Installing solar on your commercial building can make a lot of money. But it can also be a nightmare.
What makes developing solar power such a hit or miss process?
A key determining factor is how your utility prices electricity. If your building’s electric bill has a non-coincident demand charge then that could be an an unsurmountable economic mountain for a solar project to overcome.
The second determining factor is how your city approaches solar permitting. Because time is money, a city that approaches solar permitting as an event requiring added attention could threaten its financial success.
The great news is that emerging smart technologies and batteries are increasingly overcoming solar-killing utility rate designs. Ironically, these same technologies may create permit approval challenges that endangers its economics.
Two economic drivers that can make solar a fantastic investment
Falling solar prices is the number one reason businesses should investigate owning their own system. Just last year the price of solar technology fell over 17%! Falling technology prices have made solar price competitive against average utility kWh electricity rates. Plus, a customer owned solar system is insurance against future utility rate increases.
The second economic driver is that solar still has very attractive tax benefits. Installing solar earns a 30% Federal investment tax credit. It also benefits from five year accelerated depreciation. These tax benefits, combined with bill savings, often recover capital costs within five years. After that, free electricity!
How utilities use KW rate designs to destroy solar economics
There is one overriding reason why America’s businesses are not massively investing in solar power. It is our electric utilities’ purposeful deployment of solar-killing rate designs.
Ironically, utilities are falling in love with solar. But only if they can meter it. Solar power plants now have lower costs than natural gas or coal generation. As a result, solar accounts for over 75% of the new generation being installed by utilities.
But utilities look at customer owned solar as a threat to their revenues and existence. In response, utilities have introduced rate designs that use KW (kilowatt) demand charges to destroy the economics of customer owned solar.
A KW charge is a rate design option that a utility can use to charge customers for grid use. The companion kWh (kilowatt hour) charge recovers operations costs.
On the surface, that seems fair. A customer owned solar system that generates 100% of its energy (kWh) requirement will still need to use the grid when the sun does not shine.
But utilities are not seeking fairness in how they apply KW charges. They are seeking to optimize their payments from customers at the expense of customer owned solar. This is most obvious in their use of non-coincident KW demand charges.
Here’s an extreme example of how this works. Let’s assume a building’s maximum demand during a year is 30 KW at 3 am on a Fall day. During this time period a utility can be spinning reserves (running fossil fueled power plants) to keep the grid from crashing because of a lack of customer demand.
Under a non-coincident KW demand charge, our hypothetical building is charged as if it were consuming 30 KW on the hottest day of the year when the grid is threatened by high consumer demand. Even worse, it will face this high charge every month for a year!
A non-coincident demand charge makes no sense in terms of allocating grid investment among customers. It makes a lot of sense in terms of optimizing utility revenues. It allows utilities to charge customers a lot of money even is they own a solar system that is reducing utility investments needed to sustain the grid during a hot, sunny day.
Protecting a project from non-coincident demand charges is the first task in successfully developing a customer owned solar system. A key step is to find a developer that understands both the complexity of utility rate designs plus how to use technologies like smart load systems, fuel cells or batteries to overcome non-coincident demand charges.
Working with your city’s permitting department
Unintentionally, your city’s permitting department can also harm the economics of your customer owned solar system.
In most permitting departments the staff holds considerable latitude in deciding how to evaluate and permit a solar project. This is not a beef against permitting departments. My experience is that city permitting staff are talented, experienced professionals trying to do the right thing. But they can often look at a solar permit as an opportunity to address other issues with a building. When they do so, a pandora box of costly requirements can surface.
For that reason, most solar companies will not offer contract protection against permitting delays or costs.
To protect your solar project, select a solar contractor with the ability to be professionally and technologically responsive to your city’s permitting department. A customer owned solar project will greatly benefit from having a general contractor that can maintain a positive relationship when permitting issues arise, because they always arise.
Developing a smart, solar medical building
The second of this two part article profiles a smart, solar system installed at a small medical building. The economics of this project confronted a KW non-coincident demand charge that accounted for at least 40% of the electric bill.
It also faced considerable local permitting challenges.
This second article will outline lessons learned in developing a solar project.