SCE Utility Rate Expected to Return for 25% More Solar Savings through Decreased Demand Charges

If you’re a business or a non-profit, your utility rate can be a crucial factor in your overall annual savings from installing solar. Now, thanks to a recent settlement between solar advocates and the Southern California Edison (SCE) utility that should be finalized by January 2015, commercial businesses and non-profits that go solar in SCE territory will once again be able to select the financially advantageous “Option R” Time of Use (TOU) rate that has been limited.

What’s Option R? Option R is an alternative to SCE’s “Option B” TOU rate, which could still reduce commercial electricity costs by installing solar panels, but … the Option B rate did not affect demand charges, a significant portion of commercial and industrial electric bills. The reintroduction of Option R would simplify SCE’s rate structures so that demand charges are reduced, and as a result, it can increase annual solar savings by around 25% over the Option B rate.

Before we get into a couple of examples, let’s get onto the same utility bill page. Your non-residential SCE utility rate bill is broken up into several components:

Service Charges: These are fixed charges and are not affected by going solar, no matter which rate your operations manager chooses.

Energy Charges: This portion of your bill is based on the amount of energy that you actually use from the utility and time of day that you use it. Peak daytime rates are higher than off-peak evening and weekend rates. Additionally, summer rates are higher than fall, winter and spring rates. (This is why Option B could be complicated.)

Demand Charges: We’ve discussed demand charges in a separate blog post, but this is essentially a charge for using a short surge of energy during certain times of the day. For example, a demand charge would be assessed for when turning on machinery or air conditioning. The amount you’re charged for this surge depends on the time of day and the season.

With the expected revised Option R, the demand charge seasonal rates and peak time rates are consolidated into a single relatively low rate, significantly reducing that portion of the bill. Option R’s energy charges are increased slightly compared to the Option B rate, but the decline in demand charges more than makes up for that slight increase.

Let’s go through two examples and see how much Option R can increase savings over the old Option B rate for a Large Retail Business and for a House of Worship, two types of SCE customers that use electricity at different times of the day.

Note: Because demand charges are calculated over a brief period of time and solar production can vary by the time of day, cloud cover, and other factors, solar panels may or may not offset demand charges when, for example, an air conditioner unit turns on at 10 am in the morning. Because of that unknown, the case studies below are worst-case scenarios and will assume that no demand reduction is taking place by solar. Consequently, actual savings may be even greater than these conservative examples. 

Case Study #1: Large Retail Business Going Solar in SCE Territory

You’re a large retail store with heavy lighting and air conditioning being used during peak (expensive) times of the day. After REC’s analysis of your current SCE bill and usage profile, we determine that you would need a 250 kW solar system to optimally reduce your bill.

Before installing solar, your annual SCE electric bill looked something like this:

Large 50,000 Sq. Ft. Retail Store, Southern California Edison, TOU, GS-2 rate, Before Solar
Annual Service Charges: $3,190
Annual Demand Charges: $30,831
Annual Energy Charges: $41,986
Total Annual Bill Before Solar: $76,006

After you install a 250 kW solar system and used Option B, the numbers get better, but those demand charges are still pretty high:

Large 50,000 Sq. Ft. Retail Store After Solar Rate with Option B
Annual Service Charges: $3,190
Annual Demand Charges: $30,830
Annual Energy Charges: $3,588
Total Annual Bill: $37,607
Annual Reduction with Solar 51%

As we can see, the demand charges and service charges pretty much stay the same, and the real savings come from reducing your energy costs from solar. Now let’s switch to the Option R rate:

Large 50,000 Sq. Ft. Retail Store After Solar Rate with Option R
Annual Service Charges: $3,190
Annual Demand Charges: $10,789
Annual Energy Charges: $5,451
Total Annual Bill: $19,430
Annual Reduction with Solar
74%

So, yes, the annual energy charges have slightly increased from Option B, but look at the dramatic reduction in the demand charges! Clearly, Option R is the best rate to choose to go solar in this type of heavy daytime usage business. In fact, Option R increased annual savings with solar by an additional 23%!

