Does rooftop solar make sense for manufacturers?

It depends...

January 1, 2010

The key factors to consider in evaluating whether solar is right for your plant include your electrical load and current rate, your roof’s size and load capacity, the geographic location of your plant(s) and corresponding insolation (amount of solar radiation), and state government, local utility, and local community regulations and incentives.

Solar energy is hot!

According to the Solar Energy Industries Association (SEIA), total grid-tied photovoltaic (PV) solar power projects grew, in terms of megawatts (MW), by 81 percent in 2008. The fastest-growing solar industry sector was the nonresidential market at 109 percent growth. This segment includes rooftop PV solar installations for commercial entities, schools, and universities (see Figure 1). In fact, solar power projects have grown by over 50 percent a year for the past five years in the U.S.

With all this activity, many manufacturers like you may be asking some simple but hard-nosed questions:

• Why is solar power growing? Are factors beyond climate change concerns driving the growth?
• What can I expect a solar project to cost? To save?
• How do I gauge if solar energy is right for my facility?

Does PV Make Sense for My Plants?

The short answer is, It depends. In some areas of the country, such as Southern California, solar power can be a fiscally sound investment that delivers a short payback or reduces electricity payments immediately, as well as be a hedge against local utility price increases.

Solar power may provide some protection against a potential carbon tax. In addition, sourcing from the sun may endear you to customers that are looking for a "green statement."

On the other hand, in many areas of the U.S., the return on a solar project investment is poor to nonexistent.

The key factors to consider in evaluating solar include:

• Your electrical load and current rate.
• Your roof's size and load capacity.
• The geographic location of your plants and corresponding insolation (amount of solar radiation).
• State government, local utility, and local community regulations and incentives.
• Your customers' environmental track record.

To get started and to decide if solar energy makes business sense for your plants, ask yourself these questions:

1. Is my roof solar-friendly?
2. What are the financial implications for solar in my facility?
3. Are there other benefits?

Before those questions can be answered, however, it is important to have a basic understanding of the components of a solar power system and how it generates electricity.

What Is in a PV Solar Power System?

PV solar power systems are very simple electric power-generating plants. They comprise four basic component systems (see Figure 2):

A. A PV panel that transforms sun light (photons) into DC electricity

B. A racking system that adheresthe panels to the roof and exposes the panels to the sun at an advantageous angle.

C. Inverters that transform the DC electricity into AC electricity

D. Wiring that connects everything

Of all the component parts, the biggest cost is the solar module, which can be half or more of the total project cost. As a result, the variety of solar module types has proliferated.

An intriguing new panel technology eliminates the need for racking. There are a variety of means to tilt the panels toward the sun to generate more electricity. Also, highly reliable trackers improve performance and ROI. An installation company should be able to advise you.

Solar Module Types, Materials

For the most part, almost all commercially available solar modules are made of one of three materials:

Silicon-based solar panels are the most popular technology and have the longest track record in the field. Silicon solar modules have been in the field for more than 50 years and perform quite predictably. You can buy monocrystalline (made from a single crystal) or polycrystalline (made from multiple crystals) panels. Monocrystalline panels are a bit more efficient, but cost more.

Each year solar module efficiencies improve a bit, which helps the economics of solar projects. Along those lines, the industry recently spawned a version called amorphous silicon thin film. However, it is designed primarily for ground-mount, rather than roof-mount, projects.

Cadmium telluride (CdTe) panels are the fastest-growing segment of the market because of their relatively low price.

The segment is dominated by one manufacturer, First Solar, which produces them very cost-effectively. However, the company typically sells most of its inventory overseas or directly to utilities, major integrators, and distributors. Net, cadmium telluride panels may not be available for manufacturing plants. Other solar cell producers are jumping into the segment, but because the cadmium telluride manufacturing process is a bit tricky, they have not yet achieved the performance metrics that First Solar has.

Copper indium gallium diselenide (CIGS) panels may be very popular for commercial rooftop projects in a few years. They have the potential to deliver reasonable efficiencies at a lower cost than traditional crystalline panels. However, they are a relatively new technology with limited availability at this time.

Noteworthy is that many solar module brands have a bankable track record—that is to say, banks will loan capital for their purchase.

