Article originally published in solarbuildermag.com, on APRIL 30, 2015
The growth of the U.S. solar industry over the past five years has been impressive. Since 2009, the annual amount of solar installed on U.S. homes, businesses, municipal and government facilities and utility-scale power farms has soared from about 382 megawatts to an estimated 6.5 gigawatts in 2014 — a nearly 1,700 percent gain, according to a recent U.S. Solar Market Insight report issued by GTM Research and the Solar Energy Industries Association.
What was once a small, boutique-like sector has become a thriving multi-billion dollar industry employing 174,000 people in this country, while other parts of the world are also enjoying the solar boom.
Many government and municipal entities have embraced solar as a way to sustainably lower their operating costs. In addition to thousands of schools, universities and hospitals now benefiting from solar power, a growing number of utility-owned water and wastewater treatment facilities have seen solar projects developed and built on their properties.
The recent interest in solar can be attributed to five main factors:
- Prodigious and continuing reductions in module and system costs — amounting to more than 50 percent over the past four years – as well as decreasing labor, permitting and other soft costs.
- Significant improvements in construction speed, while still maintaining installation quality.
- A growing suite of financing options and acceptance of solar as an asset class.
Increased awareness of the threat of climate change and the need to transition to clean energy sources.
- Varying levels of local, state and federal incentives and renewable energy initiatives.
As a result of these trends, solar is edging closer to — or has already achieved and even surpassed — price parity with conventional energy in many parts of the world.
Solar’s Value Proposition Today
The value proposition for the solar power and water plant combination comes down to energy costs. According to a U.S. Environmental Protection Agency (EPA) guide to solar for water utilities, wastewater treatment represents about 3 percent of the nation’s energy consumption, with more than $4 billion spent annually for the energy needed to run those utilities. As a controllable operating expenditure, energy use is a sweet spot for cost reduction.
Dozens of water utilities and districts across the United States have embraced the cost-saving benefits of solar power over the past few years. Commissioned installations include the 7.5 MW solar power plant at the Lake Pleasant water treatment plant in Phoenix; a pair of solar systems operating for the Rancho California Water District; the E.M. Johnson plant in Raleigh, N.C.; and a ground-mounted array at the Gresham, Ore., wastewater facility. In each case, the customer expects to offset a sizeable percentage of its annual power usage, enjoy millions of dollars in energy savings over the lifetime of the system and significantly reduce its carbon footprint.
No Upfront Cost Solar Financing Methods
The most popular financing approach used by water treatment plants adopting solar is the third-party solar power purchase agreement (solar PPA). Usually stipulated for a period of 15 to 25 years, a solar PPA represents a long-term agreement between a water utility customer and an energy developer to provide electricity generated by a solar power plant at guaranteed long-term rates. As part of the arrangement, the developer offers design, financing, maintenance and related support of the solar system.
One of the most attractive aspects of the solar PPA approach is that the water utility avoids any upfront capital costs, since the developer partner designs and installs the system at no charge and a solar asset specialist maintains ownership. For the lifetime of the agreement, the water utility pays the system owner for the solar power generated on the property, while the owner maintains and operates the system. The kilowatt-hour cost of energy is locked in at a rate lower than what the power utility company would charge — a rate that is likely to increase in the future — providing a predictable cost trajectory for the duration of the PPA. The owner also assumes any project risk if the system underperforms or any cost overruns occur.
When deciding on which solar developer and engineering, procurement and construction (EPC) firm to work with, the water plant owner should discuss which components they plan to specify for the solar installation. Although solar products in general are of good to excellent quality, not all panels, inverters, racking/mounting and other balance-of-systems components are created equal.
As the core component of any solar photovoltaic system, the choice of panels should be evaluated on several levels. Although pricing should be competitive, a matter of a few cents per watt on module costs should not be a deal-breaker; quality and performance are even more important considerations. Any panel eligible for procurement will carry at least a 25-year warranty and have the requisite IEC and UL certifications, denoting that it has passed certain required testing protocols.
Top-tier solar panel suppliers like REC Group that offer additional transparency and proof of reliability — such as meticulous manufacturing quality control, advanced testing beyond certification requirements and extensive field performance data — find favor with many developers and contractors and are more likely to be viewed as “bankable” by financial institutions.
The combination of a well-structured solar PPA, an experienced EPC team and high-quality solar panels has helped the City of Madera, Calif., enjoy energy savings at its wastewater treatment facility since a 1.16 MW solar power plant was completed in November 2010. With a PPA rate set below the normal cost of utility power, the city received substantial cost savings on the purchase of energy within the first year of operation. It has already saved hundreds of thousands of dollars each year since the system was commissioned, which will add up to more than $3.6 million over the term of the 20-year agreement with Pacific Gas and Electric.
The system — designed and installed by REC Solar Commercial with Peak Energy panels supplied by REC Group — has performed above expectations, generating an average of 2,500 MW hours of electricity per year, according to the city’s public works department. Since its commissioning, the plant has produced a total of approximately 11,000 MW hours of electricity to date. The 5,267 solar panels, affixed on several dozen mechanical tracker systems that follow the sun over the course of the day, reliably generate enough power to account for 61 percent of the sewage plant’s electricity needs.
There’s an environmental benefit too, as tens of thousands of pounds of carbon dioxide and other greenhouse gases that would have been emitted from the use of conventional fuel sources have been avoided so far, thanks to the pollution-free solar power plant.
The value proposition of adding a commercial solar system to help offset the high energy cost of running a water or wastewater treatment plant has never been stronger. But now is an especially attractive time to capitalize on this opportunity, as certain local, state and federal incentives may be reduced or eliminated in the next few years.
One of the most important of these governmental programs, the federal Investment Tax Credit (ITC), could shrink from 30 percent to 10 percent at the end of 2016 if Congress does not amend or extend it. The ITC has been a financial linchpin that has helped fuel the current solar boom in the United States.
Although going solar will continue to be economically beneficial for an increasing number of homeowners and businesses, it makes sense to take advantage of the ITC and other incentives while they are available.
Christopher Masys is key accounts manager for REC Americas LLC, the domestic unit of REC Group, a leading global provider of solar energy solutions headquartered in Norway. He is a nine-year veteran of the U.S. solar electric industry, with experience in sales, sales management and business development, in both the downstream (EPC) and upstream (manufacturing) segments.
Christopher has a BS in industrial technology from California Polytechnic State University in San Luis Obispo and has experience prior to the solar field as a manufacturing engineer specializing in automation. This combination of perspectives provides for a unique insight into the role of automated high-quality production of components, as it relates to reliable and consistent production of energy from an installed system. He can be reached at email@example.com.