Large retail image

Case Study #2: House of Worship Going Solar in SCE Territory

For non-profit houses of worship, such as churches, synagogues, and temples, the energy usage profile is quite different from the large retail store. Here, energy usage spikes more on the weekends and during early morning and evening services. Nevertheless, the Option R rate is still the most cost-effective rate and is a significant improvement over Option B.

Let’s take a look at a House of Worship scenario where a 100 kW solar system is recommended.

25,000 Sq. Ft. House of Worship,  Southern California Edison, TOU, GS-2 rate, Before Solar
Annual Service Charges: $3,190
Annual Demand Charges: $18,785
Annual Energy Charges: $17,099
Total Annual Bill Before Solar: $39,073

Now let’s see what happens after solar and Option B rate are applied:

25,000 Sq. Ft. House of Worship After Solar with Option B
Annual Service Charges: $3,190
Annual Demand Charges: $18,789
Annual Energy Charges: $1,739
Total Annual Bill: $23,718
Annual Reduction with Solar 39%

39% savings is not too shabby, but let’s see how Option R reduces demand charges even more:

25,000 Sq. Ft. House of Worship After Solar with Option R
Annual Service Charges: $3,190
Annual Demand Charges: $8,072
Annual Energy Charges: $1,920
Total Annual Bill: $13,181
Annual Reduction with Solar 66%

Once again, we see how demand charges have been significantly reduced under Option R, while energy charges have gone up only slightly. In terms of overall savings, solar with Option R produces significantly more annual savings. Take a look:

House of Worship ImageIn both of our above solar case studies, SCE’s Option R rate with solar creates dramatically higher savings and hence, a faster payback.

Option R is expected to be available in January 2015 for medium and large-scale solar customers with demands between 20 kW and 4 MW in SCE rate classes GS-2, GS-3 and TOU-8.

How much would your business or non-profit save with solar and switching to Option R? Contact an REC Solar expert for a comprehensive solar evaluation, as well as information about new low-up front cost financing options.

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What You Need to Know about Solar, Storage, and Microgrids – Solar Webinar Recap

REC Solar recently participated in a webinar on Renewable Energy World that invited several experts to discuss the U.S. landscape for solar PV with microgrids, and energy storage. The panelists included:

Peter H. Asmus, Principal Research Analyst at Navigant Research. Peter is a leading global expert on microgrids and virtual power plants and the author of four books on energy and environmental issues.

Ben Peters, who serves as Director of Solar Finance & Policy at REC Solar. Ben provides strategic guidance on the commercial and utility sector, and he also manages REC’s economic analysis group, which helps REC customers to develop projects based on relevant regulatory and policy changes.

John Wood, Chief Executive Officer of Ecoult, an energy storage solution company. John first joined the energy storage community in 2008, having previously launched technologies globally in security, identity, payment technology, and telecommunications.

microgrid_Concept_opt

The Growing Demand for Solar Microgrids

Peter Asmus began the webinar with a brief description of microgrids and their advantages, including the ability to “island” (produce energy independently of the grid) during any kind of blackout or natural disaster. They’re also an economic advantage over fossil fuel-based generators in isolated areas, such as Hawaii and Puerto Rico, where most fuel for the grid is imported.

Peter also touched on the fact that energy markets and policies are rapidly changing and moving favorably toward renewable energy.  States are implementing mandates and incentives that make solar competitive with fossil fuels. In some states like California, solar is already at grid parity without incentives, and storage costs are also rapidly declining.

The U.S. military is also noting the potential benefits of microgrids, both in the field, as well as adding to the security of a base’s infrastructure in case of attack or a natural disaster.

Another reason why the U.S. is getting more interested in microgrids is climate change. The grid is getting less reliable thanks to the increasing number of super storms and extreme weather, both hot and cold. Peter’s graph on slide 10 shows how the number of power outages are increasing throughout the U.S.

Of course, there are also challenges to solar micrgrid growth, and Peter mentioned several. For one, utilities are putting up obstacles to microgrid integrations, not understanding their technology and questioning their benefit to the larger grid—as well as to their bottom line.

Given all of the above, Navigant is now forecasting a conservative estimate of 4000 MW of installed microgrids by 2020 in North America, and may be as high as nearly 8000 MW. Asia and the East may install even more, and Europe is also strong.

