Why is everybody so excited about solar
Solar Powered: Part 1 of 4
This is the first article from the series on how to choose the best solar pv system and financing.
Introduction: What kind of solar are we talking about?
The focus here is solar photo-voltaic technology. This technology creates electricity from sunshine. There are many different solutions on the market, but in general, there has to be a surface made out of a specific material that generates electrons when exposed to sunlight. You know these most commonly as solar panels that are installed outside, on rooftops of buildings or on the ground, facing the sun. The panels can be directly connected to an electric device they power, connected to a battery or tied to the electric grid (the “grid” are the cables and power lines that run electricity into your home or business from your electric company). The device that connects the solar panels to the grid is called an inverter. A solar pv system consists of panels, inverters, and cables. In the case of grid connection (on-grid), there will be the system or panels. In the case of a stand alone (or off-grid) system, there will be batteries and cables.
The solar industry is still relatively young, immature and unknown to the general public. Most positive information available is provided by the marketing and sales departments of solar companies. On the other hand, there is plenty of negative literature explaining why solar will never work, distributed by utility companies.
The purpose of this series of articles is to provide you, the reader, with information and procedures to navigate successfully through the world of solar energy. You will know which information is important for you and the kinds of questions you should ask your solar company, utility, and/or financing party.
Solar is a breakthrough technology because of the direct impact on your finances. Using information from this publication, you will be able to make the best decisions for YOU. The focus is on money, on the financial aspects of solar, because installation of a solar system is an investment. The results of such an investment will affect you every day for a number of years. That is why it’s crucial to make the best decision.
Where can this publication be used?
The information in this publication can be applied any place in the world. The specific environment might be different. The prices, currency, and amount of sunshine might be different. But the economic principles and the math behind it is the same all over the world. The examples used here may not reflect your specific economic conditions, but will show you the principles behind it, so that you can use your own specific values and calculate the results for yourself.
Who can benefit?
Most of all, readers who are planning or are in the process of going solar will benefit. Additionally, anyone who has something to do with solar energy can benefit from it. Also, anyone who is involved in energy will be involved in solar, in some way, soon. Solar energy will affect the energy industry the way microcomputers affected information technology. This publication is especially beneficial for:
• anyone who consumes energy
• anyone who takes care of his money, finance
• anyone who seeks investment opportunities
• property owners
• business owners
• business managers
• property managers
• managers of NGO
• public services managers
• local activists
What you should know to go solar
Installing a solar system, large or small, is a project that involves a lot of different aspects. It also requires specialized knowledge about solar technology, regulations, the permitting and licensing process, engineering, procurement of the equipment, installation and financing. YOU don’t have to know it all, because there are specialized companies out there that have all of the knowledge and skills. But it is very helpful to have a general understanding of the process so you will be able to ask the right questions and make the best decisions.
After reading this series of articles you will know:
• how solar energy works (from the end user perspective only, so don’t get scared)
• how to pick the best installation offer
• how to finance a solar system
• how to choose the best offer for financing
• how to calculate if solar makes sense for you money wise
• how to compare different financing options
• how much your rooftop is worth
The green revolution and why is everybody so excited about solar?
In short: it is a secure, highly profitable investment at zero cost. That means there is no need to spend money on this investment in order to enjoy the profits. Seriously! Oh, by the way, it helps the planet too! …and creates local jobs!
Imagine somebody offering you this deal: invest nothing now and enjoy secure revenues for the next 100 years, while improving the economy and the environment at the same time. Would you turn this offer down? Sound too good to be true? It isn’t. Solar energy is that good! Here is why, step by step.
The revolution is here
The Green Revolution. But this revolution is not about the planet or the environment, even though that is a by-product. This revolution is green as in dollar green, money green. It’s all about YOUR money.
We continuously experience revolutions in communications and information technology. Our entire virtual world was created with its own market, its own economy. Fortunes were made and lost because of the magnitude of the process and the fact that no one expected it. The Internet was a “black swan”.
“The ‘black swan theory’ or ‘theory of black swan events’ is a ‘metaphor’ that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of ‘hindsight’.” Solar photo voltaic (or “pv”) is a black swan in the global energy and financial markets. It is a game changer. By being democratic, scalable and cheaper each year, the technology makes existing concentrated energy generation business models obsolete. The key word here is “scalable”. This means systems can be designed as small or as large as need to meet the exact energy demand of a building or facility. Therefore, systems can be installed on the property, where the energy is consumed, eliminating the need of transferring electricity. This saves costs, energy loses, and makes the energy supply more robust and stable. This is referred to in the industry as Distributed Generation (or “DG”).
