Past Slides

Transcription

Past Slides

Economics of Solar:
Making the Financial Case for
Commercial & Residential PV
Andy Black
Solar Financial Analyst
(408) 428 0808x1
[email protected]
Agenda
(8-9 hours with lunch & breaks)
Check-in (15 minutes before listed start time)
Introductions
Solar Financial Payback - Overview of the Variables:
Incentives
Rate Structures
System Performance
Solar Financial Analysis Methods:
Payback
Lifecycle Payback
Return on Investment
APY and IRR
Increase in Resale Value
Formal Conclusion, Break, Q & A
Interactive Examples (for those who wish to stay)
Diligence:
Heights by great men reached and kept were not obtained by sudden flight, but
they, while their companions slept, were toiling upward in the night.
- Henry Wadsworth Longfellow
Economics of Solar:
Making the Financial Case for
Commercial & Residential PV
Andy Black
(408) 428 0808x1
[email protected]
Abstract:
This class helps PV dealers, installers, and salespeople make the best and most accurate financial case to
their customers to help them make more sales and open more eyes to the value of solar systems.
Andy Black will provide an overview of solar electric (PV) system costs and savings for commercial &
residential systems in an interactive “adult learning” environment. He will provide detailed information
on state & federal incentives available (tailored to the local market) and how to use them. These include
rebates, Feed-In-Tariffs, SRECs, performance based incentives, the Federal ITC, state tax credits, and
MACRS depreciation. He will explain electric rate structures and how to choose the best alternative
given the advantages of each relative to building load profile, system design, and site specifics (shading,
orientation, etc).
Andy will discuss the various methods of performing financial analyses in conjunction with the savings
realized. Financial analysis methods presented will include Simple Payback, Total Lifecycle Payback,
Return on Investment, Annual Percentage Yield (APY, using Internal Rate of Return or IRR), Modified
IRR (MIRR), and Increase in Property Resale Value. Interactive examples of residential & commercial
cases nationwide will be provided, including discussion of the salient differences and advantages of
each method. The assumptions and variables that affect each analysis will also be presented including
inflation, maintenance expenses, and interest rates.
If time allows, the audience is invited to bring real world projects to analyze and discuss.
This class qualifies for 7 to 8 NABCEP Continuing Education Credit Hours (depending on class length).
All students will receive a one-month Free Trial to the OnGrid Tool to try their own scenarios.
Biography:
Andy Black is a Solar Financial Analyst and the founder of OnGrid Solar. OnGrid Solar provides
financial analysis and sales education & software to solar installers to help them make a strong sales
case for solar electricity to their customers. Andy has more than a dozen years of design, consulting,
teaching, sales, and research experience in solar. He specializes in demonstrating the financial payback
of solar electricity systems. He is a former NABCEP certified solar installer and is a holder of and the
initiator of the NABCEP Technical Sales Certification.
Andy Black is a recent member of the Board of Directors of the American Solar Energy Society and of
the California Solar Energy Industries Association. He is a member of the Advisory Board of the
Northern California Solar Energy Association.
Andy’s formal education includes a Bachelor’s in Electrical Engineering from Penn State University, a
Master’s in Electrical Engineering from University of Southern California, and a Marketing Certificate
at the University of California. His training in solar electricity includes Solar Energy International’s
intensive photovoltaic coursework and more than a dozen specialty courses in solar electric and related
fields. He presents regularly on the financial analysis of solar electricity to audiences nationwide.
Andy is also the groundskeeper and servant for a cat at his home in San Jose, CA.
Contact Info:
Andy Black, CEO
OnGrid Solar
4175 Renaissance Dr #4, San Jose, CA 95134
(408) 428 0808x1
[email protected]
www.ongrid.net
Facilitator Background
SOLAR PV ECONOMICS:
MAKING THE FINANCIAL CASE
M.S. Electrical Engineering
SEI graduate
  NABCEP Certified Technical Salesperson
  NABCEP Certified Solar PV Installer Emeritus
  Involved with Solar since 1991
  Studying, writing, & discussing Solar Financial
Issues since 2000
  Solar Salesperson 2001-2006
  Now a Solar Financial Analyst &
Creator of the “OnGrid Tool” solar sales software
 
 
Andy Black
Presented at:
Solar Power International & PV America Conferences
ASES Annual Conferences
Solar Energy International
Solar Living Institute
PG&E’s Pacific Energy Center
California Center for Sustainable Energy
Northeast Sustainable Energy Association
North Carolina Solar Center
Updated: Spring 2014
Economics of Solar PV -
© 2014 OnGrid Solar, All Rights Reserved.
Decorum
Handouts & Resources
 
Slide Handouts
 
Acronyms
 
Feedback Form
Resources available at www.ongrid.net
  Articles & papers on solar “Payback”
  Upcoming classes & events
 
 
Slides from past classes
 
Free Trials of the OnGrid Tool
3
Agenda
Take care of your needs: Bio & Work
Cell phones to fun mode
  Side conversations: Yes or No?
  Questions & Comments or just Questions?
  Please help each other
4
Usage, System Size, Price
Inflation
  Starting & Ending rate schedule
  % on-peak usage
 
 
Facilities
Lunch & 2 breaks: Networking
Interactive exercises – Q&A dependent
 
Site Logistics & Breaks
 
 
 
Examples in Solar Financial Analysis Tool
  Please prepare some cases
  Parameters:
Overview of the Variables
  Financial Analysis Methods
  Solar Tools
  Interactive Examples
 
Good environment:
Prepare Interactive Examples
 
 
Questions: Please focus on Solar Economics &
Payback
  Preferred at points marked:
Questions?
 
Sales for Solar (7-8 hour)*
  Marketing for Solar (7-8 hour)*
  Financing Solar Intro including PPAs & Leases (7-8hr)*
 
 
2
 
5
Free Demo - License Agreements
6
Financial Payback
 
Solar
Financial Payback
 
7
Payback on solar isn’t the most important
thing…
… it’s the only thing the vast majority of
potential solar purchasers care about
Right or Wrong
8
Attractive Economics
PV systems can be financially attractive to
customers using enough electricity:
95% see energy as a commodity
  Few will pay more
  Must meet them on their terms:
 
Attractive defined as:
Rate of Return > 5-10%
  Property Value Increase > System Cost
  Cash Flow Positive (Bill Savings > Loan Cost)
 
$$ FINANCIAL! $$
9
10
Factors That Can
Make Solar Viable
Payback Analysis
Why is it Needed?
If we’re going
to put solar on
every roof, it
needs to make
$ense.
 
Net Metering
 
High Rates
 
Time of Use Rates
 
Tiered Rates
 
Low System Costs
 
Incentives
 
Sunlight
Courtesy Sharp Electronics
11
More Important
(in general)
Less Important
12
Proformas
What if what?
 
Our goal today – create a “Proforma”
  My first Proforma
 
 
 
What if … “all the factors that affect the
outcome”…, which are?:
 
Cost…
 
Performance…
 
Value Created/Earned, based on…
A 20 year financial timeline
 
What does Proforma mean?
“As a matter of form” or “For the sake of form”
  ??
 
 
 
 
Practical meaning in business & sales: A
“What if …?” analysis
13
Proforma Analysis
 
What type of analysis is a Proforma analysis?
 
Costs?: Which variables? Their characteristics?
 
Electric rates/Net Metering/FIT/SRECs etc, over time
Cost/Benefit
Benefits?: Which variables? Characteristics?
14
Variable (& Information) Overload!
How to make useful?
 
How to distill this down to a smaller, more
useful (comparable) bit of info?
 
20-25-30 year timeline
Line by line inclusion of each $ factor
 
Calculate a single number:
 
 
After System Losses & over time
Astute customers will ask a lot of
“Where does that number come from?”
After Incentives & over time
APY - Annual Percentage Yield for Residential
IRR - Internal Rate of Return for Commercial
 
 
 
Lots of variables!
 
15
APY & IRR are comparable to other investments
Year 0
System
Cost
+Incentives Rebate
+Bill Savings
Year 1
Year 2
Year 3
PBI 1
Savings 1
PBI 2
Savings 2
PBI 3
Savings 3
Maint. 1
Maint. 2
Maint. 3
…
Year X
…
(12-15-20)
-System Cost
-Maintenance
+Fed Tax Credit
+State Tax Credit
-Fed Cost of
State Tax Credit
+Fed Depr.
+State Depr.
- Fed Cost of
State Depr
=Net
 
 
…
PBI X
…
… Savings X …
Maint. X
…
…
Inverter
Fed ITC
State ITC
Fed Depr
State Depr
Net 0
Net 1
Fed Cost
State ITC
Fed Depr
State Depr
Fed Cost of
State Depr
Net 2
…
…
Net Cost
Incentives
Usage &
Patterns
…
…
Net X
Financial
Results:
Calcs
Savings
- Payback
- Resale
- Cash Flow
- IRR
- APY
…
Net0 : Net25 line allows us to calculate the IRR or APY using
the IRR function in a spreadsheet
The APY or IRR % is comparable to other investments
Top Line
Cost
Electric
Rates
Fed Depr
State Depr
Fed Cost of
State Depr
Net 3
16
Agenda:
Your Priorities?
A Model Proforma
Year:
System
Performance
17
Financial
Variables
18
Agenda
Top Line
Cost
Incentives Pre-Exercise
Net Cost
 
Incentives
Financial
Results:
Electric
Rates
Calcs
Usage &
Patterns
Savings
System
Performance
- Payback
- Resale
- Cash Flow
- IRR
- APY
 
 
Financial
Variables
19
Common “up-front” incentives (2):
_________________________________________
Common incentives received when taxes are filed (3):
_________________________________________
Common incentives received over time (3):
_________________________________________
System Price & Cost
20
System Price: Size
 
Depend on:
  System size (per watt)
  Mounting: roof, ground, trellis
  Special factors
Typical range $2.50-$7/ STC DC watt
 
 
 
Includes parts, installation labor, profit, warranty
Simplest composition shingle roofs: Doesn’t
include “adders” for harder jobs (tile, steep, etc).
Commercial & Municipal: $2.00-$6.50 /STC
DC watt
 
<$2.50/W STC is typical for 500kW+
Most residential now: $3.50-$7/STC DC watt
  Some economies of scale
 
21
PV System Price Trends
22
System Costs: Ongoing?
 
Maintenance (routine): 0.5% of system gross cost
per year, increasing with inflation
 
It’s in there one way or the other (cost of cleaning,
vs. loss in performance from dirty system)
Inverter Replacement: ~$700/kW at year ~15
Unscheduled Maintenance
  Property Tax
 
 
 
 
 
Modules price leveled and trending up in 2013 & 2014
 
23
Often exempt for original purchaser
Fire/Loss Insurance
Ask your insurer, sometimes = $0
Questions?
24
Incentives
Financial Incentives for Solar PV.
www.dsireusa.org / November 2012.
Feed-In Tariffs
  PBIs & RECs
  Rebates
  Tax Benefits & Issues
  Net Metering (in Electric Rates section)
 
 
46 states,
For incentives in other states see the
DSIRE database: www.dsireusa.org
+ Washington DC
Puerto Rico & the US
Virgin Islands, offer
financial incentives
for solar PV.
25
Credit:
DSIRE,Reserved.
a project of the N.C. Solar Center and the Interstate Renewable Energy Council
(IREC) of Solar PV Economics
© 2014 OnGrid Solar,
All Rights
Residential
Incentives West
State /
Province
AZ
-
PBI per
kWh
-
25% to $1K
-
CA-IOUs
-
-
~$.01-$.02
-
-
CO-Xcel
-
-
$.05 for 10
-
-
Rebate per W
SREC per
kWh
-
State ITC
FIT per kWh
HI
-
-
-
35% to $5K
$0.189-$0.218
KS
-
-
-
10%
-
LA
-
-
50% to $12.5K
-
MN
-
-
-
-
-
MO
$1.5 to 25kW
-
$.10
-
-
NM
-
-
-
10% to $9K
-
NV
$0 to 10kW
-
-
-
OR
$1.00+ to 10kW
-
-
$2.1/W to
2.9kW
-
TX
$0.00-$1.60
-
-
-
Residential
Incentives East
Notes
Last update: 3/7/14
Under 10kW
10 year SREC (closed)
ITC over 4 years
-
26
27
State /
Province
CT
$1.25 to 5kW
PBI per
kWh
-
SREC per
kWh
-
DE
$1.25 to 5kW
-
FL
-
-
Rebate per W
State ITC
FIT per kWh
-
-
$.02-$.04
-
-
-
-
-
Notes
Last update: 3/7/14
SREC auction
GA
-
-
-
-
-
MA
$0.40+ to 5kW
-
$.10-$.30
15% to $1K
-
SREC auction, 10 yr
MD
$1000 flat
-
$.12-$.14
-
-
SREC auction, 15 yr
NC
-
-
-
35% to $10.5K
$.10 for 5
NJ
-
-
$.09-$.18
-
-
NY LIPA
NY
NYSERDA
$0.66 to 10kW
-
-
25% to $5K
$.22 for 20 yrs
$1.00 to 25kW
-
-
25% to $5K
-
OH
-
-
$.03-$.05
-
ON
-
-
-
-
PA
$.75 to 10kW
$.02-$.06
-
CAD$.396 for
20 years
-
WI
-
-
-
-
-
-
SREC auction, 15 yr
Choose Rebate or FIT
<10kW only, less for
larger
larger
SREC auction to 2021
28
Commercial Incentives
State /
Province
AZ
SREC per
kWh
-
State ITC
FIT per kWh
10% to $25K
~$.01-$.02
-
~$.06-$.205 for
20
-
Rebate per W
PBI per kWh
CO
$0.00-$0.25 to
1MW
-
$0.00-$.032
for 5yrs
-
$0.05 for 10yr
GA
-
-
-
-
-
HI
-
-
-
35% to $500K
$0.189-$0.218
LA
-
-
-
50% to $12.5K
-
MA
~$.10-$.30
-
-
-
$.12-$.14
MO
$0.40 to 5kW
$0.06 to
100kW
$1.50
-
-
-
-
NC
-
-
-
35% to $2.5M
$.10 for 5
CA-IOUs
MD
NJ
-
-
-
-
-
$.09-$.18
-
-
NM
-
$0.05
-
10% to $9K
-
NY LIPA
NY
NYSERDA
$.66 to 10kW
-
-
-
-
$1.00 to 50kW
-
-
-
-
ON
-
PA
$1.10-$1.40 to
35kW
-
TX
$0.00-$1.60
OR
Performance Related Incentives
Notes
Last update: 3/7/14
Choose one of rebate,
PBI, or FIT
Up to 10kW
 
Types of Performance Related Incentives:
FITs – Feed-In Tariffs
PBIs – Performance Based Incentives
  SRECs – Solar Renewable Energy Certificates
 
SREC auction, 10 yr
 
SREC auction, 15 yr
SREC auction, 15 yr
 
Incentives paid for actual kWh produced
Missed production reduces incentive received
Motivates attention on the system
  Monitoring – A Must! – often required
 
-
-
-
CAD$.345 for
20
-
-
50% to $20M
-
ITC over 5 years
-
$.02-$.04
-
-
-
-
-
-
 
10-100kW
29
30
FITs: Feed-In Tariffs
 
PBIs & RECs
FITs are the only ongoing payment for owning
the system
 
No Net Metering savings (no savings on the electric
bill, which makes FITs different from PBIs and
SRECs)
  FITs do combine with the Federal Investment Tax
Credit
 
 
 
Very popular in Europe, Ontario. Becoming popular
in U.S. (FL,VT, HI, … national?)
  CA CREST program
  Risk losing Net Metering
PBI: Performance Based Incentive
REC: Renewable Energy Credits (Green Value),
usually called SRECs
Paid in addition to Net Metering savings on the bill
(which makes them different from FITs)
 
31
SRECs, Green Tags, TRCs
SRECs = Solar Renewable Energy Credits/Certificates
  TRC = Tradable Renewable Certificates
  Green Tags = RECs = TRCs = SRECs
  What are these?
The green value part of a solar kWh
  The legal rights to greenness
Electricity (kWh)
 
SRECs have value to other consumers
 
Depends on location, type & term
Depends on state mandate for S-RECs
 
1kW produces around 1,100-1,600 kWh
 
Requires: aggregation, monitoring, verification
 
33
Programs or government authorized trading boards
Value ranges from 1¢ to 30¢/kWh
 
Green Tags (kWh)
Green-e Certified RECs: www.green-e.org
Utilities who need to get into compliance with
government RPS requirements
 
 
Generating Plant
(kWh)
Those who can’t/won’t get solar directly
 
 
 
At 1¢, worth $11 to $16 per year per kW
-
PBI per
kWh
-
25% to $1K
-
CA-IOUs
-
-
~$.01-$.02
-
-
CO-Xcel
-
-
$.05 for 10
-
-
Rebate per W
SREC per
kWh
-
State ITC
FIT per kWh
HI
-
-
-
35% to $5K
$0.189-$0.218
KS
-
-
-
10%
-
LA
-
-
50% to $12.5K
-
MN
-
-
-
-
-
MO
$1.5 to 25kW
-
$.10
-
-
NM
-
-
-
10% to $9K
-
NV
$0 to 10kW
-
-
-
OR
$1.00+ to 10kW
-
-
$2.1/W to
2.9kW
-
TX
$0.00-$1.60
-
-
-
34
Residential
Incentives East
Notes
Last update: 3/7/14
Under 10kW
ITC over 4 years
-
Residential
Incentives West
State /
Province
AZ
32
REC / SREC Value
 
 
35
State /
Province
CT
$1.25 to 5kW
PBI per
kWh
-
SREC per
kWh
-
DE
$1.25 to 5kW
-
FL
-
-
Rebate per W
State ITC
FIT per kWh
-
-
$.02-$.04
-
-
-
-
-
Notes
Last update: 3/7/14
SREC auction
GA
-
-
-
-
-
MA
$0.40+ to 5kW
-
$.10-$.30
15% to $1K
-
SREC auction, 10 yr
MD
$1000 flat
-
$.12-$.14
-
-
SREC auction, 15 yr
NC
-
-
-
35% to $10.5K
$.10 for 5
NJ
-
-
$.09-$.18
-
-
NY LIPA
NY
NYSERDA
$0.66 to 10kW
-
-
25% to $5K
$.22 for 20 yrs
$1.00 to 25kW
-
-
25% to $5K
-
OH
-
-
$.03-$.05
-
ON
-
-
-
-
PA
$.75 to 10kW
$.02-$.06
-
CAD$.396 for
20 years
-
WI
-
-
-
-
-
-
SREC auction, 15 yr
larger
larger
36
Rebates
SREC Stability
Compliance SRECs often purchased by
utility 1 year at a time
  Longer-term contracts emerging:
 
Up-Front Reductions in System Cost
  Rebates are paid in addition to savings on the bill
 
 
NJ 3-year contracts ~$.57-$.60/kWh
  NJ 4th & 5th year pricing ~ $.40-$.45/kWh
  NJ 6th & 7th year pricing ~ $.20-$.30/kWh
 
 
Sources of Rebates:
Utility
  State
  City
  U.S. Dept. of Ag or U.S. Dept. of Interior
 
No known contracts signed over 5 years
 
 
Contracts & sales to aggregators: Pros &
Cons
Typically received 30-120 days after inspection
37
38
Residential
Incentives West
Rebate P rogram s for Renew ables.
www.dsireusa.org / January 2013.
State /
Province
AZ
PBI per
kWh
-
SREC per
kWh
-
State ITC
FIT per kWh
-
25% to $1K
-
CA-IOUs
-
-
~$.01-$.02
-
-
CO-Xcel
-
-
$.05 for 10
-
-
HI
-
-
-
35% to $5K
$0.189-$0.218
KS
-
16 States, +
Washington DC
and 2 territories
offer rebates for
renewables.
Notes: This map does not include rebates for geothermal heat pumps,
daylighting or other energy efficiency technologies.
Credit:
DSIRE,Reserved.
All Rights
39
DE
FL
$1.25 to 5kW
PBI per
kWh
-
SREC per
kWh
-
$1.25 to 5kW
-
$.02-$.04
-
-
-
Rebate per W
State ITC
FIT per kWh
-
-
-
-
-
-
GA
-
-
-
-
-
$0.40+ to 5kW
-
$.10-$.30
15% to $1K
-
SREC auction, 10 yr
MD
$1000 flat
-
$.12-$.14
-
-
SREC auction, 15 yr
NC
-
-
-
35% to $10.5K
$.10 for 5
NJ
-
-
$.09-$.18
-
-
$0.66 to 10kW
-
-
25% to $5K
$.22 for 20 yrs
$1.00 to 25kW
-
-
25% to $5K
-
OH
-
-
$.03-$.05
-
ON
-
-
-
-
PA
$.75 to 10kW
$.02-$.06
-
CAD$.396 for
20 years
-
WI
-
-
-
-
-
-
10%
-
-
50% to $12.5K
-
-
-
-
-
-
MO
$1.5 to 25kW
-
$.10
-
-
NM
-
-
-
10% to $9K
-
NV
$0 to 10kW
-
-
-
OR
$1.00+ to 10kW
-
-
TX
$0.00-$1.60
-
-
$2.1/W to
2.9kW
-
2006
2007
larger
larger
2016
41
-
Notes
Last update: 3/7/14
Under 10kW
ITC over 4 years
-
40
CA State Incentive Programs
< 30kW Rebate
SREC auction, 15 yr
-
-
CEC
SREC auction
MA
NY LIPA
NY
NYSERDA
1996
Notes
Last update: 3/7/14
-
LA
MN
Residential
Incentives East
State /
Province
CT
Rebate per W
CSI
CPUC / SelfGen
CEC
> 30kW Rebate
Pilot PBI
3,000 MW Total
CEC NSHP
IOUs
Residential New
CSI
Commercial,
Construction
Municipal
Utility
Gov’t / Non-Profit, &
in IOUs
Residential Retrofits Incentive Programs
CEC run/supervised
Self Run
CPUC supervised
$350 Mil
~$800 Mil
~$2 Bil
42
CEC NSHP
California Solar Initiative (CSI)
California Energy Commission
New Solar Home Partnership (CEC NSHP)
  Residential new construction only
  NSHP Incentive
 
 
 
$1.50/watt base if standard feature in development
  $1.25/watt base otherwise
  $2.20/watt for Affordable Housing
  Adjusted for performance via: NSHP calculator
  Declines over time as MW targets are reached
 
 
 
Must exceed “Title 24” efficiency
Applications & Guidebook at:
www.gosolarcalifornia.org/about/nshp.php
Utility connected systems only
 
Incentives proportional to performance
 
Must have monitoring / metering on system
Applications & Guidebook at:
www.gosolarcalifornia.ca.gov
 
43
Stand alone not eligible
CSI for IOUs
44
CSI EPBB Rebate
PG&E, SCE, SDG&E Customers
 
Commercial, Gov’t / Non-Profit,
Residential Retrofits
EPBB: Expected Performance Based Buydown
 
Adjusted for Expected Performance:
Tilt, Orientation, Shading, Location, Module
Temperature (due to lack of air flow)
  EPBB Design Factor Calculator: www.csi-epbb.com
  Design Factor allows up to 100% of base incentive
 
IOU/CCSE administered
CPUC supervised
33% Res, 67% Non-Res
Upfront rebate payment to reduce initial cost
Only CSI incentive for systems under 10kW
  Popular option for systems 10kW to 30kW
 
EPBB Rebate
‘Required’ for <10kW
Optional for 10-30kW
 
PBI
‘Required’ for >30kW
Optional for 10-30kW
 
45
 
 
Paid for all kWh produced for first 5 years
 
 
Does not reduce upfront cost (in lieu of rebate)
Still get savings on electric bill
  Optional for systems 10-30kW
  Only CSI incentive for systems over 30kW
 
 
<10kW: Inverter built-in (5% accurate)
>10kW also requires monitoring
Monitoring:
Required for systems >10kW and all PBI
systems, even with rebate, regardless of cost
  Performance Monitoring Reporting Service (PMRS)
  2% accurate meter (+ $1,000-$2,000 for meter)
  On-going costs:
 
 
Questions?
46
Metering: All systems must have meter
 
Actual performance (risk)
CSI Metering &
Monitoring Requirements
CSI PBI:
Performance Based Incentive
 
Energy Efficiency Audit required
47
 
$15/mo for PRMS service
$15/mo for cellular data service
Questions?
48
CSI Trigger Tracker
CSI Incentive
Levels & Steps
2
3
70 100
4
130
5
160
6
190
7
215
Step
Statewide
MW in Step
1
2
3
4
5
6
7
8
9
10
50
70
100
130
160
190
215
250
285
350
8
250
9
285
EPBB Payments (per Watt)
PBI
Payments (per kWh)
PBI Payments (per kWh)
Government
Government
Government
Government
Statewide
Payments
(per Watt)
Step
Residential
Commercial
/
Residential EPBB
Commercial
/
MW in Step
Non-Profit
Non-Profit
Residential Commercial
/
/
1
50
n/a
n/a
n/a
n/a
n/a
n/a
Gover
Non-Profit
Non-Profit
2
70
$2.50
$2.50
$3.25
$0.39
$0.39
$0.50
Statewide
n/a
$2.50
$2.20
$1.90
$1.55
$1.10
$0.65
$0.35
$0.25
$0.20
3
n/a
$2.50
$2.20
$1.90
$1.55
$1.10
$0.65
$0.35
$0.25
$0.20
$2.20
Step
n/a$1.90
Step
1
2
3
4
5
6
7
8**
9**
10**
50
70
100
130
160
190
215
250
285
350
Government
Residential
Commercial
/
Non-Profit
n/a
$2.50
$2.20
Step
$1.90
$1.55
$1.10
n/a
n/a
$1.10
$1.85
$2.50
$3.25
Statewide
$2.20
$2.95
$2.65
MW$1.90
in Step
$1.55
$2.30
49
$1.85
$1.40
$1.10
$0.90
$0.70
$0.34
$0.34
Residential
n/a
$0.26
$0.26
$0.22
$0.50
$0.15
$0.09
$0.46
n/a
$0.044
$0.032
$0.37
$2.50
$0.025
$0.32
$2.20
$0.26
$1.90
$0.19
$1.55
$0.15
$1.10
$0.12
$0.65
$0.10
$0.22
$0.15
$0.09
$0.044
$0.032
$0.025
$0.46
Commercial
$0.37
$0.32
$0.26
$0.19
$0.139
$0.114
$0.088
n/a
$2.50
$2.20
$1.90
$1.55
$1.10
$0.65
$0.35
$0.25
$0.20
/
Non-
n
$3
$2
$2
$2
$1
$1
$1
$0
$0
50
CSI Trigger Tracker
Step
n/a
n/a
n/a
Government1
$0.39
$0.39
$0.50
2
$0.34
$0.34
$0.46
3
Residential
Commercial
/
$0.26
$0.26
$0.37
4
$0.22
$0.22
$0.32
5
Non-Profit
$0.15
$0.15
$0.26
6
Program Data & Statistics: http://csi.powerclerk.com
51
n/a
$3.25
$2.95
$2.65
$2.30
$1.85
$1.40
$1.10
$0.90
$0.70
Residential
$0.65
$0.09
$0.09
$0.19n/a
n/a
1 $0.65
50 n/a$1.40
n/a n/a
$0.35
$0.35
$1.10
$0.044
$0.044
$0.139
$0.25
$0.90
$0.032
$0.032
$0.114
$0.39
2 $0.25
70$0.39
$2.50
$0.50
$2.50
$0.20
$0.20
$0.70
$0.025
$0.025
$0.088
$0.34
3
100
$0.34
$2.20
$0.46
$2.20
$0.26
4
130
$0.26
$1.90
$0.37
$1.90
$0.22
5
160
$0.22
$1.55
$0.32
$1.55
$0.15
6
190
$0.15
$1.10
$0.26
$1.10
$0.09
7
215
$0.09
$0.65
$0.19
$0.65
$0.05
8
250
$0.05
$0.35
$0.15
$0.35
$0.03
9
285
$0.03
$0.25
$0.12
$0.25
$0.03
10 website: 350
$0.03
$0.20
$0.10
Trigger Tracker
http://www.csi-trigger.com
As of 2/10/13 $0.20
7
8**
9**
10**
215
250
285
350
52
State & Local
Tax Incentives
State Tax Credits
  Federal Investment Tax Credit (ITC)
  Federal & State Depreciation
  Only apply to taxable entities (not schools,
non-profits, gov’t, etc)
 
 
Tax Credit vs. Tax Deduction
 
 
 
Disclaimer: I’m not a CPA or lawyer, and am not providing
tax advice. Seek qualified professional help
53
$1,000 Federal tax credit reduces tax owed by $1,000
$1,000 Federal tax deduction reduces income by
$1,000 which reduces taxes owed by $1,000 * tax rate
= $1,000 * ~28% = $280
State Tax Credits are worth about 65-80% of face
value due to reduced federal deduction of the now
reduced state taxes
 
 
Government
Government
PBI Payments
(per
kWh)
Payments
(per Watt)
Commercial
/
Residential EPBB
Commercial
/
Non-Profit
Non-Profit
50
n/a
n/a
n/a
n/a
n/a
n/a
Government
Gover
70
$2.50
$2.50
$3.25
$0.39
$0.39
$0.50
Statewide
100
$2.20
$2.20
$2.95
$0.34
$0.46
Residential
Step
Commercial
Residential
/ $0.34
Commercial
/
130
$1.90
$1.90
$2.65
$0.26
$0.26
$0.37
MW
in
Step
160
$1.55
$1.55
$2.30
$0.22
$0.22
$0.32
Non-Profit
Non190
$1.10
$1.10
$1.85
$0.15
$0.15
$0.26
Statewide
MW in Step
Tax Benefit Overview
$2.95
Government
/
Non-Profit
$0.65
$1.40
$0.09
$0.09
$0.19n/a
1 $0.65
50
n/a $0.044
$0.35
$0.35
$1.10
$0.044
$0.139
$0.25
$0.90
$0.032
$0.114
2 $0.25
70
$2.50 $0.032
$2.50
$0.20
$0.20
$0.70
$0.025
$0.025
$0.088
3
100
$2.20
$2.20
4
130
$1.90
$1.90
5
160
$1.55
$1.55
6
190
$1.10
$1.10
7
215
$0.65
$0.65
8
250
$0.35
$0.35
9
285
$0.25
$0.25
10 website: 350
$0.20 As of 3/6/13 $0.20
Trigger Tracker
$0.39
$0.34
50
$0.26
70
$0.22
100
$0.15
130
$0.09
160
$0.05
190
$0.03
215
$0.03
$1.10
$0.65
$0.35
$0.25
$0.20
CSI Trigger Tracker
Statewide
MW in Step
$2.20
$2.65
MW$1.90
inn/a
Step
$1.55
$2.30
$1.55
$0.39
$1.10
$0.34
1 $0.65
$0.35
$0.26
2 $0.25
$0.20
$0.22
3
$0.15
4
$0.09
5
$0.05
6
$0.03
7
$0.03
8
250
$0.35
9
285
$0.25
10 website: 350
$0.20 As of 11/26/13
Trigger Tracker
10
350
100
130
160
190
215
250
285
350
n/a4
5
$3.25
6
7
$2.95
8**
9**
$2.65
10**
$2.30
$1.85
$1.40
$1.10
$0.90
$0.70
Effectively “federally taxed”
Property Tax Exemption: CA - Com & Res to 2016
54
n
$3
$2
$2
$2
$1
$1
$1
$0
$0
Residential
Incentives West
Tax Credits for Renew ables
www.dsireusa.org / January 2013
State /
Province
AZ
PBI per
kWh
-
SREC per
kWh
-
State ITC
FIT per kWh
-
25% to $1K
-
CA-IOUs
-
-
~$.01-$.02
-
-
CO-Xcel
-
-
$.05 for 10
-
-
HI
-
-
-
35% to $5K
$0.189-$0.218
KS
-
-
-
10%
-
LA
-
-
50% to $12.5K
-
MN
-
-
-
-
-
MO
$1.5 to 25kW
-
$.10
-
-
NM
-
-
-
10% to $9K
-
NV
$0 to 10kW
-
-
-
OR
$1.00+ to 10kW
-
-
TX
$0.00-$1.60
-
-
$2.1/W to
2.9kW
-
DC
Personal tax credit(s) only
Puerto Rico
Corporate tax credit(s) only
Personal + corporate tax credit(s)
Notes: This map does not include corporate or personal tax deductions or
exemptions; or tax incentives for geothermal heat pumps.
24 states
55
Residential
Incentives East
DE
FL
$1.25 to 5kW
PBI per
kWh
-
SREC per
kWh
-
$1.25 to 5kW
-
$.02-$.04
-
-
-
Rebate per W
State ITC
FIT per kWh
-
-
-
-
-
-
-
-
-
-
-
$0.40+ to 5kW
-
$.10-$.30
15% to $1K
-
SREC auction, 10 yr
$1000 flat
-
$.12-$.14
-
-
SREC auction, 15 yr
NC
-
-
-
35% to $10.5K
$.10 for 5
-
-
$.09-$.18
-
-
-
-
25% to $5K
$.22 for 20 yrs
$1.00 to 25kW
-
-
25% to $5K
-
OH
-
-
$.03-$.05
-
ON
-
-
-
-
PA
$.75 to 10kW
$.02-$.06
-
CAD$.396 for
20 years
-
WI
-
-
-
-
-
-
56
35% State Tax Credit (max $10,500 Res, $2.5mil
Comm)
  Duke SRECS $.03/kWh for 5-15 years
  Progress Rebate: $1/WAC + $4.50/mo/kW (~$.036/
kWh) up to 10kW based on 1500 kWh/kWAC/yr
  Progress PBI: $.18/kWh for 11-500kWDC
  NC Green Power: $.10 FIT + ~$.04 PPA = $.14/
kWh but not guaranteed. Bids req’d over 5kW.
SREC auction, 15 yr
larger
larger
57
58
Federal Investment
Tax Credit - Residential 2009-2016
Other Tax Credits
30% Investment Tax Credit (ITC), Sect 25D
  No Cap (unlimited)
  Residential not eligible for conversion to
“Section 1603 Treasury Grant” treatment
  Systems “placed in service” in 2009-2016
  IRS Form 5695
  Received on “next year’s” tax return (1 year delay)
 
