This was my second Jigar Shah presentation, (here is my first) and I’m on the verge of becoming a groupie – the guy spews useful information at a prolific rate.  He delivered great Illinois-specific policy insights, but my favorite topic he covered was, “When explosive growth happens here in Illinois, and all of the big, national, solar installation companies begin flooding the market, and installed prices drop to $2.75/watt, how can you possibly compete?”

When Jigar asked this question, the room got quiet, because it’s a very real concern for the small businesses that have been pushing a big rock up a hill for a long time.  They’ve built a market, invested in lobbying on the state level, and it would be bittersweet to watch the industry take off if they couldn’t reap the benefits.  Here was Jigar’s encouraging message:

• Worried you can’t compete with bigger solar companies?  Nothing could be further from the truth.  Some of you might get bought, as the bigger players don’t know your market.  And some of you will grow to be the biggest players in this market because you know and care about your communities.  That does still matter.
• You guys have a lower cost structure than the big guys.  Once you can get to 1 container/month, you’ll have the same materials cost structure, and you don’t have layers of management and overhead that the big guys do.  The most profitable solar contractors in the U.S. are 1 office, usually a husband and wife team, with 2 crews.
• The only thing big companies have that you lack, is confidence.  You charge more because you plan to do one job per month and you need that job to cover salaries and overhead for that whole month.  Build a model to find out what sort of volume you need to do to install for $2.75/watt and start working toward that.  You have to believe it’s possible for it to work.
• The biggest impediment to you making money in the solar business is the fact that you love solar so much, so you forget about the basic principles of business: you have to have more money coming in than going out.
• Everyone here needs to understand third party financing.  It’s not as complicated as you think it is, and it’s a fundamentally easier sell, so it’s opening up bigger and bigger markets. (Note: HeatSpring has a free online Solar Lease Training.)
• It’s critical that you understand how the SRECs are going to be valued here in Illinois.  Springfield is far, but you’ve got to go.  You think you’re above lobbying and getting involved with government, but they need to see your face, and they need to hear where you’ve installed solar, and who your customers are.  They care about that stuff and it makes a big difference. (Note: HeatSpring has a free online Understanding SRECs training.)

Events like this are a great reason to join ISEA, or whatever your local organization is.  There’s no substitute for live networking, getting involved, and getting the inside scoop on what’s coming.

The Illinois market feels like Massachusetts in 2008.   With the Renewable Energy World analysis of the Solar PV Market in Massachusetts in the back of my mind, I felt like I could provide useful lessons for how to win as the industry grows.  I truly think we’re going to see something great happen in Illinois in the coming years.

The data is very detailed and tells an interesting story that can be use for industry analysis, competitor analysis and for market research for those companies still looking to enter the residential PV game. My advice to any company that is looking to enter the residential solar PV industry should look at this data to determine which companies are growing the quickest, in which cities and what their costs are.

A few notes about the quality of the data

• It’s based on state grants delivery by the Commonwealth Solar program so in 2012, this is only for residential projects.
• Every residential project may still not be listed in the data becasue there is likely some projects completed that did not receive MA CEC funds.
• Installed costs, size, etc are also self-reported by the installers and the MA CEC takes the data at face value. It’s unlike installers would lie, it’s just important to note.
• In 2010 and 2011, it included both commercial and residential programs but not utility and MW projects that were completed
• Massachusetts switched to a SREC based incentive program in 2011.
• The data from 2012 is ONLY up to 03/23/12

I spent some time going through the data trying to answer a few basic questions and here are some of the highlights

Here are the question I looked into:

• How many active installers were there in 2010, 2011, and 2012?
• What were the average installed costs in 2011, in 2012?
• What was the cheapest system in 2010, 2011, and 2012?
• What percentage of systems were financed in 2010, 2011, and 2012?
• What is average installed costs of a financed system vs cash system in 2011? In 2012?
• What was the value of all residential projects installed in 2010 worth? In 2011? In 2012?
• What percentage of the market is dominated by large installers (those that do more hen 25 systems per year) in 2010? In 2011? Who are the largest installers and who is growing the fastest?

Lastly, I discuss what other questions could be answer from the data, and the story this tells for existing solar companies or companies looking to enter the Massachusetts market.
Let’s get into the details

1. How many installers were active in 2010, 2011, in 2012?

2010: 92

2011: 99

2012: 45 (only in the first 3 months)

2. What were the average installed costs in 2011, in 2012?

2011 : $5.65/watt

2012: $5.05/watt

A use mean average and not median. A $.60 reduction in the installed cost of residential projects is a reduction is 10%. Not bad, but this is actually below industry averages across the US for the 2010/2011 period.

3. What was the cheapest installed cost in 2010, 2011 and 2012?

2010: $2.25/watt

2011: $1.44/watt

2012: $2.20/watt

As an installer, I would pay attention to these numbers. The goal is always to sell the most profitable projects, or bundle of projects, and it’s likely anyone made any money at $1.44 per watt.

4. What percentage of systems were financed in 2010, 2011, in 2012?

2010: 140 financed systems / 744 total systems installed

2010: 18% of systems were finaced

2011: 733 financed system  / 1732 total system installed

2011: 42% of systems were financed

2012: only up to 03/23/2010 = 307 finance system / 413 total system installed

2012: 74% of system installed in the first quarter in Massachusetts were financed!

Note that the AMOUNT of systems financed in 2011, is almost equal to the total number of installation in 2011.

The growth in financed is truly amazing and confirms the conclusion that solar leases are becoming the industry standard and not an exception. If you want to learn more about residential solar leases, you can take this free course with BrightGrid Renewable Energy Finance about solar leases.

5. In 2012, what is the average installed costs of a financed system vs cash purchased system?

2010:

Cash: $6.60/watt

Financed: $5.69/watt

2011:

Cash: $5.66/watt

Financed: $5.83/watt

2012:

Cash: $5.19/watt

Financed: $5.00/watt

It’s interested to see that financed systems are cheaper per watt in 2010 and 2012. One would expect to see this as driving down installed costs will increase the IRR of the annuity. However, a more accurate measure would be to calculate the LCOE of a cash vs financed system. A possible hypothesis is that the LCOE of cash based system is higher, perhaps to using more micro-inverters but I don’t have the data to calculate this.

The change in 2011 is also interest to note. My assumption is that the 100% bonus depreciation for MACRS and the 1603 cash grant pushed financing companies, due to investor demand, to get more tax credits by slightly increasing installed cost. The consumer would hardly notice in their lease payments, because it’s amortized over 20 years, but a small increase in installed costs over hundreds of system adds up to a lot of added tax credit and depreciation write offs. However, this is only a hypothesis, I would need to create a model to truly test if this would happen.

5. What is the value of residential projects in 2010? 2011? 2012?

2010: $17 million

2011: $58 million

2012: $12.4 million

6. What percentage of the market is dominated by large installers (those that do more hen 25 systems per year) in 2010? In 2011? Who are the largest installers and who is growing the fastest?

2010:

In 2010, there were only 10 companies that installed more then 25 systems in the year according. In total, the large installer put in 432 systems and have a 58% market share.

2011:

In 2011, there were 19 companies that installed more then 25 residential systems in a year and they had a 77% market share.

A few points to note:

• It’s interesting to note that pure play solar installers are gaining huge market share. Does this suggest that there are huge advantages to doing a large number of solar installations
• It’s worth noting that solar installers that were NOT EXISTENT in Massachusetts in 2010 that sold a lot of projects in 2011. Notably, Astrum Solar, Munro Electric, SolarCity, Sungevity.
• If you’re a new installed, don’t let the number of installations scare you. We don’t know if these projects were all PROFITABLE, and that is the goal of a business after all.

What other questions could we answer from the data?

• Revenue per company: The information is detailed enough that could estimate a companies revenue in residential solar PV work.
• The cheapest and most expensive towns to install solar.
• The towns that currently have the most installed capacity and the least.
• The companies that install residential solar the cheapest in Massachusetts.

How is this data useful for new installers and for market research?

• In 2011 notice that there are large installers that you might not have heard of. My learning is that while PR might influence our perception of who is dominating the market, the numbers don’t always match.
• Profit is more critical then revenue. Don’t be afraid of the large installers, just because some are growing doesn’t mean they’re making money.
• With the data you can figure out what company is growing he fastest. If you want to do competitor analysis find the 5 companies that are growing the fastest and analyze their website, research their people on linkedin, see where they are doing their installations, figure out what newspaper are quoting them. IT IS VERY easy to figure out a companies strategies these days, you just have to do a little digging.
• Find electrical contractors to work with that have solar experience. The data list ‘secondary installers’. These are typically electrical shops that have been brought in to pull permits and perform the actual installation. If you’re a new company and want to sell the projects, but need boots on the ground, use this list to find partners.
• Lastly, there is still huge room for growth. 2011 was an explosive year, but there was still less then 2,000 installations. Massachusetts has 6.8 million residents. HUGE ROOM FOR GROWTH

This article was originally published in Renewable Energy World

In order to sell solar PV projects, especially commercial projects, you need to understand finance. Understanding finance will allow you to calculate and communicate the financial benefit of the system to your client.

This is the followup to the Finance 101 for Renewable Energy Pros that I wrote weeks ago. In that post I did walkthroughs and provided examples of all the financing terms you will need to know: IRR, NPV, Discount Rates, Nominal Cash Flows, and how the terms of your financial analysis will impact the returns.

In this article I’m going to discuss how finance applies to residential and light commercial solar PV.  I’ll discuss how to plug solar-specific installed costs, incentives, etc into a financial model so that you can properly understand the returns of a specific project and then communicate those returns to a client.

The post is a basic 101 walkthrough of solar PV financing, but some of these topics get complex quickly and are dependent upon specific customers, utilities and geographic areas.  I’ll try to keep it basic, but provide further reading, and note where and why subjects get more completed so you can do your own research.

Also, I’m going to use Massachusetts-specific numbers because it’s the market I understand best.  I will note if you should look into different elements depending on where you live. For example, you may have time-of-use electric pricing in your area and you may not have SRECs, like we have in Massachusetts.

Here is the outline of what I’m going to discuss:

1. Government Rebates

• The difference between one-time and production based incentives
• The value of tax credits vs rebates vs depreciation
• Step by step how to calculate MACRS for commercial clients

2. Installed Costs: Gross and Net

• Where to find good industry averages for installed costs
• How to find gross and then net installed costs for a project

3. Operations and Maintenance Costs

• Understand the variables that drive operations and maintenance costs
• How to calculate O+M costs based on a percentage of installed costs or by dollar amount of kW installed per year

4. Value of a Solar kWh based on Customer Type

• The value of a solar kWh is worth EXACTLY the cost of the power it is replacing
• Understanding how a residential client can be billed; flat rate, time of year, time of day, or time of year AND time of day and how that impacts the value of a solar kWh.
• Demand charges VS usage rates in commercial clients and how that impacts the value of a solar kWh.

5. Putting it all together with a few sample customers. 

• Lastly, we’ll run through a few examples of different residential and commercial clients and determine the financial viability of the projects based on their IRRs and NPV, given a discount rate.
• What is the impact of commercial clients demand charges on the value of a solar project
• How does needing to change a residential service change impact the financial returns.

1. Government Incentives.

Understanding government incentives is key to running any financial analysis on solar PV projects.

There are two key things to understand about incentives:

a. One-Time Vs Production based Incentives:

1. One time payments are exactly how they sound, a lump sum payment, typically at the beginning of a project. Like the 30% investment tax credit.
2. Production based incentives are determined based on the actual production of the array. These are either Solar Renewable Energy Credits (SRECs) or Feed-in-tariffs (FiTs)

b. Rebates vs Tax Credits vs Depreciation.

1. Rebates are cash rebates based on installed capacity. Because rebates are cash, they are worth their face value, $100 in rebates is worth $100 cash.
2. Tax credits reduce an organization tax burden. However, an organization must have a tax apetite in order to use a tax credit. Thus, non-profits and public projects typically cannot use tax credits like a private client could
3. Depreciation. Commercial clients are allowed to accelerate the depreciation of their solar asset that will, eventually, reduce their tax burden. Two key things to remember about depreciation. A) Again, a company must have a tax burden to use the depreciation expense. B) The value of depreciation IS NOT worth it’s face value. IT IS WORTH, the amount of depreciation X the clients tax rate. For example, $250 more in depreciation expense will decrease a companies tax burden by $75, $250 X 30% (a simple corporate tax rate) = $75.

Okey dokey, now that we have that out of the way, let’s discuss specific incentives:

Residential and Commercial in Massachusetts

• 30% Federal Investment Tax Credit. Very simple to explain, the tax credit is worth 30% of the entire cost of installing the solar project. For example, a $100,000 solar system would qualify for a $33,333 federal tax credit. The tax credit is available until 2016. If the organization has a tax apetite but not enough to tax advantage of the full tax credit, let’s say their federal taxes are only expected to be $20,000, they are allowed to carry the remainder of the tax credit back one year, and then any remainder forward 20 years.
• Solar Renewable Energy Credits (SRECs). If you’re new to SRECs, take our free SREC course to understand them. Currently, in Massachusetts spot SREC prices are trading above $500 per MWh, or above $.50 per kWh, but for modeling purposes we’ll be using $285 / MWh because that is the most conservative price. The floor SREC price is $300/MWh and there is a 20% market fee, equalling $285 /MWh

Just Residential Incentives

Rebates

• The Massachusetts Clean Energy Center (MA CEC), under the Commonwealth Solar 2 Grant program, still has rebates available for residential projects that are under 15kW. The base incentive is $.40/watt rate DC at standing testing conditions. There are more incentives for using Mass based equipment and for low income families.

Just Commercial Incentives

MACRS

Modified Accelerated Depreciation Schedule is a way that the federal IRS uses to incentives companies to investment in new equipment. The equipment, like a solar project, actually depreciates over 20 or more years. However, with the MACRS schedule, we can depreciate the full value of the system over a 5 year period.

Here is the MACRS depreciation schedule.

The best article I’ve found on calculating MACRS for Solar Projects is from SunMath.

Here are the basic steps for a sample system that is 5kW DC installed at $5 per watt, totaling $25,000 in installed cost.

Step 1. Calculate Depreciation Basis. Depreciation basis is 85% of the installed cost, or $21,250. Technically, we’re adding back 50% of the ITC to the cost after the ITC has been applied.

