Green Collar Blog

Part 4 in a series of 4 posts from Dr. Nicole Peill-Moelter, the Director of Environmental Sustainability at Akamai, in which she documents what she learned while deploying a solar system on her home in California.  

Calculating Your Effective PV KWH Rate to Estimate Your ROI

To estimate the ROI of your PV system you'll need to calculate your current KWH rate from your utility and the effective KWH rate of your PV system.  The latter calculation will vary depending on the financing option you choose.  Let's look at an outright purchase first and then a leasing option.

PV System Purchase KWH Rate

In this case you need to estimate the total KWH the system will produce over its lifetime accounting for the annual reduction in the system performance, 1% per year.  Conservatively the system lifetime is 20 years, the typical warrantee period, but more likely longer, e.g., 25-30 years.  Next calculate your cost.  This should include any interest rate cost if you finance the system and also any state rebates and federal tax credits.  It should also include $1-2,000 for the replacement of the inverter about halfway through the system's lifespan. Inverters are generally waranteed for 10 years.  Then divide the total cost by the total system output to arrive at your effective PV KWH rate.

PV System Leased KWH Rate

The calculation is similar to the purchased calculation.  The PV system vendor will guarantee an annual KWH output for your system which you then total up for the term of the lease, e.g., 15 years.  You then need to calculate the net present value (NPV) of your lease payments including any down payment and financing charges.  Doing a NPV calculation takes into account that a $100 payment 10 years in the future is worth less than $100 payment now - depreciated each year by the discount rate.  This is your total system cost.  Again, divide the total cost by the total system output (KWH) to arrive at your effective PV KWH rate for your leased PV system.

PV System ROI

Now, the number you've been waiting for [drum roll] the ROI of your PV system.  The easiest way to do this calculation is to multiply your PV system's total lifetime output in KWH by your current utility KWH rate.  The ROI is the difference between this value and the PV system's cost.  Technically, to be accurate you should do a net present value calculation of your utility payments over the system's lifetime.  However we can make a simplifying assumption that the discount rate used in the NPV calculation and the rate at which electricity prices will increase are about the same.

We leased a system for 15 years with an estimated payback of 7-8 years.  We leased because once the kids are out of college we plan to downsize to ensure they don't come back to live with us!

Food for Thought

Two additional things to consider when mulling over whether a PV system makes sense for you is the future cost of grid electricity and water usage associated with the traditional production of electricity.

With the installation of smart meters it's very possible that utilities will start to price electricity based on time-of-day.  This is because electricity is most expensive to produce during periods of peak usage which just so happens to be during the day and early evening when you are likely to be using the most electricity, e.g., 1-8pm.  If that's the case, your future electricity rates could be substantially higher than the current flat rates you are paying today.  A PV system locks in your rate for 15-30 years.  The only risk you run is that utility rates will decrease in that time span to below your PV system's KWH rate - and how likely is that??  So I think a PV system is a pretty good bet!

Water Used in Electricity Generation

An astounding fact that I learned recently is that for every kilowatt-hour burned 20-40 gallons of water is consumed in the generation of that kilowatt-hour.  This water is used to cool the steam generated by a coal, nuclear or natural gas power plant. A typical American household uses ~100 gallons per day.  But if you include the water inherent in the electricity usage, that figure increases to over 1,000 gallons of water per day!!  You can bet that as water becomes an increasingly valuable resource, especially in water constrained areas like the southwest and southeast US, this will add to the cost of electricity.

A PV solar system would eliminate this entirely because except for the manufacture of the solar energy  panels, no water is consumed to produce the electricity.  Very cool indeed!

I hope this series of findings was helpful to those of you out in the market considering PV for your home.  It has been a wonderful experience for me and my family and we are looking forward to many years of net neutral energy bills thanks to our new PV system.

Part 3 in a series of 4 posts from Dr. Nicole Peill-Moelter, the Director of Environmental Sustainability at Akamai, in which she documents what she learned while deploying a solar system on her home in California.  This segment covers financing options for solar systems, buy vs. lease and rebate and tax considerations.  This is great stuff...thanks Nicole.

Financing Options

Now that you're nearly ready to call the sales rep, let's look at various financing options that are available. 

