SAN DIEGO--With so many large organizations putting solar panels on their roofs, you would think that it's because solar power is cheaper than the grid. But a closer look shows that it's not that simple.
The California Center for Sustainable Energy organized a corporate solar tour on Monday, as part of the Solar Power International conference taking place here this week.
A part of the one megawatt at the Alvarado Water Treatment Plant in San Diego.
(Credit: Martin LaMonica/CNET Networks)The tour made clear that there are a lot of good reasons to go solar, namely hedging against fossil fuels prices or good community relations. But it's not just about lowering the electricity bill. In fact, in some cases, customers pay nearly as much as they did before they went through all the trouble of installing the panels.
Consider the city of San Diego which is in the process of procuring as much as five megawatts of solar electricity in municipal sites over the next five years.
The first to go online is the Alvarado Water Treatment Plant, a one-megawatt installation that produces about 20 percent of the power the plant uses. The second planned array, also for a water treatment facility, could be finalized in weeks.
The Alvarado solar array is spread across three different locations at the plant where rows and rows of solar panels are placed on top of concrete water storage tanks.
An installation of this size costs about $6.5 million--beyond what most municipalities can afford. So they arrange what is called a power purchase agreement (PPA), where another company called a systems integrator finances, installs, and then owns the facility.
The water treatment plant just buys the electricity, at only half a cent less than the retail rate of 12.5 cents per kilowatt-hour. A half-cent discount doesn't sound like much but the plant estimates that it will save $177,300 a year by installing the panels.
Perhaps more importantly, the city's contract with its systems integrator, SunEdison, stipulates the the price it will pay for the solar panels' electricity will go up slower than the retail price of electricity. So while other customers are exposed to the vagaries of price increases, the plant will know how much its electricity will cost for the 20 years of the contract.
"We anticipate that with the systems in the future that we'll get better pricing because the price of solar panels is going down all the time," said John Helminski, a systems engineer for San Diego's energy program in its environmental services department.
Meeting the city's renewable energy goals and hedging against rising electricity prices was so important that the city considered big solar installations even when it was unclear that a sizable renewable energy tax credit would be renewed. (It was).
Solar trees sprout in San Diego
The University of California at San Diego had similar motivations when it embarked on a series of solar installations on campus.
A "solar tree," or solar powered canopy at the University of California at San Diego.
(Credit: Martin LaMonica/CNET Networks)Rather than a strictly financial decision, renewable energy purchases are part of bigger sustainability initiative, said David Weil, who works with the university's facilities management division.
Within about two weeks, it will connect a 164-kilowatt installation of "solar trees," or solar-powered canopies in one of its parking lots.
The solar parking lot will allow them to purchase electricity at just under the market rate as well. But its primary reasons were to demonstrate its commitment to sustainability and make progress on its goals to be "climate neutral," Weil said.
The city and university's attitudes are similar to many corporate solar installation decisions, said Dave Thompson, a senior energy consultant at Borrego Solar's Commercial Projects Group.
Solar panels are a visible way of saying that a company is doing something about environmental protection and lowering a business' carbon footprint--all of which can lead to good public relations.
"I cannot say I ever sold a solar system on finance alone," said Thompson. "You get a lot of nonmonetary benefits. So if a project will break even, they'll do it."
Cash is better
For organizations that actually have the cash on hand to purchase a solar installation, the financial benefits are a lot more direct.
Corporations can get a federal tax credit of 30 percent of purchase price as well as state-level rebates. They can also amortize the equipment as a capital expenditure.
And they know that the source of fuel for their power generator--the sun--will always be free. (Panels are typically guaranteed to work for 20 years and then they start to degrade in performance.)
The solar array at the New Children's Museum in San Diego which produces about half of the building's electricity.
(Credit: Martin LaMonica/CNET Networks)The New Children's Museum in downtown San Diego, which is a certified green building, was able to purchase its 90-kilowatt solar panel outright, rather than go with a power purchase agreement.
Although the purchase price before rebates and tax credits was steep--on the order of $700,000--the system will pay for itself in 12 to 15 years and make their energy costs more predictable, said Troy Strand, executive vice president of Independent Energy Solutions, a solar integrator.
Strand predicted that corporate purchases of solar power will continue to go up for a number of reasons.
"What's driving the corporate model? For nonprofits, it's budgetary relief and trying to fix their costs," he said. "A corporation is going to do it for myriad of reasons--being good to the environment, freezing costs--again for budget effects--and they may have a tax liability."
The price of solar electric gear and installations continues to go down and many experts expect that solar power within a few years will be at "grid parity," or the same cost per watt as fossil fuel-generated electricity.
But organizations that invest in solar are putting a value on things other than purchase price--some of which benefit their bottom line, others that benefit society as a whole.
Solar installer SolarCity is doing, in a limited way, what many people contend is the key to wide-scale adoption of solar power: a leasing program.
The Foster City, Calif.-based start-up is offering customers in California, Arizona, and Oregon a financing option that allows them to get solar panels with a relatively small up-front down payment and monthly lease fee, SolarCity CEO Lyndon Rive said on Monday.
Solar panels that generate electricity can cost between $20,000 and $35,000 before tax credits and other clean energy incentives. Those subsidies can bring the cost down significantly, depending on the state or country, but up-front costs remain a significant barrier to adoption.
SolarCity's financing plan will allow people to have solar panels installed for $1,000 to $3,000 up front, depending on the size of the system, and a monthly fee.
The numbers work out so that most consumers, particularly those who pay large electricity bills, will pay less per month with the arrangement, he said. As energy prices go up over time, their savings can go up.
"Historically people who are adopting solar are those who really care about the environment and have disposable income. This will open it up to new clients, the millions of people who want clean power," Rive said. "Why would you not do this?"
The service makes most sense for consumers who pay high electricity bills, particularly in states like California that have a tiered pricing regime in which consumers pay a higher electricity rate the more they consume.
The model also assumes electricity prices will continue to go up, which is likely to be the case, although at an unknown rate.
How it works
What SolarCity is doing is a residential version on a commonly used commercial financing model, called a Power Purchasing Agreement (PPA).
When corporations put solar panels on their rooftops, they often don't actually own those panels.
Instead, a third-party installer or financier owns and maintains the panels and sells the electricity they generate back to the customer.
It's an arrangement that lowers the up-front costs and gives customers a locked-in price for electricity over several years. That acts as a hedge against rising fossil fuel prices, since the price of solar energy is constant.
In SolarCity's residential financing program, the company will maintain ownership of panels and benefit from a commercial tax credit, which is better than the residential rate.
Other companies have tried to apply this model to the residential market.
Another Bay Area start-up called Sun Run has a similar financing and ownership model but appears to require a higher up-front investment.
Another company, Citizenre, has promised the same low-money-down arrangement in the face of deep skepticism but has not launched a product after more than a year of advertising it.
Other installers, such as groSolar, offer to broker financing services for customers.
Rive said that SolarCity hopes to roll out the financing option to other states later this year.
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