Step 2. Calculate the 50% Bonus depreciation. You’re allowed to depreciate 100% of 50% of the depreciation basis in year one in addition to the depreciation from the standard MACRS schedule.

This can be a little confusing so let me walk through how depreciation is calculated in year one and what I mean by 100%, of 50%

• 50% of the depreciation basis, $10,625 ($21, 250 X 50%), is depreciated in full in year 1.
• The rest of the 50% of depreciated according to the MACRS depreciation schedule (see below table). In year this would be $2,125 ($10,625 X 20%)
• Thus year 1 depreciation is $12,750

Step 3. Depreciation for years 2 through 6 is calcuated by taking 50% of the depreciation basis (the 50% left after taking the 50% bonus in year 1) and multipling it by the depreciation schedule above). The depreciation expense for year 2 through 6 can be seen highlighted below.

Step 4. The next step is to calculate the VALUE, in lower taxes paid, of the added depreciation expenses for each year. The calculation is “depreciation expenses X corporate tax rate”. REMEMBER, your client must have a larger tax appetite then what the depreciation will reduce it by in order for them to take advantage of the depreciation. For example, If the value of MACRS is $3,825 in year 1, but the client only has a $3,000 tax apetite, they will only be able to reduce their taxes by $3,000. Technically, you’ll depreciate the whole expense ($3,825) and the company would operate at a loss of -$825, but you won’t get a refund for the $825 so it’s not worth anything.

See the “cash value” highlight column on the right to see the value of the depreciation, given a 30% tax rate.

The MACRS calculation table will be available in the excel file to download at the end of the article so you can play with the amounts based on your clients needs.

Incentives Not in Massachusetts

Feed-in-Tariffs (FITs): Feed in Tariffs are not in Massachusetts but are available in certain locations in Florida, Vermont, Rhode Island, and California. The way it works is simple, there is a set rate that you will earn for every solar kWh you produce. It’s similar to SRECs, but different in that the price is set by policy and not by market forces.

Wikipedia actually has an amazing article on FITs

Resources to Understand Rebates

DSIRE IS THE BEST. It provides the most comprehensive overview of all incentives available on the federal and state level. Furthermore, it provides incentive specifics, links to specific tax forms, and the organizations where you need to go to get more information.

You need to become an incentives expert in your area. Incentives come from many areas based on where you live. After the federal government and federal IRS, there are different incentives based on state, utility, municipality, and the state IRS.

2 – Installed Costs: Gross and Net

The gross installed cost is the cost before any incentives. Net installed cost is after any “lump sump” based incentives.

For this exercise we’re going to use historic data from Massachusetts, the best quotes will come from you talking with a distributor and determining the costs for a specific quote. Each utility and city has different permitting costs and equipment prices are always changing so speaking with a distributor and doing the math yourself will always yield the best results.

Here are other good resources to finding pricing data

• IREC Solar Markets Trend Report. This is the most recent, 2010.
• Massachusetts Clean Energy Center, Commonwealth Solar Installer Cost Report
• Solar Buzz Module Pricing
• Solar Buzz Inverter Pricing
• Solar Buzz Solar PV Pricing

Pricing for our Examples:

For the sake of this article, we’re going to use the below prices.

Residential, under 15 kW: We’ll use $5.00 per watt

Commercial, over 15kW but less then 1MW. We’ll use $4.50 /watt understanding this can change drastically based on a site, labor, or equipment pricing.

What Impacts Installed Costs: The above costs are averages and the cost can be much greater, or less depending on the site characteristics. The most common aspects that will increase the price of an array is 1) roof condition, age and structural condition 2) Electrical service condition 3) clear chase from the roof to utility room 4) what are the existing supply agreements between contractor and distributor or manufacturer.

For simplicity with these examples, we’re going to assume all of these systems are purchased with cash from the host of the system. In reality, they could be purchased cash or leased. To understand residential leases, we have a free solar leases course. To understand commercial leasing, read the beginners guide to financing solar PV projects.

Example: Calculating Gross and Net Installed Costs for Residential and Commercial Projects

For Residential: A 5kW DC system at $5/watt in Massachusetts will cost $25K gross and $15.5K net. The net cost will be around $3.1/watt.

For Commercial: A 100kW commercial system at $4.50/watt will cost $450k gross and $315k net, coming in around $3.15/watt.

3- Understanding Operations and Maintenance Costs

You must model expected operations and maintenance costs. Again, the best way to determine this is through your own experience. However, for this article, we’re going to use industry averages and be extremely conservative.

We’re going to use $20 per kW installed per year for the life of system. It might be lower then this, but I always think it’s a good idea to be conservative. We’ll use this for both the residential and commercial projects.

Also, a recent Solar Pro article on LCOE (see link below) uses .05% of installed cost per year as the O+M costs.

Here is a great resource I’ve found that addresses solar PV maintenance.

• Electric Power Research Institute: Addressing Solar Photovoltaic Operations and Maintenance Challenges
• SolarPro: Levelized Cost of Energy

The above report has a great graph about the type of maintenance that should be performed.

Equipment Warranties

You’ll also want to make sure you understand the equipment warranties of your product. Most modules and inverters have 20 year warranties, which is common with the rest of the balance of system components as well.

4. Customer Types and the Value of a Solar kWh

With net metering, the value of a solar kWh is worth exactly the same amount that the customer is paying for the power. This is key to understanding the VALUE of the power that an array produces.

Residential cost per kW in Massachusetts. For the sake of this article, we’re going to assume for residential customers. We’ll use $.15kWh.

Make sure you understand the residential electric rates in your area. If you live in an area that has time-of-day pricing, or time of year pricing, or both, you need to understand the rates in different tiers to understand how much the solar power is worth.

Light Commercial Electric Rates

For light commercial projects the client will likely have both have two types of electric bills, demand charges and usage charges.

1 – Demand Charges.

If you’re getting into commercial solar, YOU NEED to understand demand charges.

We’re going to use $6 per kW, yes per kW, as demand charges are measured instantaneous power load on the grid. $6 per kW is the current rate for national grid G2 customers.

Here are two good resources I’ve found to explain demand charges.

• Demand Charges Explained
• How Demand Charges are Computed and Billed

You can read more about commercial customer classes and demand charges on the utility websites.

• National Grid Business Rates 
• NSTAR Business Rates

2 – Usage Charges.

Usage charges are the price of electric generation and transmission.

For our example, we’re going to assume the price is $.10kWh. However, in the real world this number can vary widely and will depend on the clients customer class, how much power they use, when, and how exactly they are billed.

Two different customers. The below examples of two different customers will show how different levels of kWh usage and demand charges can impact a utility bill. NOTE: This is extremely simplified, actual utility bills are much more confusing then this

1 – 5,000 kWh used per month, with max demand of 50kW on average. Their bill would be around $800 per month.

• 5,000 X $.10 = $500
• 50kW x $6 = $300

2 – 3,000 kWh used per month, with a max demand of 150kW. Monthly bill = $1,200. Notice, less usage, but higher demand equals a higher bill.

• 3,000 X $.10 = $300
• 150 X $6 = $900

A few things to keep in mind about understanding electric rates 

• Collect  your client’s electric bill to determine what they are paying exactly for electricity. In markets like Massachusetts, transmission and generation are seperate so it’s possible to see a range of prices.
• There are many markets that have time of day pricing and time of year pricing. If you live in a market with time of day and time of year pricing, you CANNOT use average montly solar power production, you will need to break out estimated solar production by time of year and/or time of day to understand the value of each kWh.
• For example, if a customer has time of year pricing that was split between summer and winter. You would need to estimate power production in the ONLY the summer months, and then in ONLY the winter months and determine the amount and value of power in each period.
• For example, if a customer has time of day pricing in 3 tiers, morning, afternoon, evening, you would need to estimate power production of the array by each time and then determine the value of power in each tier.
• Time of year AND time of day are more complicated but it can still be done. If there are 2 different year prices and 3 different day prices, you’ll have 6 buckets of solar production that you’ll need to estimate for.
• John Farrel wrote a great piece about the value of solar kWhs in areas that have time of day pricing pricing: http://energyselfreliantstates.org/content/electricity-priced-hour-boosts-distributed-solar-value-third-or-more

5 – Putting it All Together With a Few Sample Customers

Now we’re going to use what we’ve learned and apply it to 4 specific customers to see how installed costs and the site impact the financials.

• The “Russel” Residence is a residential project with an okay site but it needs a service upgrade.
• The “Charles” Residence is a perfect solar site.
• The Bakery is a commercial site that uses a lot of power in early mornings
• The Office is a commercial site that uses the most amount of power in the afternoon when the office building is full.
• All the buildings will be in Boston because I’m just lazy when it comes to production modeling

Russel Residence

• 4kW Array can fit on the roof
• Roof is West and 30 Degrees tilt. system is $5.00 per watt plus a 3K service upgrade because they have an old panel
• Estimated Power Production is 3,982 kWh per year (via PV Watts)
• The client uses more then 7,000 kWh per month so they can take advantage of all the power
• The client pays a flat $.15kWh for power
• We’ll assume a 3% energy inflation rate
• Here is the financial returns
• IRR = 7.30%
• Net Present Value with a discount rate of 4.50% is just under $3,000.
• Notice how the impact of 1) a service upgrade and 2) a WEST facing array drastically decrease the financials of the system.

Charles

• 5kW array can fit on the roof, $5.00/watt installed
• It’s facing directly south on a 12 itch roof (45 degrees) with no shading
• No service or roof upgrade needed
• Estimate Power Production is 6,441 kWh per year
• We assume 3% energy inflation
• Here are the financial returns
• IRR is 15.10%, very respectable!
• Net Present Value with a 4.50% discount rate is $13,181.
• The financials of the Charles project are much better for two simple reasons: First, no service upgrade. Second, the site was much better. The array is only 25% larger then then the Russel project (5kW vs 4kW) but expected output is more then 50% larger per year (6,441kWh vs 3,982kWh). REMEMBER ONE THING: Proper customer selection is KEY.

Commercial Bakery Site

• Client Electric Power Usage and Rate: 9,000 kWh use per month. $.10 per kWh
• Demand Charges: Max kW demand is around 100kW around 9am due to heavy use of ovens, etc.
• Array Size: 70.5 kW DC. The roof can hold 300, 235 watt modules.
• Installed Cost: $4.50 per watt
• Array Characteristics: True south, tilt of 10 degrees which is common in flat roof racking
• Estimated Production: 83,074 kWh produced per year.
• Demand Reduction: 22.56kW. Full AC array capacity is 56.4 kW (70.5 X 80%) and estimated array output at 9am is 40% of full capacity.

The Financial Returns

A few interesting observations.

• Notice that the SREC and MACRS values are significant in the return of the system and the value of the electricity and demand charge reduction is rather small.
• In fact, if you remove any demand charge reduction the IRR only drop’s a small fraction, about 1%. See below. So, while demand charges could be a large percentage of a company’s electric bill, they may not have a huge impact on the economics of a project.

Commerical Office Building

• Client Electric Power Usage and Rate: 6,000 kWh on average at $.10 kWh.
• Demand Charges: Maximum demand is around 50kW between 11am and 1pm and in the summer when the office building is most in use.
• Array Size: 35kW DC. 100, 350 BIPV modules
• Installed Cost: $4.50 per watt
• Array Characteristics: 0 Degree Tilt because the modules are flat on the roof
• Estimated Production: 37, 627 kWh production per year via PV Watts.
• Demand Reduction: Expected demand reduction is 28 kW AC. From 11am to 1pm full power production is expected. 35kW DC X 80% = 28kW AC X 100%
• The financials are below
• IRR of 17.59%
• NPV of $91,719 with a discount rate of 4.5%.

 Important Note on Commercial Financial Analysis. 

This is a basic analysis to describe how the process works. There are a number of items I’ve left out that might need to be considered depending on the client.

Here is a list of things that are commonly applied to analyzing the financial viability of a commercial solar project that were not within the scope of this article:

• Demand can be much more complicated to determine and also to calculate the effect a solar array will have on reduction. One cloudy day minimal solar production is all the power company needs to charge for full demand charges.
• Usage rates will likely be much different than $.10 kWh
• System Downtime and Annual Degradation. When performing power production estimates, I did not take into account these two variables but in a real system it would be wise to.
• Real vs nominal discount rate due to inflation. I simply used a nominal discount rate and calculated inflation as the rise in energy cost
• Sales Tax and Insurance: Again, these are costs associated with owning an array that the client will want to be aware of.
• Debt Fraction, Loan Rates, Terms and Cost of Capital. I assumed the project would be bought with 100% cash and the discount rate is just 4.5%. It’s very likely that clients will have different discount rates based on their business, other options they’re looking to invest in in addition to solar, or quality of their banking relationship. It’s also likely companies will want to finance the project with debt, and then you would need to model loan payments and terms to understand the the financial viability of the project.

You can sign up for the free meetup on May 25th here.

The meetup is for 4 specific groups

1. Companies that are or want to be selling energy services to property owners and learn best practices for creating a rockstar sales machines.
2. Companies that are developing new B2B products for renewable energy EPC contractors and need to get specific customer feedback, first sales, and access to distribution.
3. Companies that need to build cleantech prototypes for investors or beta customers.
4. Companies that feel their future is in selling their services to the federal government.

Here is who will be at the seminar and what they will be discussing.

Chris Williams – That’s me! I’ll be discussing EPC best practices for creating new business, establishing a referral business and making sure projects are profitable. The materials will be based from best practice research completed at HeatSpring. I’ll also be discussing what EPC contractors are looking for in terms of new products and service to help them with their business for companies who want to sell directly to EPCs. This will be useful for companies looking to build products or services and sell directly to EPC contractors.

Ethan Labowitz – Ethan is the founder of the Boston Institute for Clean Energy Prototyping. He’s held workshops in the past and specializes in getting products built fast and much cheaper then private shops. If you need to build an actual physical product, Ethan is your man.

Ben Dunway - Ben is a former Air Force acquisition officer, and he has worked in the defense industry for ten years. Ben now runs Six Three Marketing and teaches a course on selling clean energy to the government. He knows exactly how the Defense Department works and what cleantech companies need to do to be successful in the industry.

You can register here through HeatSpring for the event on May 25th. 

Background and Demand for the Event

6 Months ago, I created a free HeatSpring course called “How to Make Money in the Renewable Energy Industry”. It’s been a huge success with over 400 attendees.