The U.S. Market for Solar Market Grids: Venues, Regulations, and Business Models

REC’s Ben Peters was next on the panel and began by highlighting all of the potential venues of microgrids, such as off grid applications for villages and island nations, as well as systems that might be integrated with military bases, universities, and research centers.

Ben then moved on to discussing the ideal physical and economic environment for an interconnected solar microgrid. With certain state incentives, many businesses and landowners might benefit from installing a microgrid to simply profit from providing solar electricity and grid storage directly to their local utility. This is known as a “front of the meter” business model scenario.

In the “behind the meter” scenario, the solar microgrid would be installed on site and feed solar electricity to the actual business or institution, thus reducing its energy costs and utility demand charges while also providing some backup power in case of a grid outage.

Beyond your potential microgrid business model, Ben talked about the physical and financing challenges of implementing a solar microgrid. Typically, microgrids are financed, so an institution needs to be approved by a lender or financier experienced with these types of energy infrastructure projects.  Moreover, engineers have to be able to physically interconnect the project with the overall grid, and in some cases, that may not be possible due to the need for expensive grid upgrades.

In terms of markets, Ben displayed a map of the different solar microgrid markets that exist in the U.S.  today. The map reveals that most microgrid projects are being installed in areas of California, Arizona, New Mexico, Texas, Florida, North Carolina, Michigan, and New Jersey. Other states, especially in the Midwest, are installing them too, but these are smaller projects and fewer in number.

Solar with Storage and Microgrids and Their Applications

The last speaker, John Wood, focused his presentation on the storage component of solar microgrids.  John really dives into the details of solar storage applications and the advantages of storage today when combined with renewables and fuel-based microgrids, especially for islanding.

In particular, John highlights storage as a solution for grid variability, especially for wind smoothing and solar shifting, which help balance the grid from these renewable energy sources that can fluctuate and surge by the minute.

He also discusses how battery storage can be added to existing diesel microgrids to increase efficiency, reduce the fuel costs, and of course reduce emissions.

Finally, John outlines the technology and advantages of his Ecoult UltraBattery lead acid-based battery solution, which combines diesel generation with renewables and battery storage. John discusses how this hybrid energy combination can be a cost-effective, efficient, and reliable solution for existing fossil fuel-based microgrids.

Those are the highlights of our webinar. You can see the entire webinar, as well as the post-webinar Q&A that dives deeper into costs, on RenewableEnergyWorld.com. (Click “Register” fill out the form, and the webinar will be replayed.) You can also view or download the PDF slides of the presentation here:

Of course, if you have any questions about this presentation or about solar microgrid solutions and the economics for your facility’s operations, please contact us.

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Video: Groundbreaking for 12 MW Kaua’i, HI Solar Project

anahola.revOn July 26, 2014, REC Solar and the KIUC Utility held a groundbreaking ceremony for a 12 MW solar project on the island of Kauaʻi. A 6 MW lithium-ion battery system will also be installed alongside the array to store and distribute energy when clouds reduce the solar installation’s output.

The groundbreaking event was attended by many notable Hawaii state officials, including Hawai’i Lt. Gov. Shan Tsutsui, Kaua’i Mayor Bernard Carvalho, Jr, and Rep. Derek Kawakami, House District 14. KIUC President-CEO David Bissell and KIUC’s Chairman of the Board Allan Smith were also in attendance.

When completed in 2015, over 57,000 solar panels will power 5% of Kaua’i with clean solar energy.  Check out this photographic journal of the ground breaking, below. For more details, you can also read about the project here:

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Beating the Heat: Hampton Inn Hotel Reduces Cooling Costs by 44% with New Solar Carport

It’s hot in Bakersfield, California, especially during the summer months when temperatures regularly hit 110 degrees. But as The Hampton Inn & Suites Bakersfield North-Airport is discovering, the sun also has its advantages for reducing utility costs and increasing customer acquisition and satisfaction when the hotel goes solar.

The attractively designed 102 kW solar carport installed by REC Solar, combined with energy efficiencies, will not only offset up to 44% of the 94-room hotel’s electricity costs, but it will also provide much appreciated shade for arriving visitors and hours of sun protection for 29 parked cars.

