California’s SCE Utility Option R Rate Returns for 25% More Solar Savings

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.

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.

12/18/Update: As expected, the California Public Utilities Commission has approved a settlement with solar advocates to increase the cap on its Option R rate from 150 megawatts (MW) to 400 MW, allowing more medium and large commercial and industrial customers to go solar. Below, we’ve described two examples that show how the Option R rate significantly increase the ROI of going solar in the SCE utility territory.

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.

rec_solar_californias-sce-utility

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%!

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:

rec_solar_californias-sce-utility-2

In 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.

 

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

On July 26, 2014, REC Solar and the KIUC Utility held a groundbreaking ceremony for a 12 MW solar power 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.

On July 26, 2014, REC Solar and the KIUC Utility held a groundbreaking ceremony for a 12 MW solar power 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.

Beating the Heat: Hampton Inn Hotel Reduces Cooling Costs by 44% With a 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.

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 carportinstalled 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.

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

rec_solar_beating-the-heat
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 parking structure 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.

 

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

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

How much your business saves over the 25 to 30 year lifetime of a typical commercial solar system depends on many factors, including how youfinance 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 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 non-residential 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 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.

 

Efficient Commercial Solar Installs: Two REC Solar Time Lapse Videos

The first is from IKEA’s southwestern US distribution center in Tejon, California. The 1.8 MW DC system covers 216,000-square-feet of the expansive rooftop, and produced 3.05 million kWh of electric power in 2013, over 110% of expected yearly production.

Below are two time-lapse videos filmed at two REC Solar installations.

The first is from IKEA’s southwestern US distribution center in Tejon, California. The 1.8 MW DC system covers 216,000-square-feet of the expansive rooftop, and produced 3.05 million kWh of electric power in 2013, over 110% of expected yearly production.

The second time lapse displays a solar installation for Pandol Bros., Inc., an agricultural facility based in Delano, California. This 1.135 MW DC solar array is projected to produce 1,900,000 kWh of solar power annually, powering the Pandol Bros. fresh produce cold storage, packing and shipping facility.

While time lapse videos do not capture all details of commercial solar installations, large solar systems like these can be completed in 4 to 6 months, depending on size and permitting requirements. Proper planning for rooftop or ground site preparation, environmental compliance, utility infrastructure upgrades, etc. helps to eliminate potential delays in the construction process.

If you’ve got questions about solar installation times and the construction process for your farm or facility, please let us know.

 

New Program Solves the Stranded Solar Meter Problem for California Farms

SB 594, a law that went into effect in PG&E utility territory February 2014, now allows property owners to aggregate the electricity load of multiple utility meters scattered throughout a single parcel or multiple continuous parcels and credit the bills with a single “Net Metered” installation.

SB 594, a law that went into effect in PG&E utility territory February 2014, now allows property owners to aggregate the electricity load of multiple utility meters scattered throughout a single parcel or multiple continuous parcels and credit the bills with a single “Net Metered” installation.

This new program is called ‘Net Meter Aggregation’ and reduces the cost of solar installation and increases flexibility for farmers that may alter individual electric meter consumption from year to year. This removes financial and technical barriers to going solar for farmers that have multiple utility meters on a single property or meters scattered throughout many parcels and were unable to take full advantage of California’s net metering program.

The Old Net Metering Rules

Similar to rollover minutes on a cell phone, net metering allows a solar customers electric bill to be credited for any extra power produced by the solar array.

Before Meter Aggregation, however, regulations limited the net metering incentive to the meter that was directly connected to the solar installation. For homes and small businesses, that structure worked fine, but farms often have multiple meters and usage on those meters can change from year to year based on growing crops on a particular parcel or not. This program now eliminates the cost that was previously required to connect all those meters to a solar system or the bill credits wasted if a water pump is not run for a year while solar is generating.

In the case of agricultural land, a single meter is often installed for each water pump across multiple acres of farmland. For factories, industrial facilities, and large government compounds such as an army base, a utility meter is often installed for each building on the compound.