A DG energy project is defined here as a project where solar pv systems are installed on site to meet the internal energy demand of an organization. Energy generated on site is typically consumed on site. Systems can also be grid connected to make sure electricity is available at night and to export the surplus of energy back to the grid. However, the main assumption is that the energy from a DG system is to offset your demand.
Distributed Generation + Solar = GAME CHANGER
Solar farms require a wide open area and are then connected to the grid. There has to be a PPA (power purchase agreement) with an energy off-taker in place. Usually this is your utility company. After buying energy from the solar farm, the utility company then transmits and distributes this energy to the consumers. The transmission and distribution generate additional costs and loses. The price a consumer pays includes the initial generation, paid to the solar farm and the transmission and distribution, paid to the utility company.
In the 20th century, there were no efficient technologies available for distributed generation and therefore, consumers had no options. They HAD to buy from the grid. Big plants offered economies of scale and were located close to essential supplies. Grid energy was a necessity.
Fast forward to now. Solar pv technology is perfectly scalable, clean, quiet and reliable. It can easily be integrated with the existing electrical installation of any building. If solar pv generation makes sense for a solar farm (because of the amount of sunshine), it also makes sense for individual customers. By installing solar panels on their own sites, they cut out the middle man — the utility company.
The biggest companies in the world are energy companies. They sell electricity, oil, natural gas, coal or all of the above. These companies are enormous because their business model was the best option, a path of least resistance, for delivering the essential commodity: energy. There was no other option. Now there is.
How will the future of energy look?
Think of an “Energy Internet.” Distributed, local energy generation and storage sources communicating with each other to share infrastructure and deliver energy in the most efficient way. The sharing is done through services offered by the “Energy Internet” participants. The energy market, in this model, is democratic and localized. There are ‘prosuments’, who consume AND produce energy. Production, consumption, and ownership of the assets are mixed.
To be more specific, imagine Company A has a lot of roof space. It installs solar and uses most of the energy but has a surplus. Through a local (existing) low voltage distribution grid, Company A can sell the surplus energy to houses in the area. At night, when energy is being used within the company, it can buy energy back from the batteries of electric cars parked in the neighborhood’s houses, for example.
OK, everyone will have solar. So what?
It really is really a big deal. Before you know why it’s such a big deal, you have to know the big secret! Ready? OK, here it is: ENERGY IS FREE! That’s right. It is! Not only solar and wind energy, but oil and/or coal are also basically free.
The gas or electric bill YOU pay are costs that are only related to the harnessing and using of the energy. Traditionally, Big Utility works like this: the facility extracts energy in the form of fossil fuel (but also renewable energy — think about a huge dam), converts it into electricity and then transmits it to consumers. All of these activities require large capital investments, because traditional power plants are incredibly expensive, $300M and more. Utility business models were able to convert those cost into fairly affordable monthly payments for thousands of consumers. So, these facilities recover their money from you, by sending you a monthly utility bill. My question is, how old is your power station? Are you still paying for infrastructure that was paid off long ago?
Distributed generation also requires capital investment to purchase technology. However, the investor, is ALSO the consumer. Instead of sending money to finance another investor’s return, the consumer recovers his own capital expenditure and invests in his own assets.
Costs related to harvesting energy are typically monopolized, concentrated and managed by global organizations. Energy prices are then controlled by the global market and influenced by factors such as currency exchange rates, the stock exchange, and global politics. Because these costs are operating expenses, they are generated continuously and infinitely.
On the other hand, a distributed energy harvesting technology, like solar, can be localized and owned by the consumers. Once installed, the costs related to the energy systems are defined and fixed. Your energy bill is now part of your capital expenses and energy becomes an asset, not a liability. Once fully paid, the energy systems continue to harvest energy, making the energy to run your business and/or home ABSOLUTELY FREE.
Here is the Big Deal: instead of supporting energy companies with your money, you now have the opportunity to support yourself and to make your money start working for you!
Sounds very nice and kinda Star Trek but it’s too expensive… isn’t it?
No, it’s not. Rooftop solar energy has reached grid parity on several markets in the world already or, to put it another way, the cost of energy generated by rooftop solar was the same or lower than the cost of energy delivered by the utility company. Moreover, costs of solar will continue to drop while the grid energy costs will continue to rise.