Hampton.Inn1_opt

Bakersfield North Airport Hampton Inn’s Solar Carport—By the Numbers

Solar System Size: 102kW DC
Est. Annual Production: 157,080 kWh
Utility Offset: 37%-44% (combined with energy efficiencies)
Projected Monthly Savings: $7,400-$8,800/month
Simple Payback: 7.75 years
Carport Size: 29 vehicles
EV Charging Bays: 2, expandable to 8

Why Solar for Hotels?

There are several advantages for hotels going solar. Most important are the reduced HVAC costs, says Braxton Myers, Vice President of Operations for Blackstone Hospitality Group Inc, which provides property management for franchise hotels throughout the U.S.

Myers says that HVAC and 24/7 lighting inside and outside of the hotel typically account for the majority of a hotel’s electricity expenses, and the Bakersfield’s location made cooling expenses even more dominant.

“The amount of electricity that this property consumed was pretty astronomical,” Myers says. He added that on top of the high temperatures, The Hampton Inn’s energy audit revealed that the property was built with vertical zoneline heating and cooling units, which are inefficient for hotels where temperatures regularly exceed 100 degrees. So, the solar system’s energy offset would provide a cost-effective solution to replacing the hotel’s entire cooling system.

Beyond the energy cost reductions, hotels with solar and other sustainability initiatives can also benefit customer acquisition.

Myers explains that Central California has many government and business travelers, and that the State requires employees to book rooms from an approved list of green hotels with pre-negotiated pricing.  As a result, Blackstone has been able to use its marketing resources to attract government travelers and large corporate customers that mandate the use of sustainable hotels like their Hampton Inn Bakersfield location.

Myers also points out that installing solar on hotels is part of Blackstone’s overall environmental stewardship. “We promote solar and other green initiatives to all of our owners and try to make sure that we’re a responsible operator. Hotels in small communities like Bakersfield are one of the largest consumers of natural resources based on water, electricity, and everything else that hotels consume. So we try our best to be a responsible operator in that regard.”

The Choice for Going Solar with Carports

Myers has personally been involved with two other hotel solar projects, but this is his first solar carport installation, and there were several reasons for this choice.

The first consideration was the Hampton Inn’s roof. Although rooftop solar installations are much less expensive than carports, the design of the Bakersfield hotel’s roof prevented REC from installing a system without first reconfiguring the roof and taking out the use—and income—of several top floor rooms for many months.

Second, the solar carport was attractive and provided extra comfort for guests.

“We do enjoy the appearance of the carport structure,” says Myers. “And from a guest’s standpoint, in an area with 110 to 115 degree heat, we think they’d welcome the shading carport structure that would allow them to get their vehicles out of that heat.”

Blackstone also saw the solar carport as an investment that would attract long distance electric vehicle (EV) travelers. The Bakersfield Hampton Inn installation includes two active EV charging bays that are wired to expand into a total of eight charging bays when EV visitors become more frequent.

Financing Solar for Hotels

There are a number of ways to finance solar PV systems for hotels, and those choices will depend on the company’s resources and business plan.

In the case of the Bakersfield North Hampton Inn, Blackstone included the cost of the solar installation and the energy efficiency upgrades within its initial financing of the hotel, which it purchased in late 2013.

By rolling in the solar improvements to the hotel’s purchase price,  Blackstone was able to take advantage of the 30% Investment Tax Credit and other tax benefits.

Solar power purchase agreements (Solar PPAs), commercial PACE programs, and solar leases are additional solar financing methods, but those vehicles didn’t make sense for Blackstone’s current business models, said Myers.

Given their extra expense, solar carports aren’t the best solution for every hotel, but their overall advantages to this particular Hampton Inn’s  climate and roof structure made it the best solution for Blackstone—as well as for its guests.

If you have questions about carports or solar for hotels, contact REC Solar for more information.

 

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Evaluating Commercial Solar: Payback, ROI, NPV, and IRR

Harris.Freeman.013How much your business saves over the 25 to 30 year lifetime of a typical commercial solar system depends on many factors, including how you finance it, federal and local incentives, your utility rate, and the amount of sunshine available on your commercial rooftop.