Under the old rules, only a single meter connected to the solar installation could receive net metering credits. So, even if the solar installation could power all of the water pumps, the landowner would only receive credit for the single water pump tied directly to its meter and the nearby solar installation.

The New Net Metering Aggregation Rules Under SB 594

Under the new rules, multiple electrical accounts can now aggregate the electrical load of all the meters on the property where the solar system is located, or on property that is contiguous to the solar system.

Instead of building multiple solar systems for multiple meters on a large farm, solar companies can install a single solar PV system in one area. From this single location, the solar power generated—and any net metering credits produced—will offset the electricity used by all of the farm’s various loads, such as water pumps, electric fences, cold storage facilities, etc.

Take for example Bowles Farming Company, Dos Palos, California. This California farm had over 20 meters scattered throughout hundreds of acres. Under the old net metering system, a solar system would have to be built for each of those meters and would not be feasible. Under the new aggregate net metering law, REC Solar will build a ~800 KW solar array to offset 100% of their expected kWh consumption throughout all meters.

The new aggregate net metering rules decrease commercial solar installation costs for several reasons:

  • A single large solar installation requires less equipment, labor, and time to build than multiple smaller installations producing the same amount of energy.
  • A single solar array can now be installed in the most ideal location on California farms, potentially producing more power than multiple installations tied to individual meters that have less than optimal sunlight.
  • Extra equipment and engineering won’t be necessary to accommodate bad terrain or interconnection issues.
  • It’s now cost effective to build a larger solar array that offsets more utility power.
  • Similar to changing your allocation within an investment portfolio, Solar generation credits are allocated to meters and customers can easily change allocation percentages as usage patterns become different.

Similar to the farm’s meter issues, an industrial facility can now install solar on an adjacent empty plot of land or rooftop and be able to offset the power of all the property’s buildings.

SB 594 Meter Aggregation Limitations

While Meter Aggregation frees net metering’s restrictions, the CPUC did impose some limitations.

  • The maximum size of the solar system is 1 MW. So, if a farm needs to build a larger system, then an alternative program for larger systems will apply .
  • Net metering is only applied to the maximum load (i.e., energy use) of all of the meters on site. So, if the solar system over produces and generates 110% of the farm’s energy needs, the extra net metering credits will not be as valuable. . Consequently, it’s important for a solar installer to design a system that is optimal and understand every aspect of the project.
  • This program is only available for a limited time and will end once the current Net Metering program expires.

This last caveat is important. Currently, customers benefit from being credited at the full retail rate for their solar net metering credits. However, with the passage of a similar piece of legislation, California’s AB 327; the CPUC is now in a process of redefining the value of net metering, effective Summer 2017 – or until 5% of the utility’s customers have Net Metering.

It is unknown whether the new net metering program will reduce its value to customers, but many insiders suspect it will. In order to take advantage of this opportunity before it expires, customers must have a system installed before the new program takes effect. Once your system is installed, you will be grandfathered under the current net metering rules for the next 20 years!

Three Key Commercial Solar Tax Incentives Fighting to be Extended in 2014

You can never truly predict what legislation will actually pass through Congress and get signed by the President. Nevertheless, there are several expiring solar tax benefits in the EXPIRE Act of 2014 that we hope will get extended and continue to benefit commercial solar installations.

You can never truly predict what legislation will actually pass through Congress and get signed by the President. Nevertheless, there are several expiring solar tax benefits in the EXPIRE Act of 2014 that we hope will get extended and continue to benefit commercial solar installations.

The Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act is a U.S. Senate bill that is meant to extend a slew of tax incentives for one last time, hence the purposeful “EXPIRE” acronym.