LIHTC – Low Income Housing Tax Credit
  HTC – Historic Rehabilitation Tax Credit
  NMTC – New Markets Tax Credit
  Agricultural
  Apply in special cases – check DSIRE, IRS,
tax specialists
  Might be additive to other tax incentives
 
 
 
 
ITC over 4 years
-
 
SREC auction
GA
$0.66 to 10kW
NC Incentives
MA
NJ
Under 10kW
Notes
Last update: 3/7/14
MD
NY LIPA
NY
NYSERDA
-
Notes
Last update: 3/7/14
offer tax
credits for
renewables
Credit:
DSIRE,Reserved.
All Rights
State /
Province
CT
Rebate per W
59
Unused credit can be carried forward thru at least 2016
Not limited by AMT (Alternative Minimum Tax)
Important negative tax interaction with Rebates
60
Federal Investment
Tax Credit - Commercial
 
1603 Federal Treasury Grant – Closed
 
30% Investment Tax Credit
 
 
 
Must be “placed in service” during 2006-2016
10% if installed 2017+
 
“There is no feast which does not come to an end.” Chinese proverb !
  IRS Form 3468 (Sect 48 of Internal Revenue Code)
 
Unused credit can be carried forward 20 years & back 1
 
Commercial
 
 
 
 
 
Including home businesses > 20% sqf - with caution
2009-2011 ITC can be converted to Treasury Grant
Section 1603 Grant in ARRA (Recovery Act)
Same general features and intended functionality as the
ITC, but better:
Commercial systems only
“Placed in service” in 2009-2011 only, or
 
Not limited by AMT (Alternative Minimum Tax)
  Vests at 20% per year (over 5 years)
 
 
61
Commercial systems only
 
 
 
 
 
 
 
http://www.reznickgroup.com/sites/reznickgroup.com/files/
papers/rg1078_section1603_state_matrix.pdf
63
FMV: Fair Market
Value for Grant/ITC
*Most preferred
64
Treasury 1603
Cost Basis Analyses for FMV
Determined by independent appraiser:
  Method 1 - Cost-Based: Actual cost to build,
including profit & soft costs, only for eligible
property (most preferred by IRS)
  Method 2 - Market Based: Estimated thru
comparable sales of eligible property
  Method 3 - Income Based: Discounted value of
future cash flow – not considered reliable, but is
used regularly in leasing and PPAs
Typically 10-20% markup allowed for Sale-Leasebacks
Developer fee in basis shouldn’t be more than 3-5%
Method 2 - Market Based: Estimated thru comparable
sales of eligible property
  Method 3 - Income Based: Discounted value of future
cash flow – not considered reliable, but is used
regularly in leasing and PPAs
Allows transfer of ownership
Recapture of Grant or ITC on permanent cessation
  Grant may be state taxable in certain cases, see:
62
Method 1 - Cost-Based: Actual cost to build,
including profit & soft costs including only eligible
property*
 
 
Should not be bargain fixed price (at termination)
Determined by independent appraiser at time of
exercise or tax valuation:
I.e. One disqualifies all, regardless of small %
‘Blocker’ C-Corporations can allow
 
 
Treasury application: https://treas1603.nrel.gov/
 
Limited to IRC Sec 48 and some Sec 45
Pass-thru entities (partnerships, LLCs, S-corps) can
use grant, as long as none of the recipients is nontaxable (and therefore disqualified)
 
Construction Initiated 2009-11, completed by 2016
  5% non-refundable cost spent by 2011
FMV: Fair Market
Value for Grant/ITC
1603 Treasury Grant Limitations
 
Paid < 60 days of “placed in service” or application
Usable even if no tax appetite (effectively a refundable ITC
or Federal Rebate)
!!!
Residen(al!
5!kW!
10=100!
kW!
25!kW!
100!=!1,000!
kW!
250!kW!
+/=!$7!
+/=!$6!
+/=!$5!
Size!Range! <10!kW!
Typical!Size!
Turnkey!
Price!per!
WaG!
65
Residen(al/!
Large!
Small!
Commercial! Commercial
Commercial!
/!U(lity!
>1!MW!
2!MW!
+/=!$4!
Treasury Guidance Paper: http://www.treasury.gov/initiatives/recovery/Documents/
N%20Evaluating_Cost_Basis_for_Solar_PV_Properties%20final.pdf June 2011
66
“Placed In Service”
IRC: “Ready & available for its intended use”
  SEIA “Guide to Federal Tax Incentives for
Solar Energy” (Available free to SEIA members
at: www.seia.org ):
Rebate Tax Interactions
 
 
Equipment delivered and construction /
installation completed
 
Minor tasks like painting need not be finished
Sec 136(b) - No “Double Benefit”
  If the rebate is non-taxable, the federal ITC is on
amount after rebate
 
Taxpayer has taken legal title and control
Pre-operational tests demonstrate the equipment
functions as intended
  Taxpayer has licenses, permits, and PTO
(permission to operate)
 
If rebate is taxable, then federal ITC is on amount
before rebate
 
67
Rebate May Be
Federally Taxable
 
 
 
 
 
CA PV Rebates are not state taxable in CA, may
vary in other states; check w/ enacting law, local
SEIA chapter, state energy office
‘Utility (ratepayer funded) direct or indirect rebates for energy
conservation for dwellings (i.e.. residential) are not taxable’
  PV is ‘energy conservation’ by precedent
IRS hasn’t publicly ruled on PV rebates from:
  CCSE & CEC
  Oregon private letter ruling (PLR) isn’t precedent
Residential rebates from ratepayer funds may be tax exempt
because of Section 136
Rebates/grants from state/local general funds probably taxable
If rebate requires transfer of RECs, it’s probably taxable (IRS
PLR 201035003)
Is it better to have a taxable or non-taxable
residential rebate?
  Why?
  What does it depend on?
 
Info courtesy Mark Bolinger, LBL
69
Tax Credit Example 1
30% Tax Bracket (Residential)
Non-Taxed Rebate
$100K
-$20K
$0K
$80K
-$24K
=$56K
System Cost
Rebate
Rebate Tax
Net Cost After Rebate
ITC Tax Credit Value*
Net Cost
Non-Taxed Rebate
System Cost
Rebate
Rebate Tax**
Net Cost
*30% federal ITC rate
**30% federal marginal tax rate (30% tax bracket)
Rebate Tax Due even if rebate goes to the installer
70
Taxed Rebate
$100K
-$20K
+$6K
$86K
-$30K
=$56K
68
Rebate Tax Residential Exercise
1099 tax forms have been issued to recipients
Section 136(a) of IRS Code:
 
 
 
$100K
-$20K
$0K
$80K
-$24K
=$56K
System Cost
Rebate
Rebate Tax
Net Cost
Taxed Rebate
$100K
-$20K
+$4K
$84K
-$30K
=$54K
System Cost
Rebate
Rebate Tax**
Net Cost
Questions?
71
72
Non-Taxed Rebate
$100K
-$20K
$0K
$80K
-$24K
=$56K
System Cost
Rebate
Rebate Tax
Net Cost
PBI & REC Taxation: Residential
Taxed Rebate
$100K
-$20K
+$8K
$88K
-$30K
=$58K
 
System Cost
Rebate
Rebate Tax**
Net Cost
Each 1% shift in tax bracket
changes the rebate 1%
PBI probably taxable*
 
Unknown - How to calculate?
 
RECs, SRECs probably also taxable
  Neither is likely to affect the ITC/1603 basis
 
*Suggested by Mark Bolinger, LBL
Questions?
Questions?
73
 
PBI & RECs probably taxable
  Section 136 is for residential “dwellings”
only
  No known commercial exemptions
 
 
 
 
75
Depreciation - CA State
 
 
 
Depreciation = Commercial tax deduction spread over time
MACRS 5-Year Accelerated Depreciation (1/2 yr conv.)
MACRS: Modified Accelerated Cost Recovery System
IRS Form 4562
  Can choose 12 year straight-line depreciation
Equivalent of tax deducting system’s ‘basis’ over 5.5 years
 
 
 
74
 
 
Federal Depreciation
PBI & REC Taxation: Commercial
If not, IRS may require NPV of future PBI
payments to calculate reduction in ITC basis?
Net Value = Depreciation Basis * Tax Rate
Net Value = (System ITC basis - 1/2 ITC) * Tax Rate
Net Value = System ITC basis * 85% * Tax Rate
2014+ Regular Schedule: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%
Commercial only (including home businesses >50% by sqf)
Up to 20 year carry-forward
76
Rebate Tax Commercial Exercise
Corporate: 12 Year Straight Line method
Non-Corporate: MACRS 5-Year
  (Sole-Proprietors, LLP, etc)
Is it better to have a taxable or non-taxable
commercial rebate?
  Why?
  What does it depend on?
 
State Depr Basis is Top Line Cost minus
Rebate & State Tax Credit
Commercial only (including home businesses)
Questions?
77
78
Tax Credit &
Depreciation Example (Commercial)
Non-Taxed Rebate
Taxed Rebate
$150K System Cost
-$50K Rebate
$0K Rebate Tax
$100K Net Cost After Rebate
-$30K ITC Tax Credit Value
-$35K Depr Value (85K * 41%*)
=$35K Net Cost
$150K System Cost
-$50K Rebate
+17.5K Rebate Tax (35% Fed rate only)
$117.5K Net Cost After Rebate
-$45K ITC Tax Credit Value
-$52K Depr Value (127.5K * 41%*)
=$20.5K Net Cost
Section 179 Expense
Section 179 converts some small business depreciable
property into 1st year expense (deduction)
  Deduction limit: $500K for 2010 & 2011
 
 
 
 
Phase-out begins at 4x limit: ~$2,000,000 in 2010-11
$1 for $1 reduction, so at 5x, Sect. 179 has no value
Phase-out basis is sum of all 179 eligible property put in
service in that year
  If sum > 5x (>$2.5million), then can’t use 179 at all
 
 
*41% = combined net federal & state tax rate
(35% Federal, 8.84% CA State)
If commercial, want rebate taxable (no choice)
 Then tax credit and depreciation are on amount before rebate
 Better to pay tax on rebate, and get more tax credit and depreciation
Enhanced in 2010 Small Business Jobs & Credit Act of 2010
Drops to $25K in 2012 (unless extended)
79
Problems with Section 179
 
Can including PV in Home Businesses if >50%
business use of asset (ie > 50% of sqf is for business)
 
80
Small Business Carry-Back of NOL
Conflicting language, not 100% clear if available
with ITC or Treasury Grant
  Few project & customers qualify
 
 
 
Must fit within limits &
Aren’t already using it for other property
Can hurt customer too – could cause loss of Sec.
179 on other eligible property
  Examples that don’t qualify:
 
 
In 2009(+?), small businesses can carry
back Net Operating Losses up to 5 years
 
$15 Million Gross Receipts limitation
 
Normally only 2 year carry-back
Part of 2009 Economic Stimulus
Already Section 179 using for other purchases
  Projects over $500K depending are limited
  Phased out if total of all is >$2,500,000
 
 
Kept out of OnGrid to stay conservative
81
Tax Benefits
ITC & MACRS reduce customer cost, but not
up-front
  Not available to all customers – MACRS
Depr. is affected by AMT
 
Ask about customers “tax appetite”
Customers - beware of optimistic sales claims
82
Agenda
 
 
83
 
Costs & Incentives
Electric Rate Structures
  System Performance
 
Questions?
 
Financial Analysis Methods
  Solar Analysis Tools
 
84
Agenda
Top Line
Cost
Net Cost
Incentives
Financial
Results:
Electric
Rates
Usage &
Patterns
Electric Rate Structures
- Payback
- Resale
- Cash Flow
- IRR
- APY
Calcs
Savings
Financial
Variables
System
Performance
85
86
88
Net Metering
Electric Rate Structures Overview
Sell Power to the
Utility by Day
Options for Solar - Net Metering
  Customer Classes
  Types of Rate
 
Buy Power at
Night and Winter
.
Exchange at Retail
100% Efficient Battery
• Annual Cycle
• $0 minimum bill*
• 
• 
87
Net Metering
*Different with Calif. AB 920
Net Metering
Average monthly usage
Average monthly usage
PV system production
kWh/mo
PV system production
kWh/mo
$/mo
Roll over
750
500
500
250
250
May
October
“SUMMER”
April
May
“WINTER”
October
“SUMMER”
April
“WINTER”
Gets more complicated with TOU and Net Metering and AB920
Slide courtesy Pete Shoemaker, PG&E Pacific Energy Center
Slide courtesy Pete Shoemaker, PG&E Pacific Energy Center
The surplus covers the shortfall,
and your yearly bill is zero.
750
89
90
California AB 920
Excess Net Metering Credit
Net Metering.
www.dsireusa.org / July 2013
Payment for excess kWh production
  Can apply as soon as notification is received
  ~$.04/kWh, adjusted periodically
  Excess SRECs go to the utility
  Properly designed systems going for $min bills
should never be able to take advantage of this if
PV & EE are designed/analyzed up front and
inconsideration of each other
 
43 states,
+ Washington DC
& 4 territories,have
adopted a net
metering policy.
Note: Numbers indicate individual system capacity limit in kilowatts. Some limits vary by customer type, technology and/or application. Other limits might also apply.
This map generally does not address statutory changes until administrative rules have been adopted to implement such changes.
Credit:
DSIRE,Reserved.
All Rights
91
Three Customer Classes
Residential, Commercial, Agricultural
Usage
40¢
35¢
Types of Rate
Penalizes larger
residential users
 
Flat: Simple rate, not time or usage dependent
  Tiered: Rates increase with usage
  Time of Use (TOU): Rate varies during day depends on when energy is used
  Tiered-TOU: Varies with usage & time of day
  Demand
 
Residential Tiered Usage Before Solar
45¢
30¢
Excellent motivator
of efficiency,
conservation & PV
 
25¢
20¢
15¢
10¢
5¢
Tiers cause Tears
 
788, Tier 3
0¢
488, Tier 2
 
Residential only (in
general)
 
375, Tier 1
 
93
PG&E
Baseline
Territories
Cancelling
Revised
Revised
Cal. PUC Sheet No.
Cal. PUC Sheet No.
MAP SHOWING
BASELINE REGIONS
FOR DETERMINING BASELINE QUANTITIES
Sheet 1
SCE Baseline
Territories
 
Variations:
 Location: P-Z
 Season: Summer or
Winter
 Type: Electric Only or
Both Electric & Gas
  Baseline = Tier 1 =
Coast to High Desert
 
Season: Summer or
Winter
 Type: Electric Only or
Both Electric & Gas
50-70% of average user’s
use
  Tier 1 + Tier 2
Avg
Avg
http://www.sce.com/CustomerService/billing/tiered-rates/baseline-chart-map.htm
http://www.sce.com/NR/rdonlyres/02FE720D-956D-44C7-B204-D48F830B79CC/0/Baseline.pdf
http://www.pge.com/myhome/customerservice/financialassistance/medicalbaseline/understand
Variations:
 Locations: 5-10, 13-16
 
50-70% of average user’s
use
94
45855-E
8314-E
 
Tier 1 + Tier 2
Usage (kWh/mo at top of tier) & Tier
- of Joy!
Southern California Edison
Rosemead, California
(U 338-E)
 
92
Residential Tiered Rates
Cents per kWh
 
95
(To be inserted by utility)
Advice
2386-E
Decision 09-08-028
1D10
Issued by
Akbar Jazayeri
Vice President
(To be inserted by Cal. PUC)
Date Filed Sep 30, 2009
Effective
Resolution
96
SDG&E Baseline
Territories Variations:
SCE Baseline
Quantities (kWh/day)
http://www.sce.com/CustomerService/billing/tiered-rates/baseline-chart-map.htm
http://www.sdge.com/tm2/pdf/ELEC_MAPS_Maps_-_Elec.pdf
97
Residential only
Penalizes larger
residential users
 Excellent motivator
of efficiency,
conservation & PV
 Surcharge currently
+14¢/kWh for Tier 4
 
Usage
40¢
23¢/kWh
surcharge
25¢
20¢
15¢
10¢
13¢/kWh
base
charge
5¢
788, Tier 3
488, Tier 2
375, Tier 1
0¢
Tiered Rates:
Examples
  Base is 13¢/kWh
  Top is 36¢/kWh (Surcharge currently +23¢/kWh for Tier 4)
 
 
Base is 14¢/kWh
 
Top is 28¢/kWh
Usage
25¢
14¢/kWh
surcharge
20¢
15¢
10¢
14¢/kWh
base
charge
5¢
0¢
299, Tier 1
Cents per kWh
30¢
Cents per kWh
35¢
Examples
99
100
Reverse Tiers
NJ Residential Tiered Rates
25¢
35¢
 
30¢
98
SDG&E Residential Tiered Rates
629, Tier 3
PG&E Residential Tiered Rates
45¢
389, Tier 2
Locations:
  Coast
  Inland
  Mountain
  Desert
  Season:
  Summer
  Winter
  Type:
  Electric Only
  Both Electric &
Gas
50-70% of average
user’s use
  Tier 1 + Tier 2
Avg
 
Commercial rates:
 
NY – ConEd: $0.20,!$0.17!
PA – Allegheny Power: $0.12,!$0.09,!$0.08,!$.07
 PA – PECO GS: $0.25,!$0.13,!$0.09,!$0.05!
 
Usage
20¢
 
Cents per kWh
15¢
10¢
30¢
5¢
25¢
xx
Residential
Tiered Usage Before Solar
Usage
20¢
JCP&L
  Base is 15.3¢/kWh (summer only, 16.7¢/kWh winter)
  Top is 21.1¢/kWh (summer only, 16.7¢/kWh winter)
 PSE&G and ACE are also tiered on Residential
Examples
 
101
Cents per kWh
600, Tier 1
0¢
15¢
10¢
5¢
0¢
102
PG&E Tiered Rate System
45¢
45¢
Usage
Net Usage
25¢
25¢
Production
30¢
Cents per kWh
10¢
20¢
10¢
Use/Bill Before Solar
Marginal Use at 36¢
5¢
Marginal Use at 13¢ - 15¢ .
Solar systems offset the most expensive usage first
Examples
103
35¢
25¢
20¢
20¢
Cents per kWh
Cents per kWh
30¢
25¢
15¢
10¢
5¢
High in the tiers?
  Low in the tiers?
10¢
 
629, Tier 3
389, Tier 2
Marginal Use at 14¢ - 17¢ .
 
105
106
Total kWh Usage in each Time Period
Peak rates are Summer Afternoons - high cost
Off-Peak rates are Nights, Mornings & Weekends
  Hours are Daylight Savings (vs. Solar Time)
  Types vary, and not available for all utilities or customers
 
 
 
 
Simplified Time of Use (TOU,West)
 
Peak rates are Summer All Day - high cost
Off-Peak rates are Nights & Weekends - low cost
  Hours are usually Daylight Savings (vs. Solar Time)
  Types vary, and not available for all utilities or customers
How do we profile our customers for Target
Marketing?
Total kWh Usage in each Time Period
What types of loads, appliances, & devices
cause high tiers?
Small “Net” Use After Solar
Simplified Time of Use (TOU, East)
 
What kind of customers are:
 
15¢
Examples
104
Production
 
299, Tier 1
629, Tier 3
389, Tier 2
299, Tier 1
Marginal Use at 28¢
Typical Customers & Loads
0¢
Marginal Use at 15.3¢ .
5¢
0¢
Residential Tiered Usage With Solar
Net Usage
Usage
30¢
Examples
SDG&E Tiered Rate System
35¢
10¢
0¢
Marginal Use at 21.1¢
Production
5¢
0¢
375, Tier 1
788, Tier 3
0¢
488, Tier 2
5¢
0¢
15¢
10¢
15¢
5¢
15¢
600, Tier 1
15¢
25¢
788, Tier 3
20¢
488, Tier 2
25¢
20¢
Cents per kWh
35¢
30¢
20¢
Cents per kWh
35¢
Net Usage
Usage
40¢
375, Tier 1
Cents per kWh
40¢
NJ: JCPL Tiered Rate System
600, Tier 1
107
108
Time of Use with
Annual Net Metering
PG&E Time Of Use
Residential E6
Residential PG&E "E6" Time-of-Use Pricing Periods
Net Metering on an annual basis
Combined with
  Time Of Use metering
 
Midnight - 6am
6am - 10am
Sunday Monday Tuesday Wednesday Thursday Friday Saturday
Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
10am - 1pm
Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak
1pm - 7pm
Off-Peak
Sell at high rate; Buy at low rate
  Advantage in customer’s favor
  Can reduce system size
 
 
 
Reduction depends on % on-peak usage & rate schedule
shading and orientation
Vote Solar – votesolar.org can help
Questions?
Peak
Peak
Peak
Peak
Peak
Off-Peak
7pm - 9pm
Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak
9pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
109
Time Period
Summer
Winter
Peak
Part-Peak
28.7¢ /kWh
17.5¢ /kWh
12.1¢ /kWh
Off-Peak
10.1¢ /kWh
10.5¢ /kWh
+ tier surcharges
Questions?
Time of Use with
Annual Net Metering in PG&E
110
SCE Time Of Use
Residential TOU-D-T
Residential Time-of-Use
Combined with
 
Sunday
3:1 in customer favor
  E6 can reduce system size 0-15%
Pricing Periods
Monday Tuesday Wednesday Thursday
Friday
Saturday
Midnight - 10am Off-Peak Off-Peak Off-Peak
Off-Peak
Off-Peak Off-Peak Off-Peak
10am - 6pm
6pm - Midnight
Peak
Off-Peak
Peak
Peak
Off-Peak
Off-Peak
Peak
Peak
 
 
 
Questions?
Off-Peak rates are Nights, Mornings & Weekends
… when most people are home & using
 
Shading and orientation
No payment for excess production
33% of the day is Peak
… when most people are away from home
 
 
 
111
Time of Use with
Annual Net Metering in SCE
Residential DR-TOU
Combined with
Residential "DR-TOU" Time-of-Use
Midnight - 6am
6am - Noon
Noon - 6pm
6pm - Midnight
Off-Peak
Peak
Peak
36¢/kWh peak, 18¢/kWh off-peak
 
Off-Peak rate is higher than D Tier 1 rate, but much
lower than the Tier 4 & 5 rates
  Can reduce system size 0-30%
 
 
 
 
Reduction depends on % on-peak, shading and orientation
Questions?
113
Pricing Periods
Sell at high rate, Buy at low rate
 
112
SDG&E Time Of Use
 
 
Peak
Off-Peak
Peak
Peak
Off-Peak
Compare to 14¢/kWh base rate + tier surcharges
Peak rates are Summer Afternoons 17¢/kWh + tier surcharges
Off-Peak rates are Nights, Mornings & Weekends 15¢/kWh + tiers
114
SDG&E Time Of Use
Time of Use with
Annual Net Metering in SDG&E
Residential DR-SES
Residential SDG&E "DR-SES" Time-of-Use Pricing Periods
Combined with
 
(summer time periods)
Sunday
Monday
Tuesday Wednesday Thursday
Friday
Saturday
Midnight - 6am
Off-Peak
6am - 11am
Off-Peak Part-Peak Part-Peak
Part-Peak Part-Peak Part-Peak Off-Peak
11am - 6pm
Off-Peak
6pm - 10pm
Peak
Peak
10pm - Midnight Off-Peak Off-Peak Off-Peak
Peak
Peak
Peak
Off-Peak
Part-Peak Part-Peak Part-Peak Off-Peak
Off-Peak
 
 
Compare to 14¢-28¢/kWh tiered rates
Peak rates are Summer Afternoons 26¢/kWh (no tier surcharges)
 
 
DR-SES is good in some cases
26¢/kWh peak vs. 17¢/kWh off-peak
DR Tier 1 rate of 14¢/kWh is lower than off-peak rate
  DR Tier 4-5 rate of 28¢/kWh is higher than on-peak rate
  DR-SES is best for Tier 4-5 users
Questions?
  DR-TOU may also be good
 
 
Part & Off-Peak rates are Nights, Mornings & Weekends 17-18¢/
kWh … when most people are home & using
 
115
Sunday
Midnight - 8am
8am - Noon
Noon - 8pm
8pm - Midnight
Off-Peak
Pricing Periods
Peak
Peak
Off-Peak
Peak
Peak
Off-Peak
Peak
Peak
Off-Peak
Friday
Combined with
Saturday
 
Peak
Peak
Off-Peak
Peak
Peak
Off-Peak
Peak rates are Summer Afternoons ~22-43¢/kWh until 8-10pm
… when people are mostly away from home
  Off-Peak rates are Nights, Mornings & Weekends ~10-11¢/kWh
  NY: ConEd: ~10am-10pm
  NJ: JCP&L - 8am-8pm; PSE&G: 7am-9pm
  PA: MetEd, Penelec 9am-9pm; PPL, PECO 8am-6pm or 7:30pm
  CT: UI, CL&P 12pm-8pm
Economics of Solar PV - 117
1:1 to 3:1 in customer favor
  Can reduce system size up to 0-15%
 
 
 
 
Reduction depends on %! on-peak usage & rate schedule
 
Shading
and orientation
!
"#$%&'()!*+,-.#()-+!/0-1#)!
!
  No payment for excess
>#1'?'+0@!*+,-.#()-+!!!!!!!A6!;;<=/B!
!
!
!© 2014 OnGrid Solar, All Rights Reserved.
!
!
"#$%&'()!*+,-.#()-+!/0-1#)!
!
Understanding PG&E Rates
 
Rate = Base Rates + Tier Surcharges
Base Rate $0.132 per kWh + Tier Increments
Tier 2 increment over Tier 1: $0.018 (= $.150 total rate)
 
Winter Part-Peak: $0.121 per kWh
Winter Off-Peak: $0.105 per kWh
!
+ Tier Increments (same as above)
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119
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S4S:NN9
S4S:NN9
S4SSSN8
S4SS9NSS4S__<9
S4SS8TF
S4SSSN8
S4SF_8S
S4S:NN9
S4SSSN8
S4SSSN8
S4S__<9
!
!
S4SNT
S4SNN
S4SSFN8
S4SSFN8
S4SSS9T
S4SSS9T
S4SS9NS
S4SS9NS
S4S9T<S
S4S9T<S
S4SSFN8
S4SSFN8
S4SSS9T
S4SSS9T
S4SS9NS
S4SS9NS
S4S9T<S
S4S9T<S
S4SSFN8
S4SSFN8
S4SSS9T
S4SSS9T
S4F:S;:
S4S:NN9
D#%+,<
^')'(+%-#)
6>^```
E
S4S__<9
S4S__<9
S4F8TNT
S4:NN:<
S4S
S4S
S4SS8TF
S4SS8TF
S4SSSN8
S4SSSN8
S4S__<9
S4S__<9
S4SN:;;
S4FTS8T
S4S
S4S
S4S9TS4SS8TF
S4S88
S4SSSN8
S4SSSN8
S4S__<9
S4S__<9
S4S;F9S
S4NS;N:
S4S
S4S
S4SS9NSFSS4SS``
S4SS8TF
S4SSSN8
S4S__<9
S4SS9NS
S4SS8TF
S4SSSN8
S4S__<9
S4SF_8S
S4F:S;:
S4S
S4S
S4SS8TF
AS4_9B
AF4N9B
5'+O!D-?'!>'J+%'!!
Yb')+J,-)3!%'C&)#,#3K!=!abO]&
W+1-C!*&+(3'!=!abH'%'(bE+K
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!
H$,%-=I+?-,K!>'1-0')C'
!
H-)-?$?!*&+(3'`!=!abH'%'(bE+K
!
!"-)3,'=I+?-,K!>'1-0')C'
!!
H$,%-=I+?-,K!>'1-0')C'
S4S:NN9
S4S:NN9
E',-M'(K!"'(M-C'
S4SS8TF
S4SSSN8
S4S__<9
S4SN:;;
S4S:NN9
8
:
_
S4SS8TF
S4SSSN8
S4FTS8T
S4S:NN9
7E*
555*9S4S__<9
E]>W*
56*>I
URG = Utility Retained Generation
  DWR = Dept of Water Resources
 
"-)3,'=I+?-,K!>'1-0')C'
!
H$,%-=I+?-,K!>'1-0')C'
]-)%'(!"'+1#)!=!2)=5'+O
H-)-?$?!*&+(3'`!=!abH'%'(bE+K
!"-)3,'=I+?-,K!>'1-0')C'
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H$,%-=I+?-,K!>'1-0')C'
V'M',!GG!AH#('!%&+)!F;Sc!#.!W+1',-)'B
118
89:;<=/!
!
T
Rate = Base Rates + Tier Surcharges
Summer Peak: $0.287 per kWh
Summer Part-Peak: $0.175 per kWh
Summer Off-Peak: $0.101 per kWh
Solar PV -
*+,4!56*!"&''%!7#4
*+)C',,-)3
89:
!
!
!
!
!
L55VG*LWGVGDX!
!
!
!
!
L55VG*LWGVGDX!
!
LRR,-C+J,'!
+1!
+)!
#R%-#)!
%#!
C$1%#?'(1!
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.#(!
1'(M-C'!
$)0'(!
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E!
+)0!
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!
D&-1!
!
!
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LRR,-C+J,'! +1! +)! #R%-#)! %#! C$1%#?'(1! ',-3-J,'! .#(! 1'(M-C'! $)0'(! "C&'0$,'! E! +)0! E=*L>/4! ! D&-1!
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EH"=N@!
EH"=;@! #(! -)! C#?J-)+%-#)! Y-%&! E"4! ! A"'(M-C'! $)0'(! %&-1! 1C&'0$,'! -1! 1$JZ'C%! %#! ?'%'(!
EH"=N@! EH"=;@! #(! -)! C#?J-)+%-#)! Y-%&! E"4! ! A"'(M-C'! $)0'(! %&-1! 1C&'0$,'! -1! 1$JZ'C%! %#! ?'%'(!
+M+-,+J-,-%K4B!!!
+M+-,+J-,-%K4B!!!
!!
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E=L5"@!E=L5"=/!#(!*55@!Y&#!('0$C'!%&'-(!')'(3K!C#)1$?R%-#)!0$(-)3!5'+O!D-?'!>'J+%'!/M')%1!
E=L5"@!E=L5"=/!#(!*55@!Y&#!('0$C'!%&'-(!')'(3K!C#)1$?R%-#)!0$(-)3!5'+O!D-?'!>'J+%'!/M')%1!
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#.! +)! /0-1#)! "?+(%*#))'C%\! ?'%'(! +)0! %&'! ?'%'(! -1! R(#3(+?! ('+0K4! ! 5D>! -1! )#%! +RR,-C+J,'! %#!
#.!
+)! /0-1#)!
"?+(%*#))'C%\!
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+)0! %&'!
R(#3(+?!
('+0K4!
5D>! -1! )#%! +RR,-C+J,'! %#!
C$1%#?'(1!
1'(M'0!
$)0'(! "C&'0$,'1! E=L5"@!
E=L5"=/@!
EH@!?'%'(!
EH"=F@!-1!
EH"=N@!
EH"=;@!
E"@! #(!!*554!!
5D>! Y-%&! ')+J,-)3!
-1! )#%! +RR,-C+J,'!
%#! E=L5"=/@!
C$1%#?'(1! ('C'-M-)3!
H'0-C+,!EH"=N@!
W+1',-)'! EH"=;@! E"@! #(! *554!!
C$1%#?'(1!
1'(M'0!%'C&)#,#3K!
$)0'(! "C&'0$,'1!
E=L5"@!
EH@! EH"=F@!
L,,#C+%-#)A1B!.#(!+-(!C#)0-%-#)-)34!
5D>!
Y-%&!
')+J,-)3!
%'C&)#,#3K!
-1!
)#%!
+RR,-C+J,'!
%#!
C$1%#?'(1!
('C'-M-)3!
H'0-C+,! W+1',-)'!
!
L,,#C+%-#)A1B!.#(!+-(!C#)0-%-#)-)34!
D/>>GD2>X!
  SCE D: Tiered only - no TOU
!!
]-%&-)!%&'!')%-('!%'((-%#(K!1'(M'04!
D/>>GD2>X!
  SCE TOU-D-T: 2 Tiers & TOU
!
! >LD/"!
]-%&-)!%&'!')%-('!%'((-%#(K!1'(M'04!
!
  Rate = Delivery Total + ~75% URG + ~25% DWR
!!
E',-M'(K!"'(M-C'
^')'(+%-#)
>LD/"!
D(+)1
E-1%(J%)
7"^*
7E*
555*
E]>W* 56*>I
D#%+,
6>^```
E]>
/)'(3K!*&+(3'!=!abO]&bH'%'(bE+K
! "$??'(!"'+1#)!=!2)=5'+O
F
PG&E E6: TOU + Tiers
 
2(-3-)+,!
!
Understanding SCE Rates
PG&E E1: Tiered only - no TOU
 
!
Economics
of
"C&'0$,'!D26=E=D!
!
*+,4!56*!"&''%!7#4
DGH/=2I=6"/!DG/>/E!E2H/"DG*!
!
!
"C&'0$,'!D26=E=D!
"&''%!F!
!
DGH/=2I=6"/!DG/>/E!E2H/"DG*!
!
!
2(-3-)+,! *+,4!56*!"&''%!7#4
production
*+)C',,-)3
!
*+,4!56*!"&''%!7#4
Questions?
!
!
!
! >#1'?'+0@!*+,-.#()-+!!!!!!!A6!;;<=/B!
!!
!
 