The driving force is the economies of scale. Mass production allows for substantial reduction of the unit cost (and price) of goods. The same economic principle responsible for cheaper, more powerful computers each year, is now driving the efficiency and pricing of solar panels. Because solar panels are standardized, easy to transport and install, they can be purchased from any place in the world and delivered to site. So the supply of panels is a globally competitive market, just like microchips or LCD monitors. The more a company manufactures and sell panels, the cheaper the unit price can be. Consequently, the cheaper the price, the more it can sell.
Previously, solar energy required heavy government support because it couldn’t compete with grid electricity. Panel and inverter technology was not efficient enough and unit costs and prices were to high. Now, thanks to support programs, like the one in Germany, for example, a substantial market has been created, allowing solar technology to mature and expand, rapidly. These support programs got the ball rolling and now solar energy is a cost efficient alternative on several markets. As solar prices continue to fall while grid energy rises, more and more energy markets will adopt solar.
Solar energy might still be more expensive than the energy generated by a coal fired or nuclear power plant. But, this energy then has to be delivered from the power station to consumers. Once those costs are included in the electric bill, solar can already be a cost efficient solution. Installing rooftop solar does not require using transmission or distribution power lines and covering related costs.
Are there any disadvantages of solar?
Let’s start with the advantages. First and foremost it is profitable! As stated above, when comparing it with current energy prices, with enough sunshine, it is just cheaper to go solar than paying a utility bill just about anywhere in the world!
Next, production in predictable, and in line with consumption as energy is produced during the day when power consumption is highest. The supply of solar energy is reliable and predictable because, based on weather data, the production can be accurately planned. There are also zero operating costs and once installed, and properly monitored, solar pv systems are easy and cheap to maintain. Solar energy will generate energy for years, 100 years or more actually. This has been experimentally proven. (Chianese, D., Realini, A., Cereghetti, N., Rezzonico, S., Bura, E., Friesen, G. , 2003. Analysis of Weather c-Si PV Modules. LEEE-TISO, University of Applied Sciences of Southern Switzerland, Manno.).
Another advantage is that it is scalable and easy to install. A pv system can be engineered to supply just the right amount of energy (large or small). It is a distributed or a local generation. It can be installed exactly where the energy is needed, creating a truly independent energy source. There is no need for any transmission grid, as it is consumed and produced at the same location. This makes it a reliable and stable solution, indifferent to power outages.
Local also means reinforcing the local economy, as in creating local jobs. Installing solar supports the local economy, because a larger part of project development costs are related to local activities such as permitting, licensing, and installation. It can also reinforce local financing systems such as local banks, who could provide financing.
Finally, because sunshine is free, predictable and abundant, there are no issues with fuel supply. There are no fuel price fluctuations and no supply shortages. Additionally, no money is exported abroad to pay for oil or natural gas, which is crucial to the local economy. The money, instead, stays in the local economy and recirculates, creating even more jobs, revenues and profits.
PV systems are clean, quiet, and they do not impact the environment, at all. Actually, the environmental benefits of solar technology is old news so I won’t even bother talking about it. Besides, this author strongly believes the planet is doing just fine.
What about downsides?
Solar works in alignment with the amount of sunshine. Which is good because the highest energy consumption is during the day. It’s not so good because it doesn’t work at night and we still use energy at night. It also works during cloudy days and in winter, but obviously the energy production is higher during summer months.
The second downside are the installation costs. In total, over, say, 20 or 30 years, the costs of solar electricity is really low. It can be even lower than the grid electricity, as stated above. But right now you don’t have to pay for a brand new electricity distribution grid or power station. They are already there. So you only pay a monthly bill. With solar, there is a need to cover upfront installation costs to enjoy free energy later. Fortunately, there are solutions to all of these issues.
Let’s start with energy consumption at night or during winter. Solar systems can be coupled with battery storage to and operate 24/7. A pv system, with batter storage, can be designed so it stores the excess energy created during the day to be used at night. There are also other storage technologies, such as using hydrogen or compressed air, that can store large amounts of energy to be used during the winter. Additionally, there is also an option of using a natural gas or diesel generator when the sun is not shining.
But, these solutions are only necessary if the solar system is completely disconnected from the grid, which is a choice, not a requirement. Solar pvs can easily be integrated with the grid to provide you a reliable 24/7 energy supply. A grid connected (on-grid) system uses the grid as energy storage. When solar energy production is higher than consumption, a pv system supplies the grid. When the production is insufficient to meet the consumption (say, at night), energy is, instead, supplied by the grid.
