Artistream Energy, Inc.
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10-07-2009
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10-06-2009
Solar saves money!
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Solar Feasibility Studies – Maximizing Energy ROI
Recently I have seen many companies implementing renewable energy projects without having conducted a proper (independent) Feasibility Study. While jumping straight to the end game can give a company good ROI, it is risky and can backfire. Some of the drawbacks of conducting a study in-house include: an inexperienced evaluation team, longer and more costly study timeframe, recommendations that are less than optimal and a final report that is ignored and never implemented because the evaluation team lacks independent credibility.
The 2 main components to a proper Solar Feasibility Study are an experienced evaluation team and a cohesive study framework. The evaluation team should include team members that have expertise in the following fields as it relates to renewable energy: implementation techniques (best practices), electricity, structural engineering, building codes and regulations, incentive programs, renewable technologies and an understanding of the evolving renewable finance space.
In order to explain what a cohesive study framework looks like, I will take a moment to describe how a Feasibility Study is conducted and what deliverables can be expected.
Site Survey - This is generally conducted by a renewable energy practitioner and may include a structural engineer. The site survey involves a physical inspection of the company property under consideration along with interviews with key company personnel. Some of the main tasks conducted are:
- Inspection and location of installed energy equipment
- Analysis of historical energy usage patterns and costs
- Analysis of future energy usage (projected)
- Inspection of roof structures of buildings to determine maximum solar capacity
- Inspection of additional property to determine other options such as: geothermal, ground mounted solar, parking lot solar awnings, etc.
- Shading analysis at possible solar sites for use in determining future ballpark solar production
- Utility interconnection study
- Location of possible system components placement: inverters, conduit and wiring, cutoff switches, etc.
It is important that the individuals conducting the site survey meet with the customer’s facility manager (and any other company officers who are involved in the project) to discuss any concerns regarding the location(s) of renewable equipment, specific energy requirements relating to the company’s core product or service, aesthetics, timing, payback expectations, tax situation, regulatory mandates, budget constraints and possible work interruptions during installation(s).
Analysis / Recommendations / Report Creation - Taking the results of the site survey and additional investigations (zoning restrictions, local building permit requirements, specific incentives available, etc.), the renewable energy practitioner now analyzes all of the data gathered, puts together a list of energy implementation possibilities and begins to narrow these down to concrete recommendations. It is important that the possibilities and recommendations be discussed with the client’s decision making team before the final report is created. The report itself should include:
- The company’s current & projected energy usage
- Energy related risks
- Potential energy efficiency and renewable energy projects
- Recommendations
- Analysis of the risk / reward of current renewable energy and energy efficiency incentives available
- Payback scenario analysis
- Life cycle cost analysis
- Financing options analysis
Many of the benefits of a Feasibility Study should be obvious at this stage. First and foremost the company obtains a realistic blueprint for reducing their energy footprint, reducing their energy costs and reducing their energy risk. Without this document, written by a competent outside practitioner, less than optimal projects may be implemented. In some cases a market based approach is less expensive than implementing a physical project.
Maximize Your Energy Dollars - A top notch renewable energy practitioner keeps up with the national / state / local / utility energy legislation, rules, incentives and tax implications and can leverage this knowledge to find substantial cost savings and revenue opportunities. Hiring a top notch renewable energy practitioner insures that your company is not leaving money on the table.
Minimize Your Energy Risk - A top notch renewable energy practitioner keeps up with the latest technologies and has hands on experience with many of them. Their expertise and experience will ensure the proper technology fit resulting in seamless integration, optimized energy output and quality, minimized ongoing maintenance and compliance with current and future energy / carbon regulations.
Project Credibility - Internal energy audits and studies conducted by company personnel can take months and even years to come together. Most study participants are not qualified to conduct a detailed study and must do preliminary research before even beginning the actual study. In addition, those chosen often must conduct the study on a part time basis so that it does not impact their normal job requirements. When the final study is complete, the recommendations are often watered down in order to minimize any risk to the study team members. Worse still, the final report and recommendations are most often ignored by the actual decision makers because the study team lacks the required expertise and credibility and cannot back up their recommendations. A proper Feasibility Study conducted by a top notch renewable energy practitioner eliminates this credibility gap, takes away the decision risk and provides clear documentation for any future audits (Dept. of Energy, Utility, Board, IRS, etc.).
One thing is certain in today’s energy environment, companies must be proactive in assessing and managing their energy risk. Climate Change legislation and / or a national RPS standard is likely in the near future. Fossil fuel prices are trending higher and utility rates will continue to climb due to these higher fuel costs, infrastructure upgrades, smart grid implementation and phased in RPS standards. Lenders are now penalizing companies with increased interest charges for having high energy risks and / or high greenhouse gas footprints. Pension funds are allocating increasing amounts of money into “Sustainable” and “Green” companies as they realize that these companies tend to outperform companies adhering to the old energy economy. Competitors are managing their energy more effectively and efficiently allowing them to lower prices while maintaining profit margins. The best way to combat and take advantage of these trends is to conduct a proper Feasibility Study and then implement as many of the recommendations as possible.
