Market signals say solar is a “go”
The solar industry is experiencing tremendous growth, both internationally and here in the United States. Solar PV installations will lead the nation in new power generation coming online for 20161, and the solar labor force has more than doubled in the past six years2. At the same time, the nation’s real estate portfolio is becoming more energy efficient, enabling state and local governments to establish aggressive targets for energy reduction. These two trends indicate a broad market signal that solar and energy efficiency are both readily available and cost effective.
Solar and energy efficiency have much in common. They are both used to lower energy bills, reduce the amount of electricity purchased from PG&E, and provide a way for building owners to invest in their business. When used together, solar and energy efficiency provide a powerful tool to increase revenue, deliver a more financially attractive project, and give clients a more compelling reason to act.
Often when solar professionals evaluate a new solar project, they look at the previous 12 months of electricity bills to begin the process. The solar array is designed to produce enough electricity to meet the usage of the previous year (minus a safety factor). This is a simple and straightforward approach, yet it assumes that the building needed as much energy as it used the previous year. This approach doesn’t take into account the ever-changing uses of a building, nor does it challenge the fact that the previous year’s electric use may be twice as much as needed!
Lower upfront costs with energy efficiency
Energy efficiency is a well-known strategy used to cut energy costs in buildings. Reductions at the whole building level of up to 35% are achievable. Additionally, if a property has multiple electric meters (a common configuration amongst the 5+ million commercial buildings in the US), one of the electric meters could have a specific use like common area cooling, or parking lot lighting. With the advancements of LED lighting, reductions for lighting-only meters could be 70% or greater. Since solar projects are typically associated with a single electric meter, if that solar array is designed to meet the previous year’s electricity use minus the contributions of the efficiency project, the new solar design will be much smaller, even 70% smaller. For many commercial buildings, this is an opportunity to save several $100,000’s.
While the costs for solar alone have come down over the years, the overall cost of the project can be a staggering number for many prospective buyers. With the overall goal of reducing energy bills, lowering the project costs while increasing energy savings has been a priority for installers, technology companies, and policymakers alike. Energy efficiency is arguably the most cost-effective energy solution, producing annualized returns on investment that would make even hedge fund traders excited. Combining energy efficiency with solar is an excellent way to boost the financial return of a project, and lower upfront costs. This combination has the potential to bring more customers to the table, making energy savings projects more accessible and freeing up budget for business owners and educators alike to reinvest in their core purpose.
Know how to find the right partner
Getting multiple bids for a large construction project is standard practice. Through the bidding process, the owner and the owner’s representatives gain a better understanding of the project considerations and the impacts to their building. Owners are also looking for discrepancies in cost, and to find the best value amidst competing opportunities. To simplify the bidding process and create a common point for evaluation, bidders are given a specified scope to cost out. In the commercial solar space, the bid instructions are typically based off the previous 12 months of energy bills, or simply a system size target (i.e. 250 kW DC). When the bids come back, the costs may vary by 5%, 10%, or even 20% for more complicated jobs. While this process may deliver the best value for a 250 kW solar project, it’s not clear from this process that the owner in fact needs 250 kW of solar.
Many solar providers have excellent design and engineering capabilities. Using 12 months of energy use, a sophisticated design may be able to down-size the system substantially. Instead of needing 250 kW, perhaps they can achieve the same energy production with 235 kW. This is a good outcome and will likely lead to a reduction in cost. However, this is result of a solar-only approach. An energy provider that looks at the entire energy use may identify an opportunity to modernize the facility’s HVAC and update the lighting systems. This could reduce the size of the solar project from 250 kW to 100 kW, providing the same energy savings using fewer solar panels for a more competitive price.
In addition to cost, project timelines are important factors to consider when evaluating a construction project. The scope of the job will dictate how large the labor force needs to be, and what the duration of construction will be. For commercial, industrial, and educational facilities, a multi-month construction project has a big impact on the facility’s operation. Taking the 250 kW solar project mentioned above as an example, the installer may provide their bid price assuming a crew size of 10, for 10 weeks. If the facility can’t afford to be impacted for over two months, the owner may pose a constraint to limit the construction period to 6 weeks. In order to accommodate this new constraint, the installer responds by increasing the labor force, and now prices a crew of 25 for 6 weeks. A larger crew, more labor hours, and potentially specialized roles for management are all factors that will increase the project cost.
Reducing the scope of the construction project is an easier and more cost effective way to achieve a shorter project duration. Given the time constraint of 6 weeks, the 100 kW job has a far easier task than the 250 kW job to complete the project on time. Additionally, since the bidder who proposed 100 kW was able to select this smaller solar system due to providing improvements to the HVAC and lighting systems, this scope of work can be completed in parallel using three separate crews. This minimizes the duration of construction, reducing the impact to the facility, while delivering the same energy savings to the owner.