we will analyze just those rebates and incentives that are applicable to commercial solar power installations.

PBI vs EPBB Rebates for Commercial Solar Power Systems

Rebates for commercial solar power systems come in two flavors - Performance Based Incentives (PBI) and Expected Performance-Based Buydown (EPBB) - but PBI rebates are by far the more common for commercial systems above 30 kW.  EPBB rebates are lump-sum payments made based on the expected performance of the system.  The rebate rate is denoted in dollars per Watt based on the calculated AC Watts for the system.  EPBB rebates are nice for the consumer as the money is paid as soon as the system is approved, but for larger systems, they represent too much upfront risk for the utility.  Since there is usually no requirement to monitor the performance of the system, the utility ends up putting out its money with little guarantee of reaping the expected benefit.

PBI rebates, on the other hand, are paid out over five years based on the actual performance of the solar power system as verified by monitoring devices attached to the system inverter(s).  PBI rebates are denoted in cents per kilowatt hour generated.  Since the utility only pays for power actually provided, rebate dollars are guaranteed of providing the bargained for benefit. However, because of the need to provide the utility with verified performance data, PBI rebates increase the Operations & Maintenance expense of a commercial solar power system - at least for the five years of the rebate.  On the other hand, if your system is well maintained and conservatively designed, you may actually receive more in rebate payments than originally projected.

Each utility will have a threshold system size beyond which the system owner must take a PBI rebate.

Regional Rebate Amounts for Commercial Solar Power Systems

Of late there has been a great deal of turmoil among the local municipal utilities regarding their rebates.  This has lead to uncertainty and delays.  As of this writing, here is the landscape for commercial solar rebates in the Run on Sun service area:

This means that as of this writing, only SCE and PWP are paying rebates on commercial solar power systems greater than 30 kW. While LADWP is expected to come back online this summer, in what form remains to be seen.

We believe that these suspensions have come about because the lobby for commercial solar rebates is small and too often silent.  Of course, when no public discussion occurs before the decision is made to suspend rebates - as happened in both Glendale and Burbank - it is pretty hard to organize solar supporters.  Indeed, in Los Angeles, where the plans to severely limit solar rebates were publicly debated, the solar community came out in numbers to argue for those rebates - which resulted in LADWP only suspending their program for a comparatively short time.

The conclusion in inescapable - until there is a statewide feed-in tariff at a reasonable rate that offers predictability along with economic viability, the market for commercial solar in this state will continue to be subject to the caprice of unaccountable bureaucrats.

Tax Incentives for Commercial Solar Power Systems

While the news regarding rebates remains murky, the news on the tax front is - at least for this year - very good.

One caveat before we begin - while we believe this information to be accurate as of the date that it is written, you must always consult with your tax professional as to the applicability of these incentives to your tax situation.  Accountants shouldn’t design solar power systems and we don’t give tax advice.

Commercial solar power systems qualify for a federal Investment Tax Credit of a full 30% on the direct cost of the system.  (By “direct cost” we mean those costs directly associated with installing the solar power system.  The applicability of the Credit to indirect costs - such as deciding to re-roof your building before adding solar - must be decided on a case-by-case basis - see why that tax pro gets paid the big bucks?)  That Credit can be taken over two years and is a substantial incentive if you have the tax liability to offset.  Fortunately for systems that are put in service in 2011, commercial solar power system owners can elect to receive a Grant directly from the Treasury for the full 30%, regardless of their tax appetite.  Moreover, that Grant is paid out typically within 60 days of project completion, as opposed to being credited in the next tax payment cycle.  This provision in the tax code is subject to expiration at the end of this year, and there is no telling whether a more conservative Congress will renew it.  (The tax Credit, however, continues through 2016.)

Commercial solar power systems also qualify for accelerated depreciation.  For the past several years, that was a five year period with 50% in Year 1 and the remaining 50% divided evenly over the next four years.  (California offers a similar depreciation schedule.)  However, once again 2011 is special.  This year alone, that depreciation is 100% in Year 1, meaning that system owners may realize more of their savings sooner.

Collectively, rebates and tax incentives can reduce the cost of a commercial solar power system by 50% or more.  When combined with the savings from the energy generated, it is easy to see why a commercial solar power system is one of the best investments a building or business owner can make.

Up Next - Part 3 of Our Series: Understanding Your Bid for a Commercial Solar Power System

While many companies sit on the sidelines with accumulated capital, we have argued before that spending some of that capital on a commercial solar power system makes great economic sense.  But for some companies (and their facility managers and accountants and Board Members, and so on), commercial solar is still a mysterious concept, filled with confusing jargon and competing claims.  Can a commercial solar power system really be as economically beneficial as the proponents (like this blog) claim?