The basics of the course were 1) technology overview 2) industry dynamics and 3) where the opportunities are.

The training was made for two main groups 1) career changers looking to quickly understand the new market and who want to jumpstart their learning and 2) new and existing contracting companies looking to expand into renewable energy but that need help learning the skills they needed, certifications, licenses, and typical installed costs and profits for solar and geothermal projects.

The reason I’ve decided to do a live seminar is that the level of interaction and ability to answer more specific questions in detail is difficult. Also, a lot of the advice is very nuanced and depends on the situation of the specific person and company, which again is not suited for online material well.

Here’s what’s expected from attendees

We do not want attendee that are going to sit and listen the whole time. We want you to tell us about your business and product in details, and ask good questions so we can help you. We need questions to be  asked, products to be displayed. The reason I chose the other instructors along with myself is that a lot of these areas overlap.

• We want a lot of questions to be asked
• We want to hear about the projects or products you’ve already created
• We want to help you make introductions and establish relationships with other participants and people in the industry that can help grow your company.

Here is specifically we all of us (me, Ethan and Ben) want to share with you. 

1. A technology overview. How solar PV, solar thermal and geothermal systems work. What is the basic design and installation concepts
2. The skills a company needs to design and install these projects.
3. Typical installed costs for these projects in New England and where you can buy equipment.
4. The profile of the best customers for these services and best practices for profitable sales machines.
5. Where is the opportunity for new products, tools and services for EPC contractors. What will EPC contractors PAY FOR that will help them with their business
6. The most common mistakes companies make when prototyping cleantech products
7. Best practices for prototyping
8. The most common mistakes companies make when selling products to the federal  government
9. Why the federal government is the LARGEST customer in the US for renewable energy services
10. What a company needs to do to successfully and profitable sell to the government
11. An overview of the govt’ RFP process

You can sign up for the free meetup on May 25th here. 

This article was originally published on The Green Light Distrikt

When I presented at ACCA New England, I ran into Michael Corcoran who runs the Massachusetts Workforce training fund and I was stunned to hear that they have $21 million in training funds they’re itching to distribute to companies.

Here’s a few points that stuck out to me about the program.

• Money can be used for training new skills and credentials but NOT for mandatory training, think OSHA and trade license training.
• Companies can get paid to hire and train unemployed workers and veterans
• The training can be used for any industry, including renewable energy (solar, geothermal, etc) as long as you’re showing how you want to grow your business into that industry.
• Training grants up to $30k in matching funds for companies that need to retrain workers to gain a new skills. For example, HVAC and Drilling contractos wanting to get into geothermal. An electrical shop, roofing company or plumbing shop that wants to get into solar.

For more information on the program. Go to: www.mass.gov/wtfp

If you’re interested in applying for some of these grants to get your business into the renewable energy industry, fill out this short form and we can help you.

 More Info Program Description

The Workforce Training Fund Program awards grants to Massachusetts businesses and organizations to train their current and newly hired workers. The purpose of the fund is to provide businesses with the resources to upgrade the skills of its workers and to improve the companies’ ability to be more competitive in a global economy. Since it’s inception in 1998, the Workforce Training Fund Program has awarded $199 million dollars to over 4000 Massachusetts businesses to train over 250,000 workers. The program is funded by Massachusetts business through a surcharge on Unemployment Insurance.

There are five (5) Workforce Training Fund grant programs available:

1. The General Program Training Grant awards grants of up to $250,000 for customized training of the company’s choosing to train their current or newly hired workers. The maximum grant period is 2 years.
2. The General Program Consortium Grant awards grants of up to $250,000 to assist multiple companies with similar training needs to implement a customized training program as a collective group. The maximum grant period is 2 years.
3. The General Program Technical Assistance Grant awards grants of up to $25,000 to assist companies with similar training needs to asses worker skill gaps and to develop a training plan that address those skill gaps. The maximum grant period is 6 months.
4. The Express Grant Program is for small businesses (companies of 50 or fewer employees.) Grants of up to $30,000 are awarded to companies for sending workers to pre-approved training courses. Grant awards are used to reimburse companies at 50% the cost of the training upon completion of training. Maximum grant period is 24 months.
5. The Hiring Incentive Training Grant awards grants of up to $30,000 for companies to hire and train Massachusetts residents who have been unemployed 6 months or longer, or who are veterans. Companies are awarded $2000 per each new hire.

Here are other key pieces of information to know about the program.
The fiscal year 2012 operating budget for the Workforce Training Fund is $21 million.

All monies collected via the Unemployment Insurance surcharge are deposited in a newly established trust fund for the exclusive use of the Workforce Training Fund Program.

All Massachusetts companies that pay Unemployment Insurance and also pay the Workforce

Training Fund surcharge are eligible to apply for Workforce Training Fund grants.

This is the 2nd article in a series about how to design solar PV projects. We started with solar 101, the basics. If you’re brand new or need to brush up on the basics, please read it first. It discusses electrical theory, key solar terms needed to design any system and the relationship between irradiance, temperature, amperage and voltage among other things.

This section is dedicated to sizing an array based on customer needs and site characteristics – it also discusses estimating power production. The main focus is residential applications, but I’ll also highlight slight differences in commercial projects.

The goal of the article is to provide a basic process for you to understand how to size an array and provide you with further resources you’ll need to continue your learning. There will be some overlap in this discussion with more advanced topics, like string and conductor sizing that will be covered in future articles, and how the design will impact the financial returns of a system, which will be discussed in a future article on Solar PV financing. If you need to read on up renewable energy finance, you can start with Finance 101 for Renewable Energy Professionals.

First, let me outline what we’ll talk about, then I will go into each part with more detail and depth.

Below is the process for designing a solar PV array.

In the field, most of the power production estimating is done with software. However, I’d argue that it’s still important to understand the theory behind power production estimates and the variables that impact power production so you can make sure to gather the correct information when performing a site visit.

1. Customer Constraints. What about a specific customer will impact the size of an array? The most common restraints are:

• Energy Usage
• Client Budget

2. Site Constraints.  What about the client site will limit array size? These are the most common details about a site you need to gather and we’ll discuss how these variables impact the size of an array:

• Local Shading
• Horizontal Shading
• Available Roof Space and Roof Characteristics (dimensions, tilt, azimuth)
• Module Size and Racking Considerations

3. Determining Irradiation. In order to compute power production, you need to understand how much energy is hitting your specific area.

• Measured in kWh/M2/day or Sun hours per day

4. Estimating power production based on irradiation, customer constraints, and site characteristics.

• Sun hours per day adjust for site characteristics
• Power production estimates based on solar resource and the amount of modules you can fit on the roof.

1. Customer Contraints. 

A. Energy Usage

A possible constraint on the size of a solar project is the client’s energy usage. Because of how net-metering programs are set up, typically it does not make sense to produce more then 100% of a client’s annual energy usage. However, because most property owners use so much power, and the power density of solar PV is so low, it’s rare to have an array that can produce 100% of the power with solar power. It’s typical that the solar fraction of a project (total power used / power supplied by solar) is less then 30%.

Commercial Considerations

For a commercial client you will need to understand their demand charges and usage charges. In order to understand if the solar array will reduce their demand charges you need to understand the load profile of the building and when exactly their demand is the highest to see if solar will shave that demand. For example, do they have the highest amount of demand in the summer or winter? What time of day, early morning, afternoon, evening?

We will not go into depth on demand charges for this post. However, WE WILL discuss the impact of different electric rates, demand and usage charges in the solar PV financing article because it’s critical to understand the value of the power that a solar project produces. Right now, we’re just concerned with pure design.

If you need to learn more about what demand charges are, I’ve found these are good resources:

• Understanding demand charges
• Demand Charges Explained

What you need to collect about energy usage:

• Yearly average kWh used by the client
• Cost of power
• The value of a kWh of solar is directly related to the cost of the power it offsets. On a site visit make sure to get a few months of electric bills.

Example

Let’s assume a customer uses lives in Houston, TX and uses 550 kWh of AC power on average per month and wants a solar system that will produce 100% of the power they use in a year. How large would you need to design the system? You need to reverse engineer the problem, here’s how:

1. 550 kWh/month / 30 days per month = 18.33 kWh per day
2. Calculate and Adjust Irradiation based on site characteristics. According to PV Watts, Houston gets an average of 4.79 sun hours per day. For now, let’s assume the roof is directly south and at 30 degrees (the latitude of Houston) so it can harvest 100% of the 4.79 sun hours per day. See section 4 for how we adjust irradiation based on a roofs characteristics
3. 18.33 kWh per day / 4.79 adjusted sun hours per day in Houston = 3.83 kW AC needed in production. Now we need to convert to DC
4. 3.83 kW AC / 80% (to make up for the inefficiency of converting to DC to AC. 80% is a rule of thumb. You will read more about this in the next part of this series when we talk about string and conductor selection, inverter selection and derating) =  4.78kW DC

If the customer wanted to produce 100% of their power from solar energy in Houston and they had a perfect roof, they would need a 4.78kW DC system.

We’ll discuss what happens if there roof is not perfect below.

B. Customer Budget

One of the most common client constraints is budget for the system, if they are purchasing with cash. If they are leasing the system, this will not be so much of an issue. Learn more about solar leases, prepaid leases and how to sell a solar lease here.

If your installed cost is $5.00/watt, a 4.78 kW system will cost you $23,900. If the customers budgets is only $15,000, you could only install a 3 kW DC system.

Things to remember:

• Know if it’s a cash or lease sale. Learn more about lease sales in our free course about solar lease.
• If it’s a cash customer, make sure you understand what their budget is. Make sure you understand if they are purchasing cash, or with a home equity line of credit or wrapped into a mortgage for new construction.

2. Site Contraints

Site constraints are the second most common attribute that limit the size of a solar array, behind a customers budget. Answering the question “how many panels can fit on the roof” is a major limiting factor of a project. However, remember that it’s not just how many panels can you physically fit on the roof, but how many can be on the roof and produce maximum power.

**NOTE: I’m not going over structural aspects in this part of the series and that will be discussed in a future post. Remember, simply becasue there is room on the roof doesn’t mean you can install solar. The roof needs to be able to hold the additional load.

Roof Characteristics to Consider and Gather

• Total Roof Area: When performing a residential or commercial site visit it’s good practice to measure the whole plane on the roof where you plan to install the array, then begin to work backwards and eliminate space that is shaded or unsuitable for panels.
• Local Shading. Local shading is shading that occurs on the roof. Common examples include: chimneys, stink pipes, eaves, shading from another part of the roof.
• A good rule of thumb for local shading is don’t place modules anywhere that is closer then 3x the height of the obstacle from the object. If a stink pipe is 12 inches, don’t place any module north, east or west of it closer then 36 inches away. You can still place module south of the local shading areas.
• When doing a site visit make sure to mark the locations of all local shading elements. Also, note if there is an attic or cathedral ceilings. If an attic, sometimes pipes and other items can be moved easily.
• Horizontal Shading. Horizontal shading is most often caused trees, but can also be from buildings. It is shading that occurs off the roof that impacts the amount of irradiance hitting the roof.
• It’s best to have no shading between the hours of 9am and 3pm for the whole year. If this is the case, you will not need to adjust your irradiation numbers for shading.
• If you have any shading between 9am and 3pm during any point in the year you will need to adjust the irradiation numbers that we will discuss step 4.
• Here are two examples of a nearly perfect roof and a roof with some shading. The “solar access” percentage is what we care about, and this is the number that will adjust irradiation values. This percentage is a measure of the amount of sun light you’ve lost due to shading. If it’s 95%, you’ve lose 5% production from the best case scenario due to shading.
• Key to remember: Trees Grow. If you’re building an area that has some shading, when you perform your power production estimates it will be good to assume your shading will increase by a small amount each year, let’s say .5%.
• Key to remember: Some states have rebate programs that say a roof must solar access of at least 80%.

A great roof: On average this roof only loses 4% product due to shading

An okay roof: This roof will lose 20% product due to shading.

Commercial Considerations

Commercial projects seem more open then residential applications because you can orient the modules how you wish, but there some considerations that are more critical to watch for on commercial projects:

• Local shading becomes much more important. Make sure to have a DETAILED roof plan that shows the dimensions of the roof, and everything else on the roof that will impact where you can place modules; drains, the footprint AND HEIGHT of the AC units, skylights, height of knee walls, and all other equipment.
• Examples below of skylights, knee-walls, AC units, and existing conduit.

• Edge of the roof. 6 feet from the edge is common
• Double check with your fire department about array layout. Fire AHJs are becoming more and more stringent with where modules can be placed because they will need access to the roof in the case of a fire.

Remember to collect from a site visit:

1. Raw roof dimensions
2. Location and height of all other obstacles
3. Shading analysis with a Sun Eye
4. Tilt of the roof if residential. If commercial, this will be based on the racking you use
5. Azimuth of the building. This means, where is the building facing. It’s best for the roof to be facing directly south. On residential roofs, you tend to not have a choice. On commercial, you have more freedom to point the array where you wish.

Example: Houston, Texas House

The process for determining how many modules can fit onto a residential roof are the following.

1. Measure the raw roof. This is an example house in Houston, TX.

2. Locate all other obstacles. The above roof is perfect, but let’s assume that there is a chimney on the top left of the roof.

3. Perform a shading analysis. Mark any areas that have less then 80% solar access. The above roof does not have any shading, but if there was a tree on the left hand side you would need to get on the roof and use a sun eye to determine how far the shading goes onto the roof. Mark the section of the roof where the shading stops!

4. Determine the unusable space created by local obstacles and shading on the roof. Remember to use 3x the height of the obstalces as the closest distance a module should be to said obstacle.

5. Determine how many modules can fit in the adjusted usable space based on the size of the module and racking. You’ll need 3 things

1. The amount of usable space on your roof
2. The dimensions of your module
3. Needed space for racking

A few other key tips to keep in mind.

•  It’s good to make sure the modules do not overhang the ridge. It’s good for the space between the ridge of the roof and the array and the bottom to be equal, if possible.
• It looks best if you can space the array on both sides equally as well, but sometimes this is not possible.
• Rectangles, including squares, always look the best.
• Remember Unirac racking will take 1 inches between all modules but not the top, bottom or either side. Prosolar is also very common. Other brands are coming along including ZEP Solar and other brand specific raking, like Westinghouse Solar. Just know your racking dimensions.

