Many organizations would like to go solar, especially now with solar panel prices falling and electricity rates expected to rise. But let's face it – if energy is not your core competency, it's difficult to know where to begin.
Solar is thriving in many states, and if you're located in one of them, your desk (or email) may be overrun with pitches from solar installers. Who's reputable? Whom can you trust? And how do you properly analyze the various financing choices, incentives and warranties?
New clients often come to us – understandably – confused and frustrated. This is worrisome because the long-term strength of any market relies on knowledgeable buyers. The following information can enhance your ability to shop for solar by offering you tips to consider and early steps to take to help you understand the many aspects of a solar project.
Consider solar economics
Before you even begin shopping, understanding the basic economic proposition of solar will help you explain the project to various constituencies within your organization. You need to provide them with a quick understanding of electricity pricing and why buying power from your utility is unlikely to be the best proposition over the long term.
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Utility costs are rising, primarily because their infrastructure is aging and must be replaced. Add on the costs of meeting new and complex environmental regulation, and U.S. utilities face a $300 billion outlay by 2020. Meanwhile, homes, buildings and factories are becoming more energy-efficient, so utility customers are buying fewer kWh of electricity. This means that utilities face greater expenses but must spread the cost over a diminishing base. Thus, utility customers will likely see their electricity costs rising on a per kWh basis. Think of it like a fitness club with fixed costs for its swimming pool and a declining membership base. Dues go up for those remaining members because there are fewer of them to pay for the pool.
It's uncertain how much your utility rates might increase. Some analysts see utilities entering into a challenging environment with customers fleeing because prices are rising, only to cause more customers to flee, boosting prices even higher.
Those who install solar panels escape this possibility by generating their power independently at prices that are predictable for 20 years or more – the life span of your system. Price stability is one of the key value propositions offered by solar. Sunshine is free; you never have to worry about rising fuel prices, as utilities must, as 68% of their electricity is generated from natural gas and coal. Freedom from price volatility makes energy independence a wise long-term financial strategy.
Find a reputable partner
Becoming energy independent does not mean going it alone. Once your team understands the economic foundation behind solar, it is time to seek a partner who can guide you through the process.
The solar industry has seen tremendous growth over the last several years – 76% in 2012 alone. With this growth has come a proliferation of new players, some with little operating history. It makes sense in a rapidly changing marketplace to exercise caution and to focus on reputation. Therefore, you are strongly advised to seek out a known name. You want a partner who can streamline the entire process, from development and engineering, through implementation and project financing, to long-term operations and maintenance service over the life of the solar system.
Next, be sure you are truly hiring a partner and not just a project developer or installer. There is more to a solar project than just attaching panels on the roof. It takes industry savvy to secure permits, interconnect with the grid, procure tax and other financial incentives, leverage net metering benefits, and execute legal and financial terms that work in your favor. Ineffective handling of these aspects of the project can raise your project's ‘soft’ costs significantly.
Also important to note is that a true partner will not push one brand of solar panel but will help you decide on a system that best suits your facility based on engineering and financial goals or requirements. A reputable partner also will not over-size your system – which is sometimes a problem in the industry – but will configure the correct number of panels to meet your facility's electric needs. It helps to approach the conversation with knowledge of what percent of your current energy portfolio you want to replace with solar.
Focus on financing
Even though solar costs have dropped, most organizations choose to finance this large investment, rather than pay cash. So, it is crucial to find a partner who can help you secure favorable financial terms – or better yet, has a strong balance sheet and offers its own financing options, typically via a power purchase agreement of lease structure.
This is particularly true for many mid- to large-size companies, which typically install systems that are 250 kW to 20 MW. Unfortunately, the financing choices tend to be limited for this type of solar project. Corporate and institutional investors see these projects as too small to justify their transaction costs, so they tend to eschew them in favor of large-scale solar projects.
The problem is exasperated by the recent phaseout of a popular federal cash grant. Sustainability and facility purchasing managers now too often find themselves sorting through a disparate group of under-capitalized solar developers that lack a comprehensive financing solution.
Avoid piecemeal management
Finally, you need to recognize that it is impossible to learn the energy business overnight. Too often, organizations try to tackle a solar project on their own, assuming it is no different than other capital projects they handle successfully – such as building a school or setting up a manufacturing facility. They come at it piecemeal, trying to separately hire a contractor, arrange financing, and secure operations and maintenance agreements, thinking they will save money this way. Instead, the project costs more than it should because they cannot achieve the economies of scale that mature and integrated companies in the solar sector can help realize.
Save yourself some money – and some sleep – by finding a partner who can guide you through the process end-to-end, from permitting through construction and maintenance and operation. Adopting a solar program shows your commitment to a better environment and energy independence. Your solar system not only will stabilize your energy costs, but also serve as a valuable symbol that your facility will display for two decades or more. It's worth it to take the time at the beginning to get it right.
Jamie Evans is managing director and head of U.S. eco solutions for Panasonic Eco Solutions North America, a unit company of Panasonic North America. He can be reached by email at ecosolutions@us.panasonic.com.
