Where to Start When Your Building is Ready for Solar Energy
A recent survey revealed that 80 percent of businesses across the globe believe they will be generating a quarter of the energy they need on-site by 2025. This trend is driven by the growing need facility managers and building owners have to ensure more resilient operations and greater control of their energy in the face of rising energy rates, more complicated energy billing structures and the increased frequency of power outages.
This trend towards independent energy generation means more facility managers without expertise in solar, energy storage and distributed energy technologies will be asked to evaluate, design and deploy solar in the coming years. Unfortunately, many will be at a loss as to where to start.
As with any facility upgrade, planning is everything. In those rare moments when facilities directors or energy managers happen to have some ‘spare time’ to research the potential of adding solar or distributed energy technologies to their operations, the information available online ranges from disorganized and incomplete to overwhelming.
Commonly, businesses consider solar when they are designing a new building or installing a new roof, seeking to monetize unused property and roof space, conducting a review of their electricity expenses, or would like to reduce CO2 emissions.
While it has never been easier to add solar to a facility, it is still a major capital project. Major projects, poorly planned, result in costly and time-consuming trouble. Based on our decades of experience supporting operations executives in planning for and deploying solar solutions, we understand that most of the questions are in the financing and installation process.
This article (and its companion the Solar Buyer’s Guide) sums up the answers to our most frequently asked questions by anyone contemplating whether their facilities are a good fit for solar.
At its core, solar photovoltaic technology captures photons from the sun and converts them into electric energy. With no cost for the fuel, solar power is 100 percent sustainable, reliable and cost-effective.
Commonly, businesses consider solar when they are designing a new building or installing a new roof, seeking to monetize unused property and roof space, conducting a review of their electricity expenses, or would like to reduce CO2 emissions.
In some cases, businesses are using energy more as a competitive advantage and solar installations are no exception. Often, the drive to add solar to one’s operations is a combination of these motivations.
No matter what the motivation, here are the key items to understand for a successful solar project.
[Related: Pair Renewables with Energy Storage: Benefit Your Bottom Line]
Available Economic Incentives
To make solar more affordable for businesses, federal, state and local incentives exist to both reduce the upfront capital investment and to lower the payback period.
Business Energy Investment Tax Credit (ITC)
The ITC is a U.S. federal corporate tax credit that applies to commercial, industrial, utility and agricultural sectors. This incentive drives solar’s popularity, as it recovers almost a third of the total cost of the solar system.
Note: the ITC is set to remain at 30 percent through the end of 2019. After 2019, it is expected to ramp down incrementally through 2021, before settling permanently at 10 percent. This reduction in benefits has motivated many businesses to install solar sooner rather than later.
Accelerated Depreciation Bonus
With this federal incentive, the cost of the system can be fully depreciated in the first year. Considering the new corporate tax rate, this means the federal government offers to cover up to 21 percent of a solar system’s cost with this depreciation.
Solar Renewable Energy Credits (SRECs)
Businesses can generate a revenue stream from solar by actively trading SRECs. SRECs behave like stock certificates, and they are bought and sold on a dedicated market. The SREC market varies from state to state, so research to understand what is available in a given area is in order.
For example, the New Jersey SREC market (the largest one in the U.S.) every 1,000 kilowatt-hours (kWh) of solar energy produced yields one SREC.
In 2019, the expected bid on the NJ SREC market is $216 which can be sold to assist utilities in meeting the state’s Renewable Portfolio Standard (RPS), which mandates 50 percent of the state’s electricity come from renewable sources by 2030.
Net Metering
With net metering, businesses can sell excess solar electricity to their utility provider in exchange for credits towards the next bill, thus monetizing solar energy that goes unused. To qualify for this, the building in question must be within a state and utility service territory that offers a net metering program.
As power flows both ways, the local utility will install a bi-directional meter (also known as a net meter) during the solar installation process. The net meter measures how much electricity comes from the utility and how much solar power is sent back into the grid.
Installation Options
Most places reached by the sun can be effective locations for solar, but solar is not limited to just rooftops. The more space a building has to work with, the more a building owner can take advantage of the benefits of solar.
From start to finish, solar projects can take anywhere between three to eight months to complete.
Rooftop
In rooftop installations, the available solar-optimal roof space of a facility is outfitted with solar panels. The benefits of rooftop solar include:
- monetizing roof space to generate power,
- providing a visible testament to sustainability and environmental commitments,
- and generally being the least expensive, most straightforward option for going solar.
If the roof in question is on the older side, facility managers might consider planning for a new roof in tandem with the solar installation. In many cases, the solar can pay for the new roof and generate additional savings for the facility.
Pro Tip
Roofs that aren’t good candidates: Very tall high-rise buildings and those with steeple points are typically not good candidates for a rooftop solar installation.
Ground mount
Solar panels can be installed in the ground either onsite or at a nearby location. Ground mount solar installations are more versatile than rooftop solar (since they can be installed where conditions are best) and eliminate any issues with roof shading, design angles, orientation, space and size.
Carport
Carports are fixed overhead canopies on which solar panels are installed to cover parking areas. Solar carports monetize parking lot space and provide shelter for vehicles and employees.
