Capitalizing on solar’s gain

PV technology is an investment with a strong return, not a cost to be managed
Tuesday, May 14, 2013
By Mark Paddison

Sticking pieces of metal on a roof to generate energy and save a company money sounds easy enough, right?

Of course, it’s more complicated than that. But the process of adding solar panels to a building’s roof or adjacent land can be made much simpler and less expensive than what is probably thought.

Advances in the solar market have resulted in a number of changes. The price of solar panels and installation have declined to a point where financing programs make it possible to go solar without paying for the system upfront. These financing options also provide the opportunity for solar end users to tap into a support system that shepherds them through the solar installation process in a way that minimizes the time commitment building management will have to invest in ensuring the installation goes smoothly. This support system ensures projects are completed successfully so that they provide a positive rate of return.

Solar prices have come down through industry advancement boosted by solar incentives. The cost of solar installation has dropped nearly 300 per cent since 2009, with the average price of a solar panel declining by 51 per cent. On the panel side, cost reduction has been achieved in a number of ways: continued industry investment in research and development, scaling as the industry continues to grow and greater efficiency in panel manufacture.

Manufacturers have worked to lower the downstream costs of solar as well. They have done so by partnering with leading component makers to develop time-saving panel racking and wiring materials that reduce the cost of installing systems for installers, who are then able to pass savings on to end users.

Ontario’s solar FIT
One incentive that Ontario and many other localities have used to help solar energy grow and create jobs is the implementation of a Feed-in Tariff (FIT) program. In Ontario, the local electric utility, Ontario Power Authority (OPA), offers buildings and homeowners a financial return for installing solar by paying them for the energy generated from the system. The program offers incentives for a number of renewable technologies: solar, wind, hydroelectricity and biopower. Ontario’s FIT program has helped the province become the second largest solar photovoltaic (PV) market in North America, trailing only California.

The program is divided according to the size of the system that is installed. This splits the program into incentives for smaller systems that would go on homes and larger ones that would go on or next to commercial properties. The program pays 54.8 cents per kilowatt-hour of energy generated by the type of rooftop systems sized for commercial buildings. There is also an incentive for ground-mounted systems, between 44.5 and 34.7 cents per kilowatt-hour generated, depending upon the size of the system.

The program is constantly evolving to meet the needs of a changing energy market. FIT levels for solar were lowered at the end of 2012. This is a strong sign that the program is working well. The lowering of the incentives shows recognition that the overall cost of solar has come down and will likely continue to do so in the future.

In addition to changing the pricing structure, the OPA has made significant changes to the application process. It is now only accepting FIT applications during specific application periods rather than on an ongoing basis. The next application period has not yet been announced. Those who are interested can sign up on the OPA’s website to receive an e-mail notification about the next application period. Applicants will now need to submit an application security fee if they wish to apply or reapply under the new rules.

Financing a solar project
To see how an incentive like Ontario’s FIT program has been a boost to the industry, one only has to look at the growth of innovative financing options that are available for solar customers. The most popular financing mechanism available to solar projects is the power purchase agreement (PPA), which is a financing mechanism similar to a lease. These agreements are between the host customer and the solar services provider.

In this relationship, host customers enable the solar service provider to put solar on their building’s rooftop or adjacent land. The solar services provider owns the system and charges the customer for the power generated by the panels – an arrangement similar to buying power from an electric utility. The difference is that building owners are charged a monthly locked-in rate that is cheaper than their current monthly utility bill for a pre-determined number of years. This price difference goes into paying for the upfront cost of the system. The incentive owners receive from the FIT program shortens this payback period.

Benefits to third party ownership extend beyond defraying the upfront cost of solar. The solar services provider is responsible for arranging the financing, design, permits, construction, installation and upkeep processes. Working with a solar services provider also helps business complete the permitting and paperwork involved in applying for Ontario’s FIT program.

Jumping over project hurdles
The permitting process can add obstacles, costs and time to the solar installation process. In fact, non-hardware or “soft costs” can amount to up to 40 per cent of the total installation cost of a rooftop PV system. These costs vary as permitting rules change from jurisdiction to jurisdiction.

As with any construction project, it is important to choose reliable partners. Reliable partners help ensure minimal disruption occurs during the installation process. They will bring in the best panels and equipment to maximize a return on the investment made in the system. And they will work to ensure the system is working at optimal performance throughout its life, which can be as much as 25 to 30 years.

Solar’s future
The solar industry continues to look for ways to reduce the need for policy investments by lowering the price for solar at every point in the process. Solar manufacturers will continue to reduce the costs for solar projects through technology advancement and by providing reliable equipment that financiers view as safe investments. Solar has now reached an inflection point where its cost is low enough, and reliability is high enough, that financing options are available that allow facilities to look at energy as an investment with a strong return rather than a cost to be managed.

Mark Paddison is a regional sales manager for Trina Solar.

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