Solar Panel Project

Myself ^ | 7-15-12 | Unbubba

[UnBubba]

My company is contemplating the installation of a 1.2 MW solar photovoltaic (PV) generation solar panel project on the roof of our facility. We are located on Long Island and are powered by LIPA.

LIPA has a new green initiative program called CLEAN. LIPA's CLEAN Solar Initiative will pay customers $0.22/kWh for PV plants between 50 kW and 20 MW under 20-year contracts. LIPA will begin accepting applications under the program on July 16th, 2012.

The United States experiments with feed-in tariffs at the local level. A number of U.S utilities, municipalities and states have approved feed-in tariffs, however such policies typically deviate from the European model in one or more aspects, and few have led to rapid growth in PV markets.

Question. Do you think this is a good project for my company? The $0.22/kWh fee sounds great (we currently pay about $0.16/kWh on average over the course of one year), but it's fixed over 20 years.

Thus, there is no protection for dollar inflation and the potential rising cost of electric. Who knows, in five years $0.22 might be worth only $0.15 (or less).

I would appreciate your comments on this issue. There are other tax benefits for doing this project (i.e., 30% ITC and bonus depreciation) but I would like to exclude these from this analysis because they were available in prior years and have been evaluated.

Thank you.

[UnBubba]

I evaluated a solar panel project for my company last year (prior to this new program) and calculated a "buy-back period" for this investment to take 9 years. This new program will reduce this period of time significantly.

[Pikachu_Dad]

I would expect inflation to run about 4% per year (Historical average).

Consistant with this, see the excerpt from the LIPA report below. Over a 5 year period, electric prices rose 4.2%/year.

From the LIPA Report 12 12 05

LIPA’s Yearly Average Price Increases
Year
Average Price
Increase
1999 to 2000 0.7%
2000 to 2001 2.3%
2001 to 2002 1.8%
2002 to 2003 5.9%
2003 to 2004 10.3%

Source: U.S. Department of Energy,
Energy Information Administration

[UnBubba]

Thank you for your reply.

Your data is somewhat dated. I worry about the oncoming inflation. Due to the current economics of our society (and world, for that matter), many experts are predicting double digit inflation beginning as early as 2014. Needless to say, that concerns me.

[Pikachu_Dad]

So, assuming a uniform 4% increase in price/year...

By the end of the contract, you will be selling your electricity for $0.22 and having to buy electricity for $0.34 - a deficit of $0.12.

So while today’s price difference looks great, the chances of it being swiftly erased are very good.

You should work to get an escalation clause put into the contract for rise in prices. Otherwise you will be stuck in a very sour deal in about ten years.

Year Sell Buy Difference
1 $0.22 $0.16 $0.06
2 $0.22 $0.17 $0.05
3 $0.22 $0.17 $0.05
4 $0.22 $0.18 $0.04
5 $0.22 $0.19 $0.03
6 $0.22 $0.19 $0.03
7 $0.22 $0.20 $0.02
8 $0.22 $0.21 $0.01
9 $0.22 $0.22 $0.00
10 $0.22 $0.23 -$0.01
11 $0.22 $0.24 -$0.02
12 $0.22 $0.25 -$0.03
13 $0.22 $0.26 -$0.04
14 $0.22 $0.27 -$0.05
15 $0.22 $0.28 -$0.06
16 $0.22 $0.29 -$0.07
17 $0.22 $0.30 -$0.08
18 $0.22 $0.31 -$0.09
19 $0.22 $0.32 -$0.10
20 $0.22 $0.34 -$0.12

[Jonty30]

I think solar power is a good investment, under two conditions:

a. you are in an area with lots of sun. The more sunshine, the more power is produced.

b. You can use the power as it is produced. If you cannot use it all, the unused power is essentially wasted as we are not at a point with very good storage technology yet.

Solar panels optimal life span is about 20 years, with usuable lifespan being upwards of 30-35 years.

[UnBubba]

That was my thought! I appreciate your comments.