Here is the module we’re going to use:

6. Result: 20 Modules Will Fit on the Roof. 

Height: The height of the array is 119 inches (59 X 2 + 1 inches for the racking)

Width of the top row: 279 inches (39 inches wide X 7 modules + 6 inches for each space)

Width of the bottom row: 519 inches (39 inches wide X 13 modules + 12 inches for spacing)

This may not be the exact amount of modules for the final design depending on what our string sizing calculations comes out as OR if we choose to use micro-inverters or an AC module. But you get the idea of the process.

7. Gathering Roof Characteristics

The two other things you need to collect about the roof that will be needed for power production estimates are the tilt roof and it’s azmith. We will discuss power production estimates next.

The tilt of our sample roof is 30 degrees, or a 7 pitch.

The true azimuth of the building is 132 degrees. The magnetic reading of where the building was facing was 140 degrees. HOWEVER, we must adjust magnetic south to true south. Houston has a declination of 8 degrees EAST. EAST Subtracts, you remember that.

140 degrees magnetic – 8 degrees declination east = 132 degrees.

3. Determining Location Irradiance

Now that we understand the basic process for determine how many modules can fit on the roof, collecting data about shading, and where the roof is facing

Here’s the general process. 

1. Determine the amount of sun falling in your city
2. Determine how much of that sun is falling on your specific roof
3. Determine how much sun falling on the roof the modules can harvest, based on how many modules you have and their power rating.

1. City Irradiation.

This is not an official term but it’s how I think about it. First what we’re looking for is how much sun, on average, is falling in the city where my roof is located. What you’re looking for is called IRRADIATION, formerly called Insolation with an “o”. Here are some good resources to look up the irradiation in your city:

• Whole Solar Sun Hours Map
• PV Watts

REMEMBER, an easier way of thinking about the term “kWh / M2 / day” is “Sun Hours Per Day” Or how many hours of direct sunlight (at STC) are falling. The reason I like sun hours per day is it makes calculating power make more sense to me. If I have a 1 kW array that gets 5 sun hours, I’ve produced 5kW (1kW X 5 hours)

According to PV Watts, Houston gets an average of 4.79 Sun Hours per day.

2. Adjust City Irradiation for Roof Irradiation and Estimating Power Production. 

In order to calculate the irradiation that falls onto the roof we need to correct the local information for the conditions of the specific roof. If you remember from solar design 101, solar modules are most efficient (produce the most power) when they are perpendicular to the sun. Note, I won’t be discussing tracking arrays in this article. Here are the best conditions for a fixed tilt array.

• Azimuth = Directly South at 180 degrees. Only in the northern hemisphere
• Tilt Angle = Latitude of the Site. Houston’s latitude is 28 degrees north, so 28 degrees is the best tilt of the roof.

If the array has a different tilt and azimuth then from the above, we need to adjust the city irradiation numbers to get an accurate power product estimation for the specific roof. Here is an example of a table used for locations that are 30 degree north.

Notice from the above graph that at 180 degrees south and 30 degrees tilt angle,  the correction factor is 1, or 100%. It’s useful to analyze this graph to get an understanding of the implications of different site conditions. This is useful for marketing purposes to determine good sites from bad sites.

• If the building was facing directly WEST, it would only lose 17%, but if it faces directly EAST, it will lose 22%.
• Also note what happens when the module is at 0 degrees, flat, it only loses 13%. Mainly due to the fact that Houston is close to the equator so the summers are long.

Solmetic also has an amazing tool that will tell you the optimal tilt and azimuth for a building in a specific location. Then you input the specific characteristics of your roof and it will tell you how much to adjust your irradiation numbers by.

This is data for Houston

Here is a link to the Solmetric tool

According to Solmetric, the optimal tilt for Houston is 28 degrees, the the azmith is 178 degrees. You can find this at the top of the graph.

If you look at the bottom, you can find our roof’s characteristics, is says that a roof with a tilt of 30 degrees tilt at 148 degrees will get access to 97.8% of the sun.

Example with roof adjusted irradiation

Multiply Houston Irradiation, 4.79, by the roof correction factor 97.8% to equal 4.68 sun hours per day.

We would then use the roof adjusted irradiation numbers in our power production estimates. For the amount of module that fit can fit on the roof, 20 in hour case. Note that 20 is not taking into account customer budget.

1. 20 modules X 205 watts per module (find this on the modules specs) = 4100 watts DC rated power
2. 4,100 watts X 4.68 average sun hours per day (roof adjust irradiation) = 19, 188 kWh DC produced per day on average.
3. 19.18 kWh DC X 80% (to convert from DC to AC) = 15,350 watts-hours AC average daily production
4. 15.35kWh per day X 30 days per month = 460 kWh AC production per month.

Conclusion

That’s a step-by-step guide for sizing a solar array and estimating power production. The process is slightly different and there is more to consider for light commercial applications. I will dedicate a specific post to commercial array sizing and power production in the future.

To wrap up what we discussed.

1. Client specific constraints: budget and energy usage
2. How a roof’s constraints impact a solar array’s size: Local and horizontal shading, roof dimensions
3. How to determine and adjust irradiation numbers based on the roof’s characteristics; tilt and azimuth.
4. How to estimate power production based on the irradiation reaching a roof and the number of modules on it.

In this article, we used a rule of thumb 80% derate factor to convert from DC to AC. In the next article, we will dive deeper into inverter sizing, string sizing and conductor sizing, all of which will directly impact this 80% number.

If you have any questions or comments, please leave them in the comment stream.

I’m always in the search for great technologies or business innovations that are making renewable energy more badass, and by badass, I mean profitable. Whether it’s AC modules, faster solar racking, or PV modules that don’t require racking or grounding, huge projects that are pushing an industry to the next level, cheaper ways of pumping water. However, if you notice from the above list, I’d argue the majority of innovation is happening in the solar PV industry with the occasions solar thermal or geothermal innovation.

The reason for this is simple, solar thermal and geothermal are close to mature technologies, while the solar PV industry is still in it’s infancy. The installed cost of geothermal is being driven down by local competition and rising energy costs, but there is some technology innovation still helping to drive costs down.

Kelix is a great example of the type of technology innovation the geothermal industry needs. The Kelix GHE transfers heat more efficiently than a typical HPDE U bend pipe used in a vertical closed loop system.  It does this by reducing the borehole resistance, which means you can reduce loop lengths by up to 50%.

Last week, I spoke with Matt Schaefer, their VP of Sales and Marketing about the Kelix system and what our industry needs to start doing to take over the world.

Here’s what stuck out to me from our conversation. 

• The Kelix system can deliver 1 to 1.5 tons of heating/cooling capacity per 100 feet of bore. This is up to twice as much as normal polypipe.
• If your drilling costs are above $10 per foot you should consider the Kelix system because it could be cheaper to install.
• The technology is great in space constrained environments because you need less bore feet. In residential applications, it’s common to drill for a 3 to 4 ton unit in one 300ft borehole, and even more in deeper wells.
• The pressure drop per foot in the Kelix system is actually LOWER than with utubes, even though the Kelix system has much greater turbulence.   This means it often requires less mechanical pumping force for the fluid.
• Geothermal doesn’t make sense for every building.   From a sales perspective, we need to become much more specific about who our customers are and the messaging that we’re delivering to them.
• We should spend more time working on increasing the demand for geothermal from consumers, rather than assuming that if we educate the design community that they will spec in geothermal. Here’s how I took this message: we need to take control of our own destiny.

Watch the whole interview here

Here is an overview of the full agenda

Q: What is the story and pitch of Kelix?

• Kelix makes a patented concentric ground loop heat exchanger for vertical closed loop systems. It’s a pipe within a pipe that creates turbulence, has greater contact area, and uses more thermally conductive materials.  It has a lower borehole resistance then normal HPDE U tubes.

Q: What is the story of the product?

•  It’s been in development for a while. There is nothing really unique about the technology and materials in terms of underground applications. The materials are used in the oil & gas, chemical, and geothermal energy industries,  just never been used for geothermal HVAC before.

Q: So you’re just assembling existing and proven materials in different ways?

•  Yes and the header is still HPDE so it can connect with standard geothermal lateral lines.

Q: You’re selling to geothermal contractors and drillers. What is the benefit of your system? I’m assuming that it is NOT a no-brainer (cheaper to buy, install, and operate) but what is the trade-off? What is your best customer and project?

•  Our perfect project is in space constrained situations or where drilling costs are high. We reduce the amount of drilling needed and this reduces the space requirements too.

Q: Where is the breakeven between drilling costs per foot and your system? When would a driller RATHER use Kelix then regular pipe?

•  An easy rule of thumb is that if your drilling costs are above $10 per foot, you should at least look at Kelix to see what the total installed cost will be.
• We shrink loop lengths between 20% and 50%, and the size of the reduction depends on the quality of the geology.

Q: If you had to drill 1000 feet at $12 per foot, with Kelix you might only need 500 feet. So, your system costs less LESS than the $6000(500 X 12) in reduced drilling costs, right?

• Some of that depends on the size of the project, but in that specific example it would be close.  You also need to consider the reduced trenching, lateral lines, headering and grout that are required for multiple wells in the 1,000ft case.  For residential projects like this one, often times the biggest benefit is that you only need one well and don’t have to tear the customer’s yard apart or figure out how to get a drill rig back in.

Q: If you’re reducing the drilling length by 50%, the conductivity of the Kelix system must be double. What specifically allows the Kelix system to have higher conductivity?

• The Kelix GHE lowers the borehole resistance substantially from HDPE u-tubes.  This is by creating turbulence, using a more conductive material, increasing the contact area, and isolating the in/out flows.  It then depends on the local ground conditions and the building loads to see how much we can reduce the drilling, but it can be up to 50%.

Q: With small projects, what are the design implications for hitting the GPM that the heat pump requires? Do pumping costs increase because there is more head needed to create more turbulence?

• The Kelix design has low friction, so there is low head build-up.  But we also need a certain flow rate (10-18 GPM) to create the right amount of turbulence.  The pumping costs are not significantly different on small projects.

Q: From a driller’s perspective, is there a huge learning curve? Is it difficult to learn the new technology or will a driller be able to pick it up quickly?

• There is a bit of a learning curve, but it can be picked up quickly.  These type of pipe connections have been used in the water well and plumbing industries for years, so it doesn’t take long for contractors to get the hang of it.

Q: So, it seems like the northeast and the mid-atlantic are the prime targets for your product because they have higher drilling costs and sturdy geology. In terms of space constraining, a common rule of thumb for residential applications is about 200 feet per ton?

• Matt shared with me an awesome graph to show how the Kelix system is sized.
• Yes, we hear 200ft/ton a lot as a rule of thumb.  For our contractor partners, we have started to generate these curves to help them size residential systems depending on what the local climate and geology are like.

Q: That’s one reason I like your product, its EXPANDING the size of the potential geothermal market and the people that can be sold to. Switching gears to talking about sales. What do you think the industry needs to start doing to sell more? Do we need to start standardizing the residential sales or should we set our sites high and start selling to the Wal-Marts of the world?

•  Lack of awareness and understanding. At first, we just thought we’ve convince the best design firms about Kelix and they’d see the benefit. However, the best firms really don’t understand geothermal.
• To them, it’s a scary technology and we need to make it less scary. Both the building owners and the design community.
• When a building owner goes to a design firm and says “I want to be green,” we need to make sure geothermal gets considered. It’s the most efficient, you get LEED points, etc, but I don’t think that is happening today. The design firms are often only doing the work when forced to do it.

Q: I hear this strategy constantly, “we just need to convince the design community”. What if we start convincing the customers why geo is the best choice and then have them demand it from contractors? IF we convince the CFOs and energy managers of large corporations why geo is amazing, they will force the design firms to do it. Why don’t we focus on this strategy?

•  I agree and I struggle with this every day
• The challenge is, there are thousands of business owners. As an industry who is the point person for the industry to focus on large customers? Who is responsible for this? Who gets this business?  And as a small company, do I have the time and resources to go convince these big players to change their mindsets?
• We need to focus on commercial property owners that own all the square footage, we need to be able to attack them. As an industry, we don’t have a good coalition to create an industry voice.

Q: I agree, geoexchange is great, but it’s geo person talking to geo person. Shouldn’t we create a list of the top 10 best geothermal customers, figure out who they are, where they spend their time, what they are about and start presenting to them about why geothermal is a risk free technology, provide great returns, is a hedge against rising energy costs?

• Yes… but again, who does this?  A contractor?  The heat pump manufacturer?  The heat exchanger manufacturer (like Kelix)?  There is a lot of fragmentation that makes it hard to coalesce.
• I agree we should be speaking with ESCOs and show them how geothermal fits in their existing models for energy efficiency and how it will allow them to create more savings for their clients, and thus allow them to make more money from geothermal.

Q: Really, what finally made the ESCO that you were speaking with believe in geothermal?

•  We showed them how it works, why it works, and real data from projects and not just quoting DOE reports.

Q: Talking about getting more specific about drawing a line in the sand of saying this is a good customer and bad customer. Do you think we need to start being more specific about our customers and start getting really clear and transparent about installed costs?

•  I think the industry has almost boiled the ocean by trying to say that EVERYONE should go geothermal. This is not true. It needs to be more targeted and more specifically to the right person.
• You need to know what your target is and be very specific. We need to stop taking what comes at us and putting messages out there to very specific customers.

Q: It’s funny you say this, the last interview I did was with Josh from Geothermal Genius, a great site that is building awareness for geothermal. I liked him because they had a huge map of installed systems. This maps gets over the feeling that geothermal is a “science experiment” and the risk level to property owners decreases. The other thing he said, is we need to be more specific about who are audience is. I agree, in the northeast, lets just focus on new construction and oil retrofits. If we just focus on this, our industry will grow by 100%.

Q: Josh compared geothermal to the milk industry, where they created a “got milk” campaign and the whole industry grew. We should do the same in geothermal instead of fight brand vs brand.

•  There is consumer awareness and industry awareness. Consumer awareness will raise the number of inquiries that will happen. Until we get more inbound inquiries from consumers or building owners, we won’t have enough opportunities. We’re relying on a handful of companies that love the technology to push the whole industry.

