The PV Solar Industry is experiencing explosive growth and many homeowners and business owners are being approached by solar companies to buy or lease a solar system. The purpose of this solar guide is to provide consumers with real numbers and objective information so they will be educated on what to expect from installing solar. This guide will explain common terms used in the industry and during a sales presentation.
Solar salespeople commonly present potential customers with the estimated production in kWh (Killowatt Hours) for the solar PV (Photovoltaic) system, and the value of that production by comparing it to the current & projected utility rate. From this analysis a customer’s estimated savings is presented.
Production in kWhs
The most important factor for calculating customer savings is estimating the production in kWh. The production of a solar system is dependent on many factors. In order to simplify things, we will narrow it down to the main variables:
- Size of the system. Solar PV systems are rated by watts. A 10 kW (Killowatt) system will produce 10,000 watts of electricity per hour in rated conditions. These conditions are defined as Standard Test Conditions (STC). Essentially these are laboratory conditions that do not normally reflect operating conditions. The size of the system is the most easily identifiable, and objective, attribute of the solar system’s capability and potential.
- The amount of sunlight at the site’s location. Sunlight varies with location and season. Arizona has the most sunlight in the U.S., while Alaska has the least.Shading can have a significant impact on solar production. Shading can come from a nearby roof or a dormer on the same roof. Most often they come from trees. Different seasons and times of the day can complicate matters, since the Sun moving across the sky can cause partial shading. In addition, the Sun is higher in the sky in the Summer and lower in the sky in the Winter. Solar installers have tools to calculate all the shading variables.
- Direction of the roof. The Sun is in the southern part of the sky and it travels East to West. As such, South, SouthEast, and SouthWest roofs generally receive the Sun’s exposure. A southern roof orientation is ideal, receiving the maximum exposure of the sun throughout the day and year.
- Tilt of the roof and/or panels. Being that the Sun shines at a certain place in the sky, different angles will affect how the sunlight hits the panels. The rays hitting the panels at the most direct angle will create the most production. On average, a 30 degree tilt (7/12 pitch) is optimal.
By definition, any deviation from ideal conditions lowers production a certain amount. NREL (National Renewable Energy Laboratory) is a government entity that tracks, among other things, sunlight at different locations throughout the World. They are able to project the amount of sunlight in the future based on the previous 30 years of data. NREL runs a website called PV Watts (http://pvwatts.nrel.gov/) which is able to calculate the projected production from a solar PV system.
This NREL calculator takes into account all of the above mentioned attributes, plus more. It then is able to project how much production a given system will produce by the year, and even per month. An installer who is putting together the projection has the ability to modify many factors to get as accurate a picture as possible.
A 10kW system at a 30 degree tilt angle facing 180 degrees azimuth with minimal shading in New Jersey will be estimated to produce 13,500 kWh per year.
Value of Production
Calculating the value of the solar system’s production is much simpler. One would first need to figure out what they are paying per kWh. Electric companies have different ways to present their bills. Since solar generates and delivers the electricity to the home or business, it lowers the Generation and Delivery portion of a bill. Some utilities charge for different times of day but we will try to simplify things:
- Add up the billed amount of all the line items that have kWh (NOT the KW, which is the calculation of the maximum amount of electricity that was needed at any given point).
- Divide it by the highest kWh amount specified (which is the total usage for that month) That number is the approximate electric rate. There are seasonal changes to the rate but it can be averaged out. The value of the production is the utility rate multiplied by the estimated annual solar production.
If the utility company is charging $0.16/kWh and the estimate annual production of the solar PV system is 13,500kWh a year then the value of what the solar is producing is $2,160/Year (.16×13,500).
Utility & Solar Rate Comparison
This is very straightforward. We already calculated the value of the production, as per the Utility Rate (in our example $2,160/year). Most solar proposals include a projection that the utility rate will go up at a certain percentage every year. They then compare that to the Lease/PPA/”Free Solar” rate, on an annual basis, to show how the savings increases over time.
In our example we won’t calculate the projected Utility Rate increases. If the Lease rate is $0.09/kWh then the annual savings will be $945 ($2,160($0.09×13,500)).
A few things to be aware of:
- The percentage that the solar company assumes regarding the projected utility rate increase can affect how much they portray the total savings to be. If one company states a 2% escalation and another says 5%, the one who said 5% will show a much larger amount of savings over the course of the life of the system. They don’t have control over that number, they are just projecting the future cost of utility energy differently.
- If one purchased the solar system they can calculate the IRR (Internal Rate of Return) or figure out when the Break Even Point will be and then have free electricity after that. Purchasing the system up front gives an immediate feeling of savings by avoiding a bill. Although the majority of residential systems installed today are through some sort of Lease or PPA agreement, there are many people who choose to purchase a system up front.
- Certain states provide solar system owners additional sources of revenue through REC or SREC (Solar Renewable Energy Certificates) programs. Someone who purchased a system, or receives the SRECs through their lease, earns a credit for each 1,000kWhs produced by the system. They are then able to monetize those credits through various mechanisms that the states setup. This can have a significant positive effect on owner’s cash flow.
13,500 will produce 13.5 SRECs (assuming the half a credit will be split over two years). If these SRECs are selling for $100 then the total revenue from the SRECs will be $1,350 for the year. In many States these SRECs can fluctuate in price, contracts for a multiyear setprice are sometimes available.
- A purchase can also benefit from tax incentives, state rebates and other benefits that are dependent on the location.
As incentives are often changing, it’s important to be aware of the current financial offerings that are available. Solar lease prices also can adjust as the incentives, and competition, change. Solar has tremendous value and in order to take full advantage of all that solar has to offer one should be knowledgeable to make the best educated decision.