Solar energy seems like such a simple concept. Or at least on the surface it does. Until you really delve into it.
Even beyond the science of it, there is so much to know if you want to really understand your options for paybacks and how long it takes to see a full return on your investment and whether it’s even feasible for your home or business. My brain began to ache, researching info for this story about the benefits of solar for businesses, but it was so worth it. Once I finally get a home to call my own, I’ll be prepared. Hopefully I can help you better grasp it all as well! This is the story I wrote for the Worcester Business Journal.
Incentives from the federal and state governments are making the installation of solar photovoltaics (PV) more appealing than ever for Central Massachusetts businesses, but it’s not as simple as a business owner’s desire to reduce dependence on traditional energy sources and be eco-friendly.
“It may take a while to get payback on some of these systems, depending on what subsidies you get and how much energy you can put back into the system,” said Joseph Sarkis, professor of management at Clark University’s Graduate School of Business in Worcester. “Many companies just can’t wait multiple years. They need quicker turnaround.”
Solar installers often say customers can get a full return on their investment in three to five years.
Doug Davis, owner of Davis Farmland in Sterling, said he expects his timeframe to be longer. Last April, the farm had a 30.2-kilowatt PV installation of 144 solar panels put on the roof of a barn by Lunenburg-based Moss Hollow Solar. Davis said it generated 38 megawatt hours (MWh) of power in the first year.
He said the installation has outperformed his expectations, especially with the bright and near-snowless winter, but he’s still not planning to see a full return on his $125,000 investment for six to 10 years.
“We were expecting maybe $4,000 a year in electrical savings. Pretty much, we’re right back on track,” he said.
The rest of the return is expected through the state’s Solar Renewable Energy Certificates (SREC) program. It allows those with solar arrays to sell credits for the power they generate back to utility companies, which are required to generate a certain amount of solar electricity. In Massachusetts, those credits are issued quarterly, and were being traded this month for $540 per MWh of electricity.
“Solar PV has got the largest premium for renewable energy,” Sarkis said. “It’s the gold standard and utilities will pay for that.”
As solar demand increases, the value of the credits goes down, so Davis and others in his position can’t say when they’ll make their money back. This is compounded by the uncertainty about how many megawatts panels will produce in a given period.
Those unknowns and the high cost to purchase a PV installation are the biggest factors in whether it’s a viable option for a business.
“We wouldn’t have been able to do it without government funding,” Davis said. The promise of SREC sales for 10 years, a 30-percent rebate and a federal grant for farms covered about half the installation’s $250,000 cost. He said the remaining funding was backed by Rollstone Bank & Trust.
Jim Dumas, a founding principal at Solect Energy Development of Hopkinton, said the funding aspect has been one of the most critical components to having the sale and installation of solar panels succeed.
“The technology works. It’s worked for many years. It’s the easiest part of having one of these systems done. Sometimes, the more challenging part is financial, and that has to do with the newness of the programs helping out with it at the state level.”
He said bank funding has improved since Solect launched in 2009 and that early on, banks were tight in their lending because of the recession and skeptical of firms asking for funding for something as seemingly unfamiliar as solar.
“Most of what we did early on a couple years ago was not only educate potential customers, but to educate banks as to how this all works … how it’s good for everybody,” he said. “I think there’s more success in people seeing others adopting it. The banks are kind of no different than the people buying it.”
To help ease the strain of funding, customers can take part in a rental plan many solar companies offer.
SolarCity, which does business in 13 states, opened a Marlborough location last year. Ed Steins, SolarCity’s northeast regional director, said early adopters to the market usually purchase solar systems outright, and that’s mostly what he’s seen in Massachusetts.
“Our experience has been that as a market matures, you see more and more leasing, and that’s because leasing opens up the market to many more companies that couldn’t afford the upfront expenditure of buying a system.”
Leasing generally means the solar company uses a customer’s roof for solar panels, then owns, insures and maintains them. The customer then pays a lower monthly electricity fee to the company, or can pay up front for several years of power. Dumas said customers usually see double-digit percentage savings in their electric bills when they switch to solar, but that it varies by company and installer.
How Businesses Benefit
Sarkis said businesses often benefit from solar power because of the solar cycle being in sync with a business day, and at peak electricity use times when some utilities use smart grids to charge premium rates. Smart grid technology uses two-way communication between utilities and their customers by way of sensors, advanced controls and computers to determine energy use by time periods and appliances. It also allows customers to have more control over their energy use by giving them the tools to be aware of what they’re consuming. “In the middle of the day, you have lots of companies using energy,” Sarkis said. “If you do have a solar system, the solar supply and peak demand match perfectly, and there’s value in that.”
A downside to the panels themselves is reliability issues due to weather, maintenance needs or snow on the panels, but users can gain a sense of energy security, Sarkis said. “If you’re tied into the grid and there’s a brownout or blackouts, having the solar energy really reduces your risk of those situations.”
Another benefit is the ability of companies to utilize “green marketing,” which is gaining popularity.
“Some companies may take a (financial) loss, but at least their image and reputation as attempting to be environmentally sound could be beneficial,” Sarkis said. He noted that the downside is that a company that’s rising by touting its green efforts can fall that much farther if it’s caught doing something that’s not environmentally sound.
For businesses like Davis Farmland, sustainability is ingrained in the business model. “We’re farmers, which is all about sustaining. Not just in the new green ways. We’re a seventh-generation family farm,’ he said. “We’re trying to sustain this farm, this business, for future generations.”
And if you haven’t read enough, here’s more info that WBJ didn’t run about Davis Farmland’s expected return. This explains it in better detail, I think.
How long will it take for Davis Farmland to see a full return?
Doug Davis, owner of Davis Farmland in Sterling, said the 144-panel, 30.2-kilowatt PV installation on his barn generated 38 megawatt hours (MWh) of electricity in its first year. About half of the $250,000 solar system was funded by federal grants and tax incentives. That leaves about $125,000 the farm must make to see a full return on its investment which will be funded by savings on electricity costs and payments from Solar Renewable Energy Certificates, or SRECs, the farm is guaranteed for 10 years. SRECs incentivize solar by creating an accelerated way for owners of solar installations to make a full return on their investment. One credit is issued for every megawatt hour an installation produces. In Massachusetts, credits are minted on a quarterly basis. Those credits are traded and purchased by energy suppliers, like utilities, who are mostly required to have a certain amount of their electricity generated by renewables. There is no set value for SRECs, as it’s determined by supply and demand. As solar use rises, the cost of SRECs will decline. Davis said the most he can get for an SREC is $585 and the least is $285. Assuming that his farm continues to save $4,000 annually on its electric costs, generates an average of 38 MWh per year and is paid an average of $435 per SREC, his solar panels would pay for themselves in a little more than six years.