Rooftop Revenues How Your Business Can Profit from Solar Energy. White Paper
Introduction The decision to implement a solar PV system, once dismissed as an overly expensive investment, can now be backed by an attractive payback time frame. Here in Maryland, business owners are fortunate enough to be subject to significant factors for making solar a financially attractive investment option. Financial incentives, costly electric rates and net-metering policies all make photovoltaic technology a viable and cost effective energy reduction option. Now in 2011, the available benefits make it especially attractive when compared with alternative financial investment options such as mutual funds and bonds. This white paper demonstrates the return on investment between such options and examines the individual payback of solar electric systems over the long run. Incentives When first considering solar, it is important to understand the costs associated with implementation. The total system cost should be kept in perspective with the available funding to provide a more accurate gauge of out-of-pocket expenses. Federal and local governments are encouraging commercial property owners to invest in green energy by offering subsidies that come in the form of tax credits, grants, and accelerated depreciation. Financial Incentives Federal 1603 Grant (in lieu of tax credit) Program: Payments for Specified Energy Property 30% of eligible cost No cap Maryland Commercial Clean Energy Grant Program $500/kW $50,000 Maryland Commercial/ Industrial County Property Tax Credits Maryland business owners who install a solar electric system on their property before 2016 are automatically eligible for a federal tax credit equivalent to 30% of the total cost of the system installed. This credit through the American Recovery and Reinvestment Act of 2009 is in addition to the State of Maryland Clean Energy Grant Program, which provides solar owners with a $0.50/watt (up to $50,000) grant to further reduce the up-front cost of the system. Right now, businesses based in Baltimore and Harford counties are also eligible for additional property tax credits. With these combined incentives at an all-time high, the gross system cost and payback period of the solar system is drastically reduced. Location: Location: Baltimore County 50% of eligible cost Not specified Harford County 100% of total real property tax for 1 year $2,500 per device;; $5,000 per property per fiscal year White Paper page 1
Utility Savings Cost-savings over the lifetime of the solar system can also depict a dramatic difference when considering the initial price. As the cost of electricity continues to rise, the savings from solar implementation continues to accumulate. Solar is a valuable investment because it is inflation protected. That is, it offsets electricity costs at the current prevailing rate, so as rates rise, more money is ultimately saved. In Maryland alone, over the past twenty years commercial electricity prices have increased by an average of 3.9% per year, but have accelerated to 6.8% over the previous decade. Alternatively, solar implementation is a practical hedge against market uncertainty. their annual quota of renewable power. Through this process, the system owner earns additional money with the sale of SRECs. By combining the avoided electricity cost income with the revenue earned through selling SRECs, many business owners eliminate 100% of their annual utility bill. The combined income is often enough to cover their full electricity costs without paying more out of pocket. Historical Electricity Rates Renewable Energy Credits Commercial solar electric systems installed in Maryland accumulate what are referred to as Solar Renewable Energy Credits (or SRECs). For every 1000 kwh of electricity which is produced by the solar system, one SREC is accrued. Maryland s Renewable Portfolio Standard has set a lofty goal requiring electricity suppliers to use renewable energy sources to generate a minimum of 20% of their retail sales by 2022, specifically 2% of that total from solar power. This means utilities in the state purchase SRECs and use them to meet Net-Metering As a method of accounting for onsite electricity generation, net-metering allows systems to feed excess power back out to the grid while alternatively, also draw electricity when needed. While the meter spins backward when power is being generated, total production is constantly monitored. Since the majority of energy production from the solar system is during afternoon periods of sunshine, peak demand electricity prices are often avoided. White Paper page 2
Commercial System Payback While businesses strive to keep operating costs low, below is the cost breakdown for a potential 50 kilowatt rooftop solar system, detailing the return of investment while taking the available incentives into consideration. The following cash flow analysis demonstrates the increased utility savings and SREC revenue accrued through the system implementation. It results in a positive cash flow after just the fifth year. Solar Investment Cash Flow Analysis System Cost Federal Tax Credit Maryland State Grant State Tax Adjustment 100% Bonus Depreciation Deduction Year Ending 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Utility Savings 1 $6,996 $7,274 $7,564 $7,864 $8,177 $8,503 $8,841 $9,192 $9,558 $9,938 $10,333 $10,744 $11,172 $11,616 $12,078 $12,559 $13,058 $13,578 $14,117 $14,678 TOTAL $207,841 SREC Revnue 2 $11,660 $11,602 $11,544 $11,486 $10,000 $8,529 $7,072 $5,629 $4,201 $2,786 $1,386 $1,379 $1,372 $1,366 $1,359 $91,371 Cumulative Cash Flow ($60,250) ($41,374) ($22,266) ($2,916) $15,261 $32,293 $48,206 $63,027 $76,786 $89,510 $101,229 $113,352 $125,896 $138,878 $152,315 $164,874 $177,932 $191,510 $205,627 $220,306 $220,306 ($212,500) $63,750 $25,000 ($7,000) $51,844 Comparison Investment When solar implementation is likened to financial investments such as CDs, bonds and mutual funds, there can be a substantial payback difference over the long run. Suppose a company were to invest $60,250 (the net cost of a 50kW solar system after all available incentives have been paid out) into a 20 year Certificate of Deposit where 4% APR was compounded monthly. Over a lifespan of the investment, the following returns would be accumulated: Certificate of Deposit Year Ending Return 1 $62,705 5 $73,565 10 $89,823 15 $109,673 20 $133,911 ROI 122% When compared to the same amount invested in solar technology, as evidence through the preceding cash flow, the returns are as follows: Solar Investment Year Ending Return 1 ($60,250) 5 $15,261 10 $89,510 15 $152,315 20 $220,306 ROI 265% With a higher return on investment, by the fifth year, the solar investment has already gained back the initial investment amount. White Paper page 3
20 Year Return Comparison Solar energy is a worthy investment because while it saves the consumer, it simultaneously earns revenue. Suppose the business above, did not switch to solar energy and instead continued to pay a monthly electricity bill for the next twenty years. If the business averaged 100,000 kwh per year, over the span of two decades would be paying out of pocket upwards of $240,000. By investing in solar technology however, the entire cost of the system would be recouped in under 5 years. Instead of wasting $240,000 over twenty years on utility bills, the business would instead earn $220,306. Conclusion While solar technology is often viewed as a risky investment, the long term advantages of commercial implementation have a diverse array of benefits. As the energy environment shifts towards increased price pressure, the best way to avoid the burden can be as simple as investing in solar. With a higher average return compared to other financial investments, owners are also able to boast an eco-friendly green campaign and a decreased carbon footprint. Maryland business owners are at an advantage right now to install solar electric systems because of the record high incentives offered through the federal and state governments. With fewer out-of-pocket expenses, additional SREC revenue earned and favorable net-metering policies in place, businesses well suited to solar are smart to consider implementing the money saving investment. About Solar Energy World Solar Energy World, LLC, is one of the area s leading providers and installers of solar electric systems and solar hot water systems. We offer commercial property owners in Washington DC, Maryland and New Jersey a complete turnkey solution to solar power. Contact us today for a free solar analysis and payback model. (410)579-2009 solareworld.com 1 Initial average cost of electricity = $0.12/kWh; Utility rates are expected to escalate 3% per year 2 Output is expected to degrade 0.5% per year White Paper page 4