Rather than answer that question directly (well, ok, the answer is YES but please read on), we thought it would be useful to actually layout the case for commercial solar power in some detail.  Although no blog post (or series of blog posts) can take the place of a face-to-face conversation that takes into consideration all of the relevant  elements of a specific company’s situation, there are enough common elements that can and should be explained to demystify the overall process.  That is the task of this series - to teach you, the business/building owner everything you need to know in preparation for installing a commercial solar power system on your building.

First things first - before you ever even call a solar power company - and we will explain how to find the good ones in Part 3 - you need to start with something more mundane: your electric bill.  When was the last time that you really looked at your electric bill?  For many business or building owners the answer is never.  Oh sure, you certainly know how much you are paying - but do you know why you are paying so much?  What horrors are hiding in your bills?

The Shocking Facts Hiding in Your Electric Bill

The Basics - Usage & Demand

There is probably a very good reason why neither you, nor anyone else at your company has ever looked closely at your electric bill - it is terribly confusing.  Let’s start with some basics.  Almost every commercial user pays for at least two major components on their electric bill: usage and demand.

Usage is the more familiar component as it is the basis for your residential electric bill.  It is based on the total amount of energy that you used over the course of the billing cycle (usually one month for commercial customers).  Usage is measured in total kilowatt hours (kWh). Usage charges are based on some specific cost per kWh which is defined in the rate schedule that applies to your utility account (more on rate schedules in a minute).

Demand is a bit more complicated - it is usually defined as the greatest amount of power that the utility has to provide to you over a measured period of time during the billing cycle.  For SCE customers, demand is the peak power required during any 15 minute period over the month.  That means that if your building has multiple HVAC units and they all come online during the same 15-minute window, your demand will spike much higher than it would if those units came on in a staggered fashion (since the power demand of an HVAC unit is highest when the compressors are running as they will be when the unit is first started.)  Demand charges are billed per kilowatt (kW) of power.

Rate Schedules

Every utility has a variety of rate schedules that might apply to a commercial building and you could pay vastly different amounts - that is to say you could save a lot of money - by switching to the most economical rate schedule for which you qualify.

SCE’s GS-2 Rate Schedule Model (click for larger)

Case in point - SCE has two rate structures that commonly apply to small to medium size commercial buildings: GS-1 and GS-2.  (For those ready to get into the details, here is a link to the GS-1 rate schedule and here is a link to the GS-2 rate schedule.)  The beauty of the GS-1 rate schedule is that it has no demand component.  But here’s the catch - your peak demand must not exceed 20 kW in any three of the past twelve months.

We had one potential customer who was paying under GS-2.  When we analyzed their bills - the first step in preparing a proposal for installing a commercial solar power system - it was apparent to us that based on their bills, they were entitled to actually be billed under GS-1.  When we met with their facilities manager to discuss our proposal, we pointed out that they could have saved over $2,000 the past year if they had been on the right rate schedule and we encouraged them to contact SCE about getting switched to GS-1.  (No, SCE had not suggested that to them.)  Strangely, none of the other solar companies that they had talked to had explained that to them, yet once they called SCE, they were switched over immediately.  (Oh, and they hired us to handle their commercial solar installation!)

Here’s another example.  PWP generally has low rates, but their mid-level commercial rate schedule (M-1)  has one of the most significant “gotchas” we have seen anywhere - and we are yet to speak to a single customer who was aware of this before we pointed it out.  The M-1 rate structure includes a demand component (labeled “distribution"), but unlike SCE’s demand component described above, PWP charges you for the peak demand in any 15-minute window for the past 12 months! That means that if on one unlucky day, everything in your building comes online all at once during the same 15 minutes, not only will you pay for that peak demand that month, you will pay for that peak demand for every month for the next year (unless a higher demand comes along to take its place)!  For one of our customers, they had a peak demand one month that spiked at 82 kW, yet their average for the next 12 months was only 36 kW.  Under the M-1 rate schedule, they paid $5,300 more than they would have if they only paid for their monthly peak demand.

Models Matter

At Run on Sun we have devoted a lot of time to mastering the intricacies of the various rate schedules used by the utilities in our service area.  We have turned that understanding into a series of rate schedule models that allow us to accurately model your prior utilities bills and then make accurate predictions regarding your potential savings from a host of measures - changing rate schedules, reducing your usage or peak demand, or installing a solar power system. Some companies simply assign a fixed amount of savings per kWh that their proposed solar power system will produce and call that your potential savings.  Such an approach ignores the complexities of how your electric bill is actually calculated and can mask other steps that you could take to save money.

We firmly believe that energy efficiency is way more cost effective than energy generation and we will share with you our ideas and observations on how you can save money long before you throw the switch of (or even sign the contract for) your commercial solar power system.  So before you pick up the phone, pick up your electric bills and check out what is hiding there - it is the first step in getting the greatest value from your commercial solar power system.

Up Next: Part 2 of Our Series - Understanding Solar Rebates and Tax Incentives as they apply to a Commercial Solar Power System.