116
Time of Use with
Annual Net Metering in East
NY, NJ, PA, CT Time Of Use
Residential Time-of-Use
S4SNT
S4SNN
!
!
S4S9T
S4S88
S4S9T
S4S88
FSS4SS``
A*#)%-)$'0B!
S4SNT
S4SNN
FSS4SS``
!
!
AS4_9B
C+J,'! %#!
C$1%#?'(1!
('C'-M-)3! H'0-C+,! W+1',-)'!
C'-M-)3!
H'0-C+,!
W+1',-)'!
Rate = Delivery Total + ~75% URG + ~25% DWR
E',-M'(K!"'(M-C'
^')'(+%-#)T
;
8
E',-M'(K!"'(M-C'
7"^*
7E*
555*9 E]>W*: 56*>I_
: ;
_ 8
<
* 56*>I
^*
7E* D#%+,
555*96>^```
E]>W*: E]>
56*>I_
D#%+,<
S4SSFN8
S4SSS9T
S4SS9NS
F
S4SSSN8
S4S__<9
S4F8TNT
SFN8 S4SSFN8
S4SSS9T S4SSS9T
S4SS9NS S4SS9NS
S4SS8TF
F
S4SSSN8
S4S__<9
S4:NN:<
SFN8
S4SSS9T
S4SS9NS
S4SS8TF
S4SSFN8
S4SSS9T S4SN:;;
S4SS9NS
F
S4SSSN8
S4S__<9
SFN8
S4SSS9T S4S__<9
S4SS9NS S4FTS8T
S4SS8TF
S4SSFN8
S4SSS9T
S4SS9NS
F
S4SSSN8
SFN8
S4SSS9T
S4SS9NS
S4SS8TF
F
SFN8
F
SFN8
F
SFN8
F
SFN8
TOU Exercise 1
Understanding SCE Rates
 
S4SSFN8
S4SSS9T S4S;F9S
S4SS9NS
S4SSSN8
S4S__<9
S4SSS9T S4S__<9
S4SS9NS S4NS;N:
S4SS8TF
S4SSFN8
S4SSS9T
S4SS9NS
S4SSSN8
S4SSS9T
S4SS9NS
S4SS8TF
S4SSSN8
S4S__<9
S4SSFN8
S4SSS9T S4SF_8S
S4SS9NS
S4SSS9T S4S__<9
S4SS9NS S4F:S;:
S4SS8TF
S4SSSN8
S4SSFN8
S4SSS9T
S4SS9NS
S4SSS9T
S4SS9NS
S4SS8TF
!
!
S4SNT
S4SNN
S4SSSN8
S4F8TNT
S4S:NN9
S4S:NN9
S4SS8TF=.07785
S4SSSN8
S4S__<9 = $0.113
S4SN:;;
+.75*.02633+.25*.06225
S4S:NN9
S4SSSN8 S4SSSN8
S4S__<9 S4S__<9
S4SN:;; S4FTS8T
S4S:NN9
S4SS8TF
S4S:NN9
=.07785 +.75*.19049+.25*.06225 = $0.236
S4SSSN8
S4S__<9
S4FTS8T
S4S:NN9
S4S:NN9
S4S:NN9
S4SS8TF
S4S:NN9
S4SSSN8
S4SS8TF
S4S:NN9
S4SSSN8
S4S:NN9
S4SS8TF
S4SSSN8
S4S:NN9
S4SS8TF
S4SSSN8
S4S:NN9
S4S:NN9
S4SSSN8
S4S__<9
S4SSSN8
S4S__<9
S4SSSN8
S4S__<9
S4SSSN8
S4S__<9
!
!S4SNT
S4SNN
S4S9T
S4S88
TOU ExerciseFSS4SS``
2
FSS4SS``
S4S__<9
S4S:NN9 =.07785 +.75*.14929+.25*.06225 = $0.205
S4SSSN8 S4SSSN8
S4S__<9 S4S__<9
S4F8TNT S4:NN:<
S4S:NN9
S4SS8TF
S4S:NN9 =.07785 +.75*.62268+.25*.06225 = $0.560
S4SSSN8
S4S__<9
S4:NN:<
S4S:NN9
!
!
S4S9T
S4S88
 
= Delivery+.75* URG+.25* DWR = Total
S4SS8TF
S4S__<9
S4S;F9S
S4S__<9
S4NS;N:
S4S__<9
S4SF_8S
S4S__<9
S4F:S;:
S4S;F9S
S4S:NN9
S4NS;N:
S4S:NN9
S4SF_8S
S4S:NN9
S4F:S;:
S4S:NN9
121
!
S4S9T
S4S88
FSS4SS``
123
Go
TOU?
 
 
 
 
 
 
Low
0
124
!
!
!
Getting Perspective (West)
How Is Energy Used?
Only 6 to 8 hours are peak: 25% - 33%
  Even w/ AC, what’s a reasonable peak %
 
What should we ask about?
  Who’s home during Peak?
  What are they doing?
  Air Conditioning Climate? Into the evening?
  Ability/willingness to shift usage?
  Solar Pool Heating?
  Large Base-load usage is good:
40-50%-60% max in homes
  Much higher in businesses
  Note: The other 67-75% of the day also needs energy
 
 
Impact of being off 5-10% in peak estimation
Refrigeration, electronics, servers, hot tub
Examples
125
Med
On-peak
usage
!
Estimating Peak Usage
 
High
Courtesy, Pete
Shoemaker,
PG&E PEC
Solar produce during day
Solar peaks during Peak
Sufficient PV sizing (but less than total usage offset) must turn
meter backwards on peak
At some point in PV size, customer only pays “off-peak” rates
TOU is then better if “off-peak” rate is lower than customer’s
average non-TOU rate
Daylight Savings: Noon-6pm on meter = 11am-5pm “solar time”
A*#)%-)$'0B!
!
A*#)%-)$'0B!
!
!
AD#!J'!-)1'(%'0!JK!*+,4!56*B!
E+%'!I-,'0!
"'R!;S@!NSST!
!
G11$'0!JK!
AD#!J'!-)1'(%'0!JK!*+,4!56*B!
G11$'0!JK!
AD#!J'!-)1'(%'0!JK!*+,4!56*B!
/..'C%-M'!
!
!
LOJ+(!P+Q+K'(-!
E+%'!I-,'0!
"'R!;S@!NSST!!
LOJ+(!P+Q+K'(-!
E+%'!I-,'0!
"'R!;S@!NSST!
>'1#,$%-#)!
!
!
/..'C%-M'!
!
U-C'!5('1-0')%!
/..'C%-M'!
!
!
U-C'!5('1-0')%!
!
>'1#,$%-#)!
!
!
>'1#,$%-#)!
!
!
122
S4SNT
S4SNN
If
costs 50¢/kWh in Chicago (45 N AS4_9B
AS4_9B
Lat) from 7am-11am and 1¢/kWh the rest
of the AF4N9B
AF4N9B
day from November thru February, and 1¢/kWh
at all times the rest of the year, the best
orientation (direction, such as N, NW, etc) for a
solar system to maximize value of electricity
produced would be ______ and the best slope
would be ______ (within 20°) up from
horizontal.
!
S4S:NN9
S4S:NN9
AS4_9B
electricity
AF4N9B
Switching a customer to a TOU rate schedule with
net metering and solar (helps / hurts) their results if
they use a lot of electricity during peak hours and
their solar system is (small / large) compared to
their usage.
  Ideally, the solar system will cause their electric
meter to spin (forward / backward) at night and
(forward / backward) during most of any peak time
period.
 
^')'(+%-#)T
T
< ^')'(+%-#)
D#%+,
6>^```
E]>
6>^```
E]>
126
Residential Rates
Getting Perspective (East)
8-12-14 hours are peak: 50-60%, including evening
  With AC & evening activity, what’s a reasonable
peak %?
 
 
50%-60%-80% in homes
 
 
 
Higher in many businesses
Note: The other 20-50% of the day also needs energy
Impact of being off 5-10% in peak estimation
Examples
127
Mexican
Electric Rates
Utility
Typical Rate
Before Solar
Usually Best Rate For
Solar*
TOU Summer
Period
AZ - APS
E-12 (tiered)
ET-2 (TOU)
1pm-8pm
CA - PG&E
E-1 (5 tiered)
E-6 (TOU, 5 tiered)
1pm-7pm
CA - SDG&E
DR (5-tiered)
DR-TOU (TOU, 5 tiered)
or DR-SES (TOU)
12pm-6pm
11am-6pm
CA – SCE
D (5-tiered)
TOU-D-T (TOU, 2 tiered)
10am-6pm
Other Common Rates
ET-1 (closed)
E-7 (TOU, 5 tiered, closed), E-8 (5 tiered,
closed), E-9 (EVs, TOU, 5-tiered)
EV-TOU, DM
CO – Xcel
R (flat)
RTOU (TOU)
2pm-8pm
TOU-D-1 (TOU, 2 tiered, closed), TOU-D-2
(TOU, closed), TOU-EV-1, TOU-D-TEV (EVs)
RD
CT – CL&P
Rate 1 (flat)
Rate 7 (TOU)
12pm-8pm
Rate 5
FL – FPL
RS-1 (flat)
RST-1 (TOU)
12pm-9pm
HI – HECO
Res (flat)
Res (flat)
MA – NSTAR
A1 (R-1) (flat)
A5 (R-4) (TOU)
9am-6pm
MD – BGE
R (flat)
RL-2 (TOU)
10am-8pm
NC – Progress
RES (flat)
R-TOUD (TOU)
10am-9pm
NJ - JCPL
RS (2 tiered)
RT (TOU)
9am-9pm
NJ – PSE&G
RS (2 tiered)
RLM (TOU)
8am-10pm
NY - ConEd
SC1-Rate I (tiered)
SC1-Rate II (TOU)
10am-10pm
PA – PPL
RS (flat)
RTD R (TOU)
8am-6pm
TX – Oncor
Residential (flat)
Residential (flat)
SC7
* Best Rate for Solar if PV is large enough compared to load and depending on
consumption and production patterns
128
Utility
Rate Type
Rate Range in Pesos / US$
TOU Summer Period
MX--DAC (Baja California)
MX--DAC (Baja California Sur)
Flat
Flat
$3.06-$3.88 / $.23-$.30
$3.06-$3.88 / $.23-$.30
MX--DAC (Central)
MX--DAC (Noroeste)
Flat
Flat
$3.06-$3.88 / $.23-$.30
$3.06-$3.88 / $.23-$.30
MX--DAC(Norte y Noreste)
MX--DAC (Sur y Peninsular)
Flat
Flat
$3.06-$3.88 / $.23-$.30
$3.06-$3.88 / $.23-$.30
MX--HS (Baja California)
MX--HS (Baja California Sur)
Time-of-Use
$0.97-$2.46 / $.07-$.19
Time-of-Use
$0.97-$2.46 / $.07-$.19
12pm-10pm
MX--HS (Central)
MX--HS (Noroeste)
Time-of-Use
Time-of-Use
$0.97-$2.46 / $.07-$.19
$0.97-$2.46 / $.07-$.19
7:30pm-10pm
7:30pm-10pm
MX--HS (Norte y Noreste)
MX--HS (Sur y Peninsular)
Time-of-Use
Time-of-Use
$0.97-$2.46 / $.07-$.19
$0.97-$2.46 / $.07-$.19
7:30pm-10pm
7:30pm-10pm
Options for Solar - Net Metering
  3 Customer Classes (Res, Com, Ag)
  2 Types of Rate (Flat, TOU)
 
2pm-6pm
 
 
TOU: Time of Use
Demand Charges for Commercial
For large residential users
129
Usually applies only to Large users
 
On a per kW basis (load, not usage)
 
 
Commercial and Agricultural
TYPICAL
BUILDING
DEMAND
Size of the wire, power plant for peak usage
DEMAND
&
PRODUCTION
IDEAL
SOLAR
PRODUCTION
7am
 
130
Demand Profile vs.
Solar Production
Demand Charges
 
12noon
5pm
HOUR
Based on highest 15-30 minute peak load average any
time during the last 1-12 billing months
Questions?
131
132
Common Commercial
Electric Rate Schedules
Reducing Demand Charges
 
Difficult for solar to offset demand
 
Clouds, spikes in usage not during solar hours,
inverters tripping offline
Add control systems ~$30K-$150K+
  Some rates have no/low demand charges
 
 
 
And sometimes high peak (sell) rates
Benefits depend on Size: Usage ratio and demand &
usage patterns with respect to rate schedule hours
133
Utility
Common Commercial Rate
Schedules
AZ - APS
CA - PG&E
CA - SCE
CA - SDG&E
CO - Xcel
CT - UI
FL – FPL
GA – GaPwr
HI - HECO
MD – BGE
NJ - JCPL
NJ – PSEG
NY - ConEd
PA – PPL
E-32, E-32 TOU
A1, A6, A10, E19, E20
GS-1, GS-2, TOU-GS-3, TOU-8
A, AL-TOU, A6-TOU, DG-R
C
GS
GS-1
GS-4, TOU-EO-4
G
G Type 1
GS, GST, GP, GT
GLP, LPL, HTS
SC2-I, SC2-I (NYC or Westchester)
GS-1
A1
Max
Demand
<20kW
Flat Rate
15-21¢ Flat
TOU Rate
134
Time Of Use
Demand
Charge
None
Commercial PG&E A6 & A10
Commercial "A6" & "A10" Time-of-Use Pricing Periods
49¢ Peak
A6
Any*
None
14¢ Off-Peak
A10
<500kW 11-15¢ Flat
High
16¢ Peak
A10 TOU <500kW
High
10-13¢ Off-Peak
14¢ Peak
E19**/E20 >500kW
High
7-8¢ Off-Peak
*If not required to be on another rate schedule
**Required schedule if measured demand is >500kW
AG1, AG4, AG5
PA-1, PA-2
PA
Commercial Rates (PG&E)
Rate
Common Ag Rates
Midnight - 6am
6am - 8:30am
Off-Peak
Off-Peak
8:30am - Noon
Noon - 6pm
Off-Peak
Peak
Peak
6pm - 9:30pm Off-Peak Part-Peak Part-Peak
9:30pm - Midnight Off-Peak Off-Peak Off-Peak
 
 
Part-Peak
Peak
Part-Peak
Off-Peak
Part-Peak Part-Peak Off-Peak
Peak
Peak
Off-Peak
Use and/or Sell On-Peak @ up to 49¢/kWh on A6
More usage on peak, less benefit from TOU
Questions?
135
136
SCE Commercial
Time Of Use
Commercial Rates (SCE)
SCE Commercial Time-of-Use Pricing Periods
 
 
11pm - 5am
5am - 8am
Off-Peak
Off-Peak
8am - Noon
Noon - 6pm
Off-Peak
6pm - 11pm
Peak
Peak
Part-Peak
Peak
Part-Peak
Peak
Peak
Off-Peak
Use and/or Sell On-Peak @ 24-32¢/kWh on Option R
  Part-Peak @ 14-19¢/kWh
More usage on peak, less benefit from TOU
Questions?
137
138
Time Of Use
Commercial Rates (SDG&E)
A
Max
Demand
<20kW
AL-TOU
>20kW
A6-TOU
>500kW
DG-R
<2MW
Rate
Flat Rate
TOU Rate
15-19¢ Flat
10¢ Peak
6¢ Off-Peak
10¢ Peak
6¢ Off-Peak
19¢ Peak
9¢ Off-Peak
Commercial SDG&E AL-TOU & DG-R
Commercial "AL-TOU" & "DG-R" Time-of-Use Pricing Periods
Demand
Charge
None
Sunday
High
Saturday
Off-Peak
6am - 11am
Part-Peak
11am - 6pm
Off-Peak
Peak
Peak
6pm - 10pm
10pm - Midnight Off-Peak Off-Peak Off-Peak
High
Friday
Midnight - 6am
Peak
Part-Peak
Off-Peak
Peak
Peak
Off-Peak
DG-R: Use and/or Sell On-Peak @ 19¢/kWh
  Part-Peak @ 9-11¢/kWh
  More usage on peak, less benefit from TOU
 
Low
Questions?
139
Rate
Size
PG&E
A6
Any*
SCE
GS-2-TOU R
<200kW
SCE
TOU-GS-3 R
<500kW
SDG&E
DG-R
<2MW
TOU Rate
49¢ Peak
14¢ Off-Peak
24¢ Peak
6¢ Off-Peak
32¢ Peak
7¢ Off-Peak
19¢ Peak
9¢ Off-Peak
Demand
Charge
Combined with
 
None
Low
2:1 or 3:1 in customer favor
  Can reduce system size 0-30%
 
 
Low
 
Low
 
 
*If not required to be on another rate schedule
Questions?
141
 
1 - Energy Efficiency & Conservation
 
Eg: programmable thermostats and
lighting controls, CFLs, etc.
2 - Demand Response
& Load Control
Greater
System
Reliability
3 - Renewables
&
Overall
Cost
Effectiveness
4 - Clean
Fossil
2a. TOU & Super-Peak Rates
2b. Demand Charges
2c. Utility Control Systems
with large critical
customers
2d. Advanced Metering
2e. “Flex Your Power” Ads
2f. PV
3. California Solar Initiative (PV),
other RE programs
There are and will be lots of
incentives for Energy Efficiency
143
Sometimes worse to switch to TOU
Shading and orientation
Questions?
142
Electric Rate
Escalation & Inflation
Least GHG, Least Total Cost
1a. Customer Awareness
via Energy Audits and
Analysis
1b. Efficiency Rebates
Commercial is usually small reduction if any
California PUC
Loading Order
(including new power plants)
140
Time of Use with
Annual Net Metering
Reducing Demand Charges
Utility
CA Electric Rate Compound Annual Average
Increases:
 
 
6.7% /yr from 1970-2001
2.9% /yr from 2001-2010
U.S. Average: Rates Grew 3.8%/yr from 2001-2010
Large Shale Bed Methane discoveries may limit
escalation
  CPI/Inflation has been 3.1% /yr since 1982
 
 
 
CPI-U: Urban Consumer Price Index
144
California Electric Rates
2013 Average
Residential Electric Rates &
Escalation (West, partial)
Residential, Small Business, and Large Business Sectors
1970 to 2001 for SCE and PG&E
16.0
14.0
Residential
Cents per kilowatt-hour
12.0
10.0
1982
Small Business
8.0
6.0
Large Business
4.0
2.0
=!
1970%
!2.23!!
!1.71!!
!0.99!!
Residen(al!
Small!Business!
Large!Business!
1982%
1995%
1998%
2001%
!7.67!!
!7.43!!
!7.25!!
!11.61!!
!10.26!!
!7.37!!
!11.32!!
!9.78!!
!6.93!!
!14.40!!
!14.37!!
!11.42!!
Source: California Public Utilities Commission: Prepared by the CPUC Energy Division. Dataset from Energy Information Administration (EIA), DOE/EIA-0376(95),
Economics
PV -Rates.
145
State
EnergyOnGrid
Price andSolar,
Expenditure
Report, 1995,
Tables 36-38. 1996 through 2000 reflects AB 1890 frozen rates. 2001 rates include 4 cent
increase inof
SCESolar
and PG&E
© 2014
All Rights
Reserved.
20042010
CAGR
5.0%
AZ
11.0
4.1%
2.5%
1.1%
CA
16.5
4.3%
2.9%
2.2%
CO
11.4
4.9%
4.4%
2.3%
HI
MN
36.6
11.3
8.2%
4.7%
6.3%
3.2%
5.2%
2.1%
NM
NV
10.9
12.3
2.7%
4.4%
1.4%
3.8%
0.6%
4.4%
OR
10.0
3.9%
4.3%
3.3%
TX
11.3
3.8%
3.6%
2.4%
WA
8.6
4.5%
4.0%
3.2%
20042010
CAGR
5.0%
8.4%
8.0%
9.1%
4.4%
GA
MA!
10.2
20.1
4.3%
4.7%
3.1%
2.1%
1.5%
2.4%
MD!
NC!
13.4
10.5
10.6%
3.5%
6.2%
2.6%
3.8%
1.4%
NJ!
NY!
15.3
18.2
6.7%
5.1%
5.5%
3.5%
2.3%
2.7%
OH!
PA!
11.2
12.8
4.9%
5.3%
3.0%
3.3%
1.7%
1.8%
State
Source: DOE Average Retail Price (Cents per Kilowatt-hour)
Energy
Information
Administration
Shale Bed Methane discoveries may limit escalation
CPI-U/Inflation has been 3.1% /yr since 1982
•  Deregulation in 1995 froze Tier 1 & 2
•  AB1X during 2001 Power Crisis created Tier
3-5, which have risen 5x faster than ‘average’
rates needed to rise to compensate for Tier 1&2
•  SB 695 (Kehoe) unlocks and raises Tier 1 & 2
rates 1% faster than ‘average’, up to 5% per year
•  Tier 3,4,5 might now drop
asa
s
asf
sf
asdf
f
f
Questions?
df
14.0!
Residential
12.0!
1982
asf
a
sdf
8.0!
4.0!
1982%
Source: California Public Utilities Commission, EIA, PG&E
!2.2¢!
Residential 1970 to 2001
Residen(al!
!7.7¢!
146
What Happened
2001 to 2010?
16.0
14.0
Residential
10.0
1982
8.0
6.0
4.0
-
1995% 1998% PG&E%2001%
Tier!5,!26¢!
Tier!4,!24¢!
Tier!3,!17¢!
Tier!2,!13¢!
!11.6¢! !11.3¢!!
Tier!1,!11¢!
147
Peaked!@!49¢!
!
!
!!
!
!
Tier!4!&!5,!40¢!
!
!
Tier!3,!29¢!
!
!
!
!
!!
!
!
Tier!2,!13.9¢!
Tier!1,!12.2¢!
PG&E!2011!
PG&E%2010%
Tier!5,!49¢!
Tier!4,!41¢!
Tier!3,!27¢!
Tier!2,!13¢!
Tier!1,!11.5¢!
1970%
!2.2!!
Be cautions about
future rate hikes –
2-3% max
6.0!
2.0!
=!
1970%
2.0
Residential 1970 to 2001 plus 2001 to 2010 tiers
10.0!
Source: DOE Average Retail Price (Cents per Kilowatt-hour)
Energy
Information
Administration
Shale Bed Methane discoveries may limit escalation
CPI-U/Inflation has been 3.1% /yr since 1982
12.0
16.0!
2010 U.S. Average Retail Price per kWh is 9.83 Cents
2001- 19902010
2010
CAGR CAGR
3.8%
2.1%
6.7%
3.5%
5.0%
4.9%
6.1%
2.8%
2.9%
2.0%
Cents per kilowatt-hour
US
CT
DC
DE
FL
2013
Rate
¢/kWh
11.7
17.6
12.5
12.7
11.4
2001- 19902010
2010
CAGR CAGR
3.8%
2.1%
2013 Average
Residential Electric Rates &
Escalation (East, partial)
Cents%per%kilowa67hour%
US
2013
Rate
¢/kWh
11.7
State
149
Residen(al!
1982%
1995%
1998%
2001%
!7.7!
!11.6!
!11.3!
!14.4!
Source: California Public Utilities Commission: Prepared by the CPUC Energy Division. Dataset from Energy Information Administration (EIA), DOE/EIA-0376(95),
Economics
PV -Rates.
148
State
EnergyOnGrid
Price andSolar,
Expenditure
Report, 1995,
Tables 36-38. 1996 through 2000 reflects AB 1890 frozen rates. 2001 rates include 4 cent
increase inof
SCESolar
and PG&E
© 2014
All Rights
Reserved.
Cost / Value Overview
-$12,000 - System Cost
Questions?
$2,000+$1,000 + Rebate / PBI / State Tax Credits
-$250 - Federal Tax on Rebate / PBI / State Tax Credits
$3,000 + 30% Fed Tax Credit / Treasury Grant
$0 + ~41% Depreciation * 85% (Commercial only)
$25,000 + Savings & Inflation on savings (pre-tax value if Residential)
$0 - Lost Electric Bill Tax Deduction (Commercial)
-$2,000 - Maintenance & Inflation on maintenance
-$1,400 - Inverter Replacement Cost
$5,000 + REC Value (less taxes), Green Marketing, Morale
--------------- -----------------------------------------=+20,350 = Net Cost (needs to be net benefit
over 25 yrs
including the SRECs to be attractive)
150
Agenda
Agenda
 
Top Line
Cost
Costs & Incentives
  Rate Structures
Net Cost
Incentives
 
Questions?
Electric
Rates
Calcs
Usage &
Patterns
 
Savings
Performance
151
- Payback
- Resale
- Cash Flow
- IRR
- APY
Financial
Variables
System
Financial
Results:
152
System Performance Pre-Exercise
 
System Performance
What are the 5 major and 4 minor solar system
loss factors, and what are their typical ranges?
Major:
(range)
Minor:
(range)
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
Major means possibly greater than 10% loss
153
System
Performance
154
Sun Hours
System Output = Effective Sun Hours for the
Location * Number of Modules * Loss Factors
  Several Types of Loss Factors:
  Component Based
  Location Specific
  Reliability & Monitoring Related
  Customer or Designer Influenced
 
 
Sun Hours = equivalent noon sunlight
hours by month or year round averages
of 30 years of data
 
 
Varies by tilt & tracking (fixed, 1 axis,
2 axis)
Buﬀalo,!NY:!4.1!
9=10¢!
http://rredc.nrel.gov/solar/pubs/redbook/ PiGsburg,!PA:!4.2! 9=17¢!
Chicago,!IL:!4.4!
6=12¢!
  Weather varies +/- 11%
Newark,!NJ:!!4.5! 8=20¢!
Examples: (hours equivalent)
Boston,!MA:!!4.6! 10=20¢!
San!Francisco:!!5.4! ±!~20%! 9=36¢!
Bal(more,!MD:!!4.6!10=17¢!
8=14¢!
Boulder,!CO:!!5.5!
Raleigh,!NC:!!5.0! 9=10¢!
9=31¢!
Los!Angeles:!!5.6!
Miami,!FL:!!5.2!
9=14¢!
Phoenix,!AZ:!!6.5!
9=20¢!
Aus(n,!TX:!!5.3!
6=12¢!
Sun Hours for location (Redbook)
 
 
155
Add HI, OR, MT, IL
156
System Size Ratings?
Factors That Can
Make Solar Viable
 
Net Metering
 
High Rates
 
Time of Use Rates
 
Tiered Rates
 
Low System Costs
 
Incentives
 
STC System Size = Module STC or DC rating *
Number of Modules
 
 
More Important
(in general)
 
157
Based on real-world operating temperatures in Davis, CA
instead of the STC rating flash tested at the factory
  Varies by product and technology
Dust & Dirt for location: 7% (5-20%)
  Module Performance & Spectral Response: 0% (0-10%)
 
 
 
Inverter CEC Efficiency ~ 93-97%
  Module & Inverter equipment & ratings listed at:
 
 
 
 
Manufacturer Production Tolerance: 5% (0-5%)
  Module Mismatch: 2%
  AC & DC Wiring: 3% (1-5%)
159
Module Degradation (~0.5% to 0.75%/year)
New linear performance guarantees
  Starts ~97% then drops ~0.7% per year for 25 years
 
 
 
Orientation (Tilt Angle & Azimuth)
Temperature by mounting type
 
 
If monitored: ~100%
  If not monitored (after 3+ years): ~0%
Up to 10% loss if <6” clear venting behind array
Shading
 
Solmetric SunEye 210
Solar Pathfinder
Sandia AZ 400kW utility project experience
160
Customer aesthetics preferences:
 
Uptime / Availability: 98% (2% loss)
Reliability:
 
Customer or Designer
Influenced Performance Factors
 
 
See CEC publication for more:
http://www.energy.ca.gov/reports/2001-09-04_500-01-020.PDF
Reliability & Monitoring
Related Performance Factors
 
Temperature Performance loss: 0.5% per °C temp rise
A Guide to Photovoltaic (PV) System Design and Installation
 
Photon magazine reporting test results frequently
Temperature in location (as varies from Davis, CA)
 
http://www.gosolarcalifornia.org/equipment/pvmodule.html
http://www.gosolarcalifornia.org/equipment/inverter.php
158
Unavoidable LocationSpecific Performance Factors
Module PTC ~ 83-93%
 
Component
Performance
 
5kW CEC AC ~ 6kW STC DC (approximately)
CEC AC Size is still missing many other loss factors
 
Sunlight
CEC AC Size rating ~ 83% of STC Size rating (aka
DC Size rating)
 
Less Important
No loss factors counted
CEC System Size = Module PTC rating * Inverter
CEC Efficiency * Number of Modules
 
161
Courtesy Solmetric, Inc.
Precigeo ->
162
Orientation
vs. Shading
How much can be lost from Shading?
  What % of energy do you get on:
(un-shaded, in most of the continental U.S.)
 
