Andy Black, OnGrid Solar Solar Energy Week

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  • Andy Black, OnGrid Solar Solar Energy Week

    1. 1. Andy Black, OnGrid Solar Solar Energy Week October 25, 2007 PAYBACK ON SOLAR ELECTRICITY
    2. 2. Introductions & Thanks <ul><li>California Center for Sustainable Energy </li></ul><ul><ul><li>Ashley E. Watkins </li></ul></ul><ul><li>Andy Black, OnGrid Solar </li></ul><ul><ul><li>Solar Financial Analyst, Software </li></ul></ul><ul><li>You for coming ! </li></ul>
    3. 3. Financial Payback <ul><li>Payback on solar isn’t the most important thing… </li></ul><ul><li>… it’s the only thing the vast majority of potential solar purchasers care about </li></ul>
    4. 4. Right or Wrong <ul><li>95% see energy as a commodity </li></ul><ul><li>Few will pay more </li></ul><ul><li>Must meet them on their terms: </li></ul><ul><li>$$ FINANCIAL! $$ </li></ul>
    5. 5. Attractive Economics <ul><li>PV systems can be financially attractive to customers using > $100/mo in CA </li></ul><ul><li>Attractive defined as: </li></ul><ul><ul><li>Rate of Return > 9% </li></ul></ul><ul><ul><li>Property Value Increase > System Cost </li></ul></ul><ul><ul><li>Bill Savings > Loan Cost </li></ul></ul>
    6. 6. Payback Analysis Why is it Needed? <ul><li>If we’re going to put solar on every roof, it needs to make $ense. </li></ul>
    7. 7. Agenda <ul><li>What Makes PV Attractive </li></ul><ul><ul><li>The Variables </li></ul></ul><ul><li>How Do We Figure It </li></ul><ul><ul><li>Analysis Methods </li></ul></ul><ul><li>Commercial & Residential </li></ul><ul><ul><li>Examples </li></ul></ul>
    8. 8. The Variables That Make Solar Attractive <ul><li>Favorable Rates & Structures </li></ul><ul><li>Incentives </li></ul><ul><li>Good Sunlight & Declining PV Costs </li></ul>
    9. 9. Favorable Rates & Structures <ul><li>Net Metering </li></ul><ul><li>High Rates </li></ul><ul><ul><li>Inflation </li></ul></ul><ul><ul><li>Tiers </li></ul></ul><ul><li>Helpful Rate Structures </li></ul><ul><ul><li>Time of Use </li></ul></ul>
    10. 10. Net Metering <ul><li>Sell Power to the Utility by Day </li></ul>Buy Power at Night and Winter <ul><li>Exchange at Retail </li></ul><ul><li>100% Efficient Battery </li></ul><ul><li>Annual Cycle </li></ul><ul><li>$0 minimum bill </li></ul>
    11. 11. California Public Utilities Commission - 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 Residential 2.23 2.31 2.46 2.63 3.37 3.64 3.82 4.23 4.48 4.47 5.86 6.51 7.67 7.12 7.07 7.78 7.94 8.04 8.54 9.45 9.98 10.79 11.08 11.30 11.43 11.61 11.32 11.32 11.32 11.32 11.32 14.40 Small Business 1.71 1.81 1.92 2.09 2.74 2.98 3.28 4.11 4.47 4.46 6.14 6.59 7.43 7.31 7.52 8.06 8.25 8.01 8.24 8.64 8.98 9.59 9.92 9.99 10.36 10.26 9.78 9.78 9.78 9.78 9.78 14.37 Large Business 0.99 1.03 1.13 1.28 1.96 2.29 2.60 3.23 3.67 3.74 5.47 6.18 7.25 6.77 6.68 7.51 7.38 6.95 6.88 7.13 7.28 7.58 7.59 7.33 7.09 7.37 6.93 6.93 6.93 6.93 6.93 11.42 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: Prepared by the CPUC Energy Division. Dataset from Energy Information Administration (EIA), DOE/EIA-0376(95), State Energy Price and Expenditure Report, 1995, Tables 36-38. 1996 through 2000 reflects AB 1890 frozen rates. 2001 rates include 4 cent increase in SCE and PG&E Rates. *Rates only for SCE and PG&E. Residential Small Business Large Business 1982 Cents per kilowatt-hour California Electric Rates Residential, Small Business, and Large Business Sectors 1970 to 2001*
    12. 12. SDG&E Residential Tiered Rates <ul><li>Residential only </li></ul><ul><li>Penalizes larger residential users </li></ul><ul><li>Excellent motivator of efficiency, conservation & PV </li></ul><ul><li>Surcharge currently +13 ¢/kWh for Tier 5 </li></ul><ul><ul><li>Base is 13 ¢/kWh </li></ul></ul><ul><ul><li>Top is 26 ¢/kWh </li></ul></ul>
    13. 13. SDG&E Tiered Rate System Small “Net” Use After Solar Marginal Use at 13¢ - 15¢ . Use/Bill Before Solar Marginal Use at 26 ¢ Solar systems offset the most expensive usage first Questions?