To help commercial and industrial solar customers evaluate the financial benefits of installing solar, REC Solar can provide a free quote and a detailed financial analysis to determine:

  • Payback
  • Return on Investment (ROI)
  • Net Present Value (NPV), and
  • IRR (Internal Rate of Return)

Let’s briefly explore each of these finance evaluation concepts. Some variables will change if financing through a solar lease or solar power purchase agreement (solar PPA).

Payback

“Simple payback” is the length of time it takes for your upfront solar investment to pay for itself through solar energy savings. To calculate it, most commercial installers take the net cost of the solar system after incentives have been applied and divide it by your projected annual electric bill savings:

Net Solar System Cost/Annual Utility Savings from Solar = Simple Payback in Years

As an example, if your net commercial installation cost $50,000, and you saved $10,000 per year in utility savings, your payback would be 5 years.

However, simple payback does not account for inflation, depreciation, maintenance costs, project lifetime, and other factors. So, it doesn’t really give the true value of solar over the full lifetime of a solar system, and it doesn’t give any rate of return.

REC Solar’s proposals go beyond simple payback formulas and include inflation, depreciation, etc, plus other costs specific to a solar installation. For example, energy bill savings from solar represent a cost not spent, and therefore gives money back to the company, which is then taxed as revenue. REC Solar’s payback definition includes the taxes that may be paid on energy savings.

Return on Investment (ROI)

ROI gives you another relatively simple perspective of how much money you’ll save over the entire (typically 25 to 30 year) lifetime of a commercial solar project. A comprehensive ROI formula for commercial solar will include:

  • Your current utility kilowatt-hour (kWh) rate and any demand charges.
  • Your annual bill without solar.
  • The projected annual increase of utility costs over 25 to 30 years based on historical increases.
  • The projected amount of solar kWh your system will produce over 25 to 30 years
  • The lifetime costs associated with the solar installation, including installation costs, inverter replacement, operations and maintenance cost
  • The estimated value of all solar rebates, performance based incentives, and tax incentives received over 25 to 30 years.
  • Any applicable taxes.
  • Any applicable interest/loan costs.

REC’s proposals include ROI values over 10, 20, and 30 years. When all of these negative and positive values are calculated over those time periods, you’ll not only see the payback year, but also the total amount of money saved by going solar.

Net Present Value (NPV)

While ROI takes into account all of the financial benefits and costs of going solar, it doesn’t take into account the future value of the money being invested. That is, it doesn’t factor in inflation, risk, or the lost opportunity of investing in another type of investment, such as stocks and bonds. This is commonly referred to as the time value of money.

NPV does account for the time value of money. Using a solar NPV formula, REC Solar can show you how the 25 to 30 year lifetime cash flow of a solar project compares in today’s dollars, factoring in for inflation, interest, and other lost opportunity costs.

If you’re not familiar with the concept of NPV, the video below explains it in more detail.

In terms of a solar project, the future value (FV) for each year would include all of the upfront costs of installation, plus the projected net annual utility savings and income from any production based incentives, divided by a discount rate.

Over 25 to 30 years, the typical commercial solar project will show a large and positive NPV.

IRR (Internal Rate of Return)

Whereas NPV can show the project’s net present value in dollars, the IRR reveals the rate of return from NPV cash flows received from a solar investment. So, if your IRR is 12%, it means that your solar energy investment is projected to generate a 12% return through the life of the solar system.

IRR is useful for comparing the returns on two or more investment opportunities. Given the accurate data of each investment, a business can compare the IRR of investing in solar to the IRR of some other capital investment and select the one with the highest return.

If you’re not familiar with the concept of IRR and its formula, the video below explains it in more detail:

Calculating the IRR for commercial solar installations depends on many factors, including how you finance it. For a loan, data will include the net cost of the system after upfront rebates and tax incentives, the amount of debt, interest rate on debt, debt term, projected annual cash flow from utility savings, and any pre-tax performance based incentives, as well as O&M costs.

Get a Free Solar Financial Analysis

Unfortunately we’ve had to be very general with these terms because each commercial solar project can vary widely.

To get more specific information for your potential solar project, REC Solar offers a free financial analysis that includes estimated costs, finance options, payback, ROI, NPV, and IRR. To receive your free solar estimate and financial analysis, get started here.

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