Recalculating Solar Savings

Ten years ago, seeing a solar electric system on a building was noteworthy. Now they’re popping up everywhere. Lower cost is obviously a big driver of this solar surge; photovoltaic (or PV) system costs have dropped 50-70% in the past 10-15 years. Over the past decade, SWA has helped developers and owners install PV systems on hundreds of buildings. The systems are reliable, they have no moving parts, and they will convert sunlight to electricity for decades.

The cost effectiveness of PV, however, is not always clear. In fact, SWA has seen a concerning trend where the cost benefits of PV are exaggerated. Although costs vary with region and application, installed costs of PV are usually $3,000 – $6,000 per kWSTC.

Then there are incentives, including two key federal programs:

Photovoltaic Panels

  • 30% Federal tax credit
  • Accelerated depreciation (for businesses)

Other incentives vary greatly from region to region:

  • State, local, and utility rebates or credits
  • Sale of Renewable Energy Credits (RECs)

The Database for State Incentives for Renewable Energy (dsireusa.org) has a good summary of these regional incentives. Federal and regional incentives can easily lower PV system costs by 50% — often more.

The final piece in assessing cost effectiveness of PV is the electricity savings. With PV generating electricity for your building, you’ll obviously be paying less to the utility. But how much less? In the Northeast, each 1 kWSTC will usually generate 1,000 – 1,200 kWh each year.

  • Residential rates (i.e. for single-family homes or individually-metered apartments) in the Northeast are typically $0.15-$0.25 per kWh
  • Commercial electricity rates (including rates for multi-family common meters) are less – usually $0.06-$0.12 per kWh. These accounts also pay demand charges, however — something on the order of $15-$25/kW for the highest period of usage each month.

PV systems obviously offset electric energy charges, but do they offset demand charges? In our experience, the answer for multifamily buildings is often no. Power demand for multifamily buildings is usually fairly level. The small peaks usually occur early in the morning (when residents wake up and head out for the day) and in the evening (when residents get home, lights go on, etc.). As PV produces the most electricity in the middle of the day, these peaks aren’t much affected.

So the concerning trend is this: some building owners are receiving quotes for PV systems that calculate savings based on much higher rates. Proposals often promise utility savings of TWICE what system owners actually see.

That’s not to say PV is a loser. PV certainly does generate electricity cleanly and reliably, and there are still many applications where PV systems do make economic sense. But it’s not a slam-dunk; take a close look at the assumptions when weighing costs and benefits.

3 replies
  1. Richard says:

    “The final piece in assessing cost effectiveness of PV is the electricity savings.” The previous sentence is from this article. Obviously ground water contamination from coal mining and fracking don’t factor into your cost/benefit analysis. Air pollution and the accompanying respiratory illnesses don’t factor into you cost/benefit analysis. The cost of climate change due to fossil fuels doesn’t factor into your cost/benefit analysis. The tax breaks the fossil fuel industry receives don’t factor into your cost/benefit analysis. The cost of the military forces around the world protecting the fossil fuel industry don’t factor into your cost/benefit analysis. You only use a ridiculously narrow facet of one part of our total energy consumption. In fact, this article seems as if it was written by Exxon or BP.

    Reply
    • Robb Aldrich
      Robb Aldrich says:

      Displacing fossil fuels is the whole point! But there’s no reason not to assess the direct costs and benefits accurately.

      Budgets are limited (almost always), and building owners need to make lots of choices. In some buildings, there are investments that can yield more immediate benefits greater than PV could provide – environmental benefits, health & IEQ benefits, as well as benefits to the bottom line. Things like air sealing & insulation, lighting upgrades, moving from resistance heating to heat pumps, making ventilation systems actually work, etc. can be higher priorities. In other buildings, PV may be a no-brainer.

      PV works great; we recommend it on many, many projects. But we try to look at the whole building, and we try to use accurate numbers.

      Reply
  2. Solar Power says:

    This is an extremely well written and informative article. And I really like the way you have explained each and everything so well. As increasing pollution and global warming we must choose the renewable source as they never harm to our environment. For me using solar panel is one way to help rebuild our environment. We all know that Solar power is renewable.the use of electricity is very costly. To reduce costs on energy, homeowners are seeking other alternatives. One of the common options is the use of solar panels which has proven to be economical.

    Reply

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