    14. 14. Time Of Use Residential SDG&E DR-TOU <ul><li>Compare to 15 ¢/kWh average base rate </li></ul><ul><li>Peak rates are Summer Afternoons 16¢/kWh + tier surcharges </li></ul><ul><li>… when most people are away from home </li></ul><ul><li>Off-Peak rates are Nights, Mornings & Weekends 13¢/kWh </li></ul><ul><li>… when most people are home & using </li></ul>
    15. 15. Time Of Use Commercial SDG&E AL-TOU <ul><li>Compare to A: 14-18¢/kWh & AD: 9 ¢/kWh + Demand Charges </li></ul><ul><li>Use and/or Sell On-Peak @ 15¢/kWh , Part-Peak @ 9 ¢/kWh </li></ul><ul><ul><li>Use Off-Peak (nights & weekends): 7¢/kWh + Smaller Demand Charges </li></ul></ul><ul><li>More usage on peak, less benefit from TOU </li></ul>Questions?
    16. 16. Time of Use with Annual Net Metering <ul><li>Net Metering on an annual basis </li></ul><ul><li>Combined with </li></ul><ul><li>Time Of Use metering </li></ul><ul><li>Sell High, Buy Low </li></ul><ul><li>Ratio in customer favor </li></ul><ul><li>Can reduce system size 0-30% </li></ul><ul><ul><li>Reduction depends on % on-peak usage , demand </li></ul></ul><ul><ul><li>Shading and orientation </li></ul></ul>
    17. 17. Time of day shading analysis
    18. 18. System Performance Loss Performance Variable Factor Factor 9-12% 88-91% Module Temperature 4-11% 89-96% Inverter Efficiency 5-15% 85-95% Dust & Dirt 2-10% 90-98% Module Degradation over 20 years 1.5-5% 95-98.5% Wiring (AC & DC sides) 1.5-2.5% 97.5-98.5% Module Mismatch 0-10% 90-100% Manufacturer Production Tolerance 0-40% 60-100% Orientation & Tilt 0-100% 0-100% Shading Questions?
    19. 19. Current Incentives <ul><li>$2.50 -> $2.20 -> $1.90 / Watt rebate </li></ul><ul><ul><li>Commercial Soon -> $1.90/Watt </li></ul></ul><ul><ul><li>Residential Soon -> $2.20/Watt </li></ul></ul><ul><li>30% Federal tax credit </li></ul><ul><ul><li>Uncapped for Commercial </li></ul></ul><ul><ul><li>Capped at $2,000 on Residential </li></ul></ul><ul><ul><li>Ends 12/31/08 , may be extended </li></ul></ul><ul><ul><li>Residential cap may increase </li></ul></ul>
    20. 20. The Ideal Situation <ul><li>Residence electric bill > $100/month </li></ul><ul><li>No Shade </li></ul><ul><li>Facing Southwest or South </li></ul><ul><li>5:12 roof pitch </li></ul>
    21. 21. Agenda <ul><li>What Makes PV Attractive </li></ul><ul><ul><li>The Variables </li></ul></ul><ul><li>How Do We Figure It </li></ul><ul><ul><li>Analysis Methods </li></ul></ul><ul><li>Commercial & Residential </li></ul><ul><ul><li>Examples </li></ul></ul>
    22. 22. Test the Viability of Solar <ul><li>Total Lifecycle Payback </li></ul><ul><li>Rate of Return analysis </li></ul><ul><li>Cash Flow when financing </li></ul><ul><li>Increase in Appraisal Valuation </li></ul>
    23. 23. <ul><li>Total Savings (whole area) is much larger than Initial Cost </li></ul>Total Lifecycle Payback Initial Cost Total Savings
    24. 24. Total Lifecycle Payback Commercial Examples (SDG&E)
    25. 25. Total Lifecycle Payback Residential Examples (SDG&E)
    26. 26. Watt’ $ the Rate % f Return?
    27. 27. Rate of Return Analysis <ul><li>Means: Finding the effective interest rate yield on the solar investment </li></ul><ul><ul><li>Uses Internal Rate of Return (IRR) analysis </li></ul></ul><ul><li>Compound Annual Rate of Return (CARR) </li></ul><ul><li>Useful for comparison with other investments w/ known Rates of Return </li></ul><ul><ul><li>I.e. Stocks: 10.5% over last 80 years </li></ul></ul><ul><ul><li>Commercial/business investments </li></ul></ul><ul><ul><li>Cost of issuing municipal bonds </li></ul></ul>Questions?
    28. 28. Careful Set Up <ul><li>Include all factors affecting the results </li></ul><ul><li>Look over long term - 25 years </li></ul><ul><li>Include cost and benefit components </li></ul><ul><ul><li>Bill Savings, Inflation, & Tax Benefits </li></ul></ul><ul><ul><li>Maintenance & Inverter replacement </li></ul></ul><ul><li>Include all real factors that affect system performance </li></ul>
    29. 29. Ideal Rates of Return Commercial Examples (SDG&E)
    30. 30. Ideal Rates of Return Residential Examples (SDG&E)
    31. 31. Watt’ $ the Cash Flow?