Time of
day
shading
analysis
South facing at 20° slope? 95-99%
West facing at 20° slope? 80-90%
  North facing at 20° slope? 60-75%
Which is better?:
  South with 50% shade
  North with 0% shade
 
 
 
South
163
164
Future - Which ones are benefited by uInverters
What’s built into PVwatts & how to understand the .77 factor
Summary of
Performance
Loss
Factor
Performance
Factor
7-17%
3-11%
0-5%
1.5-2.5%
1.5-5%
5-15%
0-10%
7-15%
2-10%
25-35%
0-40%
0-100%
83-93%
89-97%
95-100%
97.5-98.5%*
95-98.5%*
85-95%
90-100%
85-93%
90-98%
65-75%
60-100%*
0-100%*
Agenda
Variable
Module Temperature (PTC)
Inverter Efficiency
Manufacturer Production Tolerance
Module Mismatch
Wiring (AC & DC)
Dust & Dirt
Module Performance & Spectral Response
Module Degradation over 20 years
System Availability (uptime)
Typical Totals for the Best Systems
Orientation & Tilt
Shading
Questions?
165
Costs & Incentives
Rate Structures
 
 
166
Net Cost
Incentives
Financial
Results:
Electric
Rates
Usage &
Patterns
Calcs
Savings
System
Performance
Top Line
Cost
Alternative analyses/answers to the “Payback”
question (4):
_________________________________________
_________________________________________
_________________________________________
_________________________________________
Questions?
 
Agenda
Financial Analysis Pre-Exercise
 
 
167
- Payback
- ROI
- IRR / APY
- Resale
- Cash Flow
(other class)
Financial
Variables
168
Agenda
 
 
 
Simple Payback: In reasonable time
Total Lifecycle Payback
 
Watt’$ the Payback?
Gives back lots more than cost over time
Return On Investment (ROI): Correct method
Rate of Return (IRR or APY): 4-10%+ returns
  Increase in Appraisal Valuation
 
 
 
Appraises for more than it cost
Solar Analysis Tools
 
169
170
Payback Year
Simple Payback
Initial Cost
 
 
 
 
Time to cash “Payback”
What’s “reasonable?”
Poor Test: Doesn’t value savings/losses after “payback”
Isn’t comparable to other investments (stocks, etc)
  Not interest rate based
Questions?
  Taxable vs. non-taxable earnings
171
172
Residential Total
Lifecycle Payback
Total
Lifecycle
Payback
 
Total Savings
Initial Cost
More fair presentation
 
Shows Total Savings (whole area) compared to Initial Cost
Lifecycle Payback =
 
 
25-year Gain from Investment
Cost of Investment
Could also be called the: “Savings / Investment Ratio”
Drawback: Doesn’t reflect the time value of money:
 
Today’s $ are worth more than future $
CA--SDG&E
PreSolar
Bill
$115
kWh
Usage per
Month
550 kWh
PV System
Size &
Rating
3 kW CEC
Final Net Cost
w/ Tax Benefits
& Rebates
$10K
Cumulative Savings
Over First 25 Years
(including inflation)
$31K
8.6
Lifecycle
Payback
Ratio
3.0x
CA--SDG&E
$505
1,650 kWh
9 kW CEC
$27K
$149K
4.9
5.5x
CA--PG&E
CA--PG&E
$95
$485
550 kWh
1,650 kWh
3 kW CEC
9 kW CEC
$10K
$27K
$25K
$142K
10.4
5.1
2.4x
5.3x
TX--Oncor
LA--EntergyLA
$89
$79
800 kWh
800 kWh
5 kW STC
5 kW STC
$12K
$6K
$14K
$14K
22.6
9.5
1.2x
2.3x
CO--Xcel
NM--SPS
$93
$71
800 kWh
800 kWh
5 kW STC
5 kW STC
$10K
$11K
$13K
$15K
21.4
20.2
1.3x
1.4x
MO--KCP&L
WI--WEPCO
$92
$120
800 kWh
800 kWh
5 kW STC
5 kW STC
$7K
$11K
$16K
$33K
10.2
8.3
2.2x
3.0x
MA--NSTAR
CT--UI
$142
$170
800 kWh
800 kWh
5 kW STC
5 kW PTC
$10K
$10K
$32K
$30K
8.2
8.2
3.0x
3.0x
NY--ConEd
$186
800 kWh
5 kW STC
$7K
$40K
4.3
6.0x
NJ--JCP&L
$116
800 kWh
5 kW STC
$12K
$19K
19.5
1.5x
NC--Progress
FL--FPL
$90
$81
800 kWh
800 kWh
5 kW STC
5 kW STC
$7K
$12K
$15K
$14K
11.7
23
2.2x
1.1x
AZ--APS
HI--HECO
$112
$276
800 kWh
800 kWh
5 kW STC
5 kW STC
$12K
$9K
$27K
$71K
10.6
3.4
2.3x
8.0x
Utility
173
Years To
Payback
3/7/14
174
Residential Total
Lifecycle Payback
CA--SDG&E
CA--SDG&E
PreSolar
Bill
$115
$505
kWh
PV System
Usage per
Size &
Month
Rating
550 kWh 3 kW CEC
1,650 kWh 9 kW CEC
Final Net Cost
w/ Tax Benefits
& Rebates
$10K
$27K
Cumulative Savings
Over First 25 Years
$31K
$149K
CA--PG&E
CA--PG&E
$95
$485
550 kWh
1,650 kWh
3 kW CEC
9 kW CEC
$10K
$27K
TX--Oncor
$89
800 kWh
5 kW STC
LA--EntergyLA
CO--Xcel
NM--SPS
$79
800 kWh
$93
$71
800 kWh
800 kWh
MO--KCP&L
WI--WEPCO
$92
$120
MA--NSTAR
CT--UI
NY--ConEd
NJ--JCP&L
Utility
8.6
4.9
Lifecycle
Payback
Ratio
3.0x
5.5x
$25K
$142K
10.4
5.1
2.4x
5.3x
$12K
$14K
22.6
1.2x
5 kW STC
$6K
$14K
9.5
2.3x
5 kW STC
5 kW STC
$10K
$11K
$13K
$15K
21.4
20.2
1.3x
1.4x
800 kWh
800 kWh
5 kW STC
5 kW STC
$7K
$11K
$16K
$33K
10.2
8.3
2.2x
3.0x
$142
$170
800 kWh
800 kWh
5 kW STC
5 kW PTC
$10K
$10K
$32K
$30K
8.2
8.2
3.0x
3.0x
$186
$116
800 kWh
800 kWh
5 kW STC
5 kW STC
$7K
$12K
$40K
$19K
4.3
19.5
Years To
Payback
Residential Total
Lifecycle Payback
PreSolar
Bill
Utility
MX--DAC (Baja
California)
MX--DAC (Baja
California Sur)
MX--DAC
(Central)
MX--DAC
(Noroeste)
MX--DAC(Norte
y Noreste)
MX--DAC (Sur y
Peninsular)
PR--PREPA
kWh
PV System
Usage per
Size &
Month
Rating
$258K*
$788K*
9.7
3.1x
$2,857*
800 kWh
5 kW STC
$258K*
$852K*
9.1
3.3x
$3,013*
800 kWh
5 kW STC
$258K*
$759K*
10
2.9x
$2,824*
800 kWh
5 kW STC
$258K*
$886K*
8.7
3.4x
$2,756*
800 kWh
5 kW STC
$258K*
$616K*
12.1
2.4x
$2,801
800 kWh
5 kW STC
$258K*
$664K*
11.3
2.6x
$206
800 kWh
5 kW STC
$9K
$58K
4.5
6.7x
AZ--APS
$112
800 kWh
5 kW STC
$12K
$31K
10.2
2.6x
CA--PG&E
$94
550 kWh
3 kW CEC
$10K
$29K
10.1
2.7x
6.0x
1.5x
CA--PG&E
$483
1,650 kWh
9 kW CEC
$27K
$162K
5.1
6.0x
CO--Xcel
$90
800 kWh
5 kW STC
$6K
$10K
21.6
1.7x
$82
800 kWh
5 kW STC
$6K
$17K
8.3
3.0x
$6K
$19K
7.6
3.4x
$6K
$45K
3.9
7.5x
$17K
20.4
1.4x
800 kWh
800 kWh
5 kW STC
5 kW STC
$7K
$12K
$15K
$14K
11.7
23
2.2x
1.1x
MO--KCP&L
$92
800 kWh
5 kW STC
AZ--APS
$112
800 kWh
5 kW STC
$12K
$27K
10.6
2.3x
NY--ConEd
$179
800 kWh
5 kW STC
8.0x
TX--Oncor
$90
800 kWh
5 kW STC
5 kW STC
$9K
$71K
3.4
175
General Residential
Variables & Assumptions
 
 
 
 
 
 
 
 
177
Incentives
CT – UI
Hartford
$4.00 PTC
R
$1.25/W
FL – FPL
Miami
1439 / STC kW
$3.50 STC
RS-1
50% State Tax Credit
~2014 Cost per
rated Watt
Staring/Ending Rate
Schedule, Peak %
Last update: 3/7/14
LA-EntergyLA
Baton Rouge
1337 / STC kW
$3.50 STC
RS-1W
MO - KCP&L
Columbia, MO
1341 / STC kW
$3.50 STC
R / R-TOD, 32%
MA – NSTAR
Boston
1225 / STC kW
$3.50 STC
NC - Progress
Raleigh
1356 / STC kW
$3.50 STC
NJ - JCPL
Newark
1208 / STC kW
$3.50 STC
NY - ConEd
New York City
1233 / STC kW
$3.50 STC
176
Incentives
AZ - APS
Phoenix
CA - PG&E
San Francisco
1654 / CEC kW
CA - SCE
Los Angeles
1717 / CEC kW
CA - SDG&E
San Diego
1749 / CEC kW
CO - Xcel
HI - HECO
Boulder
Honolulu
1460 / STC kW
1566 / STC kW
$3.50 STC
$3.50 STC
MO - KCP&L
Columbia, MO
1341 / STC kW
$3.50 STC
R / R-TOD, 32%
1.50/W Rebate
NM-SPS
TX-Oncor
Albuquerque
Fort Worth
1742 / STC kW
1483 / STC kW
$3.50 STC
$3.50 STC
Rate 1A / Rate 1B
Residential
$9K State Tax Credit
-
Insolation
~2014 Cost per
rated Watt
$3.50 STC
3kW: $4.75 CEC
9kW: $4.25 CEC
Staring/Ending Rate
Schedule, Peak %
Last update: 3/7/14
30% Fed ITC +
E-12 / ET-2, 50%
E1XB / E6XB, 35%
-
D-10-Basic
DR-Coastal-Basic /
DR-SES, 28%
R
Res
$.05/kWh
35% St TC
178
Utility Specific
Residential Assumptions
AC kWh
Production per
rated kW per year
1271 / PTC kW
Insolation
AC kWh
Production per
rated kW per year
1772 / STC kW
Utility
Eastern Utility Specific
Utility
$12K
*In Pesos
Mexico
11/1/13
Western Utility Specific
28% federal tax bracket, corresponding state tax bracket
Facing south, 22° pitch, simple composition shingle roof by full
service provider, no complications
Slightly conservative real system performance, no shade
Final Net Cost = total installed system costs - Rebate (if any) 2013 Fed 30% ITC + $500 Permit + $0 Utility Fee
System maintenance cost is 0.25% of gross system cost per year,
adjusted for inflation
2.0% electric inflation
Module: Sanyo Electric HIP-215NKHA6 , degradation: 0.75%/yr
Inverter: SMA America SB3000US (240V), Replacement costing
$700/kW occurs in year 15
Lifecycle
Payback
Ratio
5 kW STC
$90
$81
800 kWh
Years To
Payback
800 kWh
NC--Progress
FL--FPL
$276
Cumulative Savings
Over First 25 Years
$2,728*
FL--FPL
HI--HECO
Final Net Cost
w/ Tax Benefits
& Rebates
30% Fed ITC +
$1.50/WRebate
$0.40/W, SRECS
10¢/10yrs
RES / R-TOUD, 55% 35% State Tax Credit
SRECs: 4¢/1yr,
RS / RT, 58%
3¢/14yrs
SC1-I / SC1-II TOU,
$1.00/W +
75%
A1(R-1) / A5 (R-4)
179
Utility
Insolation
MX - CFE
Mexicali
San Jose Del
Cabo
Morelia
Hermosillo
Monterrey
Chetumal
San Juan
MX - CFE
MX - CFE
MX - CFE
MX - CFE
MX - CFE
PR - PREPA
AC kWh
Production per
rated kW per year
1479 / STC kW
~2013 Cost per
rated Watt
Staring/Ending Rate
Schedule, Peak %
Last update: 10/31/13
$52 Peso / STC
DAC Baja
-
1527 / STC kW
$52 Peso / STC
DAC Baja
-
1313 / STC kW
1629 / STC kW
1178 / STC kW
1245 / STC kW
1518 / STC kW
$52 Peso / STC
$52 Peso / STC
$52 Peso / STC
$52 Peso / STC
$4.00 / STC
DAC Baja
DAC Baja
DAC Baja
DAC Baja
DAC Baja
30% + $1.40 Rebate
30% + 25% State
Tax Credit
AZ - APS
Phoenix
1772 / STC kW
CA - PG&E
San Francisco
1654 / CEC kW
CO - Xcel
FL - FPL
Boulder
Miami
1460 / STC kW
1439 / STC kW
3kW: $4.75 CEC
9kW: $4.25 CEC
$3.50 / STC
$3.50 / STC
MO - KCP&L
Columbia, MO
1341 / STC kW
$3.50 / STC
NY - ConEd
New York City
1233 / STC kW
$3.50 / STC
TX-Oncor
Fort Worth
1483 / STC kW
$3.50 / STC
$3.50 / STC
E-12 / ET-2, 50%
Incentives
E1XB / E6XB, 35%
30% ITC
R
RS-1
30% ITC +$.07/kWh
30% ITC
R / R-TOD, 32%
SC1-I / SC1-II TOU,
75%
Residential
30% + $2/W Rebate
30%, $1.30/W
Rebate,!25% StateTC
30% ITC
180
General Gov’t/Non-Profit
General Commercial
 
 
 
 
 
 
 
 
 
35% federal tax bracket, corresponding state tax bracket
Final Net Cost = total installed system costs - Rebate (if any) 2013 Fed 30% ITC + 50% Depr + $800 Permit + $0 Utility Fee
Module: Sanyo Electric HIP-215NKHA6, degradation: 0.75%/yr
Solar only - no Energy Efficiency included
 
 
 
 
 
 
 
 
Final Net Cost = total installed system costs - Rebate (if any) +
$800 Permit + $0 Utility Fee
Module: Sanyo Electric HIP-215NKHA6, degradation: 0.75%/yr
Solar only - no Energy Efficiency included
Utility Specific
Commercial Assumptions
Utility Specific
Commercial Assumptions
Utility
Insolation
AC kWh
Production per
rated kW per year
~2014 Cost per
rated Watt
$3.00 STC
AZ - APS
Phoenix
1724 / STC kW
CA - PG&E
San
Francisco
1587 / CEC kW
CA - SCE
Los Angeles
1590 / CEC kW
CA - SDG&E
San Diego
1700 / CEC kW
CO - Xcel
CT - UI
10kW: $4.25 CEC
50kW: $3.75 CEC
Staring/Ending Rate
Schedule
Peak%/ PP%
Demand
E-32 / E-32TOU,
64%
A1 / A6
47%/35%
GS2 / GS2R
48%/43%
2x Min Demand
AL-TOU / DG-R
39%/51%
2x Min Demand
C
GS
Incentives
Last update: 3/7/14
30% Fed ITC +
$0.25/W Rebate or
3.2¢/kWh PBI
$0.25/W Rebate or
3.2¢/kWh PBI
1390 / STC kW
1221 / STC kW
$3.00 STC
$3.50 PTC
FL – FPL
HI - HECO
Miami
Honolulu
1420 / STC kW
1553 / STC kW
$3.00 STC
$3.00 STC
GS-1
G
LA-Cleco
NM – PubSvc
Baton Rouge
Albuquerque
1318 / STC kW
1679 / STC kW
$3.00 STC
$3.00 STC
GS-Non-Demand
2A / 2B
Newark
1161 / STC kW
$3.00 STC
GP
$.05 PBI for 10 yrs
SRECs: 4¢/1yr,
3¢/14yrs
1186 / STC kW
$3.00 STC
SC2-I (NYC)
$1.00/W Rebate
1450 / STC kW
$3.00 STC
Commercial
-
NJ - JCPL
NY - ConEd
TX-Oncor
New York
City
Fort Worth
5¢/kWh SREC/PBI
-
183
Commercial Total
Lifecycle Payback
Utility
CA--SDG&E
PreSolar
Bill
$357
kWh Usage
per Month
2,000 kWh
PV System
Size &
Rating
10 kW CEC
Final Net Cost
w/ Tax Benefits
& Rebate
$13K
Cumulative Savings
Over First 25 Years
$28K
Lifecycle
Payback
Ratio
1.2x
$56K
$77K
0.8x
20.3
CA--PG&E
CA--PG&E
$380 2,000 kWh 10 kW CEC
$1,861 10,000 kWh 50 kW CEC
$15K
$65K
$43K
$222K
1.6x
1.9x
8.9
7.8
10,000 kWh 50 kW STC
$61K
$103K
1.1x
17.4
LA--Cleco
$1,253 10,000 kWh 50 kW CEC
$47K
$116K
1.5x
9.4
CO--Xcel
$1,023 10,000 kWh 50 kW STC
$56K
$99K
1.1x
16.9
NM--PNM
$1,257 10,000 kWh 50 kW STC
$27K
$141K
3.0x
5.9
MO--KCP&L-G $1,354 10,000 kWh 50 kW STC
WI--WPSC
$1,165 10,000 kWh 50 kW STC
$32K
$52K
$119K
$88K
2.2x
1.0x
6.3
17.4
MA--NatlGrid
$1,600 10,000 kWh 50 kW STC
$52K
$162K
1.7x
6
CT--UI
$2,135 10,000 kWh 50 kW PTC
$62K
$197K
1.8x
NY--LIPA
$1,985 10,000 kWh 50 kW STC
$36K
$178K
2.8x
5.3
NJ--JCP&L
$1,274 10,000 kWh 50 kW STC
$52K
$101K
1.1x
10.7
NC--Duke
FL--FPL
$1,500 10,000 kWh 50 kW STC
$1,045 10,000 kWh 50 kW STC
$20K
$56K
$145K
$86K
AZ--APS
$1,220 10,000 kWh 50 kW STC
$44K
HI--HECO
$3,180 10,000 kWh 50 kW STC
$20K
MX - CFE
MX - CFE
Mexicali
San Jose Del
Cabo
Morelia
Hermosillo
MX - CFE
7.9
4.3x
0.9x
4.4
18.5
$123K
1.6x
8.5
$404K
11.7x
2.6
Staring/Ending Rate
Schedule, Peak %
Last update: 10/31/13
$52 Peso / STC
DAC Baja
-
1512 / STC kW
$52 Peso / STC
DAC Baja
-
1311 / STC kW
1624 / STC kW
$52 Peso / STC
$52 Peso / STC
DAC Baja
DAC Baja
-
Incentives
Monterrey
1173 / STC kW
$52 Peso / STC
DAC Baja
MX - CFE
Chetumal
1247 / STC kW
$52 Peso / STC
DAC Baja
-
San Juan
1518 / STC kW
$4.00 / STC
DAC Baja
30% + $1.40 Rebate
AZ - APS
Phoenix
1724 / STC kW
E-12 / ET-2, 50%
30% + 25% StateTC
CA - PG&E
San Francisco
1575 / CEC kW
CO - Xcel
Boulder
1390 / STC kW
$3.50 / STC
3kW: $4.75 CEC
9kW: $4.25 CEC
$3.50 / STC
-
E1XB / E6XB, 35%
30% ITC
R
30% ITC +$.07/kWh
FL - FPL
Miami
1420 / STC kW
$3.50 / STC
RS-1
30% ITC
MO - KCP&L
Columbia, MO
1289 / STC kW
$3.50 / STC
NY - LIPA
New York City
1186 / STC kW
$3.50 / STC
TX-Oncor
Fort Worth
1450 / STC kW
$3.50 / STC
R / R-TOD, 32%
SC1-I / SC1-II TOU,
75%
Residential
30% + $2/W Rebate
30%, $1.30/W
Rebate,!25% StateTC
30% ITC
184
Commercial Total
Lifecycle Payback
Utility
Pre-Solar kWh Usage
Bill
per Month
PV System
Size &
Rating
Final Net Cost Cumulative Savings Lifecycle
w/ Tax Benefits Over First 25 Years Payback
& Rebate
Ratio
Years To
Payback
$19,578*
$1482K*
$1898K*
0.8x
20.6
$20,734*
$1482K*
$2138K*
0.9x
18.7
$15,858*
$1482K*
$1416K*
0.6x
>25
$15,858*
$1482K*
$1795K*
0.8x
21.5
$15,858*
$1482K*
$1251K*
0.5x
>25
$15,858*
$1482K*
$1339K*
0.6x
>25
$2,986
$-33K
$295K
-2.7x
1
AZ--APS
CA--PG&E
$1,210
$375
2,000 kWh 10 kW CEC
$44K
$15K
$111K
$50K
1.5x
1.9x
9.9
8.7
CA--PG&E
CO--Xcel
$1,837
$990
10,000 kWh 50 kW CEC
$65K
$56K
$255K
$112K
2.2x
1.2x
7.6
16.1
$992
$25K
$88K
2.1x
6.9
$1,354
$24K
$140K
3.4x
5
$1,961
$48K
$203K
2.4x
6.6
$990
$61K
$122K
1.3x
16
FL--FPL
MO--KCP&LGMO
NY--LIPA
185
~2013 Cost per
rated Watt
PR - PREPA
MX--HS (Baja
California)
MX--HS (Baja
California Sur)
MX--HS
(Central)
MX--HS
(Noroeste)
MX--HS (Norte
y Noreste)
MX--HS (Sur y
Peninsular)
PR--PREPA
11.3
$1,057 10,000 kWh 50 kW CEC
$980
MX - CFE
AC kWh
Production per
rated kW per year
1451 / STC kW
3/7/14
Years To
Payback
CA--SDG&E
TX--Oncor
Insolation
MX - CFE
-
Boulder
Hartford
Utility
TX--Oncor
186
Lifecycle Payback Exercise
Gov’t/Non-Profit vs. Commercial
 
Differerences between Gov’t/Non-Profit
& Commercial? - Taxes!
  Tax deduction for electricity
  Commercial tax deduction lowers the
value of a kWh saved by solar
  Commercial gets tax credit & depreciation
 
Lifecycle Payback analysis is superior to Simple
Payback because it shows ( current / future)
savings (after Payback) in the analysis, which is
important because savings (grow / shrink ) over
time due to (rate escalation / module degradation ).
Questions?
187
188
ROI: Return On Investment
 
ROI means Return on Investment
 
Watt’$ the Return On
Investment or ROI?
Ratio of the Net Gain compared to the Cost
ROI =
 
Similar to Lifecycle Payback
Lifecycle Payback =
€
 
(Gain from Investment - Cost of Investment)
Cost of Investment
Gain from Investment
Cost of Investment
PV has long paybacks
ROI is only useful over the longer term or for liquid
investments
  Not useful/accurate in 1st or early years
Questions?
  Solar is not a 1 year investment or liquid
 
189
Return On Investment Analysis
Best Tests of Solar’s Viability
Commonly misused creating misleading results
  Wrong method:
 
Incorrect ROI =
 
Annual Savings from Investment $1,000
=
= 10%
Cost of Investment
$10,000
Attempts to calculate “1st year ROI”
  On a simple 10 year payback case, implies 10%
(incorrectly)
 
 
Correct method:
ROI =
 
 
(Gain - Cost)
($1,000 - $10,000) -$9,000
=
=
= −90%
Cost of Investment
$10,000
$10,000
The true 1 year ROI of this case is -90%
Solar is not a 1 year investment
Questions?
191
Tests for financial viability:
Simple Payback
 Total Lifecycle Payback
 Return on Investment
Questions?
 Rate of Return (APY) analysis
 Increase in Appraisal Valuation
 
192
Rate of Return Analysis
 
Watt’$ the Rate %f Return
APY or IRR?
Means: Finding the effective interest rate
yield on the solar investment or APY
 
 
APY is Annual Percentage Yield
Uses Internal Rate of Return (IRR) analysis
Is the Compound Annual Rate of Return
  Useful for comparison with other
investments w/ known Rates of Return
 
 
193
I.e. Stocks, Savings, etc.
Questions?
Set Up & Inclusions
110!
IRR / APY Analysis
= 10% RoR = 10% IRR!
20-25-year timeline - yearly cash flows
  Include cost and benefit components
 
Rate of Return easy to calculate
System cost & rebates
Tax benefits and consequences
  Electric bill savings, Inflation
  Cleaning, maintenance, inverter replacement,
panel degradation
100!
 
10!
 
 
Assume $0 terminal scrap value or disposal
cost
- 195
Economics of Solar PV
APY & IRR vs. MIRR
MIRR is Modified Internal Rate or Return
  IRR (& APY) provides free cash during term
Still easy to calculate
100!
10!
= ??% RoR = ??% IRR!
100!
Doesn’t stay fully invested, OR…
  Assumes reinvestment at IRR rate to stay
fully invested (main criticism of IRR)
 
NPV is Net Present Value
  Discount Rate – what to use?
WACC – weighted average cost of capital
Best alternative investment
  Must ask customer what they think it is – slows
analysis
 
Considered more conservative
 
APY widely understood in residential
196
 
IRR more commonly used in commercial
 
 
MIRR allows for reinvestment at ‘safe’ rate
Rate of Return needs IRR analysis to calculate
 
 
= 10% RoR = 10% IRR!
IRR vs. NPV for Commercial
 
 
194
NPV = $0 when the Discount Rate is set
equal to the IRR
 
197
If IRR > Discount Rate, NPV will be positive
198
IRR / APY Timeline
& Analysis
NPV has its uses
Year:
Year 0
System
Cost
+Incentives Rebate
+Bill Savings
Year 1
Year 2
Year 3
…
PBI 1
Savings 1
PBI 2
Savings 2
PBI 3
Savings 3
Maint. 1
Maint. 2
Maint. 3
Fed Cost
State ITC
Fed Depr
State Depr
Fed Cost of
State Depr
Net 2
Fed Depr
State Depr
Fed Cost of
State Depr
Net 3
Year X
…
(12-15-20)
-System Cost
 
 
NPV is useful when there are multiple
discount rates
-Maintenance
NPV analysis can illustrate better NPV at lower
discount rates even for projects w/ lower IRR
depending on project cash flows.
 
+Fed Tax Credit
+State Tax Credit
-Fed Cost of
State Tax Credit
+Fed Depr.
+State Depr.
- Fed Cost of
State Depr
=Net
You might chose the lower IRR because it’ll
have a higher NPV if your discount rate is very
low depending on project characteristics (cash
flows).
 
 
 
199
Fed ITC
State ITC
Fed Depr
State Depr
Net 0
Year 0
-System Cost -$12,000
+Incentives
$2,000
+Bill Savings
-Maintenance
+Fed Tax Credit
+State Tax Credit
-Fed Cost of
State Tax Credit
+Fed Depr.
+State Depr.
- Fed Cost of
State Depr
=Net -$10,000
Year 1
Year 2
Year 3
$995
$1,025
$990 …
$1,051 …
-$30
-$32
-$33 …
Year 15
…
Year:
$0 …
$1,448 …
-$59 …
$1,400
$2,008 …
+Fed Tax Credit
+State Tax Credit
-Fed Cost of
State Tax Credit
+Fed Depr.
+State Depr.
- Fed Cost of
State Depr
=Net -$10,000
-$11 …
Net X
…
200
Solar PV -
Year 2
Year 3
…
$1,000
$1,000
$995
$1,025
$990 …
$1,051 …
-$30
-$32
-$33 …
Year 15
…
$0 …
$1,448 …
-$59 …
$1,400
$3,000
$1,000
-$250
$5,970
$1,738
$2,008 …
-$11 …
Assume: 2kW system, $6/Watt before incentives, 1,000 kWh/yr/kW, $700/kW
inverter, $1/W rebate, $.50/kWh PBI or SREC for 5 years, $.50/kWh electric rate
30% Fed ITC
10% State ITC up to $2K
25% Fed Tax Rate
Maintenance: 0.25% of Gross Cost Economics of
Year 1
-Maintenance
Assume: 2kW system, $6/Watt before incentives, 1,000 kWh/yr/kW, $700/kW
inverter, $1/W rebate, $.50/kWh PBI or SREC for 5 years, $.50/kWh electric rate
Year 0
-System Cost -$12,000
+Incentives
$2,000
+Bill Savings
-$250
Utility rate escalation: 3%
Module degradation: 0.5%
Maintenance inflation: 5%
…
$3,000
$1,000
$1,738
…
Example Answers
…
$1,000
$1,000
$5,970
Net 1
…
…
IRR is function of Net0 : Net25 line [ example formula: =IRR(F10:F36) ]
Inverter replacement: $700/kW in yr ~ 12-20
PBI, Savings, Maintenance adjust for inflation and/or module degradation
IRR / APY Example
Year:
…
PBI X
…
… Savings X …
Maint. X
…
…
Inverter
Utility rate escalation: 3%
Module degradation: 0.5%
Maintenance inflation: 5%
Andy Black
OnGrid Solar
(408) 428 0808
201
30% Fed ITC
10% State ITC up to $2K
25% Fed Tax Rate
Maintenance: 0.25% of Gross Cost Economics of
Solar PV -
202
Nittany Lion, Tussey Mtn Corp
Compound Annual Rate of Return Detail
Commercial After-Tax Analysis
Operating Savings:
Avoided Electricity Purchases / Annual Savings
REC (Green Tag) Income
System Cost & Incentives:
System Capital Cost with Fees, before Rebates
Rebates & Grants
Energy Efficiency Net Expense
Andy Black
OnGrid Solar
(408) 428 0808
Nittany Lion, Tussey Mtn Corp
Compound Annual Rate of Return Detail
Commercial After-Tax Analysis
1
2,574
391
xxx
Operating Profit (loss):
Year:
0
xxx
System Capital Cost with Fees, before Rebates
Rebates & Grants
3
2,664
193
4
2,671
191
5
2,758
190
6
2,848
189
7
2,940
187
8
3,036
186
9
10 Tax Credit11Basis
Federal
Federal Tax 3,341
Credit
3,134 30%3,236
184
183
182
.
.
.
(500)
(179)
(250)
(73,353)
Federal & State Tax Effects:
Federal Tax on Rebate. Federal and State Tax on RECs.
Federal Tax Credit Basis
30% Federal Tax Credit
2
2,606
389
(72,854)
2
Operating Expenses:
System Maintenance at 0.25% of gross system cost per year
Inverter Replacement at $700 per kW in Year 15
Monitoring Cost
1
2,574
391
2,536
(163)
(184)
(258)
2,553
(161)
(190)
(265)
2,402
(80)
(196)
(273)
2,394
(201)
(207)
(214)
(220)
(281)
2,465
(79)
(79)
2,829
(78)
72,854
2,914
(78)
3,001
(77)
(227)
 
xxx
12
3,450
180
(241)
203
Value of lost Federal tax deduction of electricity expense
Value of lost State tax deduction of electricity expense
Operating Savings:
61,926
72,853
60.0%
20.0%
16.0%
32.0%
9.6%
19.2%
5.8%
11.5%
5.8%
11.5%
2.9%
5.8%
MACRS 5 year Accelerated Federal Depreciation
MACRS 5 year Accelerated State Depreciation
Fed Tax on State Depreciation
Total Depr Value:
13,004
1,456
(509)
13,951
3,468
2,329
(815)
4,982
2,081
1,397
(489)
2,989
1,246
837
(293)
1,790
1,246
837
(293)
1,790
629
422
(148)
903
Operating Expenses:
Monitoring Cost
6
2,848
189
7
2,940
187
8
3,036
186
9
3,134
184
10
3,236
183
(184)
(190)
(196)
(201)
(250)
(258)
(265)
(273)
(281)
2,536
2,553
(161)
2,402
(80)
2,394
(79)
2,465
(207)
2,829
(79)
(78)
(214)
2,914
(220)
3,001
(227)
3,092
(234)
3,186
(78)
(77)
(77)
(76)
21,856
(77) Fed Tax(76)
(75)
(75)
Benefit on State deduction loss of electricity expense
Federal Depr Basis: Fed Tax Credit Basis minus 1/2 the Fed Credit
State Depr Basis: System Cost after rebate and fees
MACRS 5 year Accelerated Federal Depreciation (%)
MACRS 5 year Accelerated State Depreciation (%)
5
2,758
190
72,854
(248)
4
2,671
191
(179)
(163)
Depr Value: 3,282
3,092 Total3,186
3,383
After-Tax Net Annual Profit/Loss for IRR
After-Tax Cash Flow, Cumulative
21,856
.
.
.
© 2014
OnGrid Solar, All Rights Reserved.
xxx
(234)
3
2,664
193
(500)
(73,353)
2
2,606
389
(72,854)
2
Operating Expenses:
Monitoring Cost
Operating Savings:
 