PV solar companies now offer residential consumers financing options that make solar affordable for most anyone with sufficient electricity consumption, roof space and the right location.  These options include outright purchase of a system and system lease (or power purchase agreement).  What's best for you will depend on your situation including how long you plan to own your property, how much you can put down upfront and what your goals are, e.g., saving money or using renewable energy.

Outright Purchase

Outright purchase of a system may make sense for you if you can afford the capital outlay upfront and plan to be in your home for twenty or more years.  For example, a 5.0 KW system can cost in the neighborhood of $30,000, not including rebates and tax credits.  You are responsible for the maintenance, monitoring and repair of the system.  Since there are no moving parts, systems are generally low maintenance, requiring only cleaning of the PV panels and keeping the panels free of shading.  Although PV panels typically degrade less than 1% per year PV panels are warranteed for twenty years, and usually operate much longer than that.  Inverters have 10-year warrantees.  A twenty- to thirty-year amortization of your system usually results in a very favorable return on investment (ROI), e.g., energy costs of <$0.06/KWH.  You can also borrow money for the system which will lower the ROI but can still make sense given the strong ROI for systems used for 20-30 years. 

Even if you will be in your home less than 20 years, PV systems improve the property value so you can extract the residual value of the PV system when you sell.  Some cities are considering incorporating financing of the PV system into the home's property tax thereby tying the system to the home not the original buyer which overcomes a common financing hurdle.

Because you will own the system and be responsible for its operation, repair and performance you should thoroughly vet the PV and inverter technology and manufacturers.  For example, I learned that some cheaper PV panels can be of inferior quality resulting in leakage of the panels which decreases or ruins their performance. This is important if you want your system to last beyond the warrantee period.  In another example, micro inverter technology enables conversion of the DC electricity to AC at each panel.  The advantage of this is that if one panel is shaded or is not operating the other panels will still operate at full performance.  This is not so when the panels are linked together connecting to a single inverter as is the case for most systems.  If one panel is shaded or non-operable they all are.  Micro inverters are more expensive but may be worth it in the long run - especially if your roof is shaded.

System Lease

For those who cannot afford or don't want to outlay the full capital cost of a system upfront, more and more companies are offering a system lease, or power purchase agreement.  In this case the PV solar company owns, installs and is responsible for the system.  It also guarantees the annual output of the system for the life of the lease which is likely to be 10-15% less than the actual output.  One of the financial advantages of this purchase option is the PV solar company can take advantage of the business writeoffs associated with the system such as equipment depreciation which is not the case for a private owner. 

Lease agreements can range from zero down, 50% down to 100% down.  The advantage of 100% down is there are no finance charges which lower the ROI.  The lease allows you to lock in a guaranteed rate for your energy (KWH) which is not the case with your current situation.  At the end of the lease you can opt to renew the lease or have the system removed.

Unlike a purchased system the PV and inverter technology is not so critical for a leased system.  This is because the PV vendor guarantees the system output.  So it doesn't matter if you have a Ferrari or a Honda on your roof, it will get you where you want to go.

Rebates and Tax Credits

State rebates and federal tax credits help offset the cost of a PV system.  Rebates vary state by state and over time.  In California the California Solar Initiative (CSI) rebate has been in place for years and subsidizes systems under 1 MW on a per watt basis, e.g., 35¢/Watt.  This subsidy is reduced over time as the installed base of PV increases.  The federal tax credit is 30% of the cost of the system and is realized in the year that the system is installed.

If you purchase the system you are eligible for these rebates and tax credits.  If you lease a system you transfer the rights to these financial incentives to the PV vendor.  These incentives in addition to capital equipment depreciation and other business deductions enable PV vendors to reduce the cost of a PV system to consumers.

Part 2 in a series of 4 posts from Dr. Nicole Peill-Moelter, the Director of Environmental Sustainability at Akamai, in which she documents what she learned while deploying a solar system on her home in California.  This segment covers sizing your system, connecting to the grid, net metering and various other electricity related mysteries.  Thanks again Nicole!