Q: This is something the solar PV has done really well. They’ve figured out there messaging that solar is cheap and simple, even though it really neither. I’m not bashing them, kudos to them for simplifying and coordinating their message and they weren’t always this organized. 5 years ago they weren’t. So, I wonder if we can figure out the same thing for geothermal, how do we make our message simple, clear and tell it to the right people?

•  Solar has two advantages. First, it just makes sense to people, which geothermal does not. Second, it’s visible. They also have a real cohesive industry presence and we don’t have that in geothermal. We’re getting their, but we need to accelerate it.

Q: I agree. I wonder if it’s possible to standardize geothermal and make it like residential solar PV, McDonalds, or JiffyLube. Do you think this is possible?

•  I think we can get to a semi-standardized level for residential projects but that will also be regionalized. We’ll always need to give a range based on geography because there are too many variables.

Q: I think that’s fine. You have the same thing with solar, there’s national and geographic averages, but there is at least a benchmark.

•  One thing to look at is the Canadian Geothermal Exchange Organization that came out with a report about pricing and came up with great benchmarks. They have better data then we do to work with.
• That is where we need to get to, we need to be able to look at installed costs and understand them, and then compared them vs other alternatives.  We need to be able to say “installed cost per ton = $X,000”
• We compare our system vs traditional geothermal, but we find it harder to  compare Kelix versus all the other optionsby region, technology and fuel source.

 If you have an amazing product, tell me about it. 

This is the first in a series of posts we’ll publish on the basics of designing and installing residential solar PV systems. The goal of the series will be to get the basics covered. If you’re an experienced installer, none of this information will be new to you. If you’re brand new to solar, it will be helpful. But keep in mind, we’ll be skimming the surface. Please leave any and all questions in the comments section and I’ll address them.

Here is what the series of posts will be cover:

1. Basic Terms. This is today’s post
2. Sizing the array based on the customer needs and the site
3. Selecting the inverter, string sizing, and sizing conductors
4. Roof mounting and structural
5. Micro-inverters vs central
6. Special tools needed for new installers

We’re going to begin with the basic terms. This is very important for design because you need to understand the concepts before you start applying real numbers to a design. It will also help with sales because it will help you explain some basic terms to curious customers.

Power

Power is an AMOUNT of energy. It’s the measurement of energy, measured in kilowatts (kW). Power is measured in an instant. Most of the sizing done in solar PV design; conductors, inverters, fuses, the size of the solar rates is based on how much power will be passing through a specific component of the system. Because power is measured in an instant, it can vary widely over time and from minute to minute.

Power (watts) = current (Amps) X voltage (volts)

Energy

Energy is the is the actual work done by power. It is measure in kilowatt-hours (kWh). Consumers pay for kWh. It’s a measure of power over time.

Power (kW) X Time (hours) = Energy (kWh)

Current

Electricity is the flow of negatively charged electrons. The current is the amount of negatively charged electrons in a specific part of a circuit.

Many people find it useful to use a water analogy when discussing electrical terms. In the water example, it’s useful to think of a dam with a pipe at the bottom that water can flow out of.  The amount of water that can pass through a slice of the pipe, in other words the area of the cross section of the pipe, is analogous to electric current.

Voltage

Voltage is a measure of the ‘force’ or ‘pressure’ of the electric current in a circuit. It’s measured in volts.  Electrons of the same material WANT to be homogeneous, i.e. they want to be evenly spread out. Thus, if one area has less electrons then another, the electrons will move in an attempt to equalize. This flow is what created a voltage potential and causes electrons to move.

To use the water example with a dam. If the size of the pipe at the bottom of a dam is a measure of current, the height of the dam is a measure of voltage. The higher the water is one on side of the dam versus the other, the more pressure there is.

Resistance

Electrical Resistance is the resistance of the flow of electricity through a conductor. It does not reduce the current flow of electrons (how many electrons there are in the circuit) but it does reduce the voltage (how fast they’re going, remember the dam example). It is measured in ohms.

Voltage Drop (volts) = Current (amps) X Resistance (ohms)

Series Circuit

A series circuit is when one negative and positive of each power source or appliance, are connected together.

Remember, CURRENT is constant and Voltage ADDS in series circuits.

Parallel Circuit

In a parallel circuit, all of the positives are connected together and the negative are connected together, each separate.

In parallel circuits, CURRENT ADDS and voltage stays constant.

AC Current

AC refers to alternating current. It refers to electrical systems where the voltage and current are constantly changing between positive and negative. A complete “cycle” is completed when when the current reaches returns to either the peak, or trough of the wave. Frequency is measured in Hertz (Hz) and is measured in number of cycles per second. The power in the US is operated at 60 Hz.

DC Current

DC means direct current. DC is the type of electricity where the voltage and current stay constant over time. Typical DC applications are batteries, solar modules, and wind turbines.

Calculating and Correcting Solar Resource

Irradiance

Irradiance is the amount of solar radiation falling on a particular area at any given time. It is a RATE. It’s a measure of POWER, in that it’s an instantaneous term that does not consider time. Remember the difference between power and energy.

It is measured in watts per square meter.

Irradiation

Irradiation is a measure of solar energy, the amount of irradiance that falls on a location over time.

Irradiation is measured in kWh / square meter / day.

Irradiation was formerly called insolation.

Solar Energy in the US 

The below pictures shows that amount of solar irradiation that falls on the various surfaces across the US depending on average local weather circumstances.

Horizontal Tilt

The tilt angle from the sun is the angle from the horizon to the sun. Solar PV modules will produce the most energy when the sun is shining directly onto them, from a 90 degree angle. Thus, all else equal, for fixed PV modules the best tilt angle will be the same as the latitude of the site. For example, if the PV site is at 44 N, the best tilt will be 44 degrees. However, most roofs and and commercial racking are not at 44 degrees, so you must apply correction factors for projects that are not at perfect tilts. We will discuss this in a later article.

Azimuth

The azimuth is the number of degrees from true south that the sun, or another object, is facing. It’s used when designing a solar PV system because due south will provide the best production, all else equal, over the course of a year. We’re not going to get into tracking systems in this series so all of our arrays will be fixed. However, if the object is not directly south, you will need to apply correction factors that we will get to in later articles.

Magnetic Declination

Keep in mind that if you’re doing site visits with a magnetic compass you will need to correct your magnetic readings to find truth south. The process is simple.

Determine your declination by look at diagram like the one below and determining your location.

If you’re location has a eastern declination, you’ll need to add the numbers to reading. If from the west, subtract.

EAST Subtract. If you’re compass reading was 190 degrees and you lived in San Francisco, about 17 degrees east, you would need to subtract 17 degrees to find true south. You’re TRUE SOUTH reading is  173 degrees.

WEST Ad. If you live in Belfast, Maine (about 19 degrees west) and your compass reading was 165 degrees, you would need to subtract 19 degrees to get TRUE SOUTH of 184 degrees.

Solar Module Terms: The below terms are terms you will need to understand when sizing your system.

Voc: Volts open circuit is the maximum voltage a solar module can ever make when it has no load on it. Voc is used when sizing solar arrays along with temperature coefficients to determine worst case voltage scenarios.

Vmp: Volts maximum power is the reading of the maximum volts a module can produce when under load under standing testing condition, STC, irradiance levels (1000 W / M2) . If you look at the below curve, the Vmp would be somewhere in curve on the right in the bend. It will be on the place in the curve the creates the most power (volts times amps). The number is actually rather to difficult to calculate exactly and can change rapidly from second to second as the current changes.

Isc: Amps short circuits it the maximum amount of amps that a solar module could produce. You will find Isc on the x axis of the above graph where there is no voltage and thus no power being produced.

Imp: Amps max power, like volts max power, is the current point on the power curve when the module is producing maximum power.

You’ll find the above material on the back of every individual solar PV module and it is standard information that manufacturers and distributors will tell about their product. Below is a product description for two Sharp modules from AEE Solar. All the data is public and available on AEE’s website.

Temperature and Voltage: It’s important to understand the relationship between temperature and voltage in solar modules for design purposes. While temperature does have a slight impact on current, it’s considered to be negligible. However, temperature has a large impact on voltage. When you are determining the maximum number of solar modules in a string, based on the inverters acceptable voltage window, you will need to take into account expected lowest temperature ranges that can increase voltage.

Irradiance and Current: 

Irradiance and current also have a direct relationship. The amount of irradiance falling on a solar PV module will directly impact the current that module is producing. This is key for understand when performing designs, and troubleshooting systems.

This is it for basics. The next post will be on sizing the array based on the customers needs.

Please let me know if you have any questions or if I was unclear about any of these terms.

This is the last interview in the 5 part series we did with BrightGrid Renewable Energy Finance on residential solar leases and it’s one of the best. We focused most of the interview on specifics of what solar sales and marketing professionals need to do to increase revenue.

Sign up for the full free course here: How to Use Solar Leases to Grow Your Business

The premise of the interviews and the free course is simple. Solar leases are becoming  a standard in the solar industry so we wanted to provide detailed information about how they work and how solar companies can use them best.

I spoke with Bret O’Neal, who is a channel manager at BrightGrid. Bret works with all of BrightGrid’s installers on selling residential solar leases. Bret has great insight and pragmatic advice for contractors on how to best sell a lease, what new solar contractors need to focus on, and the difference between cash and lease customers.

Watch the full interview here: 

We spoke for 18 minutes, and here is what we talked about:

Question: What are the top 3 characteristics that make lease customers different from cash customers?

• 1 – The largest is that lease customers are the majority of the market and that cash customers are a small percentage of the market.
• 2 – The next difference is that the lease customer is more motivated by simplicity and convenience. A cash customer is more focused on the specifics about the technology and their financial return.
• 3 – Finally, the lease customers are primarily driven by money and not the environment.

Q: When you’re dealing with managing the sales team, what would you say is really important for a residential installer to understand about the difference between lease and cash sales? How does the difference impact their day-to-day operations?

• Selling cash projects is a different sales process all together
• The details of the cash sales will be more on the specifics, both in technology and finance.
• Selling a lease requires a sales person to really dumb it down and keep it simple and stupid. Going into details will only complicate the sale.
• All the lease customer wants to know is how much it will save them every month and what will their obligations will be.

Q: You were saying a weak area you notice is pre-qualification in the sales process of solar installers. What is your advice on best practices for solar installers? What do they NEED to ask to be able to determine the difference between a lease and cash customer?

• First and foremost is that they need to be asking a lot of questions before going to a site visit.
• The first thing is you want to know exactly what the client is looking for in their solar project.
• Another great question to ask if “have you ever looked into solar before”. It will give you an idea of what the competitive landscape will look like, and how you prepare your sales proposal.
• You should analyze the system from satellite before-hand so you have an idea of how you’re going to design the system. I see more installers doing this, but not all of them.
• Another important item is getting the “yes” condition. It’s something that is hard to object to, but will get them starting to think about buying.
• Also following up after the 1st call with an email. This still doesn’t happen 100% of the time and with a lease they’ll need a credit requirement.

Q: Have you noticed a lack of asking the most basic questions before the site visit? What is their budget, timeline, new construction vs retrofit, how concerned are they with maintenance. All of these will impact a lease vs cash customer. Are these being asked before the site visit or during the site?

• I’m glad you ask about this. I call this “BANT”. Budget, Authority, Need and Timeline. You need to establish this BEFORE the site visit.

Q: I’d let to take a step further on this. You have to have a good pre-qualification process and system so that you are seeing QUALITY of leads, turning them into sales and YOU KNOW what a quality leads looks like and where they’re coming from.  But what are you seeing for best practices on a site visit? I’ve heard of companies making 2 or 3 site visits and that seems crazy. It’s a waste of time and money. Should a company’s goal be to make 1 site visit and close 50% of the time?

• It’s tough. I think the goal should be to close on the 1st site visit. Sometimes it will take a followup call but it should not take a 2nd site visit.
• If you’re making a 2nd site visit, you’re not collecting enough information, or you don’t have a good enough process in the pre-qualification or 1st site visit to gather the information you need.

Q: We’ve talked about this in other interviews in the series, what do you notice is the difference between selling  ‘early adopter’ and ‘mass market’ customers? Where do you think we are in the process? Clearly it’s moving towards mass market, but where are we right now?

• We’re still in the early adopter phase. If we focus on states that are strong with solar, we’re likely passed the ‘innovator stage’ and into the ‘early adopter’. I think we’re a year or two out before we hit the mass market and before we do this, we’re really going to want to simplify the process even more.
• The market will also need consolidate and standardize.
• If you get a proposal from 5 different companies they will all look the same in the future.

Q: Continuing on that trend, penetrating the mass market, have you noticed leasing is gaining more traction with different customer segments (new construction, retrofits, etc) or does it largely depend on local conditions?

• Incentives play a huge part
• New construction is surely an emerging market. Despite the economic crash, people are still buying new homes and want solar. They’d like it to be already integrated into their home.
• That being said, retrofits are still the majority of the solar market and will continue to be so, because the stock is just so large.

Q: The last question is simply, when you’re talking with solar installers, do you tend to notice that there is rule of thumb for installers that are better suited for a solar lease or does it just depend on how dedicated the company is to pushing a lease?

• The companies that can offer a suite of solutions will have an advantage versus just a solar installer. Many homes will need a new roof or electrical service before solar. If a company can do this work in addition to solar, they will be making more money from each project.
• All that said, it’s important that every installer employ a strong sales force to make the sales. This sounds simple, but it’s not. Roofers, engineers, general contractors are not sales people by nature so they need to hire a sales force if they’re really serious about solar.

We’ve decided to provide a regular update with SRECTrade on the status and the development of the SREC markets. We’ll discuss policy updates, events that are impacting the supply and demand of existing markets, and expectations for upcoming markets. For example, last week Maryland changed their RPS requirements.

SRECs are extremely important in specific markets because they impact a contractor’s or developer’s ability to sell projects. However, they are changing rapidly and sometimes it’s difficult to get clear answers.

For this update, I spoke with Steven Eisenberg who is the VP of Business Development with SRECTrade. He manages the relationships between all the buyers of SRECs and the sellers of projects that are larger then 250kW. Because he is at the intersection of clients that are buying and those that are selling SRECs, he has great insights into the dynamics of the SREC market.

(Please note: The interview was filmed on Friday, March 30th and some SREC policies have changed since filming)

Here is the full agenda of what we talked about: 

Question: What is happening in each market regarding legislation that will impact SREC prices, supply and demand, in the next couple months?

