Incentives, benefits, considerations and opportunities in the solar energy marketplace
The solar energy industry is experiencing the largest growth of any fuel in the energy sector. Last year, 7.26 gigawatts (GW) of solar capacity was installed—an all-time high, up 16 percent from 2014, according to GTM Research. This trend is expected to continue: the report suggests that 16 GW of installed capacity will be brought online in 2016.
For the first time ever, solar was the leading generation source installed in 2015, supplying 29.4 percent of all new generation capacity in the U.S. This has brought billions of dollars of investment into the marketplace and created hundreds of thousands of jobs—numbers that bode well for the future economy.
Market Incentives and Benefits
Solar energy is driven by market conditions, both regulated and voluntary. At the federal level, for example, there is the 30-percent tax credit: all costs associated with the building and startup of a solar energy generation unit are eligible. In addition, accelerated depreciation benefits through MACRS (modified accelerated cost recovery system) allow tax-paying corporate entities to depreciate 50 percent of a solar project’s taxable basis during the first year, and the remaining 50 percent over the next five years.
State by state, the incentives vary—some offer simple rebate programs, some utilize market-based solar renewable energy credit (SREC) programs, and others have state-level tax credits. There are also feed-in tariffs (FITs), which are utilized in local markets and by utilities. All of these programs are implemented to support the state’s mandate, known as the renewable portfolio standard, to produce a certain percentage of its electricity though renewable sources. These market incentives bring investment to the state and allow for third-party ownership of the generation equipment.
Meanwhile, businesses and individuals benefit from the simple production of electricity and ownership of their own generation system, which typically carries a 25-year warranty on output. These are long-term assets, extremely dependable and fairly maintenance-free, so an initial investment might produce electricity with little to no long-term costs for 35 to 40 years… or longer.
From a global perspective, much of the growth in solar has been the result of FITs. Germany has historically been the world’s largest market, utilizing its FIT program to pay system owners a premium rate for the renewable electricity they supply to the grid. While customers get paid directly for that generation value, this also provides significant value to the utility companies, as it reduces the need to fire up “peaker plants” during times of high usage. It also reduces the demand for fossil fuels, which has value far beyond its immediate dollar value. Other markets, such as Italy, Spain, Japan and China have utilized this mechanism to drive growth. Ultimately, the long-term benefit is cheaper, cleaner, more reliable electricity, providing economic and environmental benefits to all.
System Design and Considerations
When determining the priorities of system design and construction, the primary considerations typically involve three major components: the panel manufacturer, the type of inverter and the installation location/racking. The process begins with an analysis of the site’s energy bills, which gives an idea of how big the system needs to be to produce 100 percent of the site’s electricity—always the original goal. It will also provide insight into how much the customer is paying for electricity, which is critical to the payback or investment return of the project.
Once the size of the system is established, the process moves to understanding the site and customer expectations with regard to aesthetics. For example, will the system go on the roof? Perhaps—if there is enough space to house a system that meets project expectations and maintains enough unshaded southern exposure to provide ample system efficiency. Based on these considerations, you may look to place the system on the ground, on the roof or both.
The next major decision involves the inverters—a crucial piece of the puzzle, because they must match the proper efficiency, cost and investment return expectations of the project. Options include micro-inverters, central inverters and central inverters with maximizers. Central inverters are the oldest technology and extremely mature, with numerous manufacturers, both domestic and international, that build high-quality inverters. However, it is also the cheapest option, with the shortest warranty timeframe and lowest production efficiency.
Many developers are moving to more efficient inverter setups, finding that the increased efficiency over 25 years far outweighs the additional costs on the investment side of a project. Other options include marrying the two together utilizing maximizers, which provide efficiency at the panel level with a 25-year warranty, yet still move DC electricity to a central inverter with a 10- to 12-year standard warranty. While this is cheaper on the front side, the inverter will still need to be replaced somewhere in the middle of the panel warranty, usually around the 15th year. Ultimately, all of these options are good—you simply have to find the best options for the specific project.
The solar panels themselves typically carry a 25-year warranty; the considerations then become price, availability, manufacturer and panel efficiency. A large majority of the solar panels placed into service each year are manufactured in China, which has invested greatly in its solar industry. Many of the world’s largest manufacturers hail from China, although some have gone bankrupt in recent years, mostly because they flooded the market with cheap panels but did a poor job managing supply and demand—leaving the market over-supplied and further driving down costs. This phenomenon, along with increased trade duties due to anti-dumping violations, has shaken the market—and strengthened American, German, South Korean and Japanese manufacturers, which are gaining market share.
Locally, the solar energy market hasn’t been investor-friendly nor driven as much activity, but some of this is slowly changing. Historically, solar projects in Illinois have been built primarily because of customer-derived value from the environmental benefits and the basic desire to be “green.” Today, however, market power purchase agreements (PPAs) are now a possibility, allowing for the design, financing and installation of a solar energy system at little to no cost to the customer. It is one of those scenarios where the time has finally arrived. The right time to partner with a company that can develop your project from start to finish—including the financing—is now. iBi
Jason Hawksworth is President of Hawk Energy Solutions, LLC, which provides alternative energy solutions for residential and commercial consumers. For more information, call (309) 231-3900 or visit solarpvillinois.com.