In terms of solar, there are three key pieces of expiring legislation that may or may not make it to the President’s desk:

30% Federal Investment Tax Credit Extension…or not

First, the bad news: As currently written, EXPIRE does not include extending the 30% solar investment tax credit (solar ITC). This very popular incentive allows tax paying solar owners to receive a federal tax credit that can be used to offset a commercial solar system’s cost by as much as 30%.

While the solar ITC extension did not make it into EXPIRE, it may be included in future omnibus bills. As of right now, only solar projects completed by the end of 2016 will qualify for the 30% ITC. Senate supporters have been attempting to change the wording so that any solar project that is started by the end of 2016 will qualify for the 30% ITC credit. If successful, this “commence construction” wording could allow solar owners and developers to qualify for the 30% tax credit for complex projects that may not finish completion before the end of 2016.

On the other hand, if the ITC law isn’t amended before 2016, the ITC will be reduced to 10% for solar projects that complete or start installation after December 31, 2016. Consequently, it’s important for large solar projects to begin construction as soon as possible to ensure beating the current 2016 deadline.

Section 179 Deduction Expense

The EXPIRE Act does include several provisions that improve the Section 179 deduction. From 2009-2013, the Section 179 deduction allowed eligible businesses to deduct up to $500,000 of a solar equipment purchase price of up to $2 million, from the taxpayers’ gross income in the first year. This additional tax deduction is on top of the 5 year accelerated depreciation schedule, allowing taxpayers to write off a significant portion their investment in the first year. Some industry observers have referred to this provision as “super-secret 100% depreciation.”

If EXPIRE doesn’t get signed into law, for taxable years beginning in 2014 and thereafter, a taxpayer may only expense up to $25,000 of the cost of the solar property, up to a maximum $200,000 of the solar equipment’s price tag. These limitations, currently in place, significantly impact the benefit of this tax deduction.

However, if the EXPIRE Act is ultimately signed into law (as currently written by the Senate), it will do several things: First, through 2015, it will restore the maximum annual deduction amount and equipment cost phase-out threshold to $500,000 and $2 million, respectively.

Second, EXPIRE will allow tribal governments and non-profits to allocate the value of the 179 deduction to “the person primarily responsible for designing the property in the same manner as is allowed for public property.” In other words, a tribal government or non-profit can’t typically benefit form tax deductions, but under this provision, a non profit going solar will be able to transfer the equivalent 179 deduction value to a solar installer, who can deduct that value from the total cost.

That being said, non-profits may be more inclined to finance their solar installations with solar PPA financing and other new innovative financing methods. (Contact REC Solar for comparing the best options for non-profits.)

Bonus Depreciation

If EXPIRE is signed into law, one provision will also extend the 50% Bonus Depreciation provision for solar property purchased, installed, and connected to the grid by the end of 2015.

Under Bonus Depreciation, the taxpayer is able to deduct an additional 50% in the first year of the installation. There are no eligibility or project limits under this provision, opening this tax benefit up to all tax payers. So if a business is too large to qualify for section 179, they can still take the bonus depreciation and 5 year accelerated depreciation schedule creating a healthy reduction of their tax burden.

When the tax credit is used with a solar project, , the owner must reduce the project’s depreciable basis by one-half the value of the ITC. So, this means the owner is able to deduct 85% of the tax basis with the ITC (30% ITC x ½ = 15% reduction in eligible basis).

As a very simple example, if EXPIRE passes and a solar installation’s tax depreciation cost basis after applying the ITC is $650,000, an eligible taxpayer could deduct up to $500,000 in the first year under section 179.

The remaining cost, $150,000, would be subject to the 50% Bonus Depreciation. Thus, the taxpayer would receive an additional $75,000 bonus tax deduction in the first year, resulting in significant tax savings, a reduction in the payback period, and a nice boost to the Return On Investment for a solar project…if EXPIRE makes it to the President’s desk.

The above notwithstanding, the U.S. tax code is very complicated and this is not official tax advice. For the sake of brevity, we’ve simplified explaining these potential solar incentive extensions, so please contact REC Solar for more details about how these proposed solar incentives and other financing options might apply to your solar project.