All top-tier panel manufacturers guarantee their product's performance for 25 years. That guarantee takes into account that all solar panel performance degrades a little—less than 1 percent—each year.

So, How Are Solar Panels Installed on My Roof?

Quite simply, solar panels are affixed to a racking system that is attached to the roof (see lead image). If the idea of somebody putting holes in your roof makes you shudder, not to worry.

Many solar system installers and owners have had good experiences with penetrating systems. And in some areas of the country that have serious storm and wind load conditions, such as the Southeast, penetrating installation systems may be the only viable choice.

Nonpenetrating installation systems are emerging as the preferable method for attaching a rooftop solar power system, especially in the West, according to Arno Harris, CEO of San Francisco-based Recurrent Energy. Nonpenetrating roof-mount systems are designed to connect the solar power system to a roof using weights, rather than fasteners that must go through the roof. Because they do not create holes for the attachment systems like screws, nails, and traditional roofing hardware does, nonpenetrating systems help maintain the roof's integrity. Properly installed, the systems do not void the roof warranty.

Solar installation companies, often called integrators, can complete a small rooftop project in six weeks to three months. Before signing a contract with an integrator to install a solar system, you should seriously consider the following issues:

• Roof condition—If you have an old roof that needs significant maintenance or replacement, you may want to do that before installing the solar array.
• Space availability—Solar power projects work best on flat roofs without a lot of obstructions. If your roof is small or has a lot of HVAC equipment on it, the potential electricity that can be generated will be limited, depending on the available remaining space.
• Weight load—Some roofs just were not designed to hold much additional weight. Be sure you understand the acceptable weight you can add to your roof before signing a contract.

Solar Finances—Show Methe Money

While some "greenies" may buy solar systems for altruistic reasons, most manufacturers do not. You want to understand if you can save or even generate revenue and profits with solar.

In general, there are two ways to buy solar electricity: buy your own system, or buy solar electricity through a power purchase agreement (PPA).

Outright Purchase. The first alternative is pretty simple. Find a solar power contractor, or integrator, who will sell you the system lock, stock, and barrel. The company will also install it for you and provide some performance guarantees.

The downside to this approach is that you have to pay a large upfront lump sum of money to own the system, and you're responsible for maintenance, although most suppliers will sell you a maintenance contract.

Lease Your Roof. A popular alternative is to enter into a PPA. At the core of the PPA is an agreement to buy whatever electricity that the solar system produces on a predetermined pricing schedule. The integrator is responsible for all maintenance and provides a performance guarantee. Under a PPA, you "buy" solar electricity only through the integrator that installs the system on your roof. At the end of the contractor term, the system integrator is obligated to remove the system and return the roof to its original condition.

As a case example, Recurrent Energy just announced it will install 4.8 MW of rooftop solar projects in Spain. Under the terms of the arrangement, Recurrent Energy has leased rooftop space as solar system sites and will build, finance, own, and operate the solar power systems located on eight ProLogis distribution centers' roofs.

U.S. utilities, such as Southern California Edison, are implementing the lease system too. Like integrators, they rent commercial rooftops at a set price for solar power systems they will install, own, and operate on those roofs.

Government Incentives. Solar purchases can be a good investment for manufacturers in states that provide healthy financial incentives for solar and have strong insolation. According to Lux Research, "Commercial solar systems in California are at grid parity today." Said differently, for commercial rooftop projects in California, manufacturers should be able to buy solar electricity at or slightly lower than the price they can get from the major utility companies.

A principal reason for the state's financial attractiveness is net metering. Net metering is the practice of allowing commercial systems to be built to generate more electricity than the customer actually uses. Assuming that a customer has sufficient roof space, in California commercial rooftop systems can be built to generate 2 MW more that the facility would consume at peak and can be compensated for that electricity. California's major utilities enable this through time-of-use pricing, which attempts to charge electricity prices that more closely mirror the actual costs of generation. (Check your utility's rules.)

As background, you should know that on the hottest days of the year, utilities will use "peaking" generation facilities that produce more expensive electricity than "base load" plants. Since solar energy produces the most electricity in the middle of the day when demand is usually at its peak (see Figure 3), it can offset the most expensive electricity and allow a plant to buy low off-peak prices for other times of the day.

