Solar power has attracted massive investment around the world in recent years, and there are two strong reasons for this. In the first place, the cost of photovoltaic technology has been decreasing rapidly since the year 2000, when solar panels were around 10 times more expensive. In addition, many countries and companies have pledged to reduce greenhouse gas emissions, and solar power provides a convenient way to achieve it.
For many building owners, deploying solar power means getting familiarized with a new technology, which brings a unique set of technical challenges. Although photovoltaic systems have much simpler maintenance needs that other types of generation equipment, they still require specialized skills for installation and maintenance.
Solar power systems have become much more affordable, but a large commercial or industrial installation can easily become a multi-million-dollar investment. To maximize the value of such an investment, the photovoltaic system must be designed, installed and serviced properly.
There are three main options for building owners who are considering solar power:
- Direct purchase, where the photovoltaic system becomes part of the property.
- Solar leasing, where the building owner rents a solar array owned by a third party.
- Solar Power Purchase Agreement (PPA), where building owners purchase the energy output from a solar array owned by a third party.
Find out how much you can save with solar power.
Purchasing a Solar Power System
This option is the simplest to explain: the end user owns the photovoltaic array, and its energy output is subtracted from electricity bills. The savings from the first few years are used to recover the cost of the installation, and all generation beyond that point is essentially free electricity with only a minor maintenance cost.
Photovoltaic systems can often achieve a payback period of less than 5 years. On the other hand, solar panels can last 25 years, while inverters and batteries are rated for around 10 years. This guarantees a long-term power supply that runs with a free and clean input - sunlight.
Since solar power systems for large C&I buildings involve a significant investment, companies often use loans to cover their cost. The advantage of this option is that savings can be used to pay off the debt, and the net expense is zero:
- Companies often have access to low interest rates. They often purchase equipment with loans to avoid a sudden disbursement, even if they have the funds available.
- In the case of solar power, electricity savings can normally cover the full debt while leaving net savings.
The main advantage of purchasing a solar power system is that long-term benefits are maximized, in exchange for a higher upfront cost. Also consider that solar incentive programs are normally for the legal owners of photovoltaic systems, and they go to the provider if you sign a solar lease or PPA.
Of course, owning a solar PV system brings maintenance responsibilities. The surface of solar panels must be kept clean to maximize energy output, and warranty claims may be necessary if a system component fails. To own a solar power system, building owners may have to expand or train their maintenance staff, or they can hire an external company for routine maintenance.
Leased Solar Power Systems
Leasing a solar power system is not very different from renting an apartment or car, where you pay a fixed fee at regular intervals to use the asset. The lease payment is always the same, regardless of solar productivity and the current season.
System maintenance is normally included in a solar lease contract, and this means the supplier files warranty claims if any system component fails. Double-check the contract to ensure these services are bundled in, or otherwise you will be responsible for servicing a leased installation.
As mentioned above, a solar lease involves giving up on owner incentives, such as cash rebates and tax deductions. However, you can immediate savings while avoiding the upfront payment. Just keep in mind that part of the savings are used to pay the lease.
How Power Purchase Agreements Work
A solar PPA is similar to a lease, with one important change: instead of paying a fixed fee for using a solar array, you pay a variable fee based on kilowatt-hour output. As a result, you can expect to pay less during winter months, and more during the summer.
The kilowatt-hour price in a PPA is much lower than the local electricity tariff, and building owners achieve savings from the first month of operation. The kWh price may be fixed for the entire term of the PPA, or subject to a minor inflation adjustment each year, but the client knows all the conditions in advance. On the other hand, conventional electricity tariffs are subject to unpredictable price hikes and regulatory changes.
The Importance of Energy Efficiency
In many cases, buildings are equipped with solar power systems without addressing their energy efficiency issues. However, energy consultants recommend a combination of both measures to achieve the best result.
- Energy efficiency measures reduce the energy demand of the building, lowering both electricity and gas bills.
- Since the electricity consumption is now lower, any solar power system deployed will meet a larger share of the total.
On the other hand, if an inefficient building is equipped with a solar power system, the electricity output may only represent a small fraction of total consumption.
An energy audit is strongly recommended as first step before proceeding with any energy efficiency measures or installing renewable generation systems. Every building is unique, and upgrades that are effective in one building may have little or no effect in another. However, energy consulting engineers can find the best approach for each property.