 

Believe it or Not, Solar is Getting Hot…In Minnesota? Yes, Minnesota

You might think that a northern state like Minnesota wouldn’t be a hot market for solar energy, but solar works great in northern and colder climates. To capture that solar potential, Minnesota recently enacted several policies and incentives to inspire more Minnesota businesses, municipalities, non-profits, and residents to install solar and reduce their energy costs.

You might think that a northern state like Minnesota wouldn’t be a hot market for solar energy, but solar works great in northern and colder climates. To capture that solar potential, Minnesota recently enacted several policies and incentives to inspire more Minnesota businesses, municipalities, non-profits, and residents to install solar and reduce their energy costs.

The main driver behind Minnesota’s solar push is the state’s Renewable Portfolio Standard (RPS), which requires the state’s investor owned utilities to generate around 30% of their total retail electricity sales from wind, solar, and other renewable sources by 2020. On top of that, 10% of utility retail electric sales are required to come from solar by the year 2030.

To meet these goals, the state and its major utilities have created several programs targeting both large and small installations:

Growing Community Solar Gardens

Community solar gardens, sometimes known as “shared solar,” lets developers create large solar farms and allow individual “subscribers” to invest in a portion of the farm. By purchasing a subscription, each subscriber gets to offset their utility bill with their portion of the solar power generated by the solar installation.

The program is a huge benefit for those who have homes or businesses that can’t go solar because of shading issues, or because they lease their property, or because there are location or utility interconnection issues.

In a related opportunity, if you have a large plot of un-shaded land or large commercial rooftop and want to host a community solar garden, solar developers can lease your land or rooftop for a potential solar garden installation. (Contact RECfor more details.)

As for the incentive, solar garden subscribers receive a payment based on their solar power generated. Currently, Minnesota regulators have set an interim rate of about 12 cents kilowatt-hour (kWh), but that rate may be replaced when Minnesota’s Value of Solar Tariff (VOST) is set. (See below.)

Community solar gardens are truly meant to be shared, not subscribed by a single individual. Consequently, the law mandates that each solar garden have a minimum of 5 subscribers and that no single subscriber own more than 40% of an array.

Taking Advantage of the Extra Made in Minnesota Solar Incentive

In addition to the above incentives, small commercial, non-profit, and government solar installations up to 40 kW in size may receive an additional production incentive for 10 years when the installer uses officially designated “Made in Minnesota” solar panels. The annual payment will vary based solar production, the solar panel brand and model, and whether it’s a business or government or non-profit installation. Another requirement is that the solar installation has to be within the territories of Xcel Energy, Minnesota Power, Alliant Energy, or Ottertail Power utilities.

Depending on the solar panel chosen, businesses can receive 13 to 18 cents/kWh, and non-profit and government entities can receive 20 cents to 27 cents/kWh generated.

As an example, a business that installs a 30 kW commercial solar array of Made in Minnesota certified modules and generates 42,516 kWh in the first year would be paid $5,527.07 (42,516 kWh x .13/kWh). If the panels produce the same number of kWh in each of the following 9 years, the business would receive a total of $55,270! For another Minnesota solar panel brand that qualifies for the 18 cents/kWh incentive rate, that payment could be $7,652 per year or $76,528 after 10 years!

While specific program details are still being worked out, it’s important for interested parties to get involved early to ensure they are ready once these programs go live; new solar incentives tend to reach capacity quickly.

Contact REC Solar to get more details about how these Minnesota solar programs specifically apply to your Minnesota business or organization.

 

Is the Solar Microgrid Future Already Here?

Yes, we live in a utility grid dominant world right now that is mainly powered by fossil fuels and nuclear power. And yet, more and more microgrids powered by solar and other renewable technologies are coming on line or are under development today. In fact, Navigant Research recently stated that the microgrid is moving into full-scale commercialization and that the global microgrid market will grow from $10 billion in 2013 to more than $40 billion annually by 2020.