Affordable vs. Cheap
Solar energy is cheap. It’s as cheap as it gets because it’s free. But installation costs of the system can be significant. The main issue preventing people and/or companies from going solar are still the capital investment requirements. The key to affordable solar is providing financing, preferable designed specifically for solar. With pv systems, there are solutions allowing to minimize, even down to zero, the investment costs related to pv systems installation.
Applying financing solutions to high efficiency pv systems is a much better idea than buying a system just because it is the cheapest one on the market. A cheap system might be inefficient and generate less energy than a more efficient system that is more expensive to install. Therefore, take into consideration the unit cost of solar energy: total costs of the system divided by total amount of energy generated
Financing of a system can be structured so that monthly payments are lower than your current utility bill. This means immediate savings and an immediate improvement in cash flow. Payments can be precisely planned and fixed, contrary to volatile and escalating payments to your utility company.
This is possible because solar technologies are commercially available, there are industry standards, and the components of solar systems are in a mass production. Systems can be insured and are bankable (meaning there can be a bank loan granted against a solar system as a collateral). Financing parties are willing to invest into solar systems because the risks of such an investment are known, predictable and manageable.
Assets vs. Liabilities
When discussing solar financing, one very important thing has to be pointed out. Solar pv systems are assets. They produce an essential commodity. The generated electricity has a value and can be sold or used to offset your own consumption. Therefore, it constitutes revenue for the owner in cash terms. A car loan payment is a liability (unless you are a professional driver). It only generates costs. A credit card payment is definitely a liability. You are financing purchases that don’t generate income, only costs. They are cash negative.
Installing a solar system is cash positive. After making the loan or lease payments, there is money left from savings from your utility bill or from selling the excess generated energy. The solar systems pay itself off and generates extra cash.
Energy generating assets in a distributed generation model are secure investments with no market risk because you are investing in your own assets. The demand for energy always increases and installing a pv system means there is no middle man (a utility company) who can disrupt your delivery of energy.
In short, financing solar pv is financing assets, not liabilities. Therefore, the operation is cash positive for the borrower. Better cash flow means lower risk, secure repayment, and an opportunity to reinvest. Solar financing is the solution that can provide a boost for the economy, on a local and the global scale.
Are there better technologies than solar?
It all depends who’s asking. There are better alternatives for utility or energy companies, for sure. Building a nuclear power plant, financed by a government guaranteed loan, means they will be in business for the next 30–50 years. There will be business generated for taking care of nuclear waste, building new energy lines, and maintaining the plant. A natural gas power station, with a long term gas supply contract, is a great alternative for a natural gas company.
Also available are distributed generation technologies that would be an interesting alternative, in specific cases. In cases of producing a steady stream of animal waste (if you own an animal farm, for example) you might consider investing into your own biogas facility. If you have a lot of dry biomass available (wood chips, for example) a gasification technology might be interesting. If you own a river or have free access to it, hydroelectricity may sound tempting. Provided you have your own fuel supply for the technology, those might be cheaper than solar, especially in places where there is not much sunshine. Still, all of the mentioned technologies require substantial specialized effort to maintain and operate the equipment.
Solar water heaters should be mentioned here as well. The principle is the same — maintenance free collectors are installed on the property and harness solar energy. Solar energy is used to heat the water in the system. The water could then be used for space heating or for hot tap water. A few years ago, it was definitely a cheaper way to harness solar energy. Now, as the costs of solar and heat pumps drop, the cost advantage is debatable. There is also an issue of excess heat in the summer, which can’t be stored or sold, nor enough heat production in the winter, requiring another heat source to be used, like an electric heater or a furnace.
How solar can work in the real word
There is nothing more important for the real world than energy. It is essential to support our civilization’s modern lifestyle and development. Technology is nothing more than the transformation and utilization of energy.
Energy is like air for the economy. When energy prices go up, less energy is consumed and the economy slows down… it has problems “catching a breath”. But more importantly, the structure of the costs and expenses change. Energy demands are not very flexible. Increases in price are not proportionally reflected by a decrease in demand. Movie ticket demands are very flexible, for example, with prices going up or down depending on audience attendance. But you can choose to not see a movie. You have to use energy. With higher energy prices, people and businesses see more money going to the purchase of energy and less going back into their savings, retirement accounts, and/or their own businesses. The majority of energy expenses end up being exported to the global energy market for the purchase of this energy. Less money is going back into the local economy where it could provide local jobs and ultimately increase the tax base.
Creator of Online Project Tracker. Web app solving problems with communication and data inconsistency issues when managing construction and O&M projects. http://www.hienergypeople.com/online-project-tracker/