Thoughts on Solar

Nothing like a piece in the New York Times questioning the reliability of some solar modules to get tongues wagging and some pointing fingers at “Chinese dumping” while others tell us that solar technology is just not ready for prime time.  To us it raises a different question - does quality sell?

The article, titled Solar Industry Anxious Over Defective Panels, points to installations as close as the Inland Empire, having shockingly high failure rates after just two years of being installed. “Coatings that protect the panels disintegrated while other defects caused two fires that took the system offline for two years, costing hundreds of thousands of dollars in lost revenues.” Wow - that is shocking.  So who made those defective panels?  The reporter doesn’t say.

Nor are any of the problem panels alluded to in this story ever named, citing, in some cases, confidentiality agreements.

Which raises a serious problem with the article: if you cannot identify any of the solar module manufacturers that are having these problems you leave the impression that all solar modules are suspect. (Our analysis on who the guilty party might be is below…)

A quick perusal of the comments to the article reveals the predictable factions: those who echo the Fox News line that solar is a failed technology that only exists because of the Obama Administration’s foolish indulgence in Green Tech; claims that all problems in the solar industry are a result of “Chinese dumping” and the associated China bashing; countered partially by a handful of comments from people who actually know something about the industry.

We find the Chinese bashing particularly problematic - after all, the Chinese are not putting a gun to any project developer’s head and forcing them to use third-tier panels.

Greed is what is causing that.

We have been in business since 2006 and there have always been high quality solar panels available from reputable manufacturers - and they have always cost more than many of the panels offered to us for use in our projects.  Scanning the CSI data (see below) reveals that many projects - including many of the largest projects - were built using those “bargain basement” panels.  Why?  Because it maximized the project developer’s profit.

This is not a new problem, despite it getting a major splash in the “Paper of Record."  Indeed, we wrote in the Spring of 2012 about how the decision by project developers to focus on the lowest cost per Watt “will continue to put undue pressure on quality manufacturers around the globe - whether in the US or China.  Consumer demand for quality is the ultimate way to improve this situation - and that means educating consumers as to what quality means in this market."  A year plus has gone by, but where has that educational effort been?  The need is as great - or greater than ever, but sadly, the NY Times piece fails on that score.  (If you want to read an earlier, and far more comprehensive article on this subject, check out this piece by the great Felicity Carus: Quality Issues Threaten to Give Solar a Black Eye.)

What’s Up in the Inland Empire?

It’s a Friday morning so we decided to indulge in one of our favorite pastimes and go diving into the CSI data to see if we could identify the guilty party alluded to in the NY Times piece.  Here is all they gave us to go on - the project has been in place for roughly four or more years (failed after 2 years, offline for 2 years), located in the “Inland Empire” and its downtime resulted in a loss of “hundreds of thousands of dollars” in revenue.  From that we concluded that we needed to look at systems from 2010 or earlier, in the Inland Empire - which we took to mean anywhere in the counties of Riverside or San Bernardino - and of at least 200 kW.  Those criteria provide us with 28 potential systems, built with solar panels from just seven manufacturers.  Here are our results:

What can we say about these manufacturers?  Well, certainly BP Solar, SunPower, Kyocera and Sanyo would all be considered top-tier manufacturers of solar panels - although BP is exiting the solar industry and Sanyo is now owned by Panasonic.

As for the others, Evergreen Solar was a US manufacturer that filed for bankruptcy in August 2011.  Solar Integrated Technologies was a subsidiary of Michigan-based Energy Conversion Devices which itself filed for bankruptcy in February 2012.  Solar Semiconductor is a vertically integrated systems provider with manufacturing facilities in India.

So who is the guilty party?  No way to know for sure, but a little online searching reveals other problems for one of these companies.  A September 14, 2012 article on the San Diego Union Tribune website documents problems with “Flawed Solar Panels” that were manufactured by Solar Integrated Technologies.  According to the article, the panels manufactured by the company, “had a manufacturing defect that allowed water to seep into crevices of the panels, which in some cases created corrosion and in the worst-case scenario could cause a short that could start rooftop fires” - which sounds a great deal like the problem cited in the New York Times piece.