Yes, we live in a utility grid dominant world right now that is mainly powered by fossil fuels and nuclear power. And yet, more and more microgrids powered by solar and other renewable technologies are coming on line or are under development today. In fact, Navigant Research recently stated that the microgrid is moving into full-scale commercialization and that the global microgrid market will grow from $10 billion in 2013 to more than $40 billion annually by 2020.

As of the beginning of the second quarter 2014, Navigant has identified a total of 4,393 MW of total microgrid capacity throughout the world. As with the rise of solar PV installations in the United States, microgrids are heading into the mainstream, and both utilities and customers wanting more electricity independence and security will benefit.

What is a microgrid?

‘There are many technical definitions for a microgrid, but let’s just keep it simple: A microgrid independently generates electric power, 24/7, to a small community—as well as plugs into the utility grid. So it has the ability to “island” and be completely off grid, or it can integrate itself into the wider grid, if needed.

Today’s microgrids don’t have to include solar energy, but they often do. In fact, microgrids typically combine different sources of renewable energy with fossil fuel based generators and energy storage (batteries). That may seem like a lot to manage, but these microgrids are smart—unlike older utility power management infrastructure.

Microgrids use modern “smart grid” technology to know when to distribute each microgrid energy source and when to store it. Its smart grid technology can even automatically feed in or turn off connected energy sources by the minute or even by the second. That kind of energy versatility stabilizes the local microgrid and it helps balance out any renewable energy surges feeding into the utility grid.

Who benefits from the microgrid?

First, the community that hosts the solar microgrid benefits. That community may be a rural area, such as Borego Springs, California, where it’s expensive and technically difficult to build power lines and transmit power without energy loss. Or it could be a Hawaiian island owned by billionaire Larry Ellison, who wants to significantly decrease importing expensive fossil fuels to his island. More commonly, a large university campus, such as UC San Diego, can benefit by protecting its important 24/7 buildings and research facilities from blackouts and by reducing utility expenses:

 

rec_solar_is-the-solar-microgrid-future

Moreover, entire states are now beginning to benefit from microgrids. The power outages caused by super storms Irene and Sandy have inspired the state of Connecticut government to implement a series of microgrids. Doing so will enable Connecticut cities to preserve essential services while downed power lines that are miles away are being repaired.

Similarly, military installations and other essential government facilities, such as the US Food and Drug Administration, benefit from the safety and security of an independent power source that is separate from an insecure and aging utility grid. And if you’re Google or Ebay with power hungry datacenters that need reliable power, rain or shine? They too will benefit from their own hands-on solar microgrid that includes non-fuel reliant renewable energy and batteries.

Although being an independent source of power may seem like a financial threat to the utilities, they can also benefit. Not only can utilities avoid building expensive infrastructure to support a rural community, they can also benefit from having an extra power source for peak times and for emergencies, such as hurricanes or other outages. Additionally, because microgrids often include renewable power sources like solar and wind, utilities can help meet their state mandated renewable energy portfolio standards.

Can microgrids save money?

As with all new technology, the initial price of microgrids is going to be expensive, but as they build to scale and the levelized cost of commercial solar, wind, and other renewables continue to fall, microgrids will become increasingly cost-effective as well as efficient.

According to the above UC San Diego video, their microgrid has already saved the university “millions of dollars.” With island nations that rely on a constant supply of expensive imported oil, gas, and propane, solar and wind and its unlimited non-polluting clean power can easily see an ROI over the 20 to 30 year life of the microgrid.

In addition, it’s the costs of not having a microgrid during blackouts and natural disasters that is making Connecticut, universities, and government facilities invest in microgrid infrastructure. As microgrids are tested in the coming years, it’s inevitable that studies will show their true cost-benefit. That being said, the fact that microgrid projects are projected to grow exponentially within the next 10 years indicates that microgrid customers are already projecting an ROI.