Year:
0
(73,353)
(73,353)
<----v
Year:
13
3,562
179
(255)
61,926
72,853
60.0%
20.0%
16.0%
32.0%
9.6%
19.2%
5.8%
11.5%
5.8%
11.5%
2.9%
5.8%
13,004
1,456
(509)
13,951
3,468
2,329
(815)
4,982
2,081
1,397
(489)
2,989
1,246
837
(293)
1,790
1,246
837
(293)
1,790
629
422
(148)
903
(751)
(214)
75
(757)
(216)
76
(773)
(221)
77
(771)
(220)
77
(796)
(227)
80
(924)
(264)
92
(954)
(272)
95
(985)
(281)
98
(1,018)
(290)
102
(1,051)
(300)
105
37,290
(36,062)
6,475
(29,587)
4,394
(25,193)
3,191
(22,002)
3,233
(18,770)
2,558
(16,212)
1,705
(14,507)
1,756
(12,751)
1,809
(10,942)
1,864
(9,078)
<-----
<-----
next 13 years follow below
<-----
<-----
Economics of Solar PV 14
3,678
178
(263)
15
3,797
176
(271)
(11,137)
16
3,921
(279)
17
4,048
(287)
18
4,180
(296)
19
4,316
(305)
<-----
<-----
<-----
204
20
4,456
(314)
21
4,601
(323)
22
4,750
(333)
23
4,905
(343)
<
61,926
72,853
60.0%
20.0%
16.0%
32.0%
9.6%
19.2%
5.8%
11.5%
5.8%
11.5%
2.9%
5.8%
Total Depr Value:
13,004
1,456
(509)
13,951
3,468
2,329
(815)
4,982
2,081
1,397
(489)
2,989
1,246
837
(293)
1,790
1,246
837
(293)
1,790
629
422
(148)
903
(751)
(214)
75
(757)
(216)
76
(773)
(221)
77
(771)
(220)
77
(796)
(227)
80
(924)
(264)
92
(954)
(272)
95
(985)
(281)
98
(1,018)
(290)
102
(1,051)
(300)
105
(1,085)
(310)
108
(1,121)
(320)
112
37,290
(36,062)
6,475
(29,587)
4,394
(25,193)
3,191
(22,002)
3,233
(18,770)
2,558
(16,212)
1,705
(14,507)
1,756
(12,751)
1,809
(10,942)
1,864
(9,078)
1,920
(7,158)
1,979
(5,179)
<-----
<-----
|
<-----
Fed Tax Benefit on State deduction loss of electricity expense
(73,353)
(73,353)
xxx
<----v
Year:
13
3,562
179
Operating Savings:
 
<-----
14
3,678
178
<-----
15
3,797
176
next 13 years follow below
16
3,921
17
4,048
<-----
18
4,180
19
4,316
<-----
<-----
20
4,456
21
4,601
<-----
22
4,750
23
4,905
24
5,064
25
5,229
xxx
Residential Pre-Tax
 
Most investments are taxable
 
Long-term stock market
 
Operating Expenses:
Monitoring Cost
Fed Tax Benefit on State deduction loss of electricity expense
(255)
(263)
(271)
(11,137)
(279)
(287)
(296)
(305)
(314)
(323)
(333)
(343)
(353)
(364)
Stocks, Bonds, Savings interest, etc.
~8.5% compounded annually over the last 80 years to
Dow Jones 13,500 in 2007
  ~7.5% to Dow 8,000 in 2009
  Total returns, dividend reinvested, pre-tax
 
3,486
3,593
(7,434)
3,642
3,761
3,884
4,011
4,142
4,277
4,417
4,562
4,711
4,865
(74)
(1,157)
(330)
116
(74)
(1,195)
(341)
119
(73)
2,664
760
(266)
(1,275)
(364)
127
(1,316)
(376)
132
(1,359)
(388)
136
(1,404)
(401)
140
(1,450)
(414)
145
(1,497)
(427)
150
(1,546)
(441)
154
(1,597)
(456)
160
(1,649)
(471)
165
(1,703)
(486)
170
2,039
(3,139)
2,102
(1,037)
(4,349)
(5,387)
2,131
(3,256)
2,200
(1,055)
2,272
1,217
2,347
3,564
2,423
5,987
2,503
8,490
2,584
11,074
2,669
13,743
2,756
16,499
2,846
19,345
ANNUAL RATE OF RETURN
Effective After-Tax Rate of Return
3.6% IRR (After-Tax Rate of Return)
$2,413 Net Present Value with 3% Discount Rate
For comparison with other investments
Additional value as a hedge against future electric rate increases
205
Convert solar analysis to pre-tax values to put on an
even playing field comparable with other investments
  Must convert to the appropriate pre-tax values for
savings, tax benefits, etc.
 
206
© OnGrid Solar and/or OnGrid Solar
Residential Rates
of Return
Residential Pre-Tax Conversion
 
 
 
Convert all costs & benefits to pretax value as appropriate
  Initial capital cost is not increased
  This is the “principal”
AfterTax
All other values get adjusted: PreTax =
CA--SDG&E
CA--SDG&E
PreSolar
Bill
$115
$505
CA--PG&E
CA--PG&E
$95
$485
550 kWh
1,650 kWh
3 kW CEC
9 kW CEC
$14K
$38K
$10K
$27K
17.5%
34.0%
2.4x
5.3x
10.4
5.1
TX--Oncor
LA--EntergyLA
$89
$79
800 kWh
800 kWh
5 kW STC
5 kW STC
$17K
$17K
$12K
$6K
6.0%
28.3%
1.2x
2.3x
22.6
9.5
CO--Xcel
NM--SPS
$93
$71
800 kWh
800 kWh
5 kW STC
5 kW STC
$17K
$17K
$10K
$11K
7.6%
10.0%
1.3x
1.4x
21.4
20.2
Example: Tax Rate = 50% (unrealistic; easy for illustration)
After-tax savings = $100
MO--KCP&L
WI--WEPCO
$92
$120
800 kWh
800 kWh
5 kW STC
5 kW STC
$17K
$17K
$7K
$11K
16.0%
20.5%
2.2x
3.0x
10.2
8.3
MA--NSTAR
CT--UI
$142
$170
800 kWh
800 kWh
5 kW STC
5 kW PTC
$17K
$20K
$10K
$10K
20.9%
20.2%
3.0x
3.0x
8.2
8.2
NY--ConEd
NJ--JCP&L
$186
$116
800 kWh
800 kWh
5 kW STC
5 kW STC
$17K
$17K
$7K
$12K
40.6%
9.6%
6.0x
1.5x
4.3
19.5
11.7
Utility
1− TaxRate
€
AfterTax
$100
$100 $100
PreTax =
=
=
=
= $100 * 2 = $200
1− TaxRate 1− 50% 1− .50
.50
 
€
More realistically $100 after-tax => $140-$160 pre-tax
Questions?
Utility
MX--DAC (Baja
California)
MX--DAC (Baja
California Sur)
MX--DAC
(Central)
MX--DAC
(Noroeste)
MX--DAC(Norte
y Noreste)
MX--DAC (Sur y
Peninsular)
PR--PREPA
PreSolar
Bill
207
NC--Progress
PV System System Final Net Cost Pre-Tax Lifecycle Years
To
Size &
Gross w/ Tax Benefits Annual Payback
Return
Ratio
Payback
Rating
Cost
& Rebate
$2,728
800 kWh
5 kW STC
$257K
$258K
14.4%
3.1x
9.7
$2,857
800 kWh
5 kW STC
$257K
$258K
15.5%
3.3x
9.1
$3,013
800 kWh
5 kW STC
$257K
$258K
13.8%
2.9x
10
$2,824
800 kWh
5 kW STC
$257K
$258K
16.2%
3.4x
8.7
$2,756
800 kWh
5 kW STC
$257K
$258K
11.1%
2.4x
12.1
$2,801
800 kWh
5 kW STC
$257K
$258K
12.0%
2.6x
11.3
$206
800 kWh
5 kW STC
$20K
$9K
61.4%
6.7x
4.5
AZ--APS
$112
800 kWh
5 kW STC
$17K
$12K
16.3%
2.6x
10.2
CA--PG&E
$94
550 kWh
3 kW CEC
$14K
$10K
18.2%
2.7x
10.1
CA--PG&E
CO--Xcel
$483
$90
1,650 kWh
800 kWh
9 kW CEC
5 kW STC
$38K
$17K
$27K
$6K
34.8%
8.3%
6.0x
1.7x
5.1
21.6
FL--FPL
MO--KCP&L
$82
$92
800 kWh
800 kWh
5 kW STC
5 kW STC
$17K
$17K
$6K
$6K
17.4%
21.9%
3.0x
3.4x
8.3
7.6
NY--ConEd
TX--Oncor
$179
$90
800 kWh
800 kWh
5 kW STC
5 kW STC
$17K
$17K
$6K
$12K
44.1%
7.2%
7.5x
1.4x
3.9
20.4
Lifecycle
Payback
Ratio
3.0x
5.5x
Years
To
Payback
8.6
4.9
$90
800 kWh
5 kW STC
$17K
$7K
20.1%
2.2x
FL--FPL
$81
800 kWh
5 kW STC
$17K
$12K
5.8%
1.1x
23
AZ--APS
HI--HECO
$112
$276
800 kWh
800 kWh
5 kW STC
5 kW STC
$17K
$17K
$12K
$9K
15.4%
51.1%
2.3x
8.0x
10.6
3.4
Residential Rates
of Return
kWh
Usage per
Month
kWh
PV System System Final Net Cost Pre-Tax
Usage per
Size &
Gross w/ Tax Benefits Annual
Month
Return
Rating
Cost
& Rebate
550 kWh 3 kW CEC $14K
$10K
21.2%
1,650 kWh 9 kW CEC $38K
$27K
35.4%
208
Commercial Analysis
 
Ideal commercial customers can see aftertax IRRs in the 3% to 8% range
Comparable to other business investments
Plus has green marketing and morale
benefits
  Depends heavily on system cost
 
 
 
209
Must properly factor all benefits and costs
210
Commercially Attractive?
 
Complete Commercial Analysis
IRR must exceed a hurdle rate
 
> “Risk Free Rate” + ~1-2%
 
= Risk Free Rate + Sum of Risks
 
 
 
Source: Photon International, Aug07, p114
Proper commercial analysis is after-tax
A. Extra incentives:
Federal Tax Depreciation
 
“Risk Free” interest rates:
 
1 Year LIBOR ~ 0.6% As of 3/7/2014
  Treasury: 10yr = 2.8%, 30yr = 3.7% As of 3/7/2014
 
 
B. Loss of electric expense tax deduction
A & B approximately offset each other
 
∴ Commercially Attractive >= 4-7%?
  Changes in attitude?
  Maybe only cash buyers w/ other motives
 
Net results are comparable to residential, but
are “after tax” values, so sometimes appear
smaller.
Questions?
211
Commercial Rates
of Return
CA--SDG&E
CA--SDG&E
PrekWh Usage PV System
Solar
Size &
per Month
Bill
Rating
$357 2,000 kWh 10 kW CEC
$1,057 10,000 kWh 50 kW CEC
System
Gross
Cost
$42K
$187K
CA--PG&E
CA--PG&E
$380 2,000 kWh 10 kW CEC
$1,861 10,000 kWh 50 kW CEC
$42K
$187K
$15K
$65K
7.5%
8.9%
1.6x
1.9x
8.9
7.8
TX--Oncor
LA--Cleco
$980 10,000 kWh 50 kW STC
$1,253 10,000 kWh 50 kW CEC
$150K
$150K
$61K
$47K
3.6%
6.2%
1.1x
1.5x
17.4
9.4
CO--Xcel
NM--PNM
Utility
3/7/14
Final Net Cost After-Tax Lifecycle Years To
w/ Tax Benefits Annual Payback Payback
Return
Ratio
& Rebate
$13K
4.8%
1.2x
11.3
$56K
1.7%
0.8x
20.3
Utility
MX--HS (Baja
California)
MX--HS (Baja
California Sur)
MX--HS
(Central)
MX--HS
(Noroeste)
MX--HS (Norte
y Noreste)
MX--HS (Sur y
Peninsular)
PR--PREPA
PrekWh Usage
Solar Bill per Month
PV System
Size &
Rating
$19,578 10,000 kWh
50 kW STC
$20,734 10,000 kWh
50 kW STC
$15,858 10,000 kWh
50 kW STC
$15,858 10,000 kWh
50 kW STC
$15,858 10,000 kWh
50 kW STC
$15,858 10,000 kWh
50 kW STC
$1,023 10,000 kWh 50 kW STC
$1,257 10,000 kWh 50 kW STC
$150K
$150K
$56K
$27K
3.9%
10.0%
1.1x
3.0x
16.9
5.9
$150K
$150K
$32K
$52K
9.4%
3.5%
2.2x
1.0x
6.3
17.4
MA--NatlGrid
CT--UI
$1,600 10,000 kWh 50 kW STC
$2,135 10,000 kWh 50 kW PTC
$150K
$175K
$52K
$62K
9.8%
8.6%
1.7x
1.8x
6
7.9
AZ--APS
CA--PG&E
NY--LIPA
NJ--JCP&L
$1,985 10,000 kWh 50 kW STC
$1,274 10,000 kWh 50 kW STC
$150K
$150K
$36K
$52K
12.4%
4.7%
2.8x
1.1x
5.3
10.7
CA--PG&E
$1,837
CO--Xcel
$990
FL--FPL
MO--KCP&LGMO
NY--LIPA
$992
$1,500 10,000 kWh 50 kW STC
$150K
$20K
11.8%
4.3x
4.4
FL--FPL
$1,045 10,000 kWh 50 kW STC
$150K
$56K
2.9%
0.9x
18.5
AZ--APS
HI--HECO
$1,220 10,000 kWh 50 kW STC
$3,180 10,000 kWh 50 kW STC
$150K
$150K
$44K
$20K
7.1%
26.5%
1.6x
11.7x
8.5
2.6
213
IRR Exercise
TX--Oncor
System Final Net Cost After-Tax Lifecycle Years
To
Gross w/ Tax Benefits Annual Payback
Return
Ratio
Payback
Cost
& Rebate
$2279K
$2279K
$2279K
$2279K
$2279K
$2279K
50 kW STC $175K
$1482K
1.6%
0.8x
20.6
$1482K
2.5%
0.9x
18.7
$1482K
-0.3%
0.6x
>25
$1482K
1.3%
0.8x
21.5
$1482K
-1.1%
0.5x
>25
$1482K
-0.6%
0.6x
>25
$-33K
40.4%
-2.7x
1
$2,986
10,000 kWh
$1,210
10,000 kWh
50 kW STC
$150K
$44K
6.3%
1.5x
9.9
$375
2,000 kWh
10 kW CEC
$42K
$15K
8.7%
1.9x
8.7
10,000 kWh 50 kW CEC
$187K
$65K
10.2%
2.2x
7.6
10,000 kWh
50 kW STC
$150K
$56K
4.8%
1.2x
16.1
10,000 kWh
50 kW STC
$150K
$25K
8.8%
2.1x
6.9
$1,354
10,000 kWh
50 kW STC
$150K
$24K
13.2%
3.4x
5
$1,961
10,000 kWh
50 kW STC
$150K
$48K
11.3%
2.4x
6.6
$990
10,000 kWh
50 kW STC
$150K
$61K
4.9%
1.3x
16
214
The IRR of a project gets better when:
  Top-line cost of the project is (higher / lower).
  Incentives & tax benefits are received (sooner / later)
(timeframe) because of the ?____Value of Money.
  The system produces (more / less) kWh and generates
(greater / lesser) savings on the electric bill.
  Electric rates (rise / fall ) consistently and rapidly but
maintenance costs don’t.
212
Commercial Rates
of Return
WI--WPSC
$1,165 10,000 kWh 50 kW STC
NC--Duke
215
 
Simple Payback
 Rate of Return analysis
Questions?
 
216
Commercial Resale
 
 
Based on actual savings and cost of borrowing - Cash Flow
in disguise
Also known as “Cap Rate” or “Capitalization Rate”
 
Watt’$ the Resale Value?
 
217
Commercial
Equity Increase
Utility
CA--SDG&E
CA--SDG&E
CA--PG&E
CA--PG&E
TX--Oncor
PreSolar
Bill
kWh Usage
per Month
PV System
Size &
Rating
$357 2,000 kWh 10 kW CEC
$1,057 10,000 kWh 50 kW CEC
Final Net Cost
w/ Tax Benefits
& Rebate
Annual
Savings
Appraisal Equity /
Resale Increase in First
Year (Cap Rate 6%)
$13K
$56K
$1,896
$8,221
$32K
$98K
10 kW CEC
$15K
$2,777
$46K
$1,861 10,000 kWh 50 kW CEC
$65K
$14,201
$237K
$380
$980
2,000 kWh
$61K
$6,745
$113K
LA--Cleco
$1,253 10,000 kWh 50 kW CEC
$47K
$7,819
$131K
CO--Xcel
$1,023 10,000 kWh 50 kW STC
$56K
$6,837
$114K
NM--PNM
$1,257 10,000 kWh 50 kW STC
$27K
$13,259
$157K
WI--WPSC
$1,165 10,000 kWh 50 kW STC
$32K
$52K
$8,055
$6,358
$135K
$106K
MA--NatlGrid
$1,600 10,000 kWh 50 kW STC
$52K
$14,502
$150K
CT--UI
$2,135 10,000 kWh 50 kW PTC
$62K
$12,606
$211K
NY--LIPA
$1,985 10,000 kWh 50 kW STC
$36K
$11,471
$192K
NJ--JCP&L
$1,274 10,000 kWh 50 kW STC
$52K
$8,554
$110K
NC--Duke
$1,500 10,000 kWh 50 kW STC
$20K
$9,580
$160K
FL--FPL
$1,045 10,000 kWh 50 kW STC
$56K
$6,138
$103K
AZ--APS
$1,220 10,000 kWh 50 kW STC
$44K
$8,292
$138K
HI--HECO
$3,180 10,000 kWh 50 kW STC
$20K
$24,105
 
Solar electric systems add value to homes by:
 
Reducing/eliminating electric energy operating costs
Nevin in the Appraisal Journal states: ‘The
increase in appraisal value for a home is about
twenty (20) times the annual reduction in operating
costs due to energy efficiency measures.’
  Electric bill savings: $1,000 per year
= Increased appraisal value: $20,000
 
http://www.ricknevin.com/uploads/NevinWatson_1998_APJ_Market_Value_of_Home_Energy_Efficiency.pdf
http://www.ricknevin.com/uploads/
Nevin_etal_1999_More_Evidence_of_Rational_Market_Values.pdf
219
The $1,000 not spent on electricity, is available
to be spent on an equity loan payment…
… at no net change in the cost of living (to
the future owner)
  Analysis from ‘98 and ‘99
Seems Dated
Rationale is timeless…
http://www.appraisalinstitute.org/education/green_energy_addendum.aspx
http://www.appraisalinstitute.org/education/downloads/
AI_82003_ReslGreenEnergyEffAddendum.pdf
See also Johnson, R, 1983 “Housing Market Capitalization of Energy-Saving
Durable Good Investments”
And summary in: Laquatra, J, 2002 “Housing Market Capitalization of Energy
Efficiency Revisited”
221
220
20:1 Ratio
 
 
218
Residential
Increase in Appraisal Valuation
The Rationale
 
3/7/14
$403K
Annual Savings
Cap Rate
Annual Savings
=
.06
No
€ commercial data or studies are known for solar, but is a
standard commercial real estate valuation mechanism
Commercial Resource:
Sandia
€
Resale Increase =
 
Cap Rate varies from 4% to 10% by client & market climate
 
Based on 5% after tax cost of money
 
Interest on $20K = $1K/yr at 5%/yr
Typical long term mortgage average rates
(~8.3% before tax)
  Depends on mortgage loan rates
  Has varied from 10:1 to over 25:1
  Rates are <8% now, so ratio is >20:1, but
  Unfair to assume high ratio in future when
home will be sold
  Use 20:1 to be conservative
Questions?
 
222
Residential
Equity Increase
3/7/14
PreSolar
Bill
kWh
Usage per
Month
PV System
Size &
Rating
Final Net Cost
w/ Tax Benefits
& Rebate
Annual
Savings
Appraisal Equity /
Resale Increase in
First Year
$2,728
800 kWh
5 kW STC
$258K
$24,055
$481K
$2,857
800 kWh
5 kW STC
$258K
$25,966
$519K
$3,013
800 kWh
5 kW STC
$258K
$23,170
$463K
$2,824
800 kWh
5 kW STC
$258K
$26,998
$540K
$2,756
800 kWh
5 kW STC
$258K
$18,849
$377K
$2,801
800 kWh
5 kW STC
$258K
$20,298
$406K
$206
800 kWh
5 kW STC
$9K
$1,861
$37K
AZ--APS
CA--PG&E
$112
$94
800 kWh
550 kWh
5 kW STC
3 kW CEC
$12K
$10K
$1,036
$934
$21K
$19K
$30K
$19K
CA--PG&E
CO--Xcel
$483
$90
1,650 kWh
800 kWh
9 kW CEC
5 kW STC
$27K
$6K
$5,097
$857
$102K
$14K
$592
$615
$14K
$12K
FL--FPL
MO--KCP&L
$82
$92
800 kWh
800 kWh
5 kW STC
5 kW STC
$6K
$6K
$615
$679
$12K
$14K
$1,043
$21K
NY--ConEd
$179
800 kWh
5 kW STC
$6K
$1,459
$29K
$51K
TX--Oncor
$90
800 kWh
5 kW STC
$12K
$631
CA--SDG&E
PreSolar
Bill
$115
kWh
Usage per
Month
550 kWh
PV System
Size &
Rating
3 kW CEC
Final Net Cost
w/ Tax Benefits
& Rebate
$10K
$1,166
Appraisal Equity /
Resale Increase in
First Year
$23K
CA--SDG&E
$505
1,650 kWh
9 kW CEC
$27K
$5,364
$107K
CA--PG&E
CA--PG&E
$95
$485
550 kWh
1,650 kWh
3 kW CEC
9 kW CEC
$10K
$27K
$955
$5,124
$19K
$102K
TX--Oncor
$89
800 kWh
5 kW STC
$12K
$626
$13K
LA--EntergyLA
$79
800 kWh
5 kW STC
$6K
$606
$12K
CO--Xcel
NM--SPS
$93
$71
800 kWh
800 kWh
5 kW STC
5 kW STC
$10K
$11K
$738
$654
$15K
$13K
MO--KCP&L
WI--WEPCO
$92
$120
800 kWh
800 kWh
5 kW STC
5 kW STC
$7K
$11K
$679
$1,252
$14K
$25K
MA--NSTAR
$142
800 kWh
5 kW STC
$10K
$1,468
$24K
CT--UI
$170
800 kWh
5 kW PTC
$10K
$1,169
$23K
NY--ConEd
NJ--JCP&L
$186
$116
800 kWh
800 kWh
5 kW STC
5 kW STC
$7K
$12K
$1,514
$830
NC--Progress
FL--FPL
$90
$81
800 kWh
800 kWh
5 kW STC
5 kW STC
$7K
$12K
AZ--APS
$112
800 kWh
5 kW STC
$12K
HI--HECO
$276
800 kWh
5 kW STC
$9K
$2,555
Utility
Residential
Equity Increase
Annual
Savings
Utility
MX--DAC (Baja
California)
MX--DAC (Baja
California Sur)
MX--DAC
(Central)
MX--DAC
(Noroeste)
MX--DAC(Norte
y Noreste)
MX--DAC (Sur y
Peninsular)
PR--PREPA
223
$13K
Comparison to Solar (PG&E)
Other Home Improvements
Pre-Solar
Bill
$95
$485
Remodeling Online capital recovery rates
System
Size
3kW
9kW
Net
Cost
$10K
$27K
Source: www.remodeling.hw.net, 2009-2010 Cost vs. Value Report
Would a homebuyer pay up to 279% more for a
used solar system on an existing home?
Questions?
  Geographic dependence?
225
226
Resale Value Exercise
 
.
.
.
81%
71%
77%
72%
 
Factors in Resale
Value Over Time
.
3/7/14
Equity
%
Increase Return
$19K
182%
$102K 379%
Wood Deck Addition $10.6K $8.6K
Bathroom Remodel
$16.1K $11.5K
Window Replacement $11.7K $9.0K
Kitchen Remodel
$57K
$41K
224
227
The immediate increase in the property’s resale
value (does / does not ) depend on system cost and
up-front incentives received, reducing net cost, and
(does / does not ) depend on how fast electric rates
go up in the future.
228
Research Available
Proof Is Coming!
 
 
Most systems are new (< 8 years old)
 
Average home owner occupancy is 11 years
 
 
http://emp.lbl.gov/publications/exploring-california-pv-home-premiums
90% installed in last eight years
 
http://www.census.gov/population/www/pop-profile/geomob.html
 
229
Hoen, Wiser, Cappers, & Thayer, “An Analysis of the
Effects of Residential Photovoltaic Energy Systems on
Home Sales Prices in California”, Apr 2011, http://
emp.lbl.gov/sites/all/files/REPORT%20lbnl-4476e.pdf
(Excluding renters who move more often)
Most have not been offered for sale
  Many solar homeowners may be planning on staying
longer than average
Need a comprehensive study and more evidence…
Questions?
 
 
Hoen, Klise, Graff-Zivin, Thayer, Seel and Wiser,
“Exploring California PV Home Premiums”, Nov 2013,
 
 
 
Dastrop, Zivin, Costa, & Kahn, "Understanding the Solar Home
Price Premium:”, December 2010, www.uce3.berkeley.edu/WP_001.pdf
Eichholtz, Kok, & Quigley “Doing Well by Doing Good? Green
Office Buildings”, 2011, papers.ssrn.com/sol3/papers.cfm?abstract_id=1480215
NREL “Zero Energy Homes”, 2004, www.nrel.gov/docs/fy04osti/35912.pdf
- very small study
Resale Proof
 
 
 
 
Most recent: Nov 2013, April 2011
Most comprehensive: 1,894 PV home sales compared to
72,000 non-PV homes
It has to look
good too
Resale Value Conclusions:
 
 
 
230
Biases
Hoen, Wiser papers: “Exploring California PV Home
Premiums” & “An Analysis of the Effects of
Residential Photovoltaic Energy Systems on Home
Sales Prices in California”
 
Retrofit adds ~$5.50/watt DC ($3.90-$6.40)
or between 14:1 to 22:1 compared to estimated savings
Courtesy Sharp Electronics
Limitations:
 
 
California only – which is dominant $5.50 or 14:1?
Estimated savings is fuzzy
231
232
New proof coming:
CSI Zipcode calculator: http://www.gosolarcalifornia.org/tools/save.php
Sandia new tool
Appraisal Institute will help find an appraiser to value green attributdes
If It’s Weird…
 
Simple Payback
 Rate of Return analysis
 
© Alan Wood!
233
Questions?
234
Analysis Tools
Agenda
 
PV Watts - the standard performance model
 
Solar Advisor Model – NREL’s new modeling tool
 
Clean Power Estimator - general customer educ.
 
RETscreen – Internationally respected model
 
PV Design Pro - hard core analysis
 
PVSYST - study, sizing, simulation and analysis
 
OnGrid Tool - design & analysis portion
http://www.nrel.gov/rredc/pvwatts/
  Conclusion
 
https://www.nrel.gov/analysis/sam/
http://www.consumerenergycenter.org/renewables/estimator
http://www.retscreen.net
http://www.mauisolarsoftware.com
http://www.pvsyst.com
235
Run your own scenarios
  Build your own tools
  Include & maintain:
Electric Rates
Rebate, PBI, REC & other incentive info
  Tax incentive info
  Module & inverter info
 
 
Does everything discussed today:
  Incentives & 1175 Rates in 185 utilities in 50 U.S.
states, 6 provinces, Mexico, +
  Predicts system performance & calculates optimum
system size
  Estimates customer savings & income, including tax
effects
  Calculates all the discussed financial results
  Illustrate Financing options for Loans, Lease, PPA,
PACE
Annual Savings
Accuracy & completeness
 
 
 
 
$8,000
$6,000
$250,000
Annual Savings Before and After Payback
Annual Savings Before Payback
Annual Savings After Payback
Payback Year (Occurs at 8.5 Years)
$10,000
$10,000
$4,000
$2,000
237
Annual Costs:
Solar plus Financing vs. No
$14,000
$10,000
$150,000
$100,000
$8,000
$6,000
$4,000
$50,000
$2,000
$1
$16,000
$12,000
$6,000
$4,000
$-
Resale Value Over Time
$200,000
$8,000
$2,000
3
5
7
9
11
13
15
17
19
21
23
25
$-
$1
0
1
2
3
The OnGrid Tool
 
$12,000
$12,000
Annual Cost
 
 
236
The OnGrid Tool
Deepen Your Knowledge
 
Resale Value
Annual Savings
4
5
6
7
8
9
3
5
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Annual Savings Before Payback
Year
Payback Year (Occurs at 9.7 Years)
Annual Savings After Payback
7
9
11
13
15
17
19
21
Effective Resale Value
20 times Annual Savings
Remaining savings within 25 years
23
25
1
3
5
7
9
11 13
Old Utility Bill w/ 4.0% inflation
15
17 19 21 23 25
Solar Cost w/ Financing
Economics of Solar PV Years
238
The OnGrid Tool
Completely portable with stand-alone operation
Keep track of leads and the sales team's progress
with a web interface (OnGrid Sky)
 
 
Go deep and change every variable, or stay at
the top level and do a quick analysis
 
Choose from a huge library of proposal
templates or design a custom proposal
 
Easy to learn and use
Built by solar pros for solar pros (we’ve held or
hold NABCEP installer & tech sales certificates
& initiated the Technical Sales Certification).
Balance profitability and competitiveness with
the interactive pricing worksheet
Get lots of free user support
Create a quote in seconds
239
240
Agenda
  Brief Final Q&A
Questions?
  Conclusion
 
 
Conclusion
241
Conclusion Notes
 
Challenging topics - Congratulations!
 