• NJ: Coming from 2011 and prior periods there was an under-supply leading to high prices and this lead to a huge build up and now the market is oversupplied. The market has hit a point that through February 2012, 689MW of capacity can is eligible for SRECS .40MW was installed in February 2012.
• There is huge oversupply. NJ state only needs 370MW operational throughout the 2012 compliance year to supply the needed SRECs required by the RPS. The requirement for 2013 and 2014 is LESS THAN what has been installed through February 2012.
• There have been a variety of different policy groups looking to increase the RPS requirements to take up some of that supply, but it is uncertain this will happen in the near term.
• In our March NJ spot auction, SRECs were traded at $145 per MWh and traded at $135 per MWh in the April auciton. Other transactions have since traded below the $135 level.
• Without any legislative change, NJ will be oversupplied for the next few compliance periods.

Question: In some ways, is this news good for the NJ industry? It will drive out unprofitable solar EPC companies?

• Answer: Surely the most competitive financiers, developers, EPC contractors, and customers with high energy costs will be in the best position.
• The decline in equipment cost is also really helping.
• Projects now need to be really competitive to pencil out.

Question: What have you noticed tends to be the characteristics of the BEST projects that are still working out?

• Answer: Projects that are easily interconnected tend to really help
• A healthy PPA rate and low installed costs always help
• Also, if the project incorporates a corporate entity that has a strong balance sheet with a good banking relationship it will make the financing cheaper and more accessible.

Questions: Is there any talk in NJ of putting a floor on the market like in Mass? Also, do you think the same thing is going to happen in MA, a huge supply increase due to high SREC prices and how cheap it is to set up sales offices?

• Answer: There was some legislation being considered in NJ around a floor price. It didn’t make it that far in the legislative process and thus a lot of the focus was on increasing the RPS to handle over-supply.
• Regarding Mass potentially seeing an over-supply, it’s surely possible given the fact that Pennsylvania and NJ are oversupplied so a lot of companies are moving north.
• The issue around Mass is that we haven’t seen a clearinghouse yet. The market is still under-supplied in 2011. It looks like the market is very attractive which is fueling growth and the market can still also be volatile because it’s so small and in some instances may be easy to meet the requirements in the earlier stages as the market sees increases in growth and larger projects coming online.
• We performed a Mass analysis for the 2012 period. At the end of 2011, there was 48MW installed capacity. We did some analysis for different scenarios given historic build rates and what happens to the market if it stays constant, decreases or increases.
• Over the past 12 periods, on average, 4MW were installed per month. If you keep this build rate constant the market will eventually become slightly over-supplied. 
• There are a few issues in Mass, especially around interconnection. Projects over 1MW are taking longer to receive interconnection approval then expected, which is could impact SREC supply.
• However, there has been a fair amount of development interest in the middle scale built environment. You don’t need many hundred kW systems to hit the 4MW/month target. This was also a very popular category in NJ throughout the 2011 and current compliance periods.

Question: How easily can you predict the projects that are coming online? What is your ability to predict the installed capacity that is going to be commissioned?

• A: You can track multi-MW projects through an interconnection project list available on the DOERs site. But it’s hard to tell exactly where the projects are at in the development cycle.
• The lack of liquidity in the forward contract MA market may also have an impact on development.

Question: What are you seeing happening in the rest of the markets around the mid-atlantic?

• PA is substantially over-supplied. House Bill 1580 is still going through the house. It’s goal is to increase the RPS requirement for 2013 – 2015 and then continue with the existing requirements.
• Projects are still getting put online in PA.Recent SREC prices, depending on vintage, have ranged from $10 to$30/MWh.
• In Washington DC, in the fall of 2011 the DG amendment act was passed, which requires all systems installed to be sited in the District to be eligible for SRECs moving forward. 
• As a result, the price in DC is increasing. Geographically, and due to the nature of the market in DC, a lot of the projects will be smaller in size.
• In addition to PV, solar thermal system can also apply for SRECs in DC.

Question: What are the reporting requirements for SHW systems in DC? Is it based on actual production or estimate production?

• Type of meter that is needed depends on the capacity size of the solar thermal system. 
• Maryland allows for solar thermal systems to apply for SRECs
• In Maryland, there is also legislation to pull forward the RPS requirements. 
• There are a few large projects coming online in MD; 20MW and 17.4MW.
• These large projects will have a substantial impact on the market due to the current SREC requirements.

Question: Lastly, what is your outlook on other states creating SREC programs? Other then Illinois, do you see other states looking to increase programs?

• Yes. Right now, we see that CT is the state most likely to come online soon. It will be implemented through an RFP through the regulated utilities, Connecticut Power and Light and United Illuminating.
• In the first solicitation, $8 million will be set aside for 15 year REC contracts for projects that are less than 1 MW in size.
• Currently, structured under 3 size tiers: 1) 0-100kW, 2) 100kW-250kW, 3) 250kW – 1 MW. Depending on REC pricing, it is estimated the first solicitation will accept 30-40 MW of capacity.

This map of geothermal installations and testimonials on geothermalgenius.org. It’s one of the coolest things I’ve ever seen. It’s certainly the first time I’ve seen something like this for the geothermal industry and it’s something we need to be doing more of. Why? It adds VISIBILITY to a technology that is otherwise hidden.

I wanted to speak with the folks that created this map so I reached out. Josh Kresge followed up with me and said they started the site with an epiphany that most in the geothermal industry tend to have, which was “this technology is so amazing, why doesn’t everyone have it”

They quickly realized that the main issues in the industry is customer awareness so their solution was creative marketing to bring awareness and introduce geothermal to the masses. Their goal is to make geothermal simple, and to show the public the technology works, and it’s not a science experiment.

Full Agenda

Question: Whats the quick pitch for geothermal genius.org?

• Answer:
• We don’t claim to be the genius on geothermal, but the concept is that geothermal itself is genius.
• We’re a public awareness group and we’re working on introducing 1,000,000 people to geothermal every year and doing that through creative marketing
• We’re able to take a small marketing budget and reach a large number of people
• We see our main objective is to increase public awareness.

Q: It’s interesting you note that public awareness if a major issue because I’m beginning to feel like this IS the issue and that technical competence is not holding us back anymore. Also, I like your 1 million mark because it gets the industry to start thinking larger. We know it’s an amazing technology, why are we still going after small potatoes? From your work, what do you think is the main thing the industry needs to do to start selling huge projects and getting our messaging correct?

• Answer:
• The industry as a whole has not been able to come together and unite around the public awareness issue.
• Everyone is doing their own marketing in their own local areas
• I gave a talk at IGSHPA and compared geothermal to the milk industry with the “got milk” campaign where the milk industry created a consortium to make the campaign happen. The message was milk vs the rest of the drinks.
• I see the geothermal industry facing the same issue. It is geothermal VS the rest of the heating and cooling methods.
• Right now, the issue is being attached by geothermal brand vs geothermal brand.
• We’re less then 1% market share, we don’t need to be competing against each other but instead simply introducing geothermal and the concept to everyone.
• We have been able to reach 1 million people, with no market budget so it’s possible.
• There should be a united effort and this will make a larger impact.

• Answer:
• Ideally, you’d be able to walk down the street and be able to ask someone what geothermal was and they would be able to tell you
• It would be a re-branding of geothermal as the ‘smartest way to heat and cool a home’ especially for new construction, especially in the northeast.
• In the northeast every new home should be considering geothermal.
• As far as a national marketing campaign, at least something so that when people are looking for AC repairs, that should be when they get introduced to geothermal. They key is to focus on people who are spending a lot of money, building new construction or already replacing equipment.

Q: What I like about your point is that we should be really specific about marketing. The geothermal industry shouldn’t try and be everything to everybody but focus on two things 1 – new construction and 2 – oil retrofits. The industry will grow HUGE is we dominate both of these markets.

Also, in terms of internet marketing, finding people and search terms for specific terms is much easier for specific terms then broad terms.

• A: I agree, I think having consistent messaging, clear terms, simplicity and quick sales cycle will have a huge impact.

Q: With that being said, you’ve been running the site since 2008. What are the major learning points you’ve had? What are the customers most curious about? Hesitant about? Has this changed since you started the site?

• Answer:
• The questions have not changed. The questions is one, or was one, that we don’t see company. “Can I do geothermal in this part of the country”, “I don’t know if I have a hot spring here.”
• We try to make it very simple. We can use geothermal in any part of the country, we’re moving heating from the ground into your home.
• They expect that it’s still an unknown technology, and it’s still a science experiment. This makes sales difficult because they think they need to make a leap of faith.
• When I tell them and show them how many systems have been installed around them, it puts them at ease. This is what the map is for.
• This is the solar vs geothermal awareness issue. Solar has the benefit of being visible, geothermal needs to find a way to be visible.
• My parents converted to geothermal from propane. Now everyone on our block has it. The people that didn’t believe it switched 3 years later when my parents showed them the reduced heating costs.
• The fact that people are paying thousands for fossil fuels doesn’t make any sense.

Q: You mentioned the switch in people’s mind when they realized how many systems are already installed. This is why I loved the map. Can you share the story of the map a little more? How successful has it been? Has it helped contractors closed projects?

• So the map is under geothermal 101
• We had contractors who wanted a better way to post testimonials.
• Also customers were asking us questions about who was using geothermal and they didn’t believe there were 10 systems on their block, so we needed a way to show it.
• Our contractors now use this as a sales tool to show people how many systems are around them. It’s a tool that helps them close projects.
• We want to show people that it is out there. We have a few hundred systems as of right now and the goal is to increase that number to show that geothermal is a solution and it’s not an experiment.
• We encourage any geothermal customer to enter our “free heat below your feet competition”. You give a testimonial about your system on our map and enter to winter free heat for the winter.

This is a great thought experiment. Can we make solar PV so simple and cheap that we’ll no longer need residential solar financing? Jigar Shah thinks so. Shouldn’t the goal of the PV industry be to NOT need financing? Or, are there technology constraints that will make financing always needed? Like for automobile market. This is a thought that came up in a recent conversation I had with Barry Cinnamon, the CEO of Westinghouse Solar.

Last April, I wrote a post titled “Will Home Depot Kill the Residential Solar Market?” that was first published in cleantechies and then picked up by Reuters. Home Depots goal was to use their massive supply chain bring solar to the masses and reduce installed costs. The article unpacked some fears that solar professionals were having about big box stores entering the solar supply chain and if that would have a large impact on the solar market. The article dug into industry specifics around pricing, permitting, incentives, and comparisons to other trades to determine if contractors would favor the move and also discussed the implications of major brands backing solar. I published the post a little less then 11 months ago and since then all my assumptions have been correct. I havent’ spoke to a single contractors that does business directly with Home Depot to supply their equipment. I think the reason is simple, the technology requires support. It’s still too complicated and a large majority of companies are not comfortable enough with it to buy it from a big box store when no technical support.

Last week, Barry Cinnamon from Westinghouse Solar reached out to me bring up the article and say he felt the reason Home Depot has not helped the solar industry much. I responded to Barry for 3 reasons. First, he wasn’t a PR person. Sorry PR friends Second, he brought up a good point, the solar being sold through Home Depot was too complicated. Third, it was too expensive. So, I decided to do an interview with Barry to get his perspective about technology and business model innovations within solar that are using common sense to make solar cheaper and easier.

Here are the highlights from our discussion. 

• After talking with Barry about their continued efforts to simplify solar, I realized an interesting point. Isn’t the goal of the solar PV industry to be to not NEED solar financiers? Like Solyndra. Reduce the costs of solar so much that most homeowners will not need financing.
• Westinghouse’s best customers are completely new to solar. They’ll never need to learn string sizing, temperature coefficients, and residential solar will become extremely simple.
• Barry said that AC modules are seeing a 50% direct labor reduction compared to industry norms. They’re seeing around 6 to 7 man hours per kW on residential installations compared with the industry average 10 to 11 hours per kW

Here is the full agenda. 

Question: What is the story of your product?

Answer: We’re extremely interested in our new product which is fundamentally an easy to install solar panel.

The genesis of the idea came from us doing solar installation work back in 2011. There were just too many parts and it was a huge pain. We just imaged a future where all of these parts would be built into the module itself. In 2004, we went to the module manufacturers and asked if they could built it. They said no, we just make modules so we decided to do it ourselves.

We released the first Andalay product it was integrated wiring, racking, and grounding but we didn’t have the inverters. In 2009, we offered the product with a micro-inverter and started sell it when Lowe’s approached us. At around the same time, Westinghouse approached us and we decided to change the name. We really worked with Lowe’s to simplify the product. They key innovation is simplicity both in how the product is and how it’s purchased.

Question: What is the typical costs you’re seeing on a standard 5kW system?

Answer: You can go to the Lowe’s website and depend on where you are in the country, you can buy 20 at a time (about 4.7kW) and you can buy them for between $2.60/watt and $2.75/watt. That price is delivered with the panels and on top of that you just need to add labor and profit. The DIYers will only need a role of romex and a circuit breaker with a building permit. If you hire an installers, they’ll typically charge you between $.50 and $1.00 per watt for labor.

Question: What are you seeing for reductions in man hours on the installations. I typically here 15 hours per kW and I’ve personally seen 6 man hours per kW with a 4 man hours installing a 10kW system. What are you seeing?

An NREL report just came out where they studied the installed costs and the breakdown of those costs. I looked at it this morning and in 2010 they said the average time to install a residential system was about 66 hours. So, figure 11 hours per kW. We’re routinely seeing times that are half of that are there are three drivers to labor reduction for our customers.

1. Less mechanical labor on the roof.

2. You don’t need to mess with the writing and the inverters at all.

3. The third is subtle, but there is a reduction in overhead because you don’t need to supply chain and logistic costs.

Question: I’m always on the hunt for new products but very skeptical at the same time. Crews are just starting to get trained and feel confident with the existing technology. So, either the technology needs to be AMAZING and be exponentially better then another product OR the transaction cost of switching needs to be low. Where do you fit on this spectrum are you seeing a learning curve with companies who are using your product?

Answer: We’re seeing some installers that are re-training with our product.

However, far and away the most interest we’re seeing is coming from brand new installers across the US, whether it be dedicated solar installers or general contractors (roofers, electricians, HVAC). They like the fact that they dont’ need to know temperature coefficients, string sizing or deal with racking. There will always be dedicated hardcore installers who are using the old system, but most will go with the simpler version.