How to Size Your Solar System

One of the initial steps in purchasing a PV system is estimating the total system power you need, in units of KW.  The system's power requirement is a function of the amount of energy, or KWH, your home uses each month on average, and how much you want offset by your PV system, e.g., 60%, 80% or 100%.  Your electric bill provides you with this information. 

A PV solar system of a given size has a rated power output in KW, e.g., 4.2 KW.  The actual output however will vary depending on your location and orientation of your roof.  Solar insolation, or radiant energy, and duration will vary from location to location, day to day, and season to season.  The National Renewable Energy Laboratory (NREL) and others collected a large body of data for the U.S. that provides fairly precise estimates of the amount of solar radiation and duration as a function of all of these parameters.  

The power output of your system can be precisely determined by multiplying the total system size by the average daily duration of sunshine for your location.  For example, a 5.0 KW system in southern California exposed to on average 5.0 hours/day of sunshine would produce on average 5.0 KW x 5.0 hours/day x 30 days/month = 725 KWH/month.  Note the system size based on the panel rating which is measured in a lab under standard conditions is not the actual power output of the system which is likely to be less due to system losses, e.g., 10% less.

By knowing your average monthly energy usage, the percentage of that usage you want offset by your PV system and using a proxy solar radiance of 4-5 hours/day you can calculate the approximate size of the system you need: 
Average Monthly Energy Usage (KWH) / 30 days per month / 5 hours per day ~ PV System Size (KW)

Net Metering

A common misconception about PV systems is that the electricity produced by the system is used by the owner directly.  This is not the case unless the owner is "off grid" meaning not connected to the electrical grid.  To be off grid requires batteries to store the produced electricity.  This makes the system significantly more expensive, and unless you can't connect to the grid, has little advantage except having power during a blackout; which for most of us, fortunately, is only a rare occurrence.

For the vast majority of installed systems, the electricity generated is delivered to the electrical grid and mixed in with other generated sources of electricity.  As the electrons produced by your PV system are delivered onto the grid from your connection point your electricity meter literally runs backwards!

What makes PV systems work financially for most is "net metering".  Net metering is an electricity policy, usually implemented at the state level which requires utilities to subtract the PV-produced electricity from your electricity bill - so you only pay the net of what you produce and use.  At the end of the year your utility company nets out how much electricity you produced against how much your PV system produced.  If you used more than you produced your utility will send you a bill for the difference.  If you produced more than you used in some states you will get a credit from your utility, generally a wholesale rate, e.g., $0.06/KWH.  In other states you get a big bagel - just a thank you from your utility for your generous contribution!

Net metering is instrumental in facilitating the adoption of PV solar.  It allows you to produce electricity in excess of what you use during the day, use the electrical grid for "storage" of your excess production, and draw from the grid when you are not producing.  Net metering applies to any small producer of renewable electricity, e.g., wind, geothermal.

Electricity Rates, Your Utility Bill and Other Mysteries

To understand how to evaluate the ROI of your PV system you need to understand your electricity bill and how much you are being charged - good luck!

Most electricity bills break down into four charge components:
1) Electricity generation charge
2) Electricity delivery charge
3) Bond charges
4) Tax & fees

The simplest way to calculate the basic KWH rate you're a paying is to add up the generation and delivery charges and divide by your total KWH usage. 

The "loaded" rate is calculated by totaling all the charges including any bond charges, taxes and fees and dividing by the total KWH usage.  These additional charges can increase the rate by 10% or more.

One thing to note is that the more electricity you use above a baseline amount, the more you are charged.  In our case our usage falls into the baseline, and the two tiers above baseline.  The rates for the two tiers above baseline are 53% and 377% higher than the baseline rate, respectively!  The baseline rate is generally quite low, e.g., near wholesale.  If you can keep your usage under the baseline threshold, e.g., 300 KWH/month, then your bill will be disproportionately reduced.

Calculating your rates and understanding your motivations for going solar will help you determine by how much you want to offset your electricity usage and, ultimately, the PV system size.  If you just want to save money then size your system such that your offset keeps you under the baseline threshold, whose rate is very likely to be cheaper than your effective PV KWH rate.  If you want to save money and not use fossil fuel, then you'll probably want to offset your usage 100%.

