Companies have traditionally seen energy as a cost to be managed, rather than an opportunity for investment, but advances in the solar market have made this energy source a smart option for a number of reasons.
December 17, 2012 By Mike Grunow
The price of solar panels and installation have declined to a point where financing programs make it possible to go solar without paying for the system upfront. These financing options also provide the opportunity for solar end-users to tap into a support system that shepherds their building through the solar installation process. This support system ensures projects are completed successfully so they provide a positive rate of return.
Solar prices have come down through a mixture of industry advancement and solar incentives. The cost of solar installation has dropped nearly 300% since 2009, with the average price of a solar panel declining by 51%. On the panel side, cost reduction has been achieved in a number of ways: continued industry investment in R&D; scaling, as the industry continues to grow; and greater efficiency in panel manufacture.
Manufacturers have worked to lower the downstream costs of solar, as well. They have done so by partnering with component makers to develop time-saving panel racking and wiring materials that reduce the cost for system installers, who are then able to pass savings on to end-users.
Solar incentives as a stepping stone
In the United States, the federal government enables all purchased solar systems for residences and businesses to qualify for a solar investment tax credit (ITC). Congress created the solar ITC through the Energy Policy Act of 2005 and, later, extended it through December 2016. Essentially, the IRS provides customers a 30% tax credit based on the post-rebate price of their system.
In addition to national tax incentives, many states, provinces, counties and cities offer incentives to spur local solar adoption.
Nearly three-quarters of states have a Renewable Portfolio Standard (RPS) that mandates a percentage of the state’s energy come from renewable sources by a certain date, though percentages and deadlines vary. For example, the top two states for solar installations—California and New Jersey—have a 33% and 20% RPS mandates, respectively. Both have a target date of 2020. Hawaii currently has the highest RPS requirement at 405 of energy production from renewable sources by 2030.
One incentive many localities use to reach these goals is a feed-in-tariff (FIT) program. Ontario is a prime example. The Ontario Power Authority offers buildings and homeowners a tangible reward for installing solar by paying them for the energy generated from the system. The program pays $0.549/kWh of energy generated by small rooftop systems.
Another example is the Los Angeles Department of Water & Power’s CLEAN LA Solar program: approved this past spring, it makes more than 12,000 acres worth of rooftop space available for solar projects.
Financing your solar project
The lower cost of solar installation has led to the availability of a number of project financing options. The most popular financing mechanism available is the power purchase agreement (PPA), a financing mechanism similar to a lease. These agreements are between the host customer and the solar services provider.
In this relationship, host customers enable the solar service provider to put solar on their building’s rooftop or adjacent land. The solar services provider owns the system and charges the customer for the power generated by the panels—similar to buying power from their electric utility. The difference is that home or building owners are charged a monthly locked-in rate that is cheaper than their current monthly utility bill for a pre-determined amount of years.
The solar services provider is responsible for arranging the financing, design, permits, construction, installation and upkeep processes. Working with a solar services provider also frees the customer from having to deal with the permitting and paperwork involved with adding solar project.
Jumping over project hurdles
Like many construction businesses, the permitting process adds obstacles, cost and time to the installation process. In fact, soft costs can amount to up to 40% of the total installation cost of a rooftop photovoltaic (PV) system. As many in trades know, system costs vary as permitting rules vary between jurisdictions.
As with any construction project, it is important to choose reliable partners. Reliable partners help you ensure there is minimal disruption during the installation process. They will bring in the best panels and equipment that maximize a return on the investment made in the system. And they will work to ensure the system is working at optimal performance throughout the life of the system—as much as 25 to 30 years.
Solar’s bright future
The solar industry continues to look for ways to reduce the need for policy investments. Solar manufacturers will continue to reduce the costs for solar projects through technology advancement and by providing reliable equipment that financiers view as safe investments. Solar has now reached an inflection point where its cost is low enough, and reliability is high enough, that financing options are available that allow facilities to look at energy as an investment with a strong return, rather than a cost to be managed.
Mike Grunow is the director of marketing at Trina Solar, North America.
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