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.

In Part 1 of our series on Comparing Commercial Solar Bids we looked at how to distinguish bids based on the Solar Modules proposed.  Part 2 did the same for Solar Inverters.  Now our four-part series continues, looking at what to expect from a 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.  A proper Utility Savings Analysis must do three things: predict the amount of power the system will produce both peak and in terms of energy over time; assess the value of that production in Year 1; and apply appropriate factors to assess the change in value of that production over the lifetime of the system. Let’s break this down.

Power and Energy Production

The peak power and energy yield from the proposed system in Year 1 is a function of system and environmental factors.  The system factors include the modules and inverters chosen (including all of the variables discussed previously).

The environmental factors consist of the azimuth (orientation relative to true North), the pitch of the array and any shading factors that might be present.  If the overall array is comprised of sub-arrays with different environmental factors, then each sub-array must be assessed separately.

For a so-called “fixed-plate array” – that is a solar array that is at a set azimuth and pitch (which is typical for commercial installations) – the ideal azimuth in terms of annual energy yield is due South and the ideal pitch is the latitude of the site.  While deviations from these ideal values will result in reduced annual energy yield, in the real world such deviations, are common.  Indeed, in some settings a deviation might be desirable if, for example, summertime performance is to be maximized (perhaps to mesh with the payment profile of a feed-in tariff program), in which case a flatter array pointed more to the West might be selected.

Regardless of the azimuth and pitch, shading is to be avoided, especially if string or central inverters are used.  When a string of solar modules are wired together, shade falling on one module not only degrades the performance of that module, it will degrade the performance of the entire string.  This in turn will degrade the performance of the entire sub-array of which that string is a part.  (Microinverters overcome this problem because each module operates independently – a shaded module still sees its performance deteriorate, but  that deterioration has no effect on the adjacent, unshaded modules.)

All of these factors, as well as the geographic location of the system site, are then provided as inputs into a PV system performance model – the best known being PVWatts, created by the National Renewable Energy Laboratory (NREL), and used as the underlying mechanism of many utility rebate calculators, such as the CSI rebate calculator.  The output from the calculator will provide a value for the peak output from the system (in AC Watts) and the energy yield profile over a year – either month-by-month, or even hour-by-hour.

Savings in Year 1

Knowing the production profile for the proposed system is just the first step in the Utility Savings Analysis.  The next crucial step is to calculate the savings from that production in Year 1 – the first year the system goes live.  To do this accurately requires a detailed analysis of the relevant utility rate structure and possibly detailed information about how the existing loads at the site behave.  A simple-minded analysis that assumes that all kWh’s of energy are worth the same fails to meet this standard and will not accurately predict the savings to be achieved.

Most commercial solar customers pay for both total energy usage and peak power demand.  To accurately determine savings requires a clear understanding of how the solar power system will affect both of those components.  Unfortunately, it is not uncommon that the data necessary for such an analysis will be incomplete or missing altogether.

Savings from usage reduction, by comparison, are easy to calculate – if you have past usage data (pretty much always available except for new buildings or new utility customers) and a properly designed rate structure model, it easy to apply the energy yield profile from the performance calculator to the rate structure and determine savings.  For customers on usage only rate structures, this provides a nearly perfect estimate of annual savings as of Year 1.

It is in trying to determine how the solar power system will alter demand charges where things get complicated.  To do this accurately – and honestly – requires hour-by-hour demand data so that the client and the solar contractor know when peak demands occur.  If the peak demand occurs at high Noon and is driven by HVAC loads, the solar system will directly reduce that peak – perhaps by the full value of the solar power system’s output.  Conversely, if the peak demand occurs at eight o’clock in the morning – say, when the first shift arrives – the solar power system will have next to zero effect on peak demand.

Unfortunately, unless the potential client has been on a time-of-use based rate structure, such data is almost certainly unavailable.

Under those circumstances client and contractor have only two choices: gather the data as part of the site evaluation process (by temporarily or permanently installing data logging equipment), or make a well-documented estimate (also known as a wag) of what the effect of the solar power system will be on peak demand.  The client should insist that all of its bids use the same estimate.