Question: You bring up an interesting point in the last question about dedicated solar installers vs electricians, roofers, and general contractors that only instal solar sometimes. What are your thoughts on this dynamic in the industry in general and as it relates with your product?

Answer: We’ve had direct experience with this as an installer and now as a manufacturer.

We’ve noticed that general contractors have 2 distinct advantages over solar installers. First, they have a book of customers so their customer acquisitions costs are lower. Second, they operate their business with a much lower overhead. One reason why they can be more efficient is they can be busy in bad weather.

Question: Clearly labor, and the soft costs like customer acquisitions costs are becoming a large propertion of installed costs as hard costs are dropping. What are your thoughts about roofers cross selling solar shingles a-la One Roof Energy? Are solar shingles going to catch on or will they only be a niche?

Answer: Solar shingles have been around for-ever and I’ve used a bunch, I think it’s going to be a new construction only project.

Question: We’re talking about dropping residential installed cost. When will we no longer need residential financiers? If the installed costs gets really low, what’s the point of financing? 

The demand for financing will likely decrease in states with high energy costs, good rebates and when installed costs get below $3.00/watt.

The financing model might still be effective in places where there are cheap electric rates.

Question: Do you have equal interest in your product for residential and commercial projects?

Answer: We have DC modules for commercial products and an AC module for residential products. We’re by far and away getting the most interest from the residential market because it’s the most competitive and pricing.

Question: That’s interesting. I’d think removing the installation of the grounding, wiring, and inverter installation on commercial projects, at prevailing wage, would make this extremely attractive. 

Answer: I think one of the reasons we’re seeing this is because the largest number of new installers is in the residential market not in commercial. In the commercial market it’s a lot of similar players that have established supplier relationships direct with China and have well trained crews.

Question: Lastly, there’s always been interest in the combination of thermal and PV, like Echofirst. The training needed to install these projects profitably seems to be intense and the profile of the perfect customers seems small. What is your opinion on this type of technology?

Answer: It’s a great concept, it works really well on new construction and gets more expensive on retrofits.

Question: What are you excited about in the next 5 years, pie in the sky, other then a national energy policy?

Answer: First is always national energy policy would be great, but everyone has a different idea about what that would be.

My number 1 goal would be to eliminate the softs costs with solar (permitting, inter-connections) and standarizing this process will reduce installed costs by $.50/watt and make it super easy.

Last week, I was invited to give a short talk to ACCA New England about ground-source heat pumps. My main message to the HVAC contractors in the room was some what contradictory to the standard geothermal message.

Here was my message:

• Everyone should not be selling geothermal projects
• Contractors should minimize the risk and amount of time and energy they put into a new business line until they have some traction.
• The best places to start with geothermal is new construction and oil to geothermal retrofits. I will get to why this is the case in my post on understanding geothermal economics. Read ‘Finance 101 for Renewable Energy Professionals’ here.
• If you have a lot of oil customers and are doing new construction, start there!
• Your number 1 goal should just be to get a few site visits, then work on getting distribution, design and other partners. Download a really simple geothermal site visit checklist form here.

A huge thank you to the other presenters

• Roger Skilling from Skillings and Sons
• Martin Orio from Water Energy Distributors
• Mike Brogan from Earth Energy

A few highlights from the event:

• Martin is seeing water to air systems starting around $6,000 a ton, and for water to water around $8,000 a ton in the Northeast
• Safety can be a large selling point for geothermal. There have been “ONLY” 12 NG explosions in homes in the past 5 years in Massachusetts.
• Roger Skillings is doing between 140 feet to 180 per ton in the northeast for closed loop
• Mike shared a 10,000 sq foot home with geothermal that spent under $2,000 for heating and cooling for the entire year, a 60% savings in heating from a conventional system

Illinois is in the midst of a battle with their utilities to get retail-to-retail net metering for solar projects up to 2MW and to make necessary adjustments to the RPS.  If you’re interested in the success of the solar market in Illinois, you need to get involved. Last year, their legislature passed both net metering changes and a distributed generation renewable energy carve out that has prompted the hosting of workshops to develop a statewide REC program.

I’m familiar with most of the developments happening in the east coast solar markets, but no so much in the Midwest; so  I decided to speak with Michelle Hickey, Program Coordinator for the Illinois Solar Energy Association.  For a small organization, ISEA has one of the best state solar organization sites I’ve seen.  It has amazing resources regarding policy, net metering, event and education.  If you want to get into solar in Illinois, you should get lost in the ISEA site for a few hours.

Michelle and I spoke about a few things in our 20-minute discussion, see our full agenda and highlights below.

My main goal was to understand what exactly is happening in Illinois from a policy perspective and how solar contractors can get involved to help push for better policy.

Here are the Highlights of our Conversation

• In Illinois, ISEA is the only game in town and they’re organizing everyone’s efforts to focus on policy. Learn about ISEA membership and join here. 
• Solar Drinks is an event ISEA holds and is the best ways to meet people in the solar industry in Illinois.
• The industry is holding a public workshop to determine how the SREC program should be created and managed on April 2nd. Get information on that event here. You must RSVP.
• ISEA’s current policy push is to get net-metering retail-to-retail rates pushed up to 2MW for all electric customers and sites in the state
• The industry is growing despite this turmoil. Major installers are hiring and the existing solar rebate money is being used quickly.

Here’s the full agenda of the questions I asked and the topic we discussed, in chronological order

• The Illinois solar market is growing and major installers are hiring
• The solar industry in Illinois is getting stronger and we have a seat at the table with policymakers. Our voice is being heard but we can always use more support.
• The main way that ISEA involves new members is through their Solar Drinks event. It is where they educate and get their members involved in policy to organize everyones efforts
• Question: If a solar installer or construction company is located in Illinois and wants to get involved, what is the best way for them to involved?
• Answer: Join ISEA, we’re the only game in town! Also, come to our solar drinks event. They’re bi-monthly and the best way to meet and get in touch with people in the solar industry in Illinois.
• Q: You were mentioning that now that the solar industry is organized in Illinois and are pushing for policy improvements, what specific policies are you pushing for?
• A: Last year, we pushed hard to get net-metering pushed forward and expanded. Before that, we had net-metering but it was only system under 40kW that had retail-to-retail rates. Last year, we pushed for 2MW retail-to-retail and the utilities made some major adjustments. Now, the net-metering rate are determine by customer class. Currently, the only customers eligilbe for retail-to-retail are residential customers and small businesses.
• Question: So, ideally your goal is to have retail to retail rates up to 2MW?
• Question: You also mentioned Illinois is working on getting SRECs in place with a solar carve out. How is all this working out? What is the existing solar carve out?
• A: Last year the ‘smart-grid’ legislation was passed. It had net metering language and a DG solar carve out. The carve out allows us to create a REC program for systems that are 2MW and smaller. 50% of that carve out must come from systems that are 25kW and smaller. Solar thermal is written into the definition, however the definition also clearly states systems must be metered and tied directly to the electric grid. Becuase solar thermal can’t be tied to the electric grid, it can’t apply for RECs, yet.
• Q: Do you think solar thermal will ever be written into the REC program? Is it something you’ll be pushing for in the future?
• A: We’re very interested in having SHW included in the future. However, right now we’re happy with what we can get and that we have something for the PV and wind market.
• Right now, we’re having workshops with energy regulators and the utilities to determine how exactly the REC program will work. The Illinois Power Authority (IPA) is not pre-tending to know what the best solution is for a the REC program and so they want input from the industry on how to create and run the program.
• Currently, we have a REC aggregation program for systems that are 10kW and smaller.
• Q: How much of the development of the SREC program are you taking from other successful SREC markets?
• Q: It seems that in Illinois the bottleneck of the industry seems to be on the policy side, is this correct?
• Answer: Yes it is but it’s all happening right now. Also, even with all this turmoil, growth is still happening. We have a rebate program is was closed within one day.

Lastly, HeatSpring is hosting a solar training in Illinois in partnership with ISEA. Learn more about our Illinois solar training.

The reason financial metrics are important is that all of these technologies are financial investments.  Thus, you must be able to communicate the financial value of the system to the client and ‘payback period’ does not do this. I repeat, don’t use ‘payback period’, and we’ll talk about why later.

The key to understanding financial analysis is a small contradiction. The actual financial calculations are not difficult ONCE YOU HAVE ALL THE NUMBERS. The challenging aspect of financial analysis is that many of the numbers the model depends on are assumptions and projections, things you can’t always nail down. Thus, it’s important to perform sensitivity analysis to see how a few critical variables will impact a project’s returns.

Another challenge is communicating exactly what these numbers mean to a consumer, so they understand it. In order to do this, you need to understand what each term represents and how to explain it in plain language.

I’ve noticed that the information and educational resources on basic financial analysis for the renewable energy industry is lacking. While many PV installers can derate conductors easily, they may not know what the NPV of an array is.  Most geothermal contractors can size of a heat pump, but few know that the typical IRR of a system is when it’s replacing an oil boiler. We need to change this.

The Goal of the Renewable Energy Financing 101 Series

My goal is to create a series that will be a resource for renewable energy contractors to learn financial analysis and how to apply it to each technology. The series will have four parts:

• First, we will start with understanding the most basic financial terms. There are thousands of articles written about finance. So, I’m going to keep it short and only apply terms that most often apply to renewable energy projects.
• Second, I’m going to perform financial analysis on 3 sample geothermal heat pump projects. It will cover many common situations installers will find themselves in when selling geothermal projects. One of the projects will be commercial so I can walk through how to calculate tax credits based on the EPA Act of 2005.
• Third, I’m going to perform financial analysis on 3 sample solar hot water projects, each in slightly different but normal situations.
• Fourth, I’m going to perform a financial analysis on 3 sample solar PV projects. One of the projects will be a commercial project so I’ll perform a walkthrough of how to calculate MACRS.

Let’s Start With the Basic Terms

Below are the basic financial terms you will need to understand to perform financial analysis on any renewable energy project. I’m simply going to discuss what each variable is and how to calculate it, with an example from excel. At the bottom of the article you’ll be able to download the excel file, so you can play with it yourself.

It’s critical to remember that the variables that impact these metrics will change based upon technology and incentives, but the underlying cash flows that create the financial returns will remain the same. NPV is NPV.

Here are the terms will will discuss

1. Net Present Value (NPV)
2. Present Value
3. Future Value
4. Discount Rate
5. Internal Rate of Return (IRR)
6. Sensitivity Analysis

Net Present Value (NPV)

NPV is the most recognized metric used to analyze capital projects. NPV takes every known cash flow in a period, negative and positive, and discounts back to today to see if the project is profitable or not.  If a profit has a negative NPV, it should not be completed. If it’s zero, it doesn’t matter if a project is completed or not, from a pure financial perspective. If it’s positive, all else equal, it means the project should be completed.

Unlike ‘payback period’, NPV provides a specific dollar amount that you can use to determine if a project is profitable or not. HOWEVER, NPV analysis can vary widely because it is extremely dependent on the discount rate used. On residential sales in particular, an acceptable discount rate can change greatly depending on the customer.

The analysis can also vary widely due to the confidence one has in the financial assumptions used to create the model. It is key to perform a sensitivity analysis when performing NPV analysis because most times the cash values being used are projections and it cannot be said with 100% confidence the numbers will be exact.

The equation to calculate NPV is to add together the present values of each cash flow for each period for a project. Here is the formula to calculate present value for a single period.

Present Value = Net Cash Flow / (1 + i)^t

i = discount rate

t = time period.

**Note, I’m using “^” meaning to the power of X, or in replacement of a supercript because our publishing software does not allow superscript. This is also the same script that excel will use if you want to raise a integer to a power of X**

If we had 5 periods, we could calculate the present value for each period, then add those numbers together.

What is the net present value of $500 investment, with 5 unequal cash flows, 50, 200, 200, 300, and 300 at a 5% discount rate?

Figure 1: Adding together the present values of 5 future cash flows to determine NPV

A few notes.

The cell in C13 is simply summing the values of C6:C11. Each of the values in C6:C11 is calculating the present value of a single cash flow. Notice how $200 in 2 years, is worth more then $200 in year 3? This is because it’s getting discounted by 5% every year.

Present Value (PV):

Present value is the present value, today, of a future cash amount discounted back to today. Net present value is thus, a series of cash flows all discounted back to today’s terms. For example, what is $50 worth today? It’s worth $50. However, if you wanted to find out what $100 in 5 years would be worth today at a 5% interest rate, you’d need to calculate the present value. Here is the equation.

The equation to find present value of a future cash flow is:

PV = FV / (1 + i) ^ n

i = interest rate

n = number of period.

So, what is the present value of $100 payment in 5 years at a discount rate of 5%

PV = $100 / (1 + .05) ^ 5

PV = $100 / 1.28

PV = $78.15

This means that is someone gave you $100 in 5 years, and you have a bank account with a yield of 5%, it would have been the same value of money if they would have given you $78.15 today and you put the money into the bank for 5 years.

Future Value: (FV)

The future value is asking what the future value is of a present day cash amount, given it is accumulating at a specific interest rate. The best way of describing future value is a typical savings accounts.

If you put $50 dollars into a savings account with a 5% interest rate and take it out in 10 years, how much will it be worth?

The equation to calculate future value is

FV = PV (1+i)^n.

FV = the value of a future cash flow today, given x % interest rate.

PV = the present value of the investment

i = the interest rate of the investment

n = number of periods of the investment

FV = $50 (1+.05) ^ 10

(1.05)^10 = 1.63

$50 * 1.63 = $81.44

In other words, $50 today at 5% interest is EQUAL TO be given $81.44 in 10 years

How about a 10% interest rate?

FV = $50 (1 + .10) ^10

FV = $129.69

As you can see, the interest rate used over the term has a huge impact on the value of the investment.

Discount Rate / Interest Rate:

In the calculations of NPV, PV, and FV, you’ve noticed that we’ve been using an interest rate to calculate the value of money in different parts of time. This value is called the discount rate. Sometimes, it’s referred to as the interest rate (for future value), or minimal attractive rate of return (MARR), which we’ll discuss below.

The discount rate can be somewhat confusing to some. There are critical pieces to understand about the discount rate. First, what it does. Second, how you determine it.

In the above examples of calculating PV and FV you noticed I used an interest rate to calculate the value of cash between a certain  period in time and another period in time. So, to define it very simply the discount rate is an interest rate that is the difference between a present value and future value of the same dollar amount. The difference between $100 today and in five years is the discount rate.