[Pikachu_Dad]

4% is typical long term HISTORICALLY.

Given the spendthrift ways of our government, a currency collapse with hyper inflation is possible.

However, I am assuming a resumption of fiscally sound government.

[UnBubba]

We're on Long Island. This area has good and bad years when it comes to sun light, however, the stats are well documented.

We definitely use more power (about 3.2 MW/year) than a solar panel project will generate (about 1.4 MW).

Thank you for your thoughts.

[Pikachu_Dad]

He is in LONG ISLAND. That is NOT a place with a lot of sun.

The Mohave desert - 7.7 kWh/m2/day.
Montpelier, Vermont - 3.43 kWh/m2/day.

Long Island should be in the 3.4 kWh/m2/day range. Perhaps less due to being on the coast.

Assuming 15% efficiency of the cells, then the harvest is about 0.5 kWh/m2/day.

[UnBubba]

As stated previously, another concern of mine is the future cost of electricity. My scientific mind tells me that technology will lead to cheaper energy costs, but my business mind tells me that for profit enterprises will always look for ways to increase ARPU (average revenue per user).

Hence, my concerns.

[Pikachu_Dad]

A life of 20 years is probably about right - but verify based on the technology you intend to use.

You should include the cost of disposing of the cells when their useful life has expired.

On the other hand, all of the Solar bankruptcies may make obtaining solar panels at a steep discount possible. So you may be able to snag a lot of capacity for a song.

[UnBubba]

"He is in LONG ISLAND. That is NOT a place with a lot of sun."

I wish you could tell my sunburn that! :(

[Jonty30]

It definitely would not pay for itself in any reasonable length of time.

Have you thought of installing a wind turbine near New York’s city hall?

You should be able to generate enough power to pay for it.

[Pikachu_Dad]

But you are basically buying your own power. If you are consuming 1/2 of what you will make you will have not export.

So if you do the contract right, you will have a fixed electric price for 1/2 of your needs for the next twenty years.

The surge in fracking giving plentiful and cheap natural gas may cut the cost of electricity. But your business mind should expect a typical inflation rate of 4% per annum based on history (mainly due to currency devaluations).

[UnBubba]

Believe it or not, an entire solar panel project's cost (soup to nuts, including planning, install, permits, service, etc...) has declined significantly over the past couple of years (from about $4.00/kWh to $2.80/kWH).

One of my big concerns is the general contractor's (GC) financial condition. I have seen many fly-by-night solar company's come and go over the past few years. Most of them have been in business for 5 years or less and have grown too quickly and have become over-leveraged.

[UnBubba]

Good one, Jonty.

[WHBates]

So the delta between .16 and .22 (even in the short term) is being paid for by whom? The rest of the rate payers I would guess. The entire solar power/green energy deal is a scam.

[BobL]

“(from about $4.00/kWh to $2.80/kWH).”

...that’s per Wh, not kWh. But yea, the price has come down greatly.

You should try to lobby for the same 22 cents per kWh, but with production being in the California desert (as mentioned by others). You’d still be SAVING THE WORLD, which is the reason for this in the first place, plus you’d be doing it twice as fast. The idea being that you’d buy the power from one of the big plants out there for maybe 15 cents, and then get paid 22 cents. It actually makes more sense for everyone involved...but will never be allowed to happen.

[Engineer1955]

Your capacity factor will be in the 10%-15% range, meaning your 1.2 MW (1200 kW) will produce on average about 150 kW (day/night, sunny/cloudy).

1200 kW X 12.5% X 8760 hrs/yr X $0.22/kWh = $290,000 per year.

If that justifies your investment, go for it. (You should be able to get a better estimate for the capacity factor.)

[Arrowhead1952]

I won’t mention the agency by name, but there was a solar panel project [federally funded] here in Texas that was supposed to supply power to several buildings. Yes, we get a LOT of sun here, but the panels were installed flat instead of at an angle facing south. It makes ZERO electricity. Got some nice covered parking garages now.