Why it's a brilliant time for companies to invest in solar power
Why it's a brilliant time for companies to invest in solar power
Onsite solar can achieve corporate sustainability targets, but optimal implementation often stymies decision-makers. Done incorrectly, it’s easy to end up with a system that falls short of expected returns. Nevertheless, there’s no time like the present for taking advantage of this opportunity.
A GreenBiz webinar earlier this month highlighted the intricacies of onsite solar and how best to integrate the technology into sustainability agendas. Stephen Scott, director of Eastern product development for SunPower, made the case for onsite solar (the company’s specialty) as a pressing consideration for a corporate energy portfolio.
The clarion call was to urge project managers to bring onsite solar projects to fruition as soon as feasible, with the support of proper analysis and expertise. Onsite solar will reward first movers who do their homework and implement well-designed projects.
Recent, top-down regulatory efforts to curb climate change, coupled with local ordinances aimed at reducing greenhouse gas emissions — such as recently in New York City and San Francisco — all create pressure on companies to reduce their carbon footprints. Further, disparate elements of the financial ecosystem are increasingly demanding better performance on greenhouse gas emissions:
- The worldwide value of investment funds that take account of environmental, social and governance (ESG) factors rose from $6 trillion in 2006 to $59 trillion in 2015, according to the Principles for Responsible Investment.
- A PricewaterhouseCoopers survey last year found that 19 percent of responding investors had withdrawn or withheld capital based on ESG factors.
- A Nielsen survey found that 73 percent of millennials say they are willing to pay more for sustainable offerings.
- Eighty-one corporate entities — including General Motors, Apple, Johnson & Johnson and Coca-Cola — have joined RE100, a collaborative, global initiative of influential businesses committed to 100 percent renewable electricity.
These developments prompt an increase in sustainability reporting in order to satisfy various stakeholders. But perhaps most important, a growing number of corporate managers acknowledge that energy efficiency and prudent resource management are simply good business practices.
Onsite solar embodies many virtues for corporations:
- It is a visible symbol of sustainability commitment. Customers and other stakeholders who see a solar array on a company’s campus or physical plant witness direct and tangible efforts to reduce environmental impact.
- It presents clear additionality, which means that the project would not have occurred without the company’s efforts. Contrast this to, say, purchasing renewable energy from a utility: That energy likely would have been generated regardless of an individual customer’s purchase.
- The majority of onsite solar systems are installed behind the meter, and therefore directly offset electricity consumption at the site.
- Onsite solar provides operating expenditure (OPEX) savings from the outset, whether financed by a power purchase agreement (PPA) or direct investment.
- Onsite solar makes use of underused assets such as roofs, parking lots and unused ground space.
SunPower recommends that companies maximize on-site generation and use off-site resources to balance sustainability commitments. The company aims in its projects to achieve 60 percent more energy from the customer’s fixed footprint.
Multiple, reasonable concerns underlie reluctance to undertake solar projects promptly. Scott of SunPower addressed several of these questions:
Energy costs have fallen. Why commit to a long-term strategy?
Energy prices are volatile, and most experts believe energy prices will keep rising over the long-term. Scott thinks that if energy prices were going to stay low, we would see longer-term contract offers by energy suppliers, but that is not the case.
Solar is only going to get cheaper, so it’s better to wait.
In incentivized markets, the incentives generally reduce or expire at a greater pace than solar cost reductions. Early movers generally get more favorable economics. North Carolina had a strong, state-level tax incentive that just expired. Pennsylvania presents a similar case. The same can occur in other markets, potentially pushing project viability off for quite some time.
The takeaway is that if a project meets your hurdles now, don’t delay. The economics are likely to become only less favorable.
Return on Investment (ROI) on solar is impossible to prove.
The technology to measure and project ROI is available. Demand charge reductions can be measured, adding additional value to solar investment. Demand charges are based on the highest 15-minute average usage recorded on the demand meter within a given month. If a facility tends to use a lot of power over short periods, demand charges will compose a larger part of the energy bill. More than just measuring real-time energy savings — which only recently has become possible — measuring demand charge reductions adds significant value to onsite solar.
The solar industry breathed a collective sigh of relief when Congress recently extended federal tax incentives. The Solar Investment Tax Credit (SITC) is a direct tax credit, whereas the Accelerated Depreciation Schedule — which includes Bonus Depreciation — is an improvement in first-year depreciation benefits. Accelerated depreciation allows a company to depreciate an asset for tax purposes more quickly than the actual life of the asset. It allows filers to write off costs earlier on in the life of the asset than they would normally be able to do.
By their very definition, though, these incentives will not be around forever, and are designed to scale down over time.
With every passing year, the value of both incentives depreciates. For example, according to SunPower’s Scott, a $2 million on-site, cash purchase by a corporation with a 35 percent corporate tax rate would lose $47,600 in tax benefits by delaying until 2018, all the way up to $638,000 with a 2023 launch. (These figures do not include deferred electricity savings or state/local incentives.)
Essentially, the solar opportunity window is closing, and decision makers would do well to capture the financial benefits now for greater returns over time.
Renewable energy provides three types of value to business. Direct financial value reflects the immediate financial impact of an investment, through both profitability and the productivity of assets. Renewable energy confers indirect business value on a brand, which manifests itself in companies’ ability to meet demands from investors, customers and potential employees.
Finally, renewable energy contributes to longer-term enterprise value by augmenting companies’ ability to make smart decisions regarding their nation-wide or enterprise-wide solar strategies while mitigating risk.
Companies wishing to improve their carbon footprints should identify the best available solar project opportunities: Energy markets are complex, and matching available options with corporate priorities requires market expertise.
Nick Magnan is the senior product marketing manager for EnerNOC, which specializes in demand response and energy management solutions for commercial end-users, utilities and wholesale suppliers. He identified a series of challenges:
Location characteristics: Where will the solar be installed?
Work with a partner who can evaluate an entire portfolio to identify solar opportunities, Magnan said.
How do companies determine optimal system size, especially given their electricity tariffs?
Magnan advised analyzing interval data alongside current (and available) electricity tariffs. Incentives and other financing mechanisms often are limited, and require expertise to secure. Magnan advocated for engaging with a partner early, so as to be ready to execute projects when incentives are most attractive. Incomplete or late applications for incentives can tank a project, for instance.
Magnan also counseled companies to integrate solar sites into their energy portfolios, noting that they need to manage energy efficiency and be able to compare sites with and without solar.