For most of the U.S., though, solar electricity prices are not yet grid parity.

Other states in the Southwest and Northeast have incentive programs that can be financially attractive. Visit http://www.dsireusa.org for an excellent review of solar incentives by city and state.

Carbon Credits and RECs

One reason utilities are getting into PPA arrangements is that they want to own the "carbon credits." Carbon credits are a representation of the carbon that would have been emitted if the energy had been generated by a typical fossil fuel power plant instead of a renewable-power plant. If Congress passes cap-and-trade or similar legislation, these credits could be particularly valuable.

It also could be particularly valuable for you and your plant. If you have a big carbon footprint, having a solar power system atop your manufacturing plant could be a nice offset against a potential cap-and-trade program. How much of an offset? Nobody knows until a program is in place. Many manufacturers, however, aren't waiting and are buying carbon credits through specialized exchanges, like the Chicago Climate Exchange (http://www.chicagoclimatex.com/), as insurance.

In some states, such as New Jersey, a version of carbon credits called renewable energy credits (RECs) is the basic mechanism for funding solar power installations. The price of solar RECs (SRECs) is determined primarily by the market in New Jersey and the price of the solar alternative compliance payment (SACP). The SACP is the penalty utilities must pay if they don't buy the required amount of solar electricity. As such, the SACP is effectively a price cap on the value of SRECs because it is the payment that electricity suppliers must make if they fail to obtain enough SRECs to cover their renewable portfolio standard (RPS) obligation.  In New Jersey, RECs are worth hundreds of dollars. In California, they're worth pennies on the dollar.

Got that? Said differently, in New Jersey, SRECs act like receipts to prove that the utilities really did purchase the amount of solar power projects required by the RPS. By and large, each state's REC program is different, making it very difficult to describe or even generalize about RECs on a national basis. You or the contractor you hire needs to be very familiar with your state's program.

So What Does the Future of Solar for Manufacturing Look Like?

In the long run, it is safe to predict that the cost of traditional fossil fuel electricity will increase and that the cost of solar electricity will decrease. The crystal ball is murky as to when solar will cost less than fossil fuel electricity for manufacturers in states other than California and a few isolated communities.

Here are some general indicators to watch:

• Dropping solar module prices—Solar module prices have decreased by at least 50 percent since 2006. As this trend continues, solar will become more and more cost-competitive.
• Climbing fossil fuel prices—If the price of coal increases and the cost of building new coal and nuclear power plants continues to climb, renewable-energy alternatives like solar will become much more attractive to utilities. The ensuing larger market should drive down costs for everybody.
• RPS—Roughly 28 states have laws that require the biggest utilities to buy more renewable energy over the next 10 to 20 years. As these requirements grow, economies of scale will kick in, and solar system prices should decrease.
• Federal mandates—If the federal government mandates a national RPS, prices could drop, unless a supply shortage creates a price increase.
• Technical breakthroughs—A gazillion different venture capital-backed solar start-up companies are perking along. Many are chasing flawed technologies, are underfunded—or both. Should one or more of these companies and technologies fulfill their promises and deliver commercial quantities on technical breakthroughs, the renewable-energy industry is likely to be affected.

The solar market is fun, complex, and constantly changing. Improvements, efficiency increases, and new technologies are being developed all the time, offering some intriguing choices.

Caveat emptor, though. If somebody tries to sell you solar paint, solar-generating algae, or anything that sounds like a science experiment, firmly show them the loading dock door… politely, if you feel so inclined.

The good news is that for some manufacturers, the solar energy market also delivers savings on electricity costs—and the future is bright.

John Kerastas is a solar industry consultant, 1232 Forest Ave., Wilmette, IL 60091, 630-640-4251, jkerastas@hotmail.com.

First Solar, www.firstsolar.com

Recurrent Energy, www.recurrentenergy.com

For more information to help you determine if solar power is right for your facility, visit http://sharpusa.cleanpowerestimator.com/sharpusa.htm to use a solar calculator and http://www.sharpusa.com/solarelectricity/solarforcommercial/commercialfaqs.aspx.