Current microgrid challenges

While microgrids are expected to grow in the next decade, it won’t be without challenges. Its new energy dynamic has to adapt and integrate with the existing grid. In addition, while the microgrid technology may prove to be sound, local regulations may prevent microgrids from competing with utilities that have state-mandated monopolies.

Nevertheless, as utilities see the smart grid benefits and eventual cost savings of microgrids, they’re likely to get behind changing the regulations and adjusting their business models.

If you’d like to know how solar can be integrated with the new age of microgrids,contact REC Solar for a free consultation.

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How Solar Reduced a California Farm’s Electric Bill by 75%

Today’s farmers are increasingly using the sun’s energy to grow more than just fruits and vegetables. Solar power systems have become a new solution for reducing the energy costs of water pumps, refrigeration, vineyard wine processing, and many other energy-intensive agriculture applications.

Today’s farmers are increasingly using the sun’s energy to grow more than just fruits and vegetables. Solar power systems have become a new solution for reducing the energy costs of water pumps, refrigeration, vineyard wine processing, and many other energy-intensive agriculture applications.

According to a 2009 USDA survey, nearly 8,000 farms had installed solar electric systems for various agricultural uses, and that number has no doubt increased significantly over the last several years, since solar installation prices have fallen by 60%.

REC Solar alone has installed solar systems for more than two-dozen large and small growers, vineyards, and agricultural facilities, offsetting the growing electricity requirements for 21st century farming.

How Modern Agriculture Uses Electricity

Modern farms rely on electric power for many day-to-day energy intensive agricultural tasks, including:

  • Agriculture irrigation
  • Milking and dairy production
  • Vineyard restaurant and hospitality operations
  • Vineyard and microbrewery bottle processing
  • Running fans to heat and cool barns for dairy cows
  • Cold storage for milk, dairy products, grains, fruits, and vegetables
  • Security and task lighting
  • Electric fences, and much more.

Solar with Agriculture Case Study: Vignolo Farms, Delano, CA

One of the latest agricultural producers to go solar is Vignolo Farms, a family owned potato, pistachio, almond, and grape farmer based in California’s San Joaquin Valley, where 80% of California table grapes are grown.

The Vignolo farm’s annual electric bill was hundreds of thousands of dollars due to various aspects of operations. One of the biggest energy expenses came from the farm’s state-of-the art cold storage and packing facility, an essential building, but costly in terms of energy usage.

After REC Solar completed a comprehensive evaluation of Vignolo’s utility bill, solar potential, and financial options using a proprietary financial analysis tool, REC Solar designed, engineered, and installed a 1.07 MW ground mount solar PV system on a four acre field adjacent to the cold storage facility.

The Vignolo’s new solar array now offsets 75% of the storage facility’s electrical power usage. With local rebates, the 30% federal investment tax credit, and other tax incentives, the Vignolo family will see a payback in the 5th year. By choosing a capital purchase, the Vignolo family is expected to save millions of dollars over the solar system’s 30 year expected lifetime.

While saving on operating costs was important, the family also considers itself to be stewards of the land. They’re proud that their new solar system will substantially reduce their farm’s carbon footprint and contribute toward their goal of energy independence.

Solar Benefits for Rural Farms

Solar is also increasingly financially beneficial to rural farms that rely on expensive propane, oil, or other fossil fuel generators, or those that are considering paying for grid power lines to be extended.

With today’s new solar plus energy storage technologies, a rural California farm can now install a cost-effective off-grid solar energy solution that is quiet, sustainable, and not dependent on an expensive delivery of propane fuel that has unpredictable fluctuating prices.

If the farm would rather preserve its capitol, today’s solar PPA financing can also eliminate up front costs for both solar and storage, while giving agricultural and dairy producers a lower-cost solution for bringing more electricity—and its many applications—to their land.

Get more information about solar energy solutions for farms and dairies by contacting REC Solar for a custom evaluation of your utility costs and solar potential.