We are happy to welcome back Dr. Nicole Peill-Moelter, the Director of Environmental Sustainability at Akamai, to Green Collar.  Since we last we spoke with Nicole, she has deployed a Solar PV system on her home in California.  She has documented her learnings and asked if we would like to publish them...of course we jumped at the chance.   If you are interested in putting solar on your home (or business), this series will get you moving in the right direction.  Thanks Dr. Peill-Moelter.

Solar Basics

Our family recently passed the threshold where it made sense to look into photovoltaic (PV) solar power.  We moved into a larger home with a pool; and with three teenage boys we were pushing 600 KWH per month.  That's actually pretty low for a family of five because we don't run our air conditioning and installed energy efficient lighting and appliances.  The average single family home uses ~1,000 KWH.

Having engineering degrees in chemical and environmental I had a decent background to navigate both the technical and business aspects of purchasing a PV solar system.  I obtained proposals from four companies and learned a lot in the process which I thought might be useful for other who are also contemplating solar.

The steps for selecting a system and vendor that best suits your situation include:
1) Optimizing your energy usage;
2) Sizing your system based on average monthly usage and projected usage;
3) Determining the orientation of your roof, its size and material makeup, e.g., tile;
4) Understanding energy and financial fundamentals such as KWH vs KW, net metering, current rebates and tax credits;
5) Deciding on the type of system financing

While a PV system vendor can and will do many of these steps for you I recommend doing some basic research and calculations yourself before you call so you have the answers in your back pocket and get clued in if you're being oversold.

What exactly is a PV solar system?

A basic PV solar system consists of a grouping of solar panels that are linked together to an inverter that converts the direct current (DC) electricity into alternating current (AC). Some things to know:

• Most panels are made of a layer of crystalline silicon in a frame with connectors to collect the produced electricity.  
• Panels sizes vary but are in the range of 5' x 8'. 
• The rated power output of a panel in kilowatts (KW) is determined under laboratory conditions by the manufacturer. 
• A typical panel is rated in the low hundreds of kilowatts (KW). 
• Actual output will vary due to losses in the system, e.g., inverter, and how much sun hits your roof. 
• The vast majority of residential panels are made of mono-crystalline or polycrystalline silicon. 
• The other common technology is thin film:  amorphous and thin-film silicon, CdTe (cadmium telluride) and CIGS (copper, indium, gallium, selenide). 
• Advantages of the thin films technologies include lower cost because less material is used per panel; better performance at higher temperatures and indirect sun; ability to perform when one panel is shaded or incapacitated; lower weight per panel; semi-transparency;  and ability to manufacture a flexible panel. 
• Key disadvantages include toxicity (CdTe), uncertainty of material availability (indium) and lower efficiencies requiring larger systems for the same power output. 
• First Solar was the first and one of the few manufacturers of thin-film panels used for residential installations.

KW vs KWH

Since we're already talking about it let's discuss the difference between kilowatt (KW) and kilowatt-hour (KWH). 

1. KW is a unit of power. 
2. KWH is a unit of energy (power over time). 

Appliances need a certain amount of power to operate.  For example, a light bulb might need 60 watts (0.060 KW) to light while a hair dryer needs 1,500 watts (1.5 KW).  If the light is on for 10 hours it will consume 60 Watts * 10 hours (600 WH or 0.6 KWH) of energy, or electricity in this case.  If you run the hair dryer for 10 hours for very dry hair it will consume 15,000 WH or 15 KWH of electricity. 

Your electricity bill shows you the sum of all the energy consumed by the operation of all your appliances during the month.  Refrigerators, microwaves, TV's, monitors, PC's, dishwashers, washers/dryers, pumps, and incandescent (old style) light bulbs are the biggest consumers of electricity. 

 Take a look at your electricity bill, now that you understand the above.  If you are like me, this will lead you to:

Optimizing Your Energy Usage

Ideally you want your PV system to be as small as possible while covering most if not all of your energy needs to minimize your costs.  The first step is to make your home as energy efficient as possible - which is a good idea even if you're not considering a PV system.  The savings payback is well worth the effort.  This can be as simple replacing your incandescent light bulbs with compact fluorescent or LEDs (I know, I know - you don't like the color spectrum, or the noise bothers you, or they take too long to turn on.  Just try it.  The technology has come a long way!).  Upgrading any of your appliances to EnergyStar appliances. 