New York Enables New Local Financing for Renewable Energy
The New York legislature passed a bill in the emergency session Monday evening (November 16th, 2009) allowing municipal governments to set up renewable energy (and energy efficiency) finance programs by incorporating loans into property tax assessments. PACE (Property Assessed Clean Energy) programs are a recent innovation in finance and have emerged nationwide over the past year during which time 15 states have passed enabling legislation. Many of the previous PACE programs set up in other states rely on the local town or village to issue bonds to pay for the program. The New York program is designed to allow municipalities to leverage the $400M in recovery act (ARRA) funding from the federal government that has recently been made available for such programs.
This program will eliminate the upfront cost for certain energy improvements (such as solar energy) by allowing property owners to pay for the improvements over 15-20 years through an increase in their annual property taxes. There will be interest charged on these property loans and the property owner should investigate whether they qualify for a second mortgage or equity line that has a lower interest rate. Each municipality that participates will most likely charge a different interest rate depending on their cost structure for administering the program.
So how will this program work for the business owner or homeowner who wants to install a solar energy system or energy efficiency improvement? Well first off the expected life of the installed improvements must be at least as long as the repayment period. In addition, the improvement must be a permanent addition to the property. Thus, when a property changes hands, the new owner will continue receiving energy generation or savings and the municipal government will continue to receive the additional property tax income. The program cannot finance portable items such as efficient light bulbs and appliances because they can be easily removed when the current owner leaves. Examples of eligible energy improvements are solar PV, solar thermal and geothermal systems.
The property owner would finance the net installation cost after any NYSERDA rebates through the local town or village that is participating in the PACE program. In addition, they would be eligible for the 30% federal investment tax credit (ITC). If a Feed In Tariff (FIT) is passed in 2010 or 2011, then someone who implemented a solar PV system via PACE would also be eligible to sell their renewable energy production credits to the local utility at the higher FIT rate.
PACE financing offers many advantages to homeowners and business owners, including a long repayment period, potentially lower interest rate, tax-deductible interest payments, and an easier application process than applying for a second mortgage or home equity line. Unlike most other financing options, the repayment obligation transfers when the property is sold, allowing property owners to invest in improvements that will pay back over a longer time frame than they may intend to own and utilize the property.
Though the New York State Legislature passed this bill, it may be 6 months to over a year before municipalities roll out the infrastructure necessary to administer this program. Local towns and villages will have to identify key staff and advisors for this program, design the program to meet renewable goals within the community, get input from key local stakeholders, formally create the special tax district, design a tracking / accountability and reporting structure and finally launch and market the program.
This new program is designed to lower greenhouse gas emissions locally, benefit the bottom line of business owners / homeowners and assist in creating new “Green” jobs locally. If you are interested in taking advantage of this program, I encourage you to contact your local government and make them aware of PACE. If you are in the renewable or finance industry and can provide guidance or assistance to your local government, this will speed the rate of adoption and benefit us all.
We can thank organizations such as NYSEIA (New York Solar Energy Industry Association) who have been working with several legislators on this bill over the past year – particularly Sen. Antoine Thompson, Assemblyman Steve Englebright and Assemblyman Andrew Hevesi.
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Renewable Energy vs. Energy Efficiency
When does it make sense to employ renewable energy and when is energy efficiency more practical? This is not an easy question to answer. Even after a specific analysis is done there may be trade offs and qualitative decisions to be made. The ideal scenario is to incorporate both energy efficiency measures with a renewable energy power source but this is not always practical. Let’s first take a look at some of the major factors that will guide us in our analysis. The following is a list of a few key considerations that need to be evaluated in order to generate practical options and ultimately make an informed decision:
- Goals – What are the energy goals of the project?
- Are you looking to save on energy costs?
- Would you like to change your power generation fuel to a cleaner alternative?
- Are you interested in a greener building as well as saving money? (How you weight each of these factors will have an impact on your final choices.)
- Are you planning to utilize the energy solution long term or will the facility / home be sold in the near future?
- Budget / Financing – This area should be explored thoroughly. Most renewable energy installations and energy efficiency implementations will pay for themselves over time. Many will even create a substantial net cash flow for decades. But there is usually an upfront cost and each solution has its own payback calculation. Even with a limited budget, costs can be reduced via government subsidies, grants and tax offsets. In addition, creative financing along with incentives and reduced energy costs can lead to a monthly payment that is less than what you pay monthly for the replaced energy.
- Building Condition – With new construction, energy efficiency and renewable energy (such as solar PV and solar hot water) can easily be incorporated into both the design and financing of the building. With an existing building, an energy audit and site survey (for renewable energy) will be required in order to assess what the viable options are.
Each building assessment is unique and requires investigating and weighing many factors. The traditional wisdom has been that one would first optimize any energy efficiency measures and then implement any renewable energy systems to meet the lower energy loads. However, with the generous incentives that exist today, which will surely be reduced in the near future, it often is more practical to implement solar or other renewable solutions for 60% to 80% of your current energy requirements and look to do energy efficiency projects down the road. Guidance from professionals in the renewable energy and energy efficiency fields can assist you in this evaluation. Their input will save a lot of time and aggravation as you begin the journey of changing your energy footprint.