Fortunately, relatively inexpensive data logging equipment is now available and it should be used whenever available decision-making timing permits.  A contractor who refuses to provide such a service – for a fee, of course – should be scratched from the list of potential candidates.

Savings Over System Lifetime

So now you have an estimate of your utility savings in Year 1 – how can you determine what your savings will be over the lifetime of the system?  After all, that is the key question in determining your ultimate Return on Investment.

To answer that question requires figuring out two more puzzle pieces – one straight-forward and the other unavoidably controversial.  The straight-forward puzzle piece is how will the system’s performance will change over time.  This is straight-forward because we have reliable data for making that prediction.  Assuming reasonable maintenance for the system – cleaning the modules occasionally, replacing broken modules or repairing faulty inverters, etc. – the performance from one year to the next is really a function of the deterioration in the performance of the solar modules installed.  That rate will be documented in the performance warranty of the module, and hence it will be easily modeled.  (For modules that guarantee 80% of nameplate power after twenty-five years, that works out to a degradation factor of ~-0.9%/year.)

The controversial puzzle piece is in guesstimating what will happen with utility rates over the lifetime of the system.  Not only is this a difficult task at best, it has even lead to class-action litigation when solar leasing giant SunRun was sued for over-estimating (according to the Plaintiff) the magnitude of utility rate increases in the future.

Over the years solar companies have used annual rate increase factors ranging from 6.8% (almost certainly too high) to 3% (almost certainly too low, at least in California).  SunRun was sued for picking 6%, and yet in 2012 SCE secured a three-year, 17.2% average rate increase – which works out to 5.7%/year!

So what is the right number to use?  At Run on Sun we generally use 4.5% for municipal utilities and 5.7% for SCE.  But in our view, the rate selected is not as important as the need to clearly disclose the rate being used in the model.  If that is done, the client is free to do their own calculation with a different rate or to insist that all potential bidders use the same rate.  At the very least, such disclosure should render lawsuits such as the one facing SunRun moot.

However the rate is determined, and ultimately disclosed, the result should be a series of values for how much savings will be generated by the system for the next twenty-five years.  Now you are ready to receive your payoff analysis – that demonstrating your anticipated Return on Investment and LCOE, the topic of our final installment.

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

Facing a growing drumbeat of faux-populist attacks organized by the investor-owned utilities, a coalition of major players in the solar leasing industry has been announced to offer a coordinated resistance. Resistance is important, but it remains to be seen whether this alliance will actually represent the interests of the solar industry as a whole.

Yesterday we learned  (h/t Susan Frank) of the formation of The Alliance for Solar Choice, which described itself thusly:

The nation’s leading rooftop solar companies today announced the formation of The Alliance for Solar Choice (TASC).  TASC believes anyone should have the option to switch from utility power to distributed solar power.  Founding members represent the majority of the U.S. rooftop solar market and include SolarCity, Sungevity, Sunrun and Verengo.

TASC is committed to protecting the choice for distributed solar.  Most immediately, TASC will focus on ensuring the continuation of Net Energy Metering (NEM).  Currently in place in 43 states, NEM provides solar consumers with fair credit for the energy they put back on the grid, which utilities then sell to other customers.  In simple terms, NEM is like rollover minutes on your cell phone bill.  Monopoly utilities are trying to eliminate NEM to halt the consumer-driven popularity of rooftop solar, which is helping create thousands of local jobs around the country.

The website is bare-bones in the extreme - the only information to be found is the single press release.  No links to other supporters, not even a list of member companies beyond the four mentioned.  (There is a link to their Twitter page - with the somewhat unfortunately chosen “TASC_master” handle.)

Now there are literally thousands of solar companies across the country who are threatened by the push by utilities to roll back or eliminate net metering.  Why aren’t any of them included in this “alliance"?  How about a little outreach to the little guys, eh? For the moment we will suspend further judgment as we wait to see how this nascent alliance conducts itself.  Certainly having well-financed entities engaging in serious lobbying efforts could be a powerful countervailing force in the battles ahead. Time will tell.

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.