For a more detailed plan check out the EnergyStar website.  It has information about non-electricity energy efficiency too.  Some utilities give rebates for upgrading your appliances.

Reducing your household energy by 20%, which is very doable, would reduce your PV system size and cost by that amount even before you start haggling with the PV sales rep!

Next time we will review electricity rates, connecting to the grid, net metering and various other mysteries.

This interview with Jim Nolan, the SVP of Finance, Administration and Operations for the Kraft Entertainment Group (they own the New England Patriots, Gillette Stadium, the New England Revolution soccer team and Patriot's Place) is  a must listen if you are interested in how a leading company made sustainability a strategic asset for their organization.  The Kraft Group is a very forward thinking company and has enviromental sensitivity baked into their DNA.  When they were starting to build Gillette Stadium in 2002, they made green decisions every step of the way, and as you'll hear in the interview, their efforts did not stop with the completion of the stadium.  They have continued to execute on efficiency projects and when they built Patriot's Place in 2007, they leveraged all their learning to make the new 1.3 million square foot retail, dining and entertainment complex as green as possible.

Here are some of the initiatives they have in place.

Water

• An on-site wastewater reuse system treats 60 percent of non-potable water from handwashing, laudering and bathing and reuses it for toilet flushing and in the stadium's cooling plant.  They save over 11 Million gallons of water a year and growing as they add more events.

Energy Efficiency

• Initiatives: Building automation, electric and heat zoning, lighting, energy efficient hand dryers, white roofs in Patriot's Place, best practice development for visitor comfort.
• Results:  Between 2004 and 2oo7, electric use was reduced by 27% and natural gas use by 33%.
• Results:  Reduced electric consumption by 7.7 Million kw/hr annually as compared to stadium opening.
• Results: Between 2006 and current day (slight overlap), the average energy reduction has been 30%.

 Renewable Energy

• Showing their commitment to the environment, the Kraft Group purchases wind energy credits from Constellation Energy for all events at Gillette Stadium.  It costs slightly more, but they are committed to minimizing their impact, and it has allowed them to deepen relationships with additional customers like the NCAA that want to do business with companies committed to carbon reduction.
• They have installed a 525 kilowatt solar array on top of Patriots Place.  This generates 625,000 kilowatt hours of electricity annually or about 30 % of the power required for Patriot's Place.  It is break even cost-wise, but as energy prices continue to rise, this installation will provide fixed, low-cost energy for 20 years.

Recycling and Waste Management

• In-stadium recycling efforts encouraged for all plastic and glass have succeeded well beyond initial estimates
• They hand out recycling bags to all tailgaters and encourage them to leave behind all recyclable materials for collection and recycling.
• Post-event, all recyclables are collected from the stadium bowl and centralized prior to any additional cleaning taking place
• All clean cardboard packaging from the products arriving on-site is centrally recycled and goes through the Kraft Group's cardboard recycling company.
• Big Belly solar trash compactors are available throughout Patriots' Place, lowering the waste removal costs.
• The recycling efforts have generated several financial benefits, including reduction in hauling costs, income from sale of recyclables and tremendous feedback from customers.

Environment

• A 3000 foot stretch of the Naponset River, which had been running underground for 50 years, was daylighted during site renovation and is now an important part of the site experience.
• In partnership with Bass Pro Shops and  Ocean Spray, they created the Nature Trail and Ocean Spray Bog, a 32-acre wetland and wooded area that features the only functioning cranberry bog in Foxborough as well as a nature walking trail for visitors to experience rural New England.

 Green Building

• All debris from the demolition of the old Foxborough Stadium was crushed and re-used on site during the construction of Gillette Stadium.

The effectiveness of these types of projects highlight the benefits to an organization of considering green in the early planning stages of every upcoming project.  As Jim mentions in the interview, there may or may not be an immediate financial return on every project, but it is the right thing to do, lowers operation costs and acts like an annuity for the organization as they continue to operate a centerpiece of New England culture for years to come.