Appreciate the questions on:
System Performance
Electric Rates
Estimated Savings
Incentives
Net Costs
 
242
Continue Learning
 
Free at OnGrid.net: Papers and Publications,
Slides, upcoming Classes and the OnGrid Tool:
Sales for Solar (7 hour)
Marketing for Solar (7 hour)
  Financing Solar Intro including PPAs & Leases (7hr)
 
 
Suggestion: Play Politician!
5 Analysis Methods:
 
Payback
Lifecycle Payback
Return on Investment (ROI)
Rate of Return (IRR or APY)
Resale Value
OnGrid Tool Free Trial: An excellent learning
vehicle to practice
 
 
243
Andy Black
The OnGrid Tool
Solar Financial Analysis & Sales Software
(866) 966-5577x1
[email protected]
www.ongrid.net - Tools, Classes, Articles, & Papers
245
Includes free Q&A sessions twice a week
Firmly root the knowledge that is key to your
success
244
!"#$#%&"'(#)(*#+,-(!+."/-&"(*0'/.%'()#-(1#$'2%.-'3(
4,05,"6(,$7(#/8.-(9&$,$"&,+(:.'/'(
By Andy Black
WHY DOES SOLAR PAY OFF NOW?
Good system performance, high electric rates, Net Metering
and Time-Of-Use rate structures, Solar Renewable Energy
Certificates (SRECs) and government incentives have
contributed to the financial viability of solar electricity. How
these factors come together varies significantly by location.
Some locations have the combination of factors that yield
excellent results; in others, it makes no economic sense to go
solar, especially when including the maintenance and inverter
In places where solar is economically attractive, rates of return replacement costs.
from 9% to 15% or better are common. If financed, the monthly
The key element for most analyses is the ongoing value
net loan cost is usually less than the monthly utility bill savings. generated by the solar system (the savings on the electric utility
And if the home is sold, the solar system should increase the bill or the monetary value of system output that can be sold). A
resale value by more than the system cost to install.
properly sited, sized, designed, and installed solar system can
The above claims are big, so rigorous treatment and critical usually eliminate most or all of a customer’s total annual
analyses from several angles including Compound Annual Rate electric bill.
Solar electric systems can be a good financial
investment for homeowners and businesses,
depending on a variety of factors including system
performance, electric rates, favorable utility rate
structures, and incentives. Several US states have the
right combination of conditions to strongly encourage
end-consumer investment in solar electric systems
based on economics alone.
of Return, Cash Flow, Lifecycle Payback, and Appraisable
The next pages will discuss system performance, electric rate
Resale Value need to be considered to do a fair assessment. structures, and incentives. The pages following will detail how
Using the above analysis methods helps compare the solar the economics can then be analyzed using Rate of Return,
investment to other investments on an even basis.
Payback and Lifecycle Payback, Property Value Increase, and
Cash Flow when Financing.
IN THIS ARTICLE:
! What factors need to be considered to determine the
economic payoff of solar, including rates, rate structures,
systems performance, solar RECs, and incentives
! How to test the economic value in the ways listed above
SYSTEM PERFORMANCE:
Lots of Sunlight is just one of the many factors that must be
included in a system performance calculation. Across much of
the United States, the amount of available sunlight is
surprisingly uniform, with most areas within ± 20% of the
This article also includes “Policy Discussion” paragraphs to sunlight level of Miami, Florida, as can be seen in Fig. 1. The
help individuals and policy makers in locations without strong National Renewable Energy Laboratory (NREL) has data on
economics understand the issues around creating solar-friendly 239 locations across the U.S. and its territories available at:
http://rredc.nrel.gov/solar/pubs/redbook/ and its PVWatts
policies, which motivate and leverage individual investment.
calculator will determine performance for a user specified PV
Equivalent Noontime Sun Hours per Day (Annual
Average):
Portland, OR
4.0
Buffalo, NY
4.1
Chicago, IL
4.4
Newark, NJ
4.5
Boston, MA
4.6
Baltimore, MD
4.6
Raleigh, NC
5.0
Miami, FL
5.2
Austin, TX
5.3
San Francisco, CA
5.4
Boulder, CO
5.5
Los Angeles, CA
5.6
Phoenix, AZ
6.5
Fig. 1. Most U.S. locations are ± 20% of Miami’s
sunlight level. Sources: NREL:
http://rredc.nrel.gov/solar/pubs/redbook/ and
http://www.nrel.gov/gis/solar.html
Economics of Solar Electric Systems
! 2009, Andy Black. All rights reserved.
July 2009 - 1 of 19
system: http://www.nrel.gov/rredc/pvwatts/.
There are numerous loss factors that affect real system
performance including component performance, wire losses,
soiling, module degradation, module mismatch, system uptime
and reliability, manufacturer production tolerance, and system
design factors such as tilt, orientation, shading, and air flow.
The California Energy Commission has produced “A Guide To
Photovoltaic (PV) System Design And Installation” available at:
http://www.energy.ca.gov/reports/2001-09-04_500-01-020.PDF
and is an excellent overview of system design considerations.
Fig. 2 lists performance loss factors, and the significance of
potential relative losses from tilt, orientation, and shading.
Inverters aren’t 100% efficient, with most achieving 94-96%
efficiency. Similarly, PV modules in operation put out
approximately 7-14% less power at realistic operating
temperatures compared to the Standard Test Conditions (STC)
commonly measured in factory or laboratory settings. The State
of California provides lists of module and inverter ratings at:
http://www.gosolarcalifornia.org/equipment.
Soiling, module degradation, and module mismatch also must
be accounted for. The designer and installer have some control
over wire losses, but by code, must not exceed 5%.
Manufacturer production tolerance losses result from some
modules having a performance specification of +X%, -Y%. If
there is a negative tolerance, the customer can be sure she will
be on the losing end of that bargain to at least some extent.
The system designer in coordination with the property owner
has control over how the modules are mounted, especially how
far off the roof, affecting how much airflow occurs. Thermal
stagnation starts to occur with less than 6” clear airflow space
behind the modules and can reduce performance up to 10% at
0” air gap.
The designer and property owner also have control of solar
system orientation (tilt angle or ‘altitude’ above horizontal and
direction or azimuth), and usually some control over shading.
Shading and/or orientation are usually the #1
underestimated system performance loss factors except in
locations where incentive programs specifically (directly or
indirectly) include these in the calculation of the incentive to be
paid. It is critical that the site analyst / installer use a shade
analysis tool to accurately determine shade. Quality shade tools
include the Solar Pathfinder (http://www.solarpathfinder.com/),
Solmetric SunEye (http://www.solmetric.com/), and the Wiley
ASSET (http://www.we-llc.com/ASSET.html). It is impossible
to estimate shading by eye, and even a few percent can be
significant. Avoiding shading is often the most important
criteria, even over selecting a south-facing roof.
System availability (uptime) is dependent on system
reliability and monitoring. A well-designed system with
known reliable components (particularly the inverter) is
important. Placing inverters in shaded, well-ventilated locations
that won’t accumulate ventilation-inhibiting debris will
eliminate many common overheating-related problems (reduced
power output due to thermal protection or shortened component
lifetime). Placing the inverter close to the utility connection
point will eliminate many common utility interconnection
related problems (long wires can have a kind of ‘voltage
buildup’ in the wiring causing the inverter to think the utility is
not safe to connect with, requiring it to shut down for at least 5
minutes). The only way to know if a system is operating
reliably is to monitor it as often as possible. Monthly
observations via the electric bill savings are a crude minimum
but can take 45 days or longer to make even a simple problem
(sometimes only requiring a simple reset of the inverter) visible,
resulting in over 12% of a year’s energy to be lost. Active
continuous real-time monitoring and automated alerting
solutions are available that should more than pay for themselves
in increased savings, peace of mind, and owner satisfaction.
System Performance Factors Policy Discussion: Including
predicted or actual system performance in determining the level
of incentive to be paid (then actually verifying compliance with
the approved design) is an excellent way for incentive agencies
to improve system quality. Before California adopted the
requirements of the new California Solar Initiative (CSI)
program, a significant fraction of sold and installed systems
had major shading or other site-selection design problems,
often only disclosed to the customer with a hand-wave of
“you’ll lose a little performance due to shading…” The CSI has
received a lot of criticism because of the increased level of
paperwork, scrutiny and repercussions for “failures” from
those who would rather do things the old, easy, loosey-goosey
way, but in the author’s opinion, the new level of accountability
is the best thing that could have happened to raise the quality of
installations in the state. This higher level of quality is nothing
new to those in some other states such as Colorado and in some
municipal utilities like SMUD. Going forward, the author has
grave concerns about the quality of systems that will be
installed as a result of the expansion of the federal Investment
Tax Credit, which has no performance or quality safeguards.
Typical Loss and Performance Factors:
Loss
Factor
Performance
Factor
9-12%
88-91%
Module Temperature
3-11%
89-97%
Inverter Efficiency
1.5-5%
95-98.5%
5-15%
85-95%
Dust & Dirt
5-10%
90-95%
Module Degradation over 20
years
1.5-2.5%
97.5-98.5%
0-5%
95-100%
~27-33%
~67-73%
Variable
Wiring (AC & DC combined)
Module Mismatch
Manufacturer Production
Tolerance
Typical Totals for the
Best Systems
Additional Design-Dependent Factors:
0-10%
90-100%
Air Flow
0-40%
60-100%
Orientation & Tilt
0-100%
0-100%
Shading
2-100%
0-98%
System Availability (uptime)
Fig. 2. Summary of Performance and Loss Factors
July 2009 - 2 of 19
State
Average Retail Price (Cents per kWh)
Fig. 3. The graphic above shows the 2007 U.S. average electric rates for all
sectors. The table at right shows 2008 average residential electric rates for
selected states and their Compound Annual Growth Rates (CAGR) for three
time periods before 2008. Source: U.S. Energy Information Administration:
http://www.eia.doe.gov/fuelelectric.html
ELECTRIC RATE STRUCTURES:
High Electricity Rates are an expensive fact of life in a
number of US states and can be worse still in other countries.
Hawaii has the highest electric rates in the U.S. topping out at
32¢/kWh for the average residential consumer (certain islands
are higher), however, rates are also very high in Connecticut,
California, New York and other states (Fig. 3).
Rates have risen fast across the land since 2001 and especially
fast since 2004 (Fig. 3). Electric rate increases will likely be
tempered by the Great Recession of 2009. Future rate hikes can
only be guessed at, as they depend on many factors.
US
AZ
CA
CO
CT
DC
DE
FL
GA
HI
MA
MD
MN
NC
NJ
NM
NV
NY
OH
OR
PA
TX
WA
2008
Rate
¢/kWh
11.4
10.3
14.4
10.1
19.4
12.7
13.9
11.7
10.1
32.5
17.5
13.8
9.8
9.7
16.0
10.0
11.9
18.8
10.1
8.5
11.4
12.8
7.6
20042008
CAGR
6.1%
4.9%
4.2%
4.8%
13.6%
12.2%
12.2%
6.8%
6.4%
15.8%
10.5%
15.4%
5.4%
3.6%
9.2%
3.7%
5.3%
6.6%
4.6%
4.4%
4.4%
7.2%
4.4%
20012008
CAGR
4.1%
3.1%
2.5%
4.5%
8.5%
7.2%
7.1%
4.5%
3.4%
10.3%
5.0%
8.8%
3.7%
2.6%
6.6%
2.0%
4.0%
4.3%
2.8%
4.4%
2.4%
5.4%
4.2%
19902008
CAGR
2.1%
0.7%
2.1%
2.1%
3.7%
4.1%
2.8%
2.3%
1.7%
6.6%
3.4%
3.7%
2.0%
1.2%
2.4%
0.6%
4.2%
2.8%
1.3%
3.3%
1.2%
3.3%
3.1%
efficient with how she uses electricity is to charge more for it,
but there are limits to how this can be applied
without
disadvantaging
lower
income
consumers. Many utilities have adopted a
tiered pricing structure, as can been see in Fig.
5, where the first part of a consumers
consumption is charged at a lower rate, but
if the consumer uses more than a
“baseline” allocation (an amount deemed
to be required to cover a consumer’s
“basic needs”) she will pay more for
the next part of her usage. The
more she uses, the more each
kWh costs. The more tiers there
are in the system, the more the
rates
In comparison, the Consumer Price index (CPI-U) has been
increasing at 3.1% on average since 1982. One might ask, how
is it that electric rates have continuously increased faster than
the CPI – wouldn’t electricity become a bigger and bigger
portion of our consumer
expenses, until eventually
something brought it into
check? The answer lies in
the fact that we are
continuously getting more
efficient with how we use
electricity, so we are able
to produce more economic
value per unit of electricity.
We are therefore able to
spend more per kWh.
Fig. 4. Residential electric rates in California from 1970 to 2001 increased at a 6.7% compound
One of the ways consumers
annual rate (source: CPUC “Electric Rate Compendium” Nov. 2001 from EIA data). Since 2001,
can be motivated to be more
there has been no change in Tiers 1 & 2, but an exaggerated increase in Tiers 3-5. Enactment of
AB413 and expiration of AB1X may alter these trends. Note: this graphic is to scale.
July 2009 - 3 of 19
$269/mo
$127/mo
$59/mo
$43/mo bill at top of Tier 1
Fig. 5. Progressive tiered rate pricing penalizes large users most with a marginal electricity cost at ever increasing rates. In
these cases, solar offsets the highest tier usage first, making the solar customer look like a smaller user with a lower marginal
cost. The graphic on the left indicates which tier a user is in for a given monthly electric usage (1650 kWh) and bill ($499) in
San Jose, CA. On the right, the green area represents how much is offset by solar (1225 kWh and $463 out of $499).
can be fine-tuned, but also, the more complicated billing
becomes. Fig. 5 illustrates a “progressive” pricing model for
rates (similar to progressive tax structures), which attempts to
discourage large use while protecting smaller using consumers.
The progressive model encourages conservation, efficiency, and
conveniently for the solar industry, solar installations as well.
The graphic in the right half of Fig. 5 shows how a solar system
makes a user look like a smaller consumer (the green area is
solar generation, the red area is the remaining net usage), and
offsets the most expensive electricity first, yielding the greatest
savings first, boosting the economics of solar. This particular
case is saving 44¢/kWh for the first set of production, 38¢/kWh
for the next set, and so on. Not all utilities use the above
“progressive” pricing model. Some utilities offer discounts for
buying in bulk – the larger the use, the less expensive the cost of
the next kWh. This may be rational in some utility cost models,
but it doesn’t encourage conservation, energy efficiency or solar
installation.
Fig. 4 shows the California rate history since 1970. From 1970
to 2001, rates increased at a compound annual average rate of
6.7%, as can be seen in the lower left portion of the graphic.
Things got considerably more complicated in 2001 because of
the California Power Crisis in conjunction with the deregulation
process that affected rates starting in 1996.
During the power crisis California’s AB1X legislation froze
the rates for residential users using at or below the average
usage for their local climate zone (which equals usage at or
below the top of Tier 2), but at the same time, created Tiers 3, 4
and 5 at much higher rates (17-26¢/kWh). The users using well
above average found their bills almost doubled upon
implementation of the change. It had the desired effect: high
using residential consumers quickly became motivated to
reduce their usage by conservation, efficiency, and some turned
to solar systems, dramatically increasing the solar market.
Rates in Tier 3, 4 & 5 have gone up and down dramatically
since 2001, with a recent average rate of increase that has been
very high (double digit). This high average will not continue
forever because of the eventual expiration of California AB1X
(the date of this is unknown for a variety of complicated
reasons, but may be soon, depending on what happens with
AB413). When this happens, it is anyone’s guess how the
politics will fall, but one of three possibilities is likely: 1. Rates
in all tiers will move in lock step at a more normal rate of
escalation, 2. Rates in Tier 3-5 will be frozen while Tier 1 & 2
catch up, or 3. Rates in Tier 3-5 will be reduced and rates in
Tier 1 & 2 will move up to compensate.
A conservative approach to electricity escalation suggests a
5% annual escalation – anything more than that might be
viewed as “optimistic” which may cause customers to become
concerned. The scenario examples depicted later will assume
5% except as noted. The goal of this article is to provide a
conservative set of assumptions and a “bullet-proof” analysis
methodology, that if followed, will be acceptable to the broad
majority of serious potential customers, and provide them and
their financial advisors a solid basis for making an informed
decision.
Tiered Rate Policy Discussion: Progressive Tiered Rates are
excellent motivators of conservation and energy efficiency (and
conveniently, solar), but they may also be the government and
utility officials ‘public relations friend’ as well. By creating
multiple tiers, policy makers can shift some of the burden of
future rate increases to the larger (above average), more
wasteful users (residential only) and thereby lighten the burden
on the users who are at or below average consumption. This
works well for residential usage, because it is easy to quantify
the average consumption per typical household, however
average consumption per business would be meaningless in this
context, since most communities want their local business to
grow (efficiently) from year to year, so penalizing ever growing
usage would be counterproductive.
Rate escalation in California got more complicated thereafter
as well. Because state law AB1X prohibits changes to the rates
for Tier 1 and Tier 2, all the increase must be borne in Tiers 3, 4
High electric rates are among the most important factors
and 5. If revenue needs to increase by 10%, Tier 3, 4 & 5 rates determining who will have the best economics with solar,
must increase approximately 50%. That happened on January however, high rates are only valuable if the customer can also
1st, 2006 to PG&E residential customers, as seen in Fig. 4.
enjoy Net Metering, a regulatory structure set up for solar
July 2009 - 4 of 19
Time-Of-Use (TOU): Most residential electricity is billed to
customers on a flat (or time independent) rate schedule, where
electricity costs the customer the same at any time of the day.
However, utilities often have increased demand for electricity
during certain times of the day and certain days or months of the
year. When this “Peak” demand occurs usually depends on local
climate factors. For example, Arizona and California have their
peak times near 4-6pm Monday thru Friday during the summer,
because that’s the overlap of the workday and home activity,
which both use air conditioning, which is one of the largest
loads. At night and in the morning, because of the dry climate, it
cools off, so the load is less. Eastern U.S. utilities see their peak
demand all day long because the humidity keeps consumers
using their air conditioning 24/7 in the home, and during the
workday at work, so a typical peak period is 9am-9pm.
To solve the increased demand regardless of when it occurs,
utilities could build more power plants, but those plants would
only run during peak times, which is only a relatively few hours
of the year, and would therefore be an expensive solution on a
per kWh produced basis because of the capital costs. Another
solution is to encourage conservation during or load-shifting
away from those “Peak” time periods.
Fig. 6. Net Metering allows the exchange of electricity
produced or purchased to be valued at retail rates allowing
the grid to act like a 100% efficient battery for the consumer
to “store” her excess production during the day or over a
season until she needs it at night or during another season.
To create this encouragement, some utilities offer Time of Use
(TOU) or Time of Day (TOD) rates, where the cost of
electricity depends on the time of day and sometimes on the
season of year. The TOU time periods and rates are usually
labeled something like “Peak”, “Part-Peak” and “Off-Peak” and
often have a “Summer” and a “Winter” season.
electricity producers (and sometimes certain other renewable
The upper graphic in Fig. 7 shows the TOU pricing periods
producers depending on the state) in 42 of the 50 U.S. states.
for the PG&E E6 rate in California illustrating peak, part-peak,
Under Net Metering, full retail value is credited when excess and off-peak time periods. Notice that there are also part-peak
electricity is produced and “sold” back to the utility, offsetting rates on weekends. The lower graphic shows the typical
the customer’s electric bill (Fig. 6). There are a variety of Net (approximate) time periods of many Eastern U.S. utilities, such
Metering forms, the implementation of which vary by state and as in New Jersey, New York, and Pennsylvania.
utility. An older form is “Monthly Net Metering,” whereby a
High rates during peak periods encourage consumers to use
solar producer can eliminate her monthly electric bill, and any
less or to change behavior and instead, consume the electricity
excess production would typically be paid to the producer at the
during off-peak periods. Easy ways to shift usage are changing
utility’s “avoided cost” or “fuel cost” per kWh (approximately
what time of day laundry is done or when the pool filter pumps
1-3¢/kWh). The problem is that solar production varies
run at home. Small business sometimes have choice over
substantially by season, so it is hard to design a system that
whether to take service under a TOU rate schedule, and if so,
balances a user’s needs in each of the 12 months without underthey may be able to save money by shifting how or when they
producing in one season (usually winter) and over-producing in do things, such as change to 2 or 3 shifts of work hours, or
the other. Under-production results in large bills charged at high change when they make ice or pump water or do other energy
retail costs of electricity. Over-production creates small credits intensive activities. Large businesses and many agricultural
based on the “avoided cost” value of the excess energy.
(pumping and refrigeration) operations have no choice and must
The solution is the newer “Annual Net Metering,” which take TOU service, so are always encouraged in a financial way.
allows summer excess production to offset winter shortfalls,
TOU rate differentials between Peak and Off-Peak can range
with the goal of allowing the customer (or her knowledgeable
from just a cent or two, to up to 20¢/kWh or more, depending
and experienced designer/installer) to right-size the system to
on the utility’s need to motivate change. In PG&E territory in
fully offset the annual electric bill, but not over-size it. With
California, a further twist is that the tiered rate structure is
annual Net Metering, the utility ends up looking like a 100%
applied on top of the TOU rates (residential only), so off-peak
efficient battery that can store energy for up to a year at no loss
Tier 1 rates are as low as 9-10¢/kWh depending on season, but
or penalty. The other half of this compromise is that any excess the summer peak Tier 5 rate can be over 61¢/kWh. That sounds
th
production credit after the 12 month is given to the utility, expensive, and it is, and one might question the wisdom of even
discouraging over-sizing of systems and simplifying the utility’s considering switching to a TOU rate schedule, but there is a
accounting and saving them the processing costs of sending a
convenient opportunity that solar customers can apply in their
check or carrying a credit.
favor.
July 2009 - 5 of 19
Residential PG&E "E6" Time-of-Use Pricing Periods
Midnight - 6am
6am - 10am
10am - 1pm
Off-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Off-Peak
1pm - 7pm
Off-Peak
Peak
Peak
Peak
Peak
Peak
Off-Peak
7pm - 9pm
Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak Part-Peak
9pm - Midnight Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak Off-Peak
Eastern U.S. Typical Residential Time-of-Use Pricing Periods
Sunday
Midnight - 9am
9am - Noon
Noon - 9pm
9pm - Midnight
Off-Peak
Peak
Peak
Off-Peak
Peak
Peak
Off-Peak
Peak
Peak
Off-Peak
Friday
Saturday
Peak
Peak
Off-Peak
Peak
Peak
Off-Peak
Fig. 7. Time-of-Use rate structures showing typical peak, part-peak and off-peak time
periods for Western and Eastern U.S. utilities.
Combining Net Metering with TOU allows a solar customer
to take advantage of the benefits of Net Metering on a TOU rate
schedule and, if timing and consumption patterns allow, “sell”
energy to the utility during peak periods at the high rate, then
buy energy during off-peak hours. The customer gets credited or
charged for the value of the electricity when it is bought or sold
(at its prevailing retail rate at that time). The utility then looks
like a >100% efficient battery because in many cases, most
solar electricity is produced during peak hours, and most is
consumed in a residence during part-peak and off-peak hours.
The customer gets more value for the same kWh produced, and
therefore needs a smaller solar system to offset her electric bill.
The greater the differential in peak to off-peak rates, and the
better the solar production matches peak hours, and the better
the homes consumption matches off-peak hours, the greater the
benefit of opting for the TOU rate schedule upon adding the
solar system.
This approach often (but not always) works well in utility
areas that have large daytime summer peak loads (often due to
air conditioning load), such as in the Eastern, Southern, and
Southwestern U.S., because this usually matches solar
production well. However, some northern utilities are winter
night peaking because their peak load is caused by electric
heating loads of homes. In these cases, solar is a poor match.
TOU Net Metering works best if the customer can mount her
solar array in a way that maximizes production during the peak
period, for example facing southwest or south at an angle near
25 degrees up from horizontal (equal to a 6:12 roof). Slopes
from 5 to 40 degrees and southeast and west arrays generally
also work quite well. Note: it is usually not economically
feasible to tilt a solar array away from parallel with the roof’s
surface to optimize performance, because the gain in production
(bill savings) is often not worth the additional mounting
hardware and labor cost or the aesthetic penalty.
between peak and off-peak, the more motivated the user will be
(solar or not) to conserve during peak pricing periods. Effective
TOU rate implementations help flatten out the utility’s load
profile, requiring fewer “peaker” power plants which operate
at very high cost per kWh delivered (once capital costs/debt
service are included), because such plants run only a few hours
per year. In the right locations, solar can provide some of this
“peaker” benefit. Solar advocates can use this to encourage
their Public Utility Commissions and Legislatures to adopt proTOU policies.
Rate Structure vs. (Cash) Incentives Policy Discussion:
Economically viable solar systems are incentivized thru both
cash or cash equivalent (tax saving) payments and electric ratebased (or regulatory) savings. Solar-friendly rate structures are
incentives because they provide a higher value benefit to solar
customers compared to the “commodity” value of the electricity
producers could otherwise sell into the power pool at
commodity rates (as QFs or Qualifying Facilities). Using cash
incentives to encourage solar is easy to understand, but it is
also highly visible, and there are several drawbacks compared
with solar-friendly rate structure incentives. Cash and cash
equivalent incentives can and do come and go depending on the
political winds. Even long-term incentive programs, such as
German EEG law or the California Solar Initiative could be
overturned or modified with a change in government or its
attitude. Spain is learning this the hard way after the summer
and fall of 2008. The U.S. solar market became painfully aware
of its dependence on the extension of the 30% Federal
Investment Tax Credit which was due to expire at the end of
2008 but was passed at the last moment as part of the
Emergency Economic Stabilization Act of 2008. Regulatory
incentives are much more difficult to achieve, however, once
won, they are also much more difficult to lose. Any state with
Net Metering, TOU, or Tiered rates is likely to have them for a
long time and it will be a huge battle to take them away.
TOU Policy Discussion: Time-of-Use rates are a powerful
tool to motivate customers to voluntarily use less power during
predictable times of shortage. The greater the differential
July 2009 - 6 of 19
INCENTIVES:
There are several ways the government (in its various forms)
can provide incentives for solar. Already discussed were the
regulatory forms of incentive via favorable rate structures. Here,
we discuss the various “Cash” or “Cash Equivalent” incentives,
which include:
! Tax Credits and the U.S. Treasury Grant
! Accelerated Depreciation
! Sec. 179 Tax Deduction interaction with the ITC & Grant
! Cash Rebates and Buy-downs
! Performance Based Incentives (PBIs)
! Feed-In Tariffs
! Tax abatements (waivers of sales and/or property taxes)
! SRECs (Green Tags) mandated by state law
The Database for State Incentives for Renewable Energy (The
DSIRE database, http://www.dsireusa.org/solar/) is a database
of all state and federal incentive programs around the country
for all types of renewable energy and also energy efficiency,
and provides specific details and links state by state and at the
federal level.
!
!
!
!
Equipment delivered and construction / installation
completed. Minor tasks like painting need not be finished
Taxpayer has taken legal title and control
Pre-operational tests demonstrate the equipment functions
as intended
Taxpayer has licenses, permits, and PTO (permission to
operate)
Both the residential (Sec. 25D) and commercial (Sec. 48) ITC
are one-time credits received when filing taxes for the year the
system was placed in service. If not completely useable in the
system installation tax year, in theory, the residential ITC can be
carried forward indefinitely but may run into the practical
difficulty that the 5695 tax form may no longer exist after the
2016 tax year unless the IRS makes it available. SEIA is
working to address this with the IRS. The ITC can be carried
forward only by necessity, and must be claimed as soon as
possible (i.e. can’t be carried forward simply for convenience).
The business credit can be carried forward 20 years and may be
able to be carried back for certain businesses under the Net
Operating Loss rules.
The Solar Energy Industries Association (SEIA) has put
As part of the American Recovery and Reinvestment Act of
together an excellent and well researched “Guide to Federal Tax 2009 (ARRA), in order to stimulate the economy, and in
Incentives for Solar Energy”, available free to members as a particular, the solar industry, commercial solar systems (Sec. 48
membership benefit. Learn more at: http://www.seia.org/.
ITC only) are able to convert the ITC that would normally be
received at the end of the tax year, and only if there was tax
Tax Benefits such as Tax Credits and Depreciation may be
appetite, into a U.S. Treasury Grant that can be received as
available to certain taxpayers who install solar energy
early as 60 days after project completion or application
equipment. The information in this article regarding taxes, tax
(whichever is later). Only projects placed in service in 2009 or
credits and depreciation is meant to make the reader aware of
2010, or projects started in 2009 or 2010 and placed in service
these benefits, risks and potential expenses, and help avoid
before the end of 2016 are eligible for Grant treatment. This
overblown claims by aggressive salespeople. It is not tax
solves the lost “time value of money” due to lengthy carryadvice, and the author is not a qualified tax professional.
forwards for taxpayers with limited ability to use the ITC.
Please seek professional advice from a qualified tax advisor
to check the applicability and eligibility of incentives for a
Most of the rules and eligibility for the Grant are the same as
particular situation.
for the ITC, except as noted above. More information is
available
at:
http://www.treasury.gov/recovery/
and
Tax Credits come in several forms: Federal, State and Local.
http://www.treasury.gov/recovery/1603.shtml.
Thru the end of 2008, the Federal Investment Tax Credit
(ITC) for Residential (individual tax filers) was 30% of system
Although the ITC is received effectively “up-front” when the
cost basis, capped at $2,000 for systems installed before the end system is installed (or at the end of that tax year), it is actually
of 2008. From 2009 thru 2016 it is a full 30% (without cap). earned over 5 years in equal 20% increments. If the property
The residential ITC can be found in Sec. 25D of the Internal becomes ineligible for the ITC (is disposed of or sold by the
Revenue Code (IRC) and can be claimed using IRS form 5695. taxpayer, taken out of service, or taken outside of the U.S.), IRC
Sec. 50(a)(1) stipulates that the taxpayer must repay the
The residential ITC will expire at the end of 2016 if not
unearned portion via the recapture mechanism. For example, if
extended. Federal taxability of state, local, or utility rebates
the taxpayer sells the system after 2.8 years of ownership, she
affect the ITC system cost basis significantly, so please see the
has only earned 2 of 5 years (40%) of the ITC, and must repay
“No Double Benefit” section of this article (below) that
60%.
discusses Sec. 136(b) of the IRC.
The U.S. Treasury Grant has the same recapture mechanism,
The Federal Investment Tax Credit (ITC) for Business
but is slightly more relaxed. If the property is sold to another
owned systems (IRS Schedule C business tax filers) is 30% of
eligible party, the original party receiving the grant is not
net system cost with no cap for systems that are “placed in
subject to recapture as long as the receiving party maintains the
service” by the end of 2016 (IRC Sec. 48). After 2016, if not
property’s Grant eligibility for the remainder of the 5 years. If
extended, the tax credit will revert to the previous permanent
they don’t, the original party will suffer the recapture event.
level of 10%. The IRS current federal form is 3468 available at
http://www.irs.gov/formspubs/.
In 2008, home-based businesses (if >20% business allocation
of the home) typically qualified for the ITC as well. Because the
“Placed in service” as defined by the SEIA “Guide to Federal
credit applies on both individual (residential) and business tax
Tax Incentives for Solar Energy” occurs when all of the
returns, but was capped on residential, it needed to be properly
following have occurred:
July 2009 - 7 of 19
apportioned on each part of the tax return to ensure the right
credit amount is claimed. Home-based businesses are typically
apportioned based on percentage of square footage attributed
exclusively to the business. To figure the credit, one typically
applies the percentages to the two separate calculations then
sums the results. From 2009 to 2016 with the uncapped ITC,
this distinction is probably no longer relevant.
$85K ($100K minus one half of the $30K ITC). If the
customer’s federal tax rate were 28%, the federal depreciation
benefit would be approximately $24K ($85K times 28%).
The state depreciation benefit is the state tax rate times the
state depreciation basis, which may be different from the federal
depreciation basis, and may be affected by any state rebates
received. Unfortunately, for the same reasons that state income
Beginning in 2009 taxpayers (individuals and businesses) will tax credits aren’t really worth their face value, similarly, the
be able to claim the federal ITC even if they are subject to the state depreciation net benefit must factor in the effective federal
Alternative Minimum Tax (AMT). Systems placed in service taxation effect of reducing state taxes.
before the end of 2008 can suffer AMT limitation because the
Federal depreciation for solar uses the MACRS 5-year
solar ITC (and Accelerated Depreciation discussed in the next
Accelerated Depreciation schedule and is calculated on IRS
section) are ‘Tax Preference Items’ that can cause AMT and
form 4562. MACRS stands for Modified Accelerated Cost
limit the enjoyment of the ITC benefit, even if the taxpayer
Recovery System, and is a way of allowing businesses to
wasn’t subject to AMT before getting the solar system. Even
depreciate some property more quickly than the normal
with the ITC “AMT relief” starting in 2009, the Accelerated
schedule, to receive the write-off sooner (accelerate the benefit).
Depreciation may still cause an AMT situation for businesses.
Though it is called “5 year MACRS” it generally uses the “halfThere is an open question in the solar industry about the year convention” assuming the property is placed in service in
application of the ITC to “property used for lodging”. Sec. the middle of the tax year, which allows a lesser share of the
50(b)(2) indicates that the Federal ITC is not available for write-off in the first year and extends the write-off into the 6th
“property used for lodging”. This sentence has created a fair bit year. Different numbers may apply if the property was placed in
of concern for the solar industry, because it appears to exclude service late in the tax year. Home-based business systems may
hotels/motels and rental property. However, Sec. 50(b)(2)(D) also qualify for proportional depreciation (if the business use of
seems to exempt “Any energy property” (which solar is as the property is greater than 50%).
defined in Sec. 48(a)(3)(A)(i) “equipment which uses solar
In 2008 and 2009 only, as part of the Economic Stimulus Act
energy to generate electricity”) from this exclusion. The author
of 2008 and the ARRA of 2009, businesses can also receive
has not received a definitive answer from a qualified tax
‘50% Bonus Depreciation’ meaning that they can further
professional or the IRS as to whether hotels and rentals are
accelerate half the future depreciation amounts into the first
eligible. Thanks to Chad Blanchard and Michael Masek for
year (2008 or 2009) the project was placed in service (it does
helping research this.
not mean they are getting 50% extra depreciation, just getting
Please seek qualified tax advice before accepting anyone’s half of it even sooner). The 5-Year MACRS schedules (halfclaims of applicability of these or other tax benefits to a year convention) are:
particular situation.
Year
1st
2nd
3rd
4th
5th
6th
State Income Tax Credits are available in several states,
Not 2008
such as Oregon, Hawaii, New Mexico, and New York, and can
20% 32% 19.2% 11.52% 11.52% 5.76%
or 2009
be quite generous. However, potential recipients should be
2008 and
aware that if they itemize their federal tax deductions, a state tax
60% 16% 9.6%
5.76%
5.76% 2.88%
2009
only
credit isn’t worth its full face value. When itemizing, state taxes
Fig. 8: MACRS Federal Depreciation Schedules for 2008 and
are usually deductible off federal taxable income. Reducing
2009 and years other than 2008 or 2009.
state taxes by the state tax credit means that federal taxable net
income will go up. In effect, federal income tax will be paid on
State depreciation sometimes depends on the type of business.
the value of the state tax credit. For most people, a state tax
In California, it is split between “Corporate” and “Noncredit is worth about 65-85% of its face value.
Corporate” businesses. Non-Corporate businesses use the
Depreciation and Accelerated Depreciation may be a regular federal MACRS 5-year accelerated depreciation
possibility for business owned systems. Depreciation is a (without the 50% bonus). California corporate businesses use
method of ‘writing-off’ expenses for long lasting (durable) 12-year straight-line depreciation for state depreciation. Please
goods such as cars, computers, etc. The ‘write-off’ is generally check the DSIRE database for the applicable depreciation for
required to be spread over several years, depending on the type other states.
of property. Since depreciation is a write-off, it reduces taxable
The Sec. 179 Deduction has a negative interaction with the
income, and thus reduces tax liability. The net federal benefit of
federal
ITC and U.S. Treasury Grant. If the taxpayer uses either
depreciation is the federal tax rate times the federal depreciation
the
ITC
or the Grant for part or all of the property, they may not
basis. The federal depreciation basis amount is the federal ITC
also
claim
the Sec. 179 deduction for that part. The ITC or
basis, minus one-half the federal ITC amount (85% of the ITC
basis in the case of the current 30% ITC). For example, a Grant benefit, combined with MACRS depreciation are much
system costing $100K (ignoring any rebate for this example) more valuable than the Sec. 179 Deduction. In previous
would have a tax credit basis was $100K, and thus receive a situations (typically Commercial Economics classes), the author
$30K federal ITC (30%). Its federal depreciation basis would be
July 2009 - 8 of 19
incorrectly suggested that Sec. 179 may also be available and at either the federal or state level, or both. Contrary to what was
might be able to be used with caution in certain situations.
written in previous versions of this article, there appear to be
significant grounds for individual (residential) taxpayers in
Rebates, Buy-downs, and Grants provide direct cash
some states to claim the rebate payment is non-taxable. Sec.
incentives to purchasers or their installers. These types of
136(a) of the IRC specifies that ‘direct or indirect utility
incentives are usually proportional to system size based on the
payments (i.e. from ratepayer funds) for energy conservation
rated wattage of the system, and are often limited to a
measures may be excluded from taxable income, where energy
percentage of total system cost and/or a fixed total dollar
conservation measures reduce the consumption of energy in a
amount. The rating systems vary by program, using the CEC,
dwelling.’ PV systems are energy conservation measures
PTC, or STC rating systems. In cases where a rebate is received,
(source: Wiser & Bolinger, Lawrence Berkeley Lab - LBL).
the customer can usually also enjoy savings via Net Metering on
Therefore it seems clear that utility direct paid rebates for PV to
her electric bill.
homeowners are non-taxable, such as in most of California,
Rebate programs are usually run and/or overseen by either a Colorado, New Jersey, and some other states.
state agency or a utility, often in compliance with a state law or
Other states, such as Florida, or cities such as San Francisco,
voter initiative.
pay rebates from general funds collected from taxpayers (not
Rebate payments are paid and received up front, and are not ratepayers). In these cases, Sec. 136 would probably not apply,
based on actual system performance. At best, they can be and the rebate payments would probably be taxable.
adjusted to account for expected performance. Expected
Less clear are rebates that are funded from ratepayer sources,
performance rebates may be adjusted by the expected relative
but paid by non-utility administrators, such as the California
system performance compared to an optimal or ideal system,
Energy Commission or the Energy Trust of Oregon. In a private
taking into account reductions in performance due to shading,
letter ruling an IRS administrative law judge found that the
tilt, orientation, and/or geographic location (to account for
Energy Trust of Oregon rebate was indeed tax exempt, but the
variations in sunlight levels due to location).
reader is cautioned to note that private letter rulings are not
Performance Based Incentives (or PBIs) provide incentive precedents and do not bind a different IRS administrative law
payments based on actual delivered system performance, and so judge to the same finding, nor do they apply to any other
automatically account for shading, tilt, orientation, and taxpayer than the one named in the ruling. It is not expected that
geographic location, as well as the other factors mentioned in the IRS will make a public ruling, so it’s likely to remain a grey
Fig. 2. The PBI amount is usually a set value in cents per kWh area for now.
(commonly 10-40¢/kWh) paid for each kWh produced,
Some state agencies, such as the California Energy
measured, and reported by the system for a set number of years
Commission have issued 1099 tax forms to rebate recipients.
(commonly 1, 3, 5, 10, 15, or 20 years) from the date the system
Simply receiving a 1099 tax form may not require payment of
is first placed in service. Usually PBIs are received in addition
tax on the amount. Such a 1099 may be advisory and a way for
to the customer savings via Net Metering of her electric bill.
the issuer to cover itself and ensure compliance with IRS rules,
Since PBI payments are paid over time the customer must even if Sec. 136 applies. On the other hand, not receiving a
wait for payment, and bear the risk that something will interfere 1099 doesn’t excuse the taxpayer from tax liability if due (i.e. if
with system performance. Because of the time value of money, Sec. 136 doesn’t apply). Please check with a qualified tax
and this additional risk, the total of the PBI payments must be professional when making these important decisions.
more than a rebate would have been in order to provide an equal
It was mistakenly suggested in previous writings of this article
time- and risk-adjusted incentive. This increases the cash cost of
that if the installer accepted the rebate on the customer’s behalf,
the incentive program to the incentive provider, but increases
it might eliminate the customer’s rebate tax liability. The author
customer attention to her system (in order to receive payment),
has been informed that this is not true, and that tax is due when
so per kWh delivered, PBIs may be more cost effective to the
value is received (including non-monetary value in the form of
incentive providing agency and funding parties than rebate-type
part of a PV system), unless specifically exempted (as may be
incentives.
the case if Sec. 136 applies) (source: Wiser, LBL).
There is a major marketing benefit to PBI programs as well.
Despite this, there are other reasons why it is still better for
Unlike rebates, which are received one-time up-front when the
the customer to have the installer accept the rebate as part of
customer is already excited about her system, PBIs are received
payment for the project: 1. Less cash is required (by the
at regular intervals (usually every 1, 3, or 6 months) providing
customer) during the project, and 2. The customer has greater
the customer a reminder of her solar system and a reason to
leverage over the installer should the installer do a substandard
smile (or call for warranty service). A smart installer or
job (if either the customer or inspector doesn’t sign off on the
salesperson will time her follow-up communications to the
job, the rebate may be withheld). This is less attractive for the
customer to ensure the customer got her PBI check, and also to
installer because it hurts her cash flow, but might provide her a
make sure she is remembered for referrals. This residual benefit
sales advantage over a competitor. It doesn’t impact the
can last for years, generating many new sales.
installer’s tax return because the rebate is part of the job’s
Taxability of Rebates and PBIs: Depending on the structure revenue whether received directly or thru the customer, and all
of the program, and the type of taxpayer (residential or job revenue minus expenses is already subject to taxation.
commercial), rebates, PBIs, and grants may be taxable income
July 2009 - 9 of 19
A sales and cash flow optimization strategy is to have the
customer pay full price and receive the incentive directly unless
she requests otherwise, optimizing installer cash flow on as
many jobs as possible, while providing the sales flexibility to
match the competition upon customer request.
Non-profits, governments and schools don’t pay income taxes,
so incentives received are generally not taxable.
Business/commercial solar system rebates are likely subject to
taxation, as Sec. 136 applies only to systems installed on the
dwellings of individual taxpayers. There is no known exemption
for business taxpayers, but it turns out that, in general, a
business wouldn’t want to use it – more on this later.
No Double Benefit: Sec. 136(b) states that if the rebate is tax
exempt, then the taxpayer will need to reduce the tax credit
basis for any related ITC, and will then get less tax credit. On
the other hand, if she does pay tax on the rebate, then she does
not deduct the rebate amount when she calculates the tax credit
basis (and therefore get relatively more tax credit benefit).
For residential taxpayers, the above interaction and the
importance that Sec. 136 apply to any rebate she has received
was much more significant before 2009, because the Federal
ITC was capped at $2,000. Now that the Federal ITC is an
uncapped full 30%, the impact is usually far less, and depends
on the marginal tax rate of the customer. If the taxpayer’s
bracket is 30%, then it makes no difference to the customer
whether the rebate is federally taxable or not, since she will gain
the same amount either in no tax on the rebate or in higher ITC
value. See the 4 cases illustrated in Fig. 9. If her tax bracket
Case 1: Non-Taxable Rebate
$100K System Cost
-$30K Rebate
-$21K Tax Credit Value (30% of $70K after rebate cost)
=$49K Net Cost
Case 2: Taxable Rebate at 30% Federal Tax Bracket
$100K System Cost
-$30K Rebate
+9K Rebate Tax ($30K * 30% Fed Tax)
-$30K Tax Credit Value (30% of $100K)
=$49K Net Cost
$100K System Cost
-$30K Rebate
+$6K Rebate Tax ($30K * 20% Fed Tax)
=$46K Net Cost
$100K System Cost
-$30K Rebate
+$12K Rebate Tax ($30K * 40% Fed Tax)
=$52K Net Cost
Fig. 9. Residential examples of rebate/ITC interactions.
were lower than 30%, then she would prefer the rebate be
taxable (if she had a choice or if she and her tax advisor feel
there is enough uncertainty in the applicability of Sec. 136)
because she would then pay less in rebate tax than she would
gain in getting the full ITC. On the other hand, a taxpayer in a
tax bracket over 30% would prefer the rebate to be non-taxable.