    32. 32. Cash Flow <ul><li>Compares the savings on the utility bill with the cost of financing the system </li></ul><ul><li>At today’s rates (~8%) and including rebate benefits, cash flow is often positive immediately </li></ul><ul><ul><li>Cost of borrowing < savings on electric bill </li></ul></ul><ul><ul><li>Stabilizes long term utility costs </li></ul></ul>
    33. 33. Cash Flow <ul><li>Residential system offsetting a large bill </li></ul><ul><li>8% 20 year loan </li></ul><ul><li>Many Systems are cash positive from Year 0 </li></ul><ul><li>Spike is Inverter Replacement Cost </li></ul>
    34. 34. Cash Flow Commercial Examples (SDG&E)
    35. 35. Cash Flow Residential Examples (SDG&E)
    36. 36. Watt’ $ the Resale Value?
    37. 37. Increase in Appraisal Valuation <ul><li>Solar electric systems add value to homes by: </li></ul><ul><ul><li>Reducing or eliminating electric energy operating costs </li></ul></ul>
    38. 38. Reduced Cost Increases Value <ul><li>$1000/year savings in a residence. </li></ul><ul><li>Nevin in the Appraisal Journal states: ‘The increase in appraisal value for a home is about twenty (20) times the annual reduction in operating costs due to energy efficiency measures.’ </li></ul><ul><li>Electric bill savings: $1,000 per year - </li></ul><ul><li>- Increased appraisal value: $20,000. </li></ul><ul><li>Article refers to residential only. Use “Cap Rate” for commercial value. </li></ul>
    39. 39. The Rational <ul><li>The $1,000 not spent on electricity, is available to be spent on an equity loan payment… </li></ul><ul><li>… at no net change in the cost of living. </li></ul>
    40. 40. 20:1 Ratio <ul><li>Based on 5% after tax cost of money </li></ul><ul><li>Typical long term mortgage average rates (8.3% before tax) </li></ul>
    41. 41. Equity Increase Residential Examples (SDG&E)
    42. 42. Equity Increase Commercial Examples (SDG&E)
    43. 43. Most PV is New <ul><li>Most systems are new (< 5 years old) </li></ul><ul><ul><li>95% installed in last four years </li></ul></ul><ul><li>Normal occupancy is 5-7 years </li></ul><ul><ul><li>Most have not been offered for sale </li></ul></ul><ul><ul><li>Most solar homeowners seem to be planning on staying longer than average </li></ul></ul>
    44. 44. Biases <ul><li>It has to look good too </li></ul>© Sharp Solar
    45. 45. If It’s Weird… © Alan Wood
    46. 46. The OnGrid Solar Financial Analysis Tool <ul><li>A Sales & Design Tool </li></ul><ul><ul><li>For use by PV salespeople </li></ul></ul><ul><li>Proves the Payback </li></ul><ul><li>Produces Proposals </li></ul><ul><li>Produces Sales Paperwork </li></ul>
    47. 47. Proves the Payback: Financial Analysis Methods <ul><li>Simple Payback </li></ul><ul><li>Total Lifecycle Payback </li></ul><ul><li>Rate of Return analysis </li></ul><ul><li>Cash Flow when financing </li></ul><ul><li>Increase in Appraisal Valuation </li></ul><ul><li>Provides spreadsheet of numbers for proof </li></ul><ul><li>Power Purchase Agreements & Leases </li></ul><ul><li>Grant Applications </li></ul>
    48. 48. <ul><li>Sales Docs Prepared: </li></ul><ul><ul><li>3 Varieties of Proposal </li></ul></ul>OnGrid Tool Outputs <ul><ul><li>Contract/Quote </li></ul></ul><ul><ul><li>CSI 2 & 3 Step Applications </li></ul></ul><ul><ul><li>3rd Party Authorization </li></ul></ul><ul><ul><li>Interconnection Agreements </li></ul></ul><ul><li>Data entered once </li></ul><ul><li>Accuracy & Time Savings </li></ul>
    49. 49. Results with OnGrid <ul><li>Faster, Easier, More Accurate Selling </li></ul><ul><li>Credible Financial Analysis </li></ul><ul><li>Effective Selling </li></ul><ul><li>Faster & Easier Paperwork Completion </li></ul><ul><li>= More Sales Closed, Less Effort </li></ul><ul><li>Free Demo Available - License Agreement </li></ul>
    50. 50. Financial Analysis Summary <ul><li>On Grid Solar Electric Systems can: </li></ul><ul><li>Demonstrably increase property value </li></ul><ul><li>Hedge Against Inflation Spikes </li></ul><ul><li>Be an attractive financial investment </li></ul><ul><li>Oh, it’s kinda nice environmentally & socially too… </li></ul>
    51. 51. Conclusion <ul><li>An Attractive & Legal investment… </li></ul>
    52. 52. Andy Black Solar Financial Analysis & Sales Software (408) 428-0808 [email_address] .net www.ongrid.net - Demos, Tools, Articles, & Classes
    53. 53. Andy Black Solar Financial Analysis & Sales Software (408) 428-0808 [email_address] .net www.ongrid.net - Demos, Tools, Articles, & Classes

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