Some companies build on this concept by installing LED lighting under the canopy and electric vehicle chargers to access power directly from the solar panels.
[On topic: How School District Cut 62 Percent in Energy Spending]
Bonus round: Storage
A ‘solar + storage’ solution is the ultimate integrated approach to reducing a business’ reliance on the grid, lowering operating expenses, better forecasting energy spend and increasing a building’s resilience to grid power outages.
Adding storage to a solar array provides relief from ever-increasing demand charges and the opportunity to monetize energy even further by selling energy back to the utility during peak demand times when costs are generally higher. Perhaps even more importantly, storage will boost facility resilience by managing a critical load during a power outage.
Financing Solar
Several financing options for solar exist and can be tailored to meet various business goals. Keep in mind, most financing institutions consider solar a 25-year investment and consulting a tax adviser on the solar financing options is strongly encouraged.
Ownership (via capital outlay or loan)
Financing solar with upfront capital or a low-interest loan is an option that results in the best return on investment (ROI).
This approach pays for itself in the form of higher savings and profits—since the money saved on energy can be reinvested into the business—and companies reap the benefits of various tax incentives which transform a solar system into a new revenue stream faster. Benefits include:
- Greater savings over 25 years
- 30 percent Business Energy Investment Tax Credit
- Accelerated Bonus Depreciation
- SREC income and other incentives where applicable
Power Purchase Agreement (PPA)
A PPA is a low-maintenance option for paying for solar and reducing energy bills. Through this agreement, a business purchases solar energy from the PPA provider at a rate lower than current electricity prices for a set length of time. The third-party PPA provider owns and maintains the system and collects any financial incentives.
Be sure to ask the PPA provider about the end-of-term options in their plan. Benefits include:
- No capital outlay
- Immediate electricity savings
- No ownership responsibilities
Operating Lease
An operating lease is also known as an equipment lease. For the term of the lease, the solar leasing company owns the solar array and collects any tax incentives, but the SRECs typically accrue to the customer. Then the customer will have the option to purchase the solar system at the end of the lease. Benefits include:
- No capital outlay
- Immediate electricity savings
- Large lifetime savings
- End-of-lease purchase option
Property Assessed Clean Energy (PACE)
A PACE program is sponsored by state and local governments and treats clean energy projects as a public benefit. PACE solves the economics of installing solar by producing a positive cash-flow from day one. Projects can be secured by the building they benefit and repaid (at low-interest rates and with no money down), through the property tax bill.
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Programs like Maryland’s CPACE are ideal if a business doesn’t have the credit rating required for traditional solar loans or leases and wants to finance the installation without incurring any upfront capital outlay. PACE participants also reap the benefits of various incentives that come with system ownership, including:
- 100 percent upfront financing
- Payments handled through property tax bill
- Long repayment terms
- Low, fixed-rate interest
- Immediate electricity savings
- 30 percent Business Energy Investment Tax Credit
- Accelerated Bonus Depreciation
- Retain SREC income and incentives where applicable
The Installation Process
Each installation step is dependent on the parts of the process that come before it, and we recommend being thorough in all phases of the process.
1. Review business needs
One of the main reasons for choosing solar is to reduce electricity costs. To determine just how much money could be saved depends on the suitability of the site. At this point, the counsel of a qualified solar contractor becomes essential.
Take extra care to select a reputable installation company, since operation and maintenance of the solar installation should continue for the life of the system, usually 25+ years. A qualified solar contractor will:
- Discuss goals in depth
- Review the site and electricity usage
- Navigate incentives and local regulatory codes to evaluate the business opportunity
- Create a system design and provide an initial quote
2. Site visit and proposal
The solar contractor will conduct an extensive site visit to confirm the initial system design, inspect electrical systems and confirm the condition of the site. A final proposal should model precisely how much money a system should save the business.
3. Designing the solution
The design phase will include a final structural and electrical design. Once the design is approved, the contractor will apply for all the necessary building and electrical permits.
4. System installation
Any qualified and competent solar contractor will develop an installation plan that does not disrupt business operations. After the plan is agreed upon, the installer will safely and efficiently install the solar system.
Make sure to ask the contractor if they will take care of all local regulatory paperwork and work with local permitting authorities to conduct the necessary inspections before interconnection to the grid. Those steps will take much less time when performed by someone with experience.
5. Go live and monitor
From start to finish, solar projects can take anywhere between three to eight months to complete. Following the requisite testing, the new solar system is turned on and will start generating electricity. Once a system is active, facility managers can start monitoring system performance and see their efforts pay off.
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Once the system is live, consider holding a ribbon cutting or another type of celebration to bring awareness of the new system to key company stakeholders and employees. Depending on the installation, such an event might also attract favorable media attention for the building owner.
If you have questions that remain unanswered, we recommend finding a solar installation contractor with a good reputation to help along the way. For now, all you have to do is scroll back to the top of this page, divide and delegate the work and get started on joining the solar energy revolution, one step at a time.
About the Authors:
Patrick Gleason, head of C&I Solar Sales, Centrica Business Solutions and Karin Aviles, senior manager, Demand Generation & Field Marketing, Centrica Business Solutions
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