Each 1% of difference between the customer’s tax bracket and
30% makes 1% difference in the net value of the rebate to them.
For most taxpayers, this isn’t going to be very much in absolute
dollars either way compared to the total cost of a PV system, as
is evidenced by the examples.
For business taxpayers, Sec. 136 does not apply, and there is
no other known section of the IRC that might exempt the rebate
from federal taxation. This turns out to be convenient, because
while paying tax on the rebate is a cost, not only does it allow a
larger ITC to be enjoyed, but since the depreciation basis is
proportional to the ITC basis, it allows more depreciation to be
enjoyed as well. The larger amounts of both ITC and
depreciation far more than compensate for the tax on the rebate.
See Fig. 10 for a comparison of the two results.
Even when the rebate is taxed, it is usually only taxed by the
federal government. State governments that have enacted
rebates in support of solar generally don’t tax their own
incentives, however, tax laws vary by state, so check with your
state taxing authority.
PBI Taxation: Since PBIs are paid over time and the total
value that will be received is unknowable at the time the federal
ITC needs to be calculated, the interaction between them and
the ITC is less straightforward. For businesses, PBIs are almost
certainly taxable.
For residential customers however, one might be able to argue
that Sec. 136 should also make PBIs paid from ratepayer funds
for PV systems non-taxable, but this would create the difficulty
of calculating how much to reduce the ITC basis by, since it
would require the impossible task of calculating the present
value of the unknowable stream of PBI payments that will be
received as and if the PV system produces electricity. Even if
Case 1: Non-Taxed Rebate
$150K System Cost
-$50K Rebate
-$35K Depreciation Value (85K * 41%)
=$35K Net Cost
Case 2: Taxed Rebate
$150K System Cost
-$50K Rebate
+17.5K Rebate Tax ($50K * 35% Fed Tax)
-$52K Depreciation Value (127.5K * 41%)
=$20.5K Net Cost
41% = combined net federal & state tax rate (35% Federal
& 8.84% CA State)
Fig. 10. Commercial examples of rebate/ITC interactions.
July 2009 - 10 of 19
you could agree with the IRS on a discount rate for PBI
industry (which was over 40% of the world solar market in
payments to be received in the future, no one can know how
2008) is effectively completely shut down as of 2009.
many kWh will actually be produced until it has happened,
! Solar benefits some customers much more than others
which is usually well after the ITC needs to be calculated and
(customers high in the rate tiers, those with avoidable
submitted with a tax return. Guidance from Mark Bolinger at
demand charges, and/or those who can benefit from Time-ofLBL (not a qualified tax professional, but someone who has
Use rates), each of which is a hidden artifact of Net Metering.
studied this in greater depth than the author, see “Further
Losing the Net Metering benefit levels the playing field, which
Reading” at end for more info) is to assume PBIs are taxable for
is democratic, but removes a lot of existing sales
residential customers as well as businesses, to be on the safe
opportunities for those who know where to look, and may
side.
completely eliminate the market if the FIT is set too low.
Of course, the ideal and much more valuable result would be
! FITs have no ‘End Game’ unless the customer can switch
for the IRS to accept an argument that the PBIs are non-taxable
back to Net Metering (without other incentive) at her choice.
to homeowners due to Sec. 136, but also not challenge the
This means that if only FITs are available (without Net
higher claimed amount of the ITC since there was no rebate
Metering), the FIT payment can never be reduced to 0¢/kWh
received up front to reduce it. The author is not advocating this
because the customer will always need some payment to make
potentially risky strategy, and a competent qualified tax
it worth going solar (since she won’t be saving on her electric
professional should be consulted before considering this
bill). This makes the solar industry perpetually dependent on
maneuver. However, it is fairly certain that even if the IRS
the existence of FITs and their future renewal. If the customer
would to approve such an approach, they aren’t likely to chase
can always choose between a FIT or Net Metering, then this
the taxpayer around attempting to provide a refund unless she
problem goes away, because once the Net Metering benefit
files her taxes in this way.
becomes greater than the FIT payment, customers will chose
Feed-In Tariffs (FITs) are very similar to PBIs in that they
Net Metering.
provide a payment to the customer for each kWh delivered to
Tax Abatements are offered by some taxing jurisdictions in
the grid. The difference being that usually a Feed-In Tariff is the
the form of Sales Tax or Property Tax exemptions. Many states
only benefit received from owning the solar system – there is no
exempt solar systems from being included in the assessed value
Net Metering benefit, so the customer continues to pay her
of a home, so installing a solar system doesn’t cause the
regular electric bill. In order to make Feed-In Tariffs attractive,
homeowner’s property taxes to increase. For example, solar
the payment per kWh needs to be higher than a comparable PBI
systems installed in California between January 1, 1999 and
because of the lost Net Metering. Common feed-in tariff terms
January 1, 2017, are exempt from triggering Property Tax
are 10, 15, and 20 years.
reassessments (California Taxation Code, Sec. 73). Sales Tax
Gainesville, Florida and Ontario, Canada have implemented exemptions help reduce the up-front cost of the solar system.
feed-in tariffs. Gainesville’s tariff of 32¢/kWh for 20 years was
Solar Renewable Energy Credits/Certificates (often known
very popular and used up the first allocation of money quickly.
as SRECs, S-RECs, sRECs, RECs, or Green Tags) are a new
Ontario’s first attempt at CAD 42¢/kWh for 20 years was not
and growing way to value the greenness of the energy from a
high enough to be strongly popular, so in May 2009 revised
solar energy system. SRECs represent the bundle of legal rights
incentives of CAD 44-80¢/kWh depending on system size and
to the green part of each kWh produced by a solar system. This
mounting type were proposed (not yet finalized).
green part can be sold for a value, which generates additional
Feed-In Tariff Policy Discussion: Feed-In Tariffs (FITs) are revenue for the seller.
very simple incentives for solar, and are very popular in
SREC value is created in two common ways. The first is the
Germany and Spain because they have very quickly created
“voluntary” market, where individuals buy SRECs as a way of
large markets in each of those countries. There are a number of
“greening” their world by paying extra to someone else to
risks associated with FITs however:
install some new solar capacity, often because they can’t or
! The incentive is 100% visible, and makes solar look chose not to make the large, long-term investment themselves.
expensive, making it an easy target for solar detractors, This is common for apartment dwellers and business renting the
whereas Net Metering ascribes value to the publicly received space they occupy. Business such as Kinko’s, Wal-Mart, Whole
benefit of the electricity generated and delivered when the Foods, and White Wave (the makers of Silk soy milk) have
utility needs it. The cost to the ratepayer is equal, so it’s a bought SRECs to offset some of the emissions from their
matter of perceptions and visibility, however Net Metering operations.
better reflects the public benefits.
Voluntary SREC purchases do actually “green” the grid if
! The entire incentive for solar becomes vulnerable to political they result in net new solar (or wind or other renewable
changes – FITs can come and go with a change of elected or generation depending on the type of REC or Green Tag
appointed officials, creating potentially large changes in purchased) that wouldn’t have been installed if the SRECs
fortunes of the solar industry. Germany and Spain both found weren’t purchased for the agreed price. For example, a solar
their incentives aggressively cut back in the summer of 2008 ‘farmer’ wants to build a solar farm on some open land or on
when they started to be viewed as too expensive. Spain’s solar the roof she has access too. If the value of the electricity she
will be getting from the utility (via sales or Net Metering),
July 2009 - 11 of 19
combined with the incentives discussed (excluding SRECs)
above isn’t enough to provide the rate of return the ‘solar
farmer’ is looking for, the investment won’t happen. If the
‘farmer’ can sell the SRECs to a buyer for enough extra value
(1-5¢/kWh is common in ‘voluntary’ locations), the total
investment may become attractive, and the ‘farmer’ will invest
the money and effort to make it happen, and Voila! – net new
generation happened in part because of the SREC value.
assurance of long-term agreements, the customers (homes and
businesses) installing solar don’t need to be paid as much for
their SRECs because they know the value is locked, which also
saves the utilities in the short term, and probably also in the
long term, because the risk-premium is eliminated.
Maryland has a 2009 ACP of 40¢/kWh which will decline
over time (see the DSIRE Database for current details).
Pennsylvania and other states will likely also have similar
The second common (and very important) way SREC value is arrangements. There is no guarantee that actual value will be
created is thru the regulatory “compliance” market where state anywhere near the ACP unless the ultimate buyer (the utility)
law or voter initiative has required that a certain percentage of agrees to it.
electricity in a given geographic or territorial area must come
Colorado has an RPS as well, but rather than paying for each
from solar sources. Often, the percentage is set to rise over time.
SREC as it is produced, the two main utilities, Xcel and Black
Fourteen states have Renewable Portfolio Standards (RPS) with
Hills Energy (formerly Aquila) buy 20 years worth of the SREC
such a requirement. In these states, the utilities must either build
output from smaller systems for $1.50/W STC of installed
and own solar installations (if allowed), or buy SRECs from
capacity (looking more like a rebate) in addition to the regular
producer/owners. Usually, there is an Alternate Compliance
$2/W rebate. This equates to an approximate SREC value of 5Payment (ACP) that sets a maximum on the value of the SREC
7¢/kWh depending on sunlight levels and system performance.
value, whereby, if the utility isn’t able to buy SRECs for less
than the ACP, they can pay the ACP as a penalty for failure to
California and several other states have Renewable Portfolio
do so.
Standards too, but these RPSs don’t have requirements that any
of the energy be sourced from solar, so it is likely that most will
New Jersey is the best known of the states where its solar
come from wind and other sources, which are currently less
program is supported mostly by SREC value. Currently, the
expensive. That means that the SREC market in these states is
ACP in New Jersey is the equivalent of 71.1¢/kWh. The market
voluntary (including some speculators buying or trading SRECs
in which the NJ utilities can buy SRECs is set up as a bidon the bet that they will become more valuable if/as the
auction market, so supply and demand rule the price of SRECs
government and industry take on global warming). Current
at any given moment, with the artificial cap of the ACP. As of
voluntary SREC values are estimated to be in the range of 1June 2009, the auction market in NJ had set the price of SRECs
5¢/kWh, which is not insignificant compared to Net Metered
at 60-65¢/kWh. This value may continue for the short-, mid- or
electricity value that is sometimes as low as 6-20¢/kWh.
long-term, but there is no assurance of it. The price could also
collapse if an oversupply of SRECs becomes available,
The only way an SREC has any real value though, is to ensure
depending on the rate of installation of solar systems compared that the bundle of legal rights to the greenness it represents has
to the increasing requirements of the NJ RPS.
only been sold once to its ultimate consumer for “retirement”,
the same way as a publicly traded company can only sell a fixed
SREC Policy Discussion: The New Jersey style incentive
number of shares of its stock. Within a state RPS compliance
using SRECs is one of the author’s favorites, because it allows
market, this is usually done by an administrator who tracks all
market mechanisms to automatically readjust the incentive
the production, sales, and retirements. In voluntary markets,
(SREC) level to changes in market conditions. For example, the
SRECs should be certified by a certifier such as Green-e (a
uncapping of the federal ITC provided a lot more federal
service of the Center for Resource Solutions) http://www.greenincentive for solar, and so would require less state support and
e.org/, which is the nation's leading independent consumer
would allow the SREC level to decline, all things being equal.
protection program for the sale of renewable energy and
Similarly, the recent rapid decline in solar module prices has
greenhouse gas reductions in the retail market. Only then can
lowered end-customer costs, again requiring less support to be
the consumer be sure she is buying something of value.
required in the form of SRECs. The U.S. economy of 2009 is in
such bad shape that the above two have not actually manifested
One should take care to consider whether she really wants to
in substantially increased solar purchasing and supply of sell the SRECs her system generates. By selling them, she loses
SRECs yet, but the Rate of Return on a solar investment in NJ the right to claim she is using any of the clean green energy
has been increasing due to the two events. Eventually, the generated by the system. That right would belong to the new
return will get good enough, and the economy will get stable SREC owner. The system owner could claim she is a host for
enough, that individuals will start to buy systems and put new the generation, but not a user. The distinction is important in
SRECs on the market, creating more supply to satisfy an order to prevent double counting of the SRECs, which is
inelastic demand, causing SREC values to come down at least important to maintaining their value.
somewhat.
The missing element in the New Jersey program has been
long-term contracts whereby solar customers can get an
assurance of future SREC value. Without such an agreement, a
potentially oversupplied SREC auction market could cause the
traded price to plummet, so customers installing systems need
to insist on a risk-premium. This is starting to shift. With the
July 2009 - 12 of 19
HOW IS THE SOLAR PAYOFF PROVEN?
after-tax savings of $100. The example would then be
Independent tests of the financial viability of solar energy calculated as follows:
include:
! Rate of Return for comparison to other interest rate based
AfterTax
$100
$100 $100
PreTax =
=
=
=
= $100 * 2 = $200
investments
1" TaxRate 1" 50% 1" .50 .50
! Payback in a reasonable time
! Total Lifecycle Payback
Meaning that $100 after-tax is equivalent to $200 pre-tax at a
! Net increase in property value compared to solar system cost
50%
tax rate. To put it in context of a solar system: if a
!
! Positive cash flow when financing the project
customer were choosing between investing $15K in a solar
All of the analyses and analysis methods presented here apply system that would save them $100/month on her electric bill
only to residential scenarios. Different mechanisms, (tax-free), vs. $15K in a taxable investment, the taxable
assumptions, and accepted financial and accounting practices investment would need to earn them $200/month so that after
apply to commercial cases, which are not discussed here. For she paid taxes on the $200, she would have $100 left over to
example, commercial analyses must be done on an after-tax pay the electric bill, for the two choices to be considered
basis, which has important consequences relating to the loss of equivalent. In reality, combined federal and state tax rates are
the electric bill tax deduction a business otherwise would have currently lower than 50%, with an effective rate of 20-40% for
enjoyed, and commercial property resale valuation is done using most taxpayers. At these rates, $100 after-tax savings would be
Capitalization Rate, rather than the method discussed here. equal to $125-$165 pre-tax equivalent.
Future versions of this article may include this material, so
Once the value of the savings, maintenance costs and other
check back later please.
amounts are properly adjusted to their pre-tax values, they can
RATE OF RETURN:
be inserted into a 25-year financial timeline (the warranted life
Compound Annual Rate of Return on an investment is of most solar electric/PV modules) representing the cash flows
another term for effective interest rate or yield, which is a way for each year, to calculate the Compound Annual Rate of
of comparing one investment to another. For example, a savings Return. This allows the accurate inclusion of all relevant cost
account might pay 0.5%-1% interest, and the long-term (80 and benefit components.
year) Dow Jones Industrial Average of the stock market,
The initial capital cost is the only amount that doesn’t get
assuming dividend reinvestment had earned 8.5% per year
(CAGR) to its height of 13,500 in 2008. At its level of 8,000 in adjusted. That amount is the net system up-front cost (total out
of pocket), and is unaffected by the taxation or lack thereof of
June 2009, the long-term CAGR of the Dow has been 7.5%.
future savings in the utility bill. Consider it the same as
The author chose 10% as the test point for solar, because that principal that is invested anywhere. The principal is not taxed
compares favorably to other long term investment average upon its departure or return.
returns from common, readily accessible, higher yielding
Tax savings and consequences, inverter replacement,
investments such as stocks and bonds and provides a slight
premium to compensate for solar’s lack of familiarity to much maintenance, and other significant financial events can be
included at their appropriate places on the timeline. Inflation,
of the public.
escalation, and module degradation are also easily included. For
To properly value the savings from a solar system, it should each year, the values can be summed, creating a 25-year
be noted that solar saves after-tax expense, while most other timeline of net expense or net savings by year. The Internal Rate
investments earn pre-tax income. In order to compare solar to of Return (IRR) function in most spreadsheets can then
other investments, all investments should be placed on the same calculate the IRR, which is the same as the Compound Annual
side of the tax equation. Since most investments are taxable (i.e. (interest) Rate of Return (CARR) for the investment.
stocks, savings interest, etc.), and because most people think
One should note that there is a significant and very important
about their investments on the pre-tax side, it is most
meaningful to convert solar savings to its taxable equivalent difference between Compound Annual Rate of Return and
average return or total return divided by the number of years an
value (i.e. PreTax value).
investment is held. Average return does not factor in
AfterTax dollars are worth more to a taxpayer than the same compounding of interest, and may make an investment look
number of PreTax dollars, because PreTax dollars are subject to more attractive than it really is. This article uses CARR for all
taxation. Therefore, an AfterTax dollar saved (with solar) is items under consideration (solar, stocks, savings, etc).
worth more than $1 on a PreTax basis, by an amount
The difference becomes more visible the longer the time
proportional to the taxation rate. To make this conversion from
AfterTax value to PreTax value, the following equation can be horizon. A brief example: Suppose an investment doubles every
year. Its CARR would be 100% because you get 100% increase
used (where TaxRate is the net total effective income tax rate):
each year on your investment. No matter how long you hold it,
its CARR is 100% because you need to compound for the
AfterTax
PreTax =
number of years it’s held. Alternatively, if you were to look at
(1" TaxRate)
the “average rate of return”, over 1 year, it would still be 100%.
However, if you held it 3 years, your investment would be
To illustrate this with an example, let’s assume a Tax Rate of
800% of the original, or a total return of 800%
50% (unrealistically high, but easy to illustrate with) and an
!
July 2009 - 13 of 19
(100%>200%>400%>800%). The average annual return would
be 800%/3years-100% or 167%, which looks great, but isn’t
representative, because it isn’t factoring in the compounding.
This faulty method of analysis is highlighted here because
unfortunately there are several inaccurate (misleading) solar
analyses and sales presentations being given to the public that
use averaging, rather than compounding.
Please see Fig. 14 for example analyses from several states
and their Compound Annual Rates of Return. These cases are
for full service residential system installations, using typical
installed system costs on a simple composition shingle roof.
Utility & state specific assumptions for the examples are listed
in Fig 13. General variables and assumptions are:
! 28% federal tax bracket, corresponding state tax bracket
! Facing south, 22° pitch, simple composition shingle roof by
full service provider, no complications
! Slightly conservative real system performance, no shade
! Final Net Cost = total installed system costs - Rebate (if any)
- 2009 Fed 30% ITC + $500 Permit + $0 Utility Fee
! System maintenance cost is 0.25% of gross system cost per
year, adjusted for inflation
! 5.0% electric escalation (2.2% in CO)
! Module degradation 0.5% per year
! Module PTC/STC Ratio: 89.6%, Inverter Efficiency: 95.0%
! Inverter replacement costing $700/kW occurs in year 15
These analyses were performed using the OnGrid Tool,
available at http://www.ongrid.net/payback. Other tools are
listed in the Design and Analysis Tools section at the end.
Initial Cost paid
back in 8 years
Total Lifecycle
Savings is
several times
Initial Cost
Fig. 12. Simple Payback vs. Total Lifecycle Payback. Total
Lifecycle Savings over 25 years is several times the initial cost
represented by the area up until year 8. Year 15 shows
diminished savings due to inverter replacement.
residential long-term investment; it does not properly include
the tax savings and consequences, it does not account for
maintenance or inverter replacement expenses, and it makes it
difficult to compare to other investments such as stocks,
savings, etc. because of inflation and other factors.
TOTAL LIFECYCLE PAYBACK:
Comparing the savings of a solar electric system over 25 years
of operation to its initial cost is a better way of looking at
payback, because it more fairly values the savings due to the
compounding effect of electric rate escalation. Because of this
effect, the savings in the later years is much greater than the
savings in the first few years. Typical systems give back 1.5 to 3
times their initial cost. See Fig. 14 for several examples and Fig.
12 for an illustration. One drawback to this analysis is it fails to
account for the time value of money. A dollar saved in the
future isn’t worth as much as a dollar saved today, so that a total
lifecycle payback isn’t worth quite as much as it might initially
appear. The better methods of comparing solar as an investment
are the Compound Annual Rate of Return, Increase in Property
Value, and Cash Flow.
PAYBACK:
What about calculating the payback? Payback is a simple but
crude tool for comparing investments. Solar is an inflationprotected investment but many others are not. This improves the
payback for solar (electric rates double every 15 years at 5%
escalation). To properly calculate the solar payback, it is
necessary to add in the rate escalation adjusted savings of each
successive year, less the reduction due to module degradation
and maintenance costs, until payback has been achieved.
Savings in the latter years are larger than savings in the first
INCREASE IN PROPERTY VALUE:
years, so the payback is faster than simply dividing the cost by
Solar electric systems increase property value by decreasing
the savings. See Fig. 12 for an illustration.
utility operating costs. According to the Appraisal Journal
Payback analysis on an after-tax basis does not reflect the true (Nevin, Rick et al, “Evidence of Rational Market Valuations for
value of the saved utility expense, because after-tax savings are Home Energy Efficiency,” Oct 1998 (available at various
worth more on a pre-tax basis. However, trying to do payback locations
on-line,
including
at
using the pre-tax value gives an unrealistically optimistic view http://www.icfi.com/Markets/Community_Development/doc_fil
of when “payback” has occurred. The examples in Fig. 11 show es/apj1098.pdf), a home’s value is increased by $20,000 for
how long paybacks on other investments really are in every $1,000 reduction in annual operating costs from energy
comparison to solar, when taken on an after-tax basis.
efficiency.
There are numerous other flaws in using payback for a
Net
Interest Earned or
After-Tax
After-Tax
Payback / Time-toInvestment
Net Electric Bill
Value the
Value the
Doubling including
Amount
Savings
First Year
Eighth Year
taxes & inflation
Savings
$30,000
$300 (at 1% rate)
$196
$196
153 years
Stocks
$30,000
$2,400 (at 8% rate)
$1,567
$1,567
19.1 years
Solar – CA PG&E 5.5 kW
$30,000
$2,321 (1st year)
$2,321
$3,176
10.4 years
Fig. 11. Investment Payback Comparisons: Solar savings grow due to escalation (4.5% net w/ degradation). Assumed 28%
federal & 9.3% state tax rates play a big role in the different outcomes. Stocks & savings are more liquid, but it’s clear why
Wall Street and banks don’t talk “Payback”.
Investment Type
July 2009 - 14 of 19
Utility
Insolation
AC kWh Production
per rated kW per
year
Installed Cost per
rated Watt
(~October 2008)
Staring/Ending Rate
Schedule, Peak %
Incentives
AZ - APS
Phoenix
1660 / STC kW
$8.25 STC
E-12 / ET-2, 50%
$2.40/W Rebate (net)
CA - PG&E
San Francisco
1630 / CEC kW
E1XB / E6XB, 35%
$1.55/W Rebate
3kW: $9.50 CEC
6kW: $9.25 CEC
9kW: $9.00 CEC
D-10-Basic /
TOU-D-1, 36%
DR-Coastal-Basic /
DR-SES, 28%
CA - SCE
Los Angeles
1675 / CEC kW
$1.90/W Rebate
CA - SDG&E
San Diego
1700 / CEC kW
CO - Xcel
Boulder
1398 / STC kW
$8.25 STC
R
$3.50/W Rebate & SREC
CT - UI
Hartford
1262 / PTC kW
$8.75 PTC
R / RT, 45%
$1.75/W Rebate
FL – FPL
Miami
1345 / ST kW
$8.25 STC
RS-1
$4/W Rebate
HI - HECO
Honolulu
1460 / STC kW
$8.25 STC
Res
MD – BGE
Baltimore
1236 / STC kW
$8.25 STC
R / RL-2, 65%
$1.20/W Rebate (net),
SRECs: 10¢/5yrs, 5¢/10yrs
NC - Progress
Raleigh
1260 / STC kW
$8.25 STC
RES / R-TOUD, 60%
NJ - JCP&L
Newark
1140 / STC kW
$8.25 STC
RS / RT, 58%
NY - ConEd
New York City
1178 / STC kW
$8.25 STC
Rate I / Rate II TOU,
75%
PA – PPL
Philadelphia
1217 / STC kW
$8.25 STC
RS / RTD R, 70%
$1.55/W Rebate
SRECs: 48¢/1yr, 30¢/12yrs,
10¢/12yrs; $1.55/W Rebate
$2.81/W Rebate (net)
$2.25/W Rebate,
SRECs: 10¢/5yrs, 5¢/10yrs
Fig. 13. Utility specific residential assumptions. Module prices have dropped since October 2008, and selling prices are declining,
but still in a state of flux. For now, the analyses assume 10/2008 pricing.
Before Solar
Size & Net Cost
Utility
PreSolar
Bill
kWh
Usage
per
Month
PV System
Size &
Rating
Final Net
Cost w/
Tax
Benefits
& Rebate
AZ - APS
$77
800
5 kW STC
$18K
Results, Savings, and Benefits
Cumulative
Net Monthly Cash Flow
Appraisal
Savings
Lifecycle Years Pre-Tax Compared to 8% 30-yr
Equity /
Annual
Over First
Loan
Payback
To
Annual
Resale
Savings
25 Years
Ratio Payback Return
Increase
in
In First
In Fifth
(including
First Year
Year
Year
inflation)
$22K
1.2x
22.2
6.6%
$-31/mo
$-38/mo
$539
$11K
CA - PG&E
$74
550
3 kW CEC
$17K
$28K
1.7x
18.6
10.0%
$-11/mo
$-15/mo
$671
$13K
CA - PG&E
$258
1100
6 kW CEC
$33K
$120K
3.6x
9.7
19.5%
$100/mo
$123/mo
$2,761
$55K
CA - PG&E
$499
1650
9 kW CEC
$48K
$234K
4.9x
7.8
24.6%
$259/mo
$320/mo
$5,355
$107K
CA - SCE
$85
550
3 kW CEC
$16K
$36K
2.2x
15.5
12.9%
$6/mo
$6/mo
$835
$17K
CA - SCE
$414
1650
9 kW CEC
$45K
$193K
4.3x
8.5
22.1%
$193/mo
$238/mo
$4,446
$89K
$97
550
3 kW CEC
$17K
$38K
2.2x
15.4
12.9%
$6/mo
$7/mo
$877
$18K
CA - SDG&E $455
1650
9 kW CEC
$47K
$206K
4.4x
8.4
22.4%
$207/mo
$255/mo
$4,722
$94K
CO - Xcel
CA - SDG&E
$72
800
5 kW STC
$17K
$13K
0.7x
31.9
3.1%
$-47/mo
$-46/mo
$521
$10K
CT - UI
$183
800
5 kW PTC
$25K
$57K
2.3x
15.2
11.9%
$-20/mo
$1/mo
$1,333
$27K
FL – FPL
$89
800
5 kW STC
$15K
$24K
1.6x
19.3
7.5%
$-35/mo
$-25/mo
$591
$12K
GA - GaPwr
$88
800
5 kW STC
$21K
$20K
0.9x
27.0
6.9%
$-80/mo
$-67/mo
$493
$10K
HI - HECO
$164
800
5 kW STC
$25K
$62K
2.5x
13.2
15.1%
$-10/mo
$16/mo
$1,442
$29K
MD – BGE
$131
800
5 kW STC
$25K
$39K
1.6x
18.4
9.3%
$-25/mo
$-30/mo
$1,262
$17K
NC-Progress
$80
800
5 kW STC
$21K
$25K
1.2x
23.2
9.6%
$-66/mo
$-51/mo
$601
$12K
NJ - JCP&L
$143
800
5 kW STC
$24K
$66K
2.8x
9.3
19.4%
$71/mo
$85/mo
$2,947
$22K
NY – ConEd
$134
800
5 kW STC
$16K
$40K
2.6x
12.4
16.5%
$-2/mo
$16/mo
$956
$19K
PA – PPL
$95
800
5 kW STC
$21K
$32K
1.5x
18.9
8.5%
$-22/mo
$-30/mo
$1,100
$14K
Fig. 14. Example residential cases with their net costs and financial benefits.
July 2009 - 15 of 19
add more than 215% of their value upon resale (Alfano, Sal,
“2003 Cost vs. Value Report”, Remodeling Online –
www.remodeling.hw.net downloaded March 5, 2004). Other
types of remodels like kitchens and bathrooms had similar
results related to geography. So it makes sense that in certain
geographies where the sun shines brightly and the electric rates
are high, solar would return more than its installed cost, while in
other states with less sun and lower rates, the return might be
much lower, with a national average comparable to other types
of remodel. Fig. 16 lists projected resale value of various solar
systems, compared with nationwide averages for some other
home improvements.
The increase in property value is currently theoretical. A very
high fraction of the grid-tied solar electric systems in California
were installed since the state’s Power Crisis and the
Fig. 15. Resale value increases over time because savings get
Deregulation fiasco in 2001. Most of these homes have not been
larger each year. Total remaining lifetime savings in the
sold and there are no broad studies of comparable resale values
system declines annually, putting a limit on the increase in
available. However, some evidence is beginning to emerge that
resale value after year 11.
there are significant jumps in resale value being realized by
The rationale is that the money from the reduction in some solar home sellers.
operating costs can be spent on a larger mortgage with no net
It is also interesting to note that PV systems will appreciate
change in monthly cost of ownership. Nevin states that average over time, rather than depreciate as they age. The appreciation
historic mortgage costs have an after-tax effective interest rate comes from the increasing annual savings the system will yield
of about 5%. If $1,000 of reduced operating costs is put towards as electric rates and bill savings rise. All the calculations in this
debt service at 5%, it can support an additional $20,000 of debt. article assume electric rate escalation will be 5%. If so, the PV
To the borrower, total monthly cost of home ownership is system will save 5% more value each successive year, and thus
identical. Instead of paying the utility, the homeowner (or future gain from the 20:1 multiplier effect. The resale value will then
homeowner) pays the bank, but her total cost doesn’t change. increase 5% per year compounded, less 0.5% module
Since the Nevin article is from 1998, is it dated? No more than degradation.
2+2=4 is dated - the rationale is mathematical, not based on
This cannot continue forever, as the increase in resale value
market whims, so it is timeless.
runs into the second limit, which relates to the remaining life
Please see the column labeled “Appraisal Equity Increase” in left in the system. For these analyses, the system is assumed to
Fig. 14 for examples of the increase in home value. In some be worthless at the end of 25 years. This is probably very
cases, a solar system can increase home value by more than its conservative, since the panels are warranted to be working at
cost to install. This effectively reduces the payback period to 0 least 80% of their new performance. So if the system is
years if the owner chose or needed to sell the property worthless at the end of 25 years, the only value the system has
immediately. It could even lead to a profit on resale.
as it nears that time, are the remaining savings it can generate
th
There are two limits to the increase in resale value over before the end of the 25 year. Fig. 15 shows both the
system net installed cost. First, why should a homeowner pay in increasing value due to increasing annual savings and the
total more for a home with a solar system, when she could buy a remaining value limitation that takes over at approximately year
non-solar home, and solarize it for less money? Yet this 11. If the system does have additional resale value, so much the
happens with other remodels. Decks, on average across the better.
nation, return 104% of their cost upon resale. However, in
Still, the skeptical homebuyer might question the above
certain markets like St. Louis, San Francisco, and Boston, decks assertions in light of the lack of hard evidence. Perhaps the best
Investment
Resale
Home Improvement
Amount /
Value
Type
Net System
Increase
Cost
CA PG&E Solar 3 kW
$17K
$13K
CA PG&E Solar 6 kW
$33K
$55K
CA PG&E Solar 9 kW
$48K
$107K
Deck Addition
$6.3K
$6.7K
Bathroom Remodel
$10.1K
$9.1K
Window Replacement
$9.6K
$8.2K
Kitchen Remodel
$44K
$33K
Fig. 16. Resale value comparison of various home
improvements.
%
Return
76%
167%
223%
104%
89%
85%
75%
evidence to present would be a stack of old bills showing usage
and cost before solar, and a stack of new bills showing a
substantial savings. The question might be posed, “What are a
continuous, if not growing, stream of these savings worth to the
prospective buyer?” That sort of evidence can’t easily be
ignored. Of course, other factors will weigh heavily in the
value. How attractive is the home? A tidy, attractive installation
should add all of the value shown above, but like a spa, some
prospective buyers may not care or value it, while others may
love it.
July 2009 - 16 of 19
Utility Bill w/o
Solar at 5%
escalation
Accumulated
Savings
8% Loan (net cost), New
Smaller Bill, & Maintenance
Fig. 18. Accumulated net savings of solar system financed over
20 years, including all costs, thus showing pure cash profit
accumulated over time with no additional expense.
Net Annual
Savings
has 2 parts: principal and interest. As the balance is paid down,
the interest portion of each successive payment is reduced, so
the tax deduction benefit is also reduced. In after-tax terms, the
loan is least expensive in the first year when the borrower is
enjoying the maximum tax deduction for interest paid.
The difference between the two lines in the top of Fig. 17 is
the amount the scenario is cash-positive (or cash-negative) for
the customer, and is reflected in the lower graphic, which shows
Fig. 17. Effect of a solar system financed at a fixed 8% interest
“Net Annual Savings” by having purchased a solar system with
rate over 20 years showing a cash-positive result from the
a loan (put no money down). In this case, the savings are
first day of ownership, including maintenance costs and the
substantial even before the loan is paid off in the 20th year, and
inverter replacement at year 15.
gets even better after that. The Net Annual Savings can be
accumulated as shown in Fig. 18 to show how much extra cash
CASH FLOW WHEN FINANCING:
a purchaser will have in her pocket before the inverter needs to
Financing a solar system makes the purchase achievable to be replaced in year 15, or before the loan is paid off in year 20,
more consumers. If the situation is right, the savings on the or before the equipment is out of warranty in year 25.
electric bill can more than compensate for the cost of the loan
The uncapping of the residential federal ITC has made it more
and maintenance, making it a cash-positive maneuver. That is,
compared to the occupant’s current cost of energy (her current difficult to figure out how much a customer should borrow. The
electric bill), going solar but paying for it entirely with a loan problem is that the ITC is a significant incentive, but it isn’t
(no money down) can actually be less expensive on a monthly received until the customer files her taxes, which can be a year
or more after the system needs to be paid for.
basis.
Electric rates and electric bills are subject to electric rate
escalation, as can be seen in the top graphic in Fig. 17, where
the cost of energy increases steadily over the years, doubling
approximately every 15 years. While interest rates might vary
depending on the loan type, loans are not subject to inflation or
rate escalation, so the loan payments do not increase
continuously. This means that the difference between what the
electric bill will become and what the loan & maintenance costs
will become continues to move in the customer’s favor. Even if
a customer didn’t start out cash-positive in the first year, she
may become cash positive after a few years.
In what one might call the “Optimistic Loan” scenario, the
customer would borrow the net cost after all incentives
(including the ITC) have been received. This would produce the
lowest loan payments, and have the best chance of being cashpositive from the start, making the salesperson happy. However,
the customer would need to have the cash to cover the ITC
amount or get a bridge loan until the ITC is received because of
the optimistically low loan & payments.
In an “Inefficient Loan” scenario, the customer would borrow
the net cost after all other incentives, except the ITC. This will
allow them to acquire the system with no money down.
However it will also result in a lot of cash on hand once the ITC
is received, which she is paying interest on, which is expensive
and not very efficient. It is also less likely to be cash-positive,
which will be a disadvantage for the salesperson.
In the top graphic of Fig. 17, the lower line labeled “8% Loan
(net cost), New Smaller Bill, & Maintenance” represents all the
new costs compared to the old Utility Bill cost. While the loan
rate is fixed at 8% and the monthly loan payments are steady,
there are 3 components to this new set of costs that do increase
The solution is what OnGrid Solar calls “Smart Financing”
over time: 1. The new maintenance cost will rise with inflation. where the customer uses a “line of credit” financing source that
2. The new small electric bill will rise with electric rate she can borrow from and repay without pre-payment penalty.
escalation. 3. In fixed amortization loans, each loan payment Assuming the ITC will be received in a year, and that she can
July 2009 - 17 of 19
apply it to the principal of the loan at that time, one can
calculate the necessary loan payment that allows them to pay off
the loan in the desired number of years including interest. The
calculation is complex, and is not a standard function in most
spreadsheets, but can be done. The resulting loan payment will
be somewhere between the Inefficient Loan and the Optimistic
Loan, typically tending to be pretty close to, but slightly more
expensive than the Optimistic Loan.
Results of Smart Financing can be seen in Fig. 17. A subtle
feature of it is the slight dip in savings in the 2nd year. In the 1st
year the loan principal is very high because it includes the ITC
amount causing the interest cost to be quite high. This allows
for a large 1st year tax deduction benefit, even though the loan
payments are fixed and steady. Once the ITC is received and
applied to reduce the principal, the interest is reduced, so the tax
deduction shrinks, effectively raising the cost of the loan
compared to the fixed loan payments.
Refer to Fig. 14 for several examples showing the initial and
5th year monthly cash flow assuming 100% Smart Financing of
a solar system using a 30-year loan. Because of the 2nd year dip,
the 5th year monthly cash flow isn’t always better than the 1st
year’s, but is a basis for continuous improvements in cash flow
going forward. Note, we use the 5th year because most
depreciation (in commercial systems) and PBI benefits (both of
which are applied to loan principal in the same way as the ITC)
have been received and included by then.
partnership with cities, whereby a citizen property owner can
receive a loan for a solar system and have it collateralized and
paid back on her property tax bill. The program was pioneered
in Berkeley, California, and is now available in several cities
thanks to AB811, the “Community Financing” bill.
The loans are obligations to the city, the interest is tax
deductible, and the property tax bill shows the itemization of the
loan amount, the principal and interest. The interest rate is set
by the city and their partner bank and is generally at market
rates. However, even if the financing was at what might be
considered a subsidized level, because of the ARRA of 2009,
there is no longer any negative interaction with the ITC (there
used to be a tax rule that allowed one but not both of an ITC or
subsidized energy financing to be enjoyed). The loans are
generally transferable to a future buyer of the property if she is
willing to agree to assume the loan payments.
These loans pose little risk to the city and their funding
partner, because property taxes are considered to be in “1st
position” to get paid in cased of a foreclosure. This has caused a
controversy in the banking community because this now places
more risk on the holder of the 1st mortgage (who is in 2nd
position), and the lawsuits have started. The mortgagees insist
these loans be in at least 3rd position to protect their mortgages.
Depending on how they are structured, that may work for the
cities. Stay tuned, it’s developing as this is written.
There are also two commercial financing products being
applied to residential situations: Power Purchase Agreements
(PPAs) and leases. PPAs are the agreement for one party to sell
power to another at agreed upon terms. The sale is for kWh of
energy only. The leases for solar are rentals, where a customer
rents (leases) a solar system from another party. In both
products, the parties owning the systems have large investors
who have money to finance systems and who can use both the
Unsecured financing can include credit cards or other types of
ITC and depreciation.
unsecured loans. These are generally a terrible idea for any kind
of long term financing because they usually have high interest
In the typical PPA scenario, the site occupant agrees to a PPA
rates and the interest is not tax deductible. It may be reasonable for electricity kWh at a certain price and in exchange allows a
to consider them to temporarily finance the rebate or tax credit solar system to be placed on her roof. In residential applications
until it is received, however, it requires discipline to ensure the of a PPA, the homeowner usually pays a deposit of anywhere
loan is paid off as soon as the incentive is received.
from $2,000 to 25% to 50% of the cost of the system in addition
to the price she will pay for the electricity. Naturally, the more
st
Home equity sources of funding can include 1 mortgage
she puts down as a deposit, the lower the price of the electricity.
nd
refinances, 2 mortgages, Home Equity Loans, and Home
The contract lengths are typically 15-20 years, and there may be
Equity Lines of Credit (HELOCs). In general, home equity
a buyout cost at the end if the homeowner wishes to purchase it
borrowing is tax deductible, has the best unsubsidized interest
at that time, or she may have to pay a removal fee if she doesn’t.
rates, and has the longest repayment terms, all of which allow
The price of electricity may be fixed by the agreement, or it
for lowest monthly costs. However, the decline in real estate
may have an escalator, causing it to get more expensive over
values have hurt Loan-to-Value (LTV) ratios for most
time. There is usually a guaranteed minimum performance, but
homeowners, and the tight credit market in 2009 have put strict
the customer must purchase any extra electricity, whether she
limits on LTV ratios, credit scores, and income requirements,
wants it or not.
making use of home equity difficult. Only the Line of Credit is
likely to work with Smart Financing. Other loans tend to be less
A typical residential solar lease is similar, in that there is often
flexible on borrowing and repayment term. Attractive FHA a deposit paid and a long-term agreement to rent a system for
Energy Efficient Mortgages (EEMs) may be available from the placement on the customer’s roof. The monthly rent may
U.S. Dept of Housing and Urban Development (HUD) at: include an escalator, increasing costs over time, and may
http://www.hud.gov/offices/hsg/sfh/eem/energy-r.cfm.
include a buyout clause and termination costs. The buyout
clause must not allow the system to be purchased for less than
A new idea and source of funds are local loan programs called
Fair Market Value (FMV) at the end of the term, and that the
“Community Financing” developed by funding sources in
FMV must be determined at the end of the term, otherwise the
Sources of financing funds can include:
! Unsecured
! Home equity
! Community Financing
! Power Purchase Agreements (PPAs)
! Leases
July 2009 - 18 of 19
lease will fail to satisfy IRS tax rules. The system usually comes
with a performance guarantee, and the homeowner enjoys any
extra production at no extra charge.
o Property Tax Assessments as a Finance Vehicle for
Residential PV Installations: …
o Exploring the Economic Value of EPAct 2005's PV Tax
Credits
Things a customer should watch out for regarding leases &
! SEIA “Guide to Federal Tax Incentives for Solar Energy”
PPAs: 1. High escalators in the contracts and their compounding
http://www.seia.org, Solar Energy Industries Association
nature. These vehicles can be good hedges against future rate
! Utility Tariff and Rate Tables (see desired utility’s website) –
inflation, but a customer should be cautious about overpaying
great for insomnia
for that hedge. Rates may not rise fast in the future for any
number of reasons, and are certainly not likely to rise much DESIGN & ANALYSIS TOOLS:
faster than 6% per year over the long term. Currently, state or ! OnGrid Tool, which incorporates all of the elements of this
federal government does not regulate these products, so there is
paper, plus up-to-date rates and incentives, to allow the user
a lot of risk of customers agreeing to very expensive terms over
to design and analyze PV systems at a high level. It also
the long term. 2. Large deposits without performance guarantees
produces
proposals
and
sales
documentation:
and without clarity in the contract on what happens to the
http://www.ongrid.net/payback
system in the event of the provider’s bankruptcy. 3. Large ! Clean Power Estimator:
buyout charges or removal costs at the end of the term.
http://www.consumerenergycenter.org/renewables/estimator.
! PVWatts: http://www.nrel.gov/rredc/pvwatts
Leases and PPAs with $0 deposits are easy to understand and
! PVSyst: http://www.pvsyst.com
sell if the monthly costs or $/kWh are less than the customer’s
! RETscreen: http://www.retscreen.net
current costs. Otherwise the customer must figure out how soon
! PV Design Pro: http://www.mauisolarsoftware.com
the deposit amount will be recovered.
! QuickQuotes: clean-power.com/quickquotes/products.aspx
Leases and PPAs can be attractive to customers who have no ! CPF Tools: http://www.cpftools.com
other way of financing a system, or who can’t use the ITC. But
ACKNOWLEDGEMENTS:
if she has her own cash, or can get her own financing, she can
Thank you to the following that have provided invaluable
usually do better and keep more of the benefits for herself,
insights knowledge, corrections, and review:
rather than sharing them with the financing party and the
Michael Bishop, OnGrid Solar
provider. Customer shouldn’t be taken in by claims that these
Chad Blanchard
products are a lot less expensive because of the depreciation –
Mark Bolinger, Lawrence Berkeley Laboratory (LBL)
effectively the depreciation offsets the taxability of the revenue
Keith Martin & John Marciano, Chadbourne & Parke LLP
received the provider. These deals are currently a goldmine to
Ryan Wiser, Lawrence Berkeley Laboratory (LBL)
developers and providers, but are just “ok” for the consumer,
and will be until more competition comes along.
!Copyright 2009, Andy Black. All rights reserved. This
information changes periodically. The author maintains an
CONCLUSION:
updated
version
of
this
article
at:
It is important to compare the solar investment to other
http://www.ongrid.net/papers/PaybackOnSolarSERG.pdf. For
investments on an even basis. Rigorous treatment and critical
more info on solar payback, analysis tools, upcoming classes,
analyses from several angles including Compound Annual Rate
and other papers and articles, see http://www.ongrid.net.
of Return, Cash Flow, and Resale Value need to be considered
Andy Black is a Solar Financial Analyst and CEO of OnGrid
to do a fair assessment.
Solar, creator of the OnGrid Tool, and educator on the
Solar will make economic sense for many, but only a hard
financial aspects of solar electric systems. He is a former
look at the numbers will tell. The reader is encouraged to check
NABCEP Certified PV Installer, is on the Advisory Board of the
it out. Run the numbers, get evaluations and proposals from at
NorCal Solar Association, and is a recent past board member of
least 3 solar providers, and take them to a CPA to check them
the American Solar Energy Society. He can be contacted at
out. That way the smile on your wallet can be as big as the
(408) 428-0808x1 or [email protected] for questions about the
smile on your face!
payback on solar.
SUGGESTED ADDITIONAL READING:
! OnGrid Solar’s papers, publications, and presentation slides:
http://www.ongrid.net/papers
! “A Guide To Photovoltaic (PV) System Design And
Installation”
http://www.energy.ca.gov/reports/2001-0904_500-01-020.PDF, California Energy Commission
! Bolinger, Wiser, et al, LBL papers and presentations at:
http://eetd.lbl.gov/ea/emp/re-pubs.html, particularly:
o Shaking Up the Residential PV Market: …
o The Impact of Retail Rate Structures on the Economics of
Commercial Photovoltaic Systems in California
And at: http://eetd.lbl.gov/ea/emp/cases/EMP_case.html
July 2009 - 19 of 19
The OnGrid Solar Financial Analysis & Sales Tool
Simplify Solar Sales:
Qualify and Close in
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Show Your Customers

Simplify Your Sales
Their internal rate of return
Identify and screen hot leads

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Their cash flow for financed systems
Size PV systems accurately

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
(time of use, shading, tilt, orientation, incentives and more)
System’s total lifecycle payback and savings
Price systems considering all factors

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(e.g., tile roof, custom mounting, etc.)
Their increased resale value
Create proposals, price quotes quickly, onsite

(often is more than system cost & increases over time)
(one button form generation, documentation, includes CSI)
Use customer data to paint them a picture. Example Output*:
Cash Flow:
Cash Flow:
Net Annual Savings When Financed
Utility Bill w/o
Solar at 5% rate
escalation
Annual Savings
Annual Costs: Solar with Loan vs. No Solar
Loan cost, Maintenance, Inverter
Replacement, & new small electric bill
Net Annual
Savings
Lifecycle Payback:
Resale:
Annual Savings Before & After Payback
Resale Value Over Time
Resale Value

(866) 966-5577
www.ongrid.net
Lifetime savings are typically
2-3.5 times system cost
Payback
Resale Value increases due to
increasing annual savings
*See website for detailed description and comprehensive list of customizable outputs and displays.
9:00 a.m.
9:30 a.m.
11:00 a.m.
12:00 p.m.
12:30 p.m.
1:00 p.m.
1:30 p.m.
Receive
Incoming
Sales Call
Qualify,
Gather Data,
Email
Estimate
Site
Visit
Update
Estimate
Print All Docs
(on site)
Present Bid,
Contract &
Docs
Close
the
Sale
Turn in
Closed
Sale
Example Sales Call
FREE Trial / Examples: www.ongrid.net/payback
 2010 OnGrid Solar
The OnGrid Solar Financial Analysis & Sales Tool
for Commercial & Residential PV Sales
A Time-Saving,
Comprehensive
Tool for Solar Sales
Helps Create & Close More Sales
Proves Payback for the Customer
(866) 966-5577
www.ongrid.net
Calculates TOU Value with Shading
Prepares Rebate & Utility Docs Easily
The OnGrid Solar Sales Tool Helps Commercial & Residential Salespeople:
(See www.ongrid.net for comprehensive lists of all details and options)
Identify and Screen Hot Leads,
guide them successfully thru
the entire sales process
Perform Multiple Solar Financial
Analyses, option to generate a
Variety Of Proposals
Develop Accurate Price Quotes,
including all material,
regulatory and job-site factors
Fill out Closing Sales Paperwork
and Documents (including CSI)
with the touch of a button
Size PV systems based on
customer needs, incentive
programs and site data
Solar Pathfinder
®
Upload shading device data for
accurate Time-of-Use value analysis
SunEye
®
Demonstrate the financial benefits of a solar electric system to your customer with customized calculations.
Tailor and brand your printouts. Use them for direct presentations as your sales materials.



PV System Size & Production
Current & Future Electric Bills
Cost, Rebate & Tax breakdowns



Financing & Cash Flow
Resale Calculations & Graphics
Rate of Return Calculations
The OnGrid Tool is offered on a subscription basis and is updated frequently with current Rate Schedules,
Incentive, Tax and Product information, and periodically with new tool features and benefits. Download the
free trial. Then, contact Andy Black at [email protected] or (866) 966-5577 to start closing more sales.
(866) 966-5577
FREE Trial / Examples: www.ongrid.net/payback
 2010 OnGrid Solar
Andy Black
OnGrid Solar
(866) 966 5577x1
[email protected]
LADWP: Los Angeles Department of Water & Power
LBL: Lawrence Berkeley Laboratory
LTV: Loan-To-Value
MACRS: Modified Accelerated Cost Recovery System
MIRR: Modified Internal Rate of Return
NABCEP: North American Board of Certified Energy
Practitioners
NCSC: North Carolina Solar Center
NESEA: North-East Sustainable Energy Association
NJCEP: New Jersey Clean Energy Partnership
NLP: Neuro-Linguistic Programming
NOL: Net Operating Loss
NOx: Nitrous Oxides
NPV: Net Present Value
NREL: National Renewable Energy Laboratory
NSHP: New Solar Homes Partnership
PACE: Property Assessed Clean Energy
PBI: Performance Based Incentive
PEC: PG&E’s Pacific Energy Center
PG&E: Pacific Gas & Electric
PPA: Power Purchase Agreement
PSE&G: Public Service Electric & Gas (NJ)
PTC: PVUSA Test Conditions
PUC: See CPUC
PURPA: Public Utility Regulatory Policies Act of 1978
PV: Photovoltaics (Solar Electricity)
PVUSA: PV for Utility Scale Applications
QF: Qualifying Facility
REC: Renewable Energy Certificate/Credit
ROI: Return On Investment
ROR: Rate of Return
RPS: Renewable Portfolio Standard
SB1: CA Senate Bill 1, the law that created the CSI
SCE: Southern California Edison
SDG&E: San Diego Gas & Electric
SDREO: San Diego Regional Energy Office (aka CCSE)
SEI: Solar Energy International
SEIA: Solar Energy Industries Association
SEO: Search Engine Optimization
SLI: Solar Living Institute
SMUD: Sacramento Municipal Utility District
SOx: Sulfur Oxides
S-REC, sREC: Solar Renewable Energy Certificate
STC DC: Standard Test Conditions DC rating
STC: Standard Test Conditions
SVP: Silicon Valley Power
SWOT: Strengths, Weaknesses, Opportunities, Threats
TEI: Tax Equity Investor
TOD: Time Of Day
TOU: Time Of Use
TPO: Third Party Owner or Ownership
TRC: Tradable Renewable Certificate (aka REC, Green Tag)
TruTaxOp: True Tax Operating (lease)
UI: United Illuminating Co. (CT)
URG: Utility Retained Generation
WACC: Weighted Average Cost of Capital
WIIFM: What’s In It For Me
Acronyms Used In Sales, Marketing,
Economics & Finance Classes
AC: Alternating Current (standard AC wall power)
ACP: Alternative Compliance Payment
ACEEE: American Council for an Energy Efficient Economy
A.K.A.: Also Known As
AMT: Alternative Minimum Tax
APY: Annual Percentage Yield
ARRA: American Recovery and Reinvestment Act
ASES: American Solar Energy Society
CA: California
CAD: Computer Aided Design
CalSEIA: California Solar Energy Industries Assn
CAGR: Compound Annual Growth Rate
CARR: Compound Annual Rate of Return
CCSE: California Center for Sustainable Energy
CEC AC: California Energy Commission AC rating
CEC: California Energy Commission
CEO: Chief Executive Officer
CFO: Chief Financial Officer
CHEERS: California Home Energy Efficiency Rating System
CL&P: Connecticut Light & Power
COO: Chief Operating Officer
CO2: Carbon Dioxide
CoSEIA: Colorado Solar Energy Industries Assn
CPI-U: Consumer Price Index-Urban
CPUC: California Public Utilities Commission
CRES: Colorado Renewable Energy Society
CRM: Customer Relationship Management
CSI: California Solar Initiative
DC: Direct Current (what comes out of PV modules)
DER: Distributed Energy Resource/Renewable
DGR: Distributed Generation Resource
DOE: Department of Energy (U.S.)
DSIRE: Database for State Incentives for Renewable Energy:
www.dsireusa.org
DWR: Department of Water Resources
EPBB: Expected Performance Based Buydown
EEM: Energy Efficient Mortgage
EIA: Energy Information Administration (of DOE)
EPBI: Expected Performance Based Incentive
FASB: Financial Accounting Standards Board
FHFA: Federal Housing Financing Agency
FICA: Social Security Payroll Tax
FinCap: Finance or Capital (lease)
FIT: Feed-In Tariff
FMV: Fair Market Value
HELOC: Home Equity Line of Credit
HERS: Home Energy Rating System
IDR: Interval Data Recording (meter)
IG: Investment Grade
IID: Imperial Irrigation District
IOU: Investor Owned Utility
IRC: Internal Revenue Code
IRR: Internal Rate of Return
IRS: Internal Revenue Service
ISO: Independent System Operator
ITC: Investment Tax Credit
JCP&L: Jersey Central Power & Light
kWh: kilowatt-hour

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