10.20.2009 Webinar: PV Financial Analysis Matt Heling Program Manager Solar & Customer Generation Pacific Gas & Electric Co. Garen Grigoryan Business Analyst

10.20.2009

Webinar:PV Financial AnalysisMatt HelingProgram ManagerSolar & Customer GenerationPacific Gas & Electric Co.

Garen GrigoryanBusiness AnalystSolar & Customer GenerationPacific Gas & Electric Co.

PG&E Webinar: PV Financial Analysis 2

Webinar Goal

Review concepts and resources needed to understand and/or perform an analysis of PV system cost-effectiveness.


Agenda• PV system costs

• PV systems benefits (financial)

• Methods of financial analysis


Energy Efficiency


Energy Efficiency

• Energy efficiency is typically the most cost-effective way to reduce your energy bill

• Energy efficiency also reduces the size of the solar system you need

– Can save $1,000’s of dollars on the cost of the system

• An energy efficiency audit is required to be eligible for some customer-side incentive programs


Large Solar PG&E Home: PV System Cost and Payback

Large Solar PG&E Home Total Upfront Savings: $8,88911.9 Panel Reduction

Size and Cost of

Solar Before EE

(6.1 kW)

Cost of Implementing

EE

Size and Cost of Solar After

EE(3.6 kW)

Total Combined

Cost

$ 34,898* $ 6,962 $ 19, 047 $ 26,009*

~ 15 years ~4 years ~ 22 years ~ 10 years

*($9/watt)-CSI Incentive

-30% Federal Tax


Site Screening Criteria


Site Screening

What physical site characteristics makes a site a good candidate for PV?

– Orientation – S or SW is best

– Solar “window” – Access to mid-day sunlight

– Roof tilt – ~30º is ideal, but even flat is okay

– Weather – Typically good in CA


System Performance


PV System Performance

Rules of thumb:

• Each 1 kW of PV system capacity typically*…

– Requires ~100 ft2 of roof space

– Produces ~1,300 – 1,700 kWh/yr.• Depends on many factors, including:

– Location– Shading– System orientation– etc.

* Values presented are approximations only and may vary depending on a variety of factors.

PV production calculators can estimate production for specific PV system types, locations, technologies, configurations, etc.


System Costs


Capital Investment

•Modules (Panels)

• Inverters

•Balance of system cost

Typical installed costs are $8 to $10 per Watt


Operations and Maintenance Costs

•Washing– Cost related to hiring a service to perform

this maintenance twice a year

• Inverter replacement– Typically every ten years

•PMRS (Performance Monitoring and Reporting Service) – Additional monthly cost - offset by

owner’s awareness of system performance


Incentives


Types of Incentives

•CSI – California Solar Initiative

•NSHP – New Solar Homes Partnership

•MASH – Multifamily Affordable Solar Homes

•SASH – Single Family Affordable Solar Homes

•Local Incentives and Financing Opportunities– San Francisco – Berkeley (Berkeley First) – Sonoma (SCEIP)

•Federal ITC / Depreciation


CSI – California Solar Initiative•Applies to Retrofit Residential and

Non-Residential, plus New Construction Non-Residential

• Incentives designed to decline over time– Currently both Residential & Non-Residential are in

step 6

•Two types of Incentive Payments– EPBB (Expected Performance Based Buy-Down) – one

lump sum paid upfront– PBI (Performance Based Incentive) – once a month

payments made over 5 years


CSI Current Incentive Availability

$0.20

$0.25

$0.35

$0.65

$1.10

$1.55

$1.90

$2.20

$2.50

n/a

Residential (EPBB)

Government/Non-Profit (EPBB)

Commercial (EPBB)

$0.20

$0.25

$0.35

$0.65

$1.10

$1.55

$1.90

$2.20

$2.50

n/a

Non-Residential

$0.70

$0.90

$1.10

$1.40

$1.85

$2.30

$2.65

$2.95

$3.25

n/a

$0.10 $0.03$0.0335010

$0.12$0.03$0.032859

$0.15$0.05$0.052508

$0.19$0.09$0.092157

$0.26$0.15$0.151906

$0.32$0.22$0.221605

$0.37$0.26$0.261304

$0.46$0.34$0.341003

$0.50$0.39$0.39702

n/an/an/a501

Government/Non-Profit

(PBI)

Commercial (PBI)

Non-ResidentialResidential

(PBI)

StatewideMW in Step

Step

$0.20

$0.25

$0.35

$0.65

$1.10

$1.55

$1.90

$2.20

$2.50

n/a

Residential (EPBB)

Government/Non-Profit (EPBB)

Commercial (EPBB)

$0.20

$0.25

$0.35

$0.65

$1.10

$1.55

$1.90

$2.20

$2.50

n/a

Non-Residential

$0.70

$0.90

$1.10

$1.40

$1.85

$2.30

$2.65

$2.95

$3.25

n/a

$0.10 $0.03$0.0335010

$0.12$0.03$0.032859

$0.15$0.05$0.052508

$0.19$0.09$0.092157

$0.26$0.15$0.151906

$0.32$0.22$0.221605

$0.37$0.26$0.261304

$0.46$0.34$0.341003

$0.50$0.39$0.39702

n/an/an/a501

Government/Non-Profit

(PBI)

Commercial (PBI)

Non-ResidentialResidential

(PBI)

StatewideMW in Step

Step


NHSP – New Solar Homes Partnership

•Only For New Residential Home Construction– Builders– Developers– Custom home owners

•Aims to install 400MW

• Incentive budget is $400MM

•One time, upfront, expected performance based incentive (EPBI)

•PV system size 1kW AC or larger (>5kW requires justification)


MASH and SASH•Designed to encourage solar

adoption for low income housing residents

•MASH – Administered by PG&E– $108MM available for incentives– Track 1a: $3.30/Watt for systems that offset

common load– Track 1b: $4.00/Watt for systems that offset

tenant load

•SASH – Administered by Grid Alternatives– $108MM available for incentives– Very low income customers may receive a 1kW

fully subsidized (up to $10,000) system


City Government Incentive

•San Francisco

– 10 year program

– In addition to other incentives

– $1,000 to $3,500 for Residential

– Up to $10,000 for Commercial

– Low income residents may qualify for additional grants


Federal ITC

•Solar Investment Tax Credit*

– Went into effect January 1st 2009

– Available for next 8 years (through 2016)

– 30% of net solar system cost

– No monetary cap

– Applies to residential & commercial

*All tax related statement are designed to inform and not to be construed as taxadvise. Please consult a tax attorney before making any purchasing decisions.


Bonus Depreciation

•Applies to commercial system owners Only

– Benefits extended for systems installed in 2009

• 50% of cost of capital investment

• Up to $250,000 with phase-out threshold of $800,000

– Benefits will continue for systems installed 2010 with reduced depreciation allowances

• Allowed write-off up to $125,000 of capital expenditure

• Subject to phase-out once capital expenditure exceeds $500,000*All tax related statement are designed to inform and not to be construed as tax

advise. Please consult a tax attorney before making any purchasing decisions.


Sample Costs Example* for average SF household of four

- Monthly electrical bill $75 to $150

- Installing 3.0kW AC SystemCost of system $27,000CSI Incentive (est $1000/kW)

-$3,000

Federal ITC -$7,200San Francisco Rebate

-$3,500

Tax on SF Rebate +$700NET COST $14,000kWh Production ~5000 kWh / year

*These Incentive and ITC values are for demonstration purposes. Please consult a qualified tax attorney for applicability of various Incentives and grants.


Electricity Costs and Net Energy Metering


Electric RatesTwo basic types of rate schedules:

*Both incorporate the concept of tiers:

• The more electricity is consumed, the more it costs.

• Example:0 - 100 kWh $0.10/kWh

100 - 200 kWh $0.12/kWhetc.

• Tiers apply to both “flat” rates and TOU rates

Rate Schedule Type Electricity cost structure

“Flat” Constant $/kWh*

Time-of-Use (TOU) $/kWh varies by time of day*


Rate Tiers – Impact of PV

Output from PV systems tends to offset the most costly electricity first.

Output from PV systems tends to offset the most costly electricity first.


TOU and PV


Net Energy Metering (NEM)NEM allows customers to receive credit for

electricity produced in excess of what is consumed on-site.

• Utility grid acts as “battery”

• Credit is at the relevant retail rate

• Annual true-up– AB 920: Credits for excess generation (kWh) (details

TBD)

• Can zero out energy portion of bill, but other (minor) service charges still apply– Typical customer sizes PV system to ~80% of annual

energy (kWh) consumptionNEM is especially valuable for customers on TOU rates because PV system output tends to occur during the most expensive (peak) periods.

NEM is especially valuable for customers on TOU rates because PV system output tends to occur during the most expensive (peak) periods.


Financing Options


Purchasing Options

•Cash / Financing

•Power Purchase Agreement

•Lease To Own


City and County Financing

•Berkeley – Creative financing – Berkeley First

•Sonoma County– SCEIP – Sonoma County Energy

Independence Program

– Financing is for existing buildings only

– Repayments made through property tax bills over time


PPA Structure

• Third Party owns system and is responsible for financing, designing, installing, monitoring and maintaining for the customer

• No upfront fee required

• Customer purchases electricity (kWh) the system generates at contracted rates

• Customer may purchase system after contract expires

• Contracts are typically 20 to 25 years

• RECs (Renewable Energy Credits) are claimed by third party


Lease To Own• Third Party owns system and is

responsible for financing, designing, installing, monitoring and maintaining for the customer

• Customer typically pays a small upfront fee

• Customer enters into a lease agreement

• Significant reduction in electricity bill

• Contracts are typically ~10 years

• Leases may have annual built-in increases – typically not exceeding increases of electricity rates


Renewable Energy Credits


Renewable Energy Credits (RECs)• RECs are associated with the “green”

component of electricity from renewable sources

• RECs are presently traded in voluntary markets

– ~$0.01–0.05/kWh

• Generally, for PV systems on the customer side of the meter, RECs are owned by system owner– For PPAs, the owning 3rd party

retains RECs

• May become more valuable in the future – particularly if utilities are allowed to use RECs to meet Renewable Portfolio Standard (RPS) goals

PG&E Program REC Owner

CSI Customer

MASH/SASH Customer

NSHP Customer


Methods of Financial Analysis


The Key Questions

1.How much does/will my PV system cost?

vs.

2.What is the value of the avoided electricity costs and other financial benefits?


Key Inputs and Variables

• Capital (installed) costs– PV modules, inverter,

installation, monitoring equipment, etc.

– Inverter replacement

• O&M costs– Panel-washing, monitoring

service, etc.

• PV system performance– Annual energy production– Performance degradation– System life

• Value of electricity displaced– Projected electricity production– Electric rate type (TOU vs. not)– Projected future electricity rate

increases

• Incentives– May be received up-

front or over time

• Tax credits– ITC– Other local tax benefits

• Financing method– Cash vs. loan vs. PPA

vs. …

• Other assumptions/concepts– Discount rate

(opportunity cost)– Compound interest


Methods of Analysis• Simple payback

– Years until costs are recovered

• Total life cycle payback– Considers benefits received

after simple payback is attained

• Cash flow model– Shows expenses and revenues

each year– See Appendix for

example/illustration

• Internal rate of return– Average annual profit (loss) over

life of system


Information Resources


Information ResourcesProgram/Topics Resource Link Notes

CSI PG&E CSI website www.pge.com/csi PG&E CSI resource

GoSolarCalifornia website www.gosolarcalifornia.org State-wide CSI resource

CSI Handbook www.gosolarcalifornia.ca.gov/documents/CSI_HANDBOOK.PDF

Official CSI program rules

Trigger Tracker www.csi-trigger.com Displays current incentive rates

NEM PG&E NEM website www.pge.com/gen

NSHP PG&E website www.pge.com/nshp/ Details for applying for NSHP incentives

SASH SASH website www.gridalternatives.org/sash Managed by GRID Alternatives

MASH MASH website www.pge.com/lowincomesola Managed by PG&E

SCEIP Sonoma County www.sonomacountyenergy.org/ For Sonoma County specific financing options

EE surveys California State Government

www.energy.ca.gov/HERS/index.html For hiring HERS rater

Federal ITC IRS www.irs.gov/formspubs/ ITC forms

Incentives DSIRE database www.dsireusa.org/solar/ Details for applicable depreciations

Local Municipality Rebates

San Francisco www.sfwater.org/solarincentive SF City Rebates

BerkeleyFirst www.berkeleyfirst.renewfund.com/

Sonoma County Energy Independence Program

www.sonomacountyenergy.org

SEIA Solar Energy Industries Assoc.

www.seia.org/ Guide to Federal Tax Incentives for Solar Energy

PG&E Classes PG&E Classes www.pge.com/solarclasses Free classes available on a multitude of solar and solar-related topics


Thank you!Your thoughts?

• Suggestions for future content?

• Opinions on content and delivery?

• Topics to emphasize or de-emphasize?

• How can we provide a better service?

Feedback is welcomed!

[email protected]

Feedback is welcomed!

[email protected]


Appendix


Net Energy Metering (NEM)

Sell Power to the Utility by Day

.

Buy Power at Night and Winter

Exchange at retail Annual billing cycle


NEM

OctoberMay April“SUMMER” “WINTER”

250

500

750

kWh/mo

Roll over

Average monthly usage

PV system production


Value of displaced electricity grows as assumed electricity cost increases outpace assumed performance degradation

Inverter replacements

(Simple) Payback at ~Year 15

Profit increase with time

Note: This chart and the values shown are for illustrative purposes only.

Capital costs – (incentives + tax credit)

ExampleExampleUp-front, cash purchase of PV system

Documents

10.20.2009 Webinar: PV Financial Analysis Matt Heling Program Manager Solar & Customer Generation Pacific Gas & Electric Co. Garen Grigoryan Business Analyst