Page 12 - North American Clean Energy July August 2015

solar energy

2015 is the Perfect Storm for Going Solar

Five reasons it’s never been a better time to adopt solar

By Kyle Kearney

Figure 1
Figure 2

LAST YEAR, the U.S. commercial sector installed just over 1 gigawatt of solar capacity. he chart (Figure 1) shows the inverse relationship between the increase in solar capacity
his added solar wasn’t just installed by California businesses and public entities. In fact, installed, and the decrease in average commercial system price over the past few years. As
Massachusetts, New York, North Carolina, and Maryland joined California as being the the solar industry has matured, so has the operations and processes of its players, but the

states with the largest increase in solar adoption by the commercial sector.
average system price is starting to level out.
Since 2010, U.S. businesses have installed more than 32,000 solar energy systems. Why?
It’s good business. For most businesses and public entities, the burden of energy cost luc- 4. Retail Rates for Electricity
tuations can be alleviated with a solar energy system.
he increasing costs and inherent volatility of electricity prices are an ongoing concern for

Solar makes more economic sense than ever before—especially for those with big energy businesses and the public sector, and one that solar can help reduce, if not eliminate alto-
appetites. here are ive key factors making 2015 the best time ever to invest in solar: the gether. Average electricity rates for the commercial sector have increased more than 20% in
decline of the 30% ITC, expiring state programs, the price of solar, the cost of energy, and the past ten years (see Figure 2), moving from $0.08/kWh to more than $0.10/kWh. his
inancing.
is an average across the U.S., so in some markets where the cost of electricity is noticeably

higher, the swing has been even more egregious. Given that the commercial sector con-
1. The Step Down of the Federal Incentive
sumes more than 1.3 trillion kilowatt-hours each year, this price increase has resulted in
he federal solar Investment Tax Credit (ITC), which has been in efect since 2006, provides tens of billions of dollars in additional utility bills, according to GTM Research and SEIA’s
solar energy system owners a 30% tax credit for the irst ive years a solar energy system
Solar Means Business Report.

is in operation. Improving the economics of solar for companies with big tax liabilities and By investing in solar, entities can secure a set price for their energy with zero fuel costs
for institutional investors looking for tax credits, the incentive is guaranteed and available using on-site generation. When designed correctly, solar can also oftentimes lower demand
to any solar installation in the U.S., regardless of location and size. Unfortunately, the ITC charges too – a common fee for commercial consumers. In the case of a third party inanc-
will step down from 30% to 10% at the end of 2016.
ing the system, the cost of electricity to the customer is going to be at, or more often below,

So what’s the urgency? he drop in the ITC to 10% will have a signiicant impact on the grid rates.
economics of solar, and it’s something the solar industry, Wall Street, and rate payers are
preparing for. In order for a project to qualify for the full 30% ITC, businesses need to make 5. Available Financing
the decision to go solar now. Ideally, a system would start construction during the spring
Approximately 68% of installations in 2014 utilized a Power Purchase Agreement (PPA),

of 2016 to make the cut of. However, the rush to get installations complete and online by which eliminates the upfront costs of going solar for the buyer. PPAs allow entities to buy
January 1, 2017 will impact the availability of quality solar integration resources, and pro- energy from the owner of the installation for a price that is lower than (in some cases equal
jects that try to enter the queue too late in the game, might get pushed to 2017, and miss to) utility retail rates. he third-party owner inances the installation and recoups their in-
out on the more lucrative ITC.
vestment through the sale of the clean power to the host customer.

Investors have been attracted by the economics of owning a solar energy system, and in
2. State Solar Friendly Programs and Incentives are Temporary
turn securing solar of-takers to buy the energy in the form of PPA inancing, in large part
Almost every state has programs in place to help their residents invest in solar. hese poli- because of the federal solar ITC. Typical PPA owners are banks and institutional investors
cies help improve the economics of going solar, make it more accessible within certain mar- who have a tax appetite and a need for the tax credits that come with the Federal ITC. With

kets, or do both at the same time. California, Massachusetts, New York, and New Jersey the impending stepdown of the ITC at the end of 2016, investor conidence in markets that
are examples of states that have made solar development a core objective and have the poli- are still maturing is expected to falter, and more and more pools of capital that have been
cy programs and incentives in place to prove it. hat being said, most state programs, what- previously set aside for solar projects will dry up.

ever their scope, are temporary, because they were designed to jumpstart the market and in
some cases, use limited public funds to incentivize early adoption of solar technology.
Take Away
Entities considering solar should look at their own state policies to see if and when they For those who use a lot of electricity, now is the time to look into solar. Along the way, it
are set to expire or reach their limit, because without them, returns might be slightly less may be learned the available facilities aren’t suited for the technology, or that the state

lucrative.
of residency isn’t currently primed for solar, but at least due diligence will have been
performed. Many will ind solar is a relatively simple arrangement, and with the various
3. The Declining Price of Solar
technologies and inancing solutions available in the market, it’s quite versatile and there’s
he price of solar energy has fallen dramatically over the past few years. he average
probably a package that will work. But, in order to increase the chance of solar meeting

price of a completed commercial PV project in Q2 2014 dropped by more than 45% since an aggressive IRR or ROI hurdle, and give it the best-shot possible, the process must be
2012—while the price of electricity rates continues to rise and experience volatility. How- started now to get in the queue before it’s too late.
ever, the price of solar isn’t going to continue to fall like it has over the past few years.
he industry has made big strides in technology cost reduction and is now focused on Kyle Kearney is the VP of project development, Western region, for Borrego Solar

lowering the balance of system costs, which make up around half of the cost of an installed
system. However, the costs of raw materials are starting to rise as the demand for solar Borrego Solar | www.borregosolar.com
increases. Additionally, some foreign solar panels are now subject to trade tarifs, which
signiicantly increases one of the major component costs of a solar energy system.

12 JULY/AUGUST 2015 nacleanenergy.com