The solar system: Advocates say solar still a good bet for businesses

If the only thing you know about solar energy is that the federal government wasted $530 million of your money on a failed company called Solyndra, you’re probably not much of a fan. But if you’ve been keeping up with improvements in the technology, and solar’s falling price, you’ll be more inclined to give it a second look.

In an era when the United States is threatening to overtake Russia as the world’s leading producer of oil and natural gas (a development that was thought to be a pipe dream only a decade ago), renewables like solar are still a growing part of the energy mix. Even though there are fewer government incentives for solar than in the past, advocates still say there are plenty of reasons to make the investment in, if you’ll pardon the expression, a solar system.

Some businesses demand a return on investment within a decade, while others are content to install solar for altruistic reasons — the more solar energy you generate, the less you rely on energy from coal-fired power plants, and the more you support local solar-related businesses. Whatever the motivation, there is ample support for solar in Madison, and no shortage of businesses that employ it in creative ways.

New day awning 

Full Spectrum Solar, a Madison solar contractor, wanted to make its building on East Washington Avenue a renewable showcase. It’s not only well insulated and quiet, it produces 60% more electricity than it uses, thanks to a 10-kilowatt roof system and a 1.6-kilowatt awning. The solar electric awning produces enough energy to cover 100% of Full Spectrum’s use of a Chevy Volt, its primary company car for site visits. The car does have gasoline backup, but it’s a plug-in hybrid, so the first 40 miles are all-electric, and employees can make the majority of their trips without using any gas. 

“The roof and awning systems are tied into the main electrical system, but we like that the awning gives a visual representation of what the car is drawing,” says Burke O’Neal, director of Full Spectrum Solar. 

The awning, located on the south wall (which also happens to be the storefront), is an example of how solar panels can be presented in a decorative way. It also provides shade from the summer sun and allows heat and light to pass underneath in the winter. 

In a photovoltaic (PV) system, the main components are: the modules or panels, which produce direct current from sun, and the converter, which converts the direct current into alternating current to make it compatible with the local utility. The system also includes aluminum racking and electrical wiring. 

Typically, the modules come with a 25-year manufacturer’s warranty, and the electrical pieces and aluminum connecting hardware can be expected to last as long as the building. Even though there is an upfront investment, the most underappreciated benefit, and the driver of ROI, is that solar systems function with very little maintenance over their lifetimes. 

“When you get up to larger commercial systems, we are seeing positive cash flow [return on investment] in less than 10 years,” O’Neal noted. “There are some businesses that might say, ‘Well, if the investment pays for itself entirely in three or four years, I’m going to do it.’” 

At some point, the “payback time” will probably get there, but another overlooked benefit is that the systems already are producing power for about twice as long as it takes to recoup the cost. “When I talk to someone who is skeptical about making the investment, a couple of years after they have done it they have forgotten what they spent and they are excited to see that greatly reduced the monthly electric bill,” O’Neal commented. “I don’t know what putting up a PV array is going to cost over the next 25 years, and I don’t know what electric rates are going to be in 25 years, but having that variable cost reduced is another benefit. There is less risk of being hurt by future [electric] price increases.” 

In addition, installation costs are coming down, dropping in half in the past couple of years alone. O’Neal says Full Spectrum installed systems in 2002 for $8 to $10 per watt. Now, some of the larger commercial systems cost less than $4 per watt installed, depending on the specifics of the site. Part of the reason for the price drop is that PV module manufacturing capacity has increased significantly due to stiff competition from Chinese manufacturers, who can produce the modules less expensively than their economic competitors. The majority of the modules installed by Full Spectrum are made in the United States, and American manufacturers have had to reduce their prices as well.

The panels themselves are much more efficient, as are the converters. “A common solar module size is roughly 3 by 5 feet, and that same module in 2002 might only be 175 watts,” O’Neal explained. “Now, that module might be 250 watts. So there has been steady improvement in the energy efficiency of the module, and how much power they can produce in a given area.

“The average efficiency of an inverter 10 years ago might have been closer to 92%, and now many of them are up around 98%.”

Expression of values

With their environmental impact and carbon footprint in mind, American Family Insurance has spent roughly $250,000 installing 10-kilowatt PV systems on four buildings — including two warehouses — within Madison Gas & Electric’s territory. Three of the installations have 42 panels, while another, at the company’s East Regional Building, has 48 panels.

Each system produces approximately 12,100 kilowatt-hours of energy per year, resulting in energy cost savings of about $3,000 annually, per location, or $12,000 per year. Thanks to incentives provided for in MG&E’s Green Energy Partners program and Focus on Energy, the payback of the entire system, which was installed in 2011, is only six years.

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The Focus on Energy incentive helped offset the cost of installation, and incentives were given for each location. Any electricity that American Family generates can be absorbed by the facilities, but most of the energy produced is sold back to MG&E for 25 cents per kilowatt-hour. “Some of it is consumed by the buildings themselves,” explained Mark Pauls, the facilities, building, and site manager for American Family. “However, it’s metered. Just like the power going in, power going out is essentially being metered, so we get paid for all of the power that we produce.”

The warranty on the solar panels will last about 20 years, but American Family expects them to have a life cycle of 40 to 50 years. Even if the useful life is on the low end of that range, the systems will be producing energy for 34 years after paying for themselves.

As part of a long-term energy management strategy, American Family Insurance has installed solar panels at several Dane County sites.

Pauls noted that American Family is in the process of developing a long-term energy management strategy, which includes a constant examination of renewables like geothermal, wind, and photovoltaic. “It made sense from a financial perspective,” Pauls noted. “It made sense from the impact to the environment, so it was a win from an environmental perspective and a monetary perspective.”

Reluctant business owners would be wise to track the progress of solar technology, notes Pauls, because solar efficiency has improved over time as the cost has come down. “And also, you must realize that you don’t need to do it all on your own,” he counseled. “Make it a collaborative effort. Work with the utilities and the contractors. Work with state and federal programs like Focus on Energy. They can be a big resource in helping you identify incentives and impact on the environment, and helping you decide if solar is right for your organization.”

Financing fumble?

Even as solar comes down in cost, there are fewer financing options for area businesses. The state Public Service Commission’s recent decision to basically suspend solar PV and solar hot water incentives offered to homes by the Focus on Energy Program for the remainder of 2012, and to reduce incentives for 2014, has solar energy advocates up in arms. The decision makes funding for solar projects contingent on funds being allocated for bioenergy projects (the majority of commissioners believe that bioenergy is more cost effective than solar), places a $10 million annual cap on spending for renewable energy projects, and dictates that funding for solar and wind be limited to 25% of that allocation.

In a dissenting opinion, PSC Commissioner Eric Callisto said the commission’s decision creates uncertainty in the renewables market, a belief shared by Michael Vickerman, program and policy director for Renew Wisconsin. Vickerman not only characterized the available solar funding as “almost nothing” — $2.5 million annually for solar and small wind — he said the commission’s recommended application of the 3-to-1 formula is unworkable.

“It was a pretty unworkable formula from the beginning, but the commission just keeps making it worse and worse,” Vickerman said. “Because it takes so much more time to build a biodigester than a solar electric or solar hot water system, the program administrator for Focus on Energy asked the commission, ‘How do I apply the 3-to-1 funding formula? Do I do it on the basis of obligated grants — obligations that result in an incentive to be paid out later? Or do we apply this rule on the basis of actual expenditures every year?’ And the Commission chose the latter.”

In addition, the MG&E Green Energy Partners program has reached its cap. Under the program, MG&E agreed to purchase all of the electricity produced by solar panels owned by its customers, and then paid them 25 cents per kilowatt-hour for that electricity. The voluntary program was expanded first to 300 kilowatts and then to a full megawatt, but it’s now closed and MG&E has not yet seen adequate customer interest in further expansion.

“Until we have more customers who sign up and are willing to actually pay the higher price [for solar], we can’t grow the solar program again,” says Greg Bollom, assistant vice president of energy planning for MG&E.

MG&E customers can still participate in the utility’s net metering program, which provides additional incentives, but they are not as large as the incentives in the Green Energy Partners buy-back program. According to Bollom, the utility still has a significant number of residential and business customers who are installing PV systems and net-metering the output, which allows them to avoid the retail rate. “It’s not as large a subsidy [as Green Energy Partners], but still it’s a fairly substantial benefit because of the way electric rates are designed.”

Through 2016, companies can still take advantage of the 30% federal tax credit and accelerated depreciation for solar installations, and they might find investor interest and bank credit as well. The City of Monona has begun to install a 156-kilowatt system that will cover four buildings, including City Hall and the public library. The systems will be financed and owned by a third party, the Colorado-based Falcon Energy Systems, which unlike the city can take advantage of the federal tax credit. 

“If you can find a lender who is willing to provide dollars at very low cost, or if you can find a way to have someone else own a piece of that system, you wind up with two cut-cost strings. One is to pay that 90% owner for the value of the electricity serving the building, and then also your portion of the installation costs,” Vickerman said. “That might be cheaper.” 

The City of Madison, under Mayor Paul Soglin’s proposed 2014 budget, is poised to increase its renewables funding from the $220,000 it has averaged since 2007 to $1 million, which would help offset the reduced state commitment. The new budget will be determined in November, but the city’s experience with solar has been positive enough to justify the increase. 

Jeanne Hoffman, facilities and sustainability manager for the City of Madison, noted the city has solar installations in several buildings, including solar hot water systems that heat water for use at all fire stations as well as PV systems at libraries, maintenance buildings, and police stations. 

The city looks for opportunities to install solar whenever it builds a new facility or remodels an existing one, or when it makes sense in terms of the electrical load or there’s a building with an ample solar resource (from a south facing). With new construction, the cost is included in the project budget.

The city currently has 109.75 kilowatts of solar installed, and it will add another 25 kilowatts when Fire Station 13, which will have both hot water solar and a PV system, is completed. Hoffman advises business owners to challenge their perceptions of solar costs because the economics are changing, especially as traditional fossil fuels get more expensive. 

“Just like any other technology, the first iteration of it is more expensive,” Hoffman noted. “Think of flat-screen TVs and how expensive they were when they first came out. As the market gains experience and figures out ways to make the product more efficiently, manufacturers are able to lower the price, and we are seeing that across the country in terms of solar pricing.”

Solar altruism

Not only are there altruistic reasons (reduced emissions) and economic reasons for installing solar, there are also marketing reasons, because consumers often choose the most sustainable company to do business with — especially in an eco-conscious community like Madison. 

A number of businesses are trying to be good environmental stewards, improve their processes, reduce their waste, and improve their energy efficiency. Solar energy systems touch all of these values.

Willy Street Co-op didn’t even factor in return on investment when it installed a solar water heating system in its east side location. The system consists of a PV (with six collector modules) that produces 18 kilowatt-hours of energy daily, and a solar thermal component, installed in 2010, with 10 collector modules and a locally fabricated holding tank. The solar thermal water heater, installed at the co-op’s east side location, has prevented approximately three tons of CO₂ emissions annually, and the visible location of some components, especially the piping system that comes into the building and runs the entire length of the retail floor, serves as a reminder of the store’s commitment.

The co-op spent only $16,700 for the entire system, thanks to a $9,000 grant from Wisconsin Focus on Energy. When the system was installed, the co-op estimated that it would take 17 years to pay for itself, but that wasn’t the main consideration. Wynston Estis, operations manager for Willy Street Co-op, said the growing variety of solar styles on signage and awnings appeals to her — plain panel arrays are no longer the only option — as does the emissions reduction. 

“We didn’t do it exclusively for the energy savings,” she stated. “It’s for the people who shop here who are really looking for sustainability. Just looking forward, consumers of any business will look for stores that are good stewards of their community. Part of that is the long-term investment in solar.”

Kate Schachter of Union Cab said her company’s 5-kilowatt roof system covered about 14% of the electrical needs of the company’s maintenance facility, as measured from May 2012 to May 2013. When Union Cab chose this system, the company thought it might cover 5%, so it has exceeded expectations in that regard. Since it was anticipating a return on investment in 12 years with a system that covered 5% of its needs on one building, the company expects an even faster ROI, perhaps within six or seven years, with coverage that nearly triples the original estimate. It didn’t hurt that the first summer after installation was one of the hottest and driest on record, with plenty of sunshine driving those parched conditions, and Schachter has no regrets about helping to convince the company’s board to invest $12,500 in the system.

If Schachter were talking to another business owner about solar, she would note that its value can be measured and tracked with an audit. “There is a process, just like with any business decision, to go through in evaluating that ROI, in convincing your board or management team or whoever it might be that it’s worthwhile,” she noted. “There are still programs available for either tax rebates or grants or low-interest loans. Take advantage of them now, while there is good attention being paid to alternative energy.”

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Sustainable Back Talk

Solar energy has plenty of critics, and thanks to companies like Solyndra, which received $530 million in taxpayer money before failing, it has become sort of a whipping boy for renewable energy skeptics. With that in mind, IB gave the floor to Jessie Lerner, interim executive director of Sustain Dane, to offer a rebuttal to several common critiques of solar energy.

Critique: Wisconsin is too far north and lacks sufficient sunlight for solar to have wide adoption.

Lerner: In one word — Germany. Germany is farther north than Wisconsin and is “worse” from a solar mapping perspective, yet it is currently the top producer of solar in the world and is modeling a great business case for it.

Critique: The cost of installing a photovoltaic system is so prohibitive, it’s hardly worth the 10-year wait for ROI to materialize.

Lerner: Do the math. Even if you did the math two years ago, do it again. Photovoltaic systems are dropping in price exponentially. Once you have calculated your actual ROI for your unique site and situation, create a comprehensive business case. A comprehensive business case includes more than the upfront cost and the direct savings. Look at the lifetime cost of your system versus not installing it. Also, consider the warranty on modules and inverters; most are 25 years, and the racking is made from materials like steel and aluminum that are expected to last the lifetime of the building.

Look at the risk reduction of increasing and volatile energy costs. Look at environmental impact. Look at the marketing and press opportunities of your project. Consider what your clients and employees are asking for. If you do the math and consider your comprehensive business case, you’ll likely find that a solar installation will provide a good, tax-free rate of return over its minimum expected life span. 

Critique: To make solar more price competitive with fossil fuels, government policy has to make fossil fuels more expensive, and that’s suppressing job creation.

Lerner: Dependence on a finite supply of fossil fuels with no sustainable energy strategy will suppress our economy, public health, and national security. When you systematically evaluate the true costs of energy, you must consider energy returned on energy invested (ERoEI). Right now, consumer prices of fossil fuels do not represent their true costs. We [society] collectively pay for the externalities of a fossil fuel-run society. We pay more to deal with externalities through increased health care costs, resource remediation, impacts on air quality, water, food sources, etc. 

Critique: Given the toxicity linked with the lead-acid battery banks necessary for an off-grid system, solar might be renewable, but it’s less sustainable than meets the eye.

Lerner: Is your system of consideration off-grid or on-grid? The vast majority of solar being installed in Wisconsin is on-grid. If you are not using solar for an off-grid system, what power source are you using? How does the toxicity of lead-acid battery compare to the toxicity of burning fossil fuels? Yes, these are messy questions. And our society uses power and will continue using power. So first, use the power you are using more efficiently. Do more with less. All power generation has tradeoffs. Sustainability is iterative. Support continual improvements in the system, and in a few years this question will be replaced with a new opportunity. Let’s move to these next opportunities faster and make the Madison region a national model for sustainability and sustainability innovation while we are at it!

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