How one should select the discount rate is a little more difficult. Many times the discount rate is selected based on a few characteristics. None of these is wrong, it simply depends on the circumstances.

1. A comparable investment or savings rate. If a homeowner could invest the same money in a CD at risk free interest rate of 5.6%, they will likely use 5.6% as a discount rate for other investments. Also, keep in mind that many times a homeowner might add a few percentage points to a different investment that is not risk free to cover the additional risk.
2. The inflation rate. If I had $100 in cash and stuffed it in a safe (a place that is not getting interest), and took it out in 5 years, it would have lower purchasing power. To understand how the purchasing power changes, we would calculate the FV of $100 in 5 years with the discount rate being the expected rate of inflation.
3. Risk tolerance. The more risky the investment, the higher discount rate you’d need to satisfy the level or risk. Having a higher discount rate will decrease the time it takes for you re-coup your investment, given the NPV is still positive. When risk tolerance is being used to determine need returns, it’s sometimes referred to as “Minimum Attractive Rate of Return” (MARR), or the “hurdle rate”.

The thing to remember about discount rate is that while it’s use in the financial analysis is extremely clear, determining what exactly to use as a discount rate is extremely subjective or will vary widely between homeowners.

The impact of a different discount rate can be huge when talking about renewable energy projects because an acceptable discount rate between different homeowners can vary widely. Let’s walk through some examples to demonstrate.

A Sample Solar Hot Water Customer in Greenflield, MA.

• Net Installed Cost After Incentives: $4,000
• Displaced Oil : 130 Gallons with 3 Full Time Occupants
• Value of Displaced Oil @ 3.00 Gallon = $390
• The life of the system will be 20 years.
• Maintenance costs are $200 at year 10.
• All other equipment failures will be paid by the manufacturer

Sally the Solar Hot Water Customer

Let’s say that Sally has a discount rate of 16%. Why? Sally has an outstanding credit card debt of $4,000. Thus, the investment in a SHW system must make money then her credit card payments or she might as well pay of the credit card first.

Notice that at a 16% discount rate, the net present value of the investment is worth        -$1,733. The reason for this is simple, when the interest rate is so high the money quickly looses it’s value. In 9 years, at 16% a $360 dollar savings in today’s dollars is only worth $102.

Now, let’s say we have a customer named Ralph.

Ralph doesn’t have any credit card debt and he has an extra $4,000 on his home equity line of credit. His line of credit has an interest rate of 4.5%. Thus, his discount rate is 4.5% because that is the INTEREST payment he will need to pay. Thus, he needs to make MORE THAN his interest payment for the SHW system to be profitable.

As you can see, Ralph’s net present value is a positive $944 dollars over the twenty year period. This means if Ralph borrows $4,000 a 4.5% FIXED interest rate his will save $944 in today’s dollars over the next 20 years. Basically, it’s free money.

Energy Inflation Rates: Now, I know what a bunch of you are saying, “Chris oil WILL NOT stay at $3.50 a gallon for the next 20 years!” Well, I absolutely agree with you and we’ll discuss this in the sensitivity analysis section.

Internal Rate of Return (IRR):

The internal rate of return is the discount rate that will make a series of nominal cash flows (not discounted to present value) have a NPV of ZERO. When the NPV of an investment is ZERO, it means that making the investment or not making the investment will provide the same return. Thus, many times an investment’s IRR is compared to the actual cost of capital or comparison investment. A good way of thinking about the definition is that the IRR is a special kind of discount rate that makes it easy to compare the impact of various discounts rates on the same investment.

Let’s continue the same example from above with A Very Simple SHW Project. In order to calculate the IRR, we use the “=IRR” function in excel and include all the nominal cash flows from the project.

When we hit select it calculates the IRR at 9%

The IRR has nothing, directly, to do with the calculattion of the NPV or the discount rate. However the cash flows that help to determine IRR, are what we used to calculate NPV.

Notice, how the discount rate in our example from Ralph is 4.5% and our NPV is $1,444. If we change the discount rate to match the IRR, the NPV will get close to zero, not exactly due to rounding.

The IRR is the same, 9%, because it is determined based on the nominal cash flows. The discount rate and NPV are also connected because you need a discount rate to calculate the NPV.

Conclusions About Using IRR

IRR is extremely useful when dealing with homeowners for a few reasons. First, it provides a very clear metric of understanding the investment. Because homeowners have so many different hurdles rates, providing them a clear number is very useful.

So, in our example the IRR is 9%, given the cash flows.

Thus, when comparing Sally and Ralph, the decision is clear.

Sally’s Minimal Acceptable Return is 16%, due to other debts, so it does not make sense for her to invest in the solar project because 16% is more then 9%.

However, because Ralph does not have any debt and he can acquire cash for 4.5%, he just needs to make more money then 4.5%. Because 9% is higher then 4.5%, Ralph is going to make money on this deal.

Sensitivity Analysis: 

Sensitivity analysis is the critical element in financial analysis for renewable energy projects. Why? Because calculating NPV and IRR is very simple. However, the difficulty is assigning a level of confidence to the variables that you are using in your analysis. Most all of the variables are projections so the question becomes what numbers are more concrete then others and what happens if some key numbers are a little, or a lot, higher or lower then expected.

To create a proper sensitivity analysis you need to understand the variables of a renewable energy installation that will impact the installation and how they might change.

Here are they key variables about most renewable energy projects you’ll need to understand. Right now, I’m going to speak about them in general and will address technology specific applications of each, in the technology specific posts.

1. The net initial cost of the system. Gross installed system cost minus grants or rebates.

Calculating this number can get get tricky with commercial solar PV projects due to when MACRS is applied and the value it has. However, for this post, we’re going to stick to our sample problem.

What happens to the IRR of the project when the net installation costs goes from $4000 to $5000?

It decreases from 7.10% to 4.37%

2. Maintence cost of the systems. 

The maintenance costs of the system are show in column B as investments or an expense and impact the net cash flow for a single period.

Large maintenance costs do have the ability to impact returns and it’s why it’s very important to be clear with the homeowner about what is warrantied under a manufacturers equipment warranty, installation warranty and what they will need to pay themselves.

3. The System Lifetime. 

The system lifetime actually has a huge impact on the expected IRR’s of a project.

It’s also hotly debated what the lifetime of a system is. Many times equipment will have a warranty of 20 years and the system lifetime will be calculated at 20 years, even though its very likely it will be running longer then 20 years. But the question remains, what will the maintenance costs be after 20 years? It’s impossible to predict.

Also, less information is known the further you move away from the present, so many just feel comfortable for 20 years.

To show an example, if you take our sample and reduce the life of the system from 20 years to 15 years, the IRR drops significantly from 7.10% to 4.2%.

20 year life to 15 year life

4. The amount of energy created and the value of that energy, including production based incentives like SRECS.

For solar thermal systems, we’re creating BTUs. However, the VALUE of the BTUs that they are offsetting will change in almost every building and over time. Why? The cost of a BTU is determined by three variables

1. Cost of the fuel source
2. Efficiency of the heating element
3. Inflation rate of the energy source.

For simplicity purposes, let’s assume the software that we use takes into consideration the efficiency of the heating element and simply provides us with the quantity of fuel our SHW system will displace. In our example, that’s 130 gallons of #2 heating oil per year.

What happens to our numbers if the average cost of oil will actually be higher then this? What happens if the average oil inflation rate over 20 years is 5% versus 2%?

I started the example with oil costs a $3.00 per gallon to be conservative, currently one March 20th 2012, they’re around $4.00, what happens to the return of oil stay at $3.00 per gallon or $4.00 for the next 20 years?

Oil @ $4.00 gallon

Notice that a 33% increase in energy costs, oil from $3 to $4, the IRR of the project increased by 57%, from just over 7% to just over 11%. The NPV of the project increased by 180% from $944 to $2,635.

Now lets look at the impact of energy inflation. Let’s assume oil will start at $3.50 a gallon today, to be conservative, and lets see the difference between an inflation rate of 2% (conservative) to 6% (optimistic, from a SHW perspective).

0% Inflation Rate at $3.50 for the next 20 years

• IRR = 9.24%
• NPV = $1790

2% Oil Inflation Rate Starting a $3.50 a Gallon

• IRR = 11.19%
• NPV = $2857

6% Oil Inflation Rate Starting at $3.50 a gallon

• IRR = 15.06%
• NPV = $5875

As you can see, this is why sensitivity analysis is critical, the financial returns are much better with higher inflation. However, there is no way of determining with any certainty what the cost of oil will be in 20 years. That’s why it always makes sense to be as conservative as possible.

6. The discount rate to be applied.

The discount rate is the factor that will have the largest impact on the value of the investment and is also the hardest to determine for each homeowner. We saw the example with Sally and Ralph in a simple example.

When applying a discount rate, just make sure that it is based on some, logical, evidence and assumptions. If you cannot find anything, between 4% and 5% is standard.

Other considerations not taken into financial analysis that property owners care about. 

The major consideration not taken into account for financial analysis that  has a huge value in consumers minds is the appearance, symbolism and the clients politics around why they are interested in solar. Many times, these “soft benefits” might be more important to a consumer then the actual NPV of the system.

While doing the site visit, make sure to qualify the customer properly so you know exactly what they’re getting solar. Use their interests in solar to custom tailor each sales proposal.

Payback: Why I won’t Use it. 

Many people use the term payback, I do not, and think it’s a useless term. Since the future savings generated by a renewable energy project are unlikely to be constant and because it ignores the time value of money, payback is not suitable for this analysis.

Payback is best suited for high risk investments, not well known technologies that have a 20 year life.

Read more about why payback is a silly metric here.

Download the Excel File. 

I used excel to create all of the examples. If you’d like to play around with the basic you may.

In future versions, I will be creating an excel model that is specific to analyzing the economics for different renewable energy technologies.

For the fourth part of my interview series with BrightGrid Renewable Energy Finace, I spoke with Tim Slavin, VP of Credit and Operations at BrightGrid. We talked about a solar installer should be asking from their manufacturing partners and how solar installers should select a partner to work with.

The BrightGrid series is for residential solar contractors that are looking to use a solar lease to build their business. We created the series because solar leases are becoming the market norm and are key to selling mass market clients on solar. You can watch the full BrightGrid and HeatSpring series here. If you’d just like to watch an individual interview, here they are:

• Part 1: Should Your Business Offer a Solar Lease?
• Part 2: How Does a Solar Lease Work and How do you Sell it’s Value?
• Part 3: How do you Handle Customer’s Tough Questions about Solar Leases?
• If you’re brand new to solar, read our 101 reading list

Here are a few highlights from our discussion.

• The solar market is not just about product anymore, but solutions. Solutions like financing programs for client, financing for equipment sales support. Look for manufactures that can be complimentary to your business and not just sell you product.

Here’s the full agenda of what we talked about

• Q – If you’re new to the solar business, what role are manufacturers and distributors playing?
• Q – How is their role changing and how is it different then distributors and the supply chain in the traditional trades?
• Q – What do you think the reason is for the solar supply chain changing so rapidly? Why are manufacturers moving from just selling product to other services?
• Q – With that being said, I’m a new solar company and want to offer a lease. What are the top 3 questions I should ask when selecting a distributor or manufacturing partner to work with?
• A – Tim’s short answer:
• 1 – Do they have training? Both sales and technical. Are they giving you a tool box of marketing material and saying good luck, or are they backing it up?
• 2 – Do they help you in the field helping you to close sales. Lead generation and creating proposals is great, but you need to close deals.
• 3 – What is the “point of sale” experience like for you, the installer, and for the client. Is it easy to use and understand? What are the online capabilities? Can you use a mobile device to close a sale, approve credit, provide online documentation, all on site?
• Q – What do you tend to find is the most common mistakes installers make when selecting a partner?
• A – Tim’s short answer:
• 1 – If I offer it (the solar lease), they will come and buy it. This is simply not true.
• 2 – The other common mistake is that a lease and cash sale are the same and you can sell the two inter-changeably.

If you are a solar installer and have more questions, or would like to work with BrightGrid, you can more information about their residential financing product here.

You can watch the full BrightGrid and HeatSpring series here.

We see two groups who stand to benefit the most from earning the CGD credential:

Group 1: Engineers Bidding on Schools and Government Projects

For a long time, the CGD was simply a matter of pride.  There were 100 or so engineers in the world that identified as geothermal experts and they communicated that to the rest of the world by earning the CGD credential.  More recently, as the market for university and government projects has been heating up, it has been showing up as a requirement on commercial-scale RFPs.  HeatSpring alumni have reported seeing RFPs with a CGD requirement in Massachusetts, New York, and several other major markets.  It’s usually a risk-averse institution like a college or municipal client that requires it.  Restricting the bid list to Certified Designers, especially in a specific state or region, means there are only a small handful of potential bidders.  If your company likes to bid these projects, you’re likely to need somebody you work with to get their CGD.  If you fall into this first group, meaning you have an engineering degree, here’s what you need to do:

1. Fill out and submit your application to sit for the CGD Exam ($250)
2. Take the 20 hour CGD Prep Course
3. Pass the CGD Exam

Group 2:  Geothermal designers & installers with deep experience that want to stand out in the market

Greg Beach with GeoHydro Supply has been designing and installing high-quality geothermal heat pump systems for the past 22 years.  He recently inquired about taking the CGD exam to help them communicate their expertise more clearly.   It turns out engineers don’t appreciate input from a well drilling company on how to correctly size a geothermal system (can you believe it!?!), even when they have 22 years of experience.  Greg felt the CGD credential would help earn them respect within the design and installation team, which I completely agree with.

When you apply to sit for the CGD exam based on your experience, you’ll need to prove that you have that experience.  Here’s how: you need to provide all of the details for at least three projects over the past ten years, including: Address, owner details, heating and cooling load calculations, ground loop design software used, schedule of equipment used, and several other small details.

What if you haven’t been keeping all of that data and information?  Well, you need to pull it together.  We’re offering up our Geothermal Designer Boot Camp as a way to pull your portfolio together and organize it for you CGD application.

To summarize the required steps for the geothermal legacy applicants, here’s how you get your CGD:

1. Organize and document your portfolio of experience (at least 3 jobs over 10 years)
2. Fill out and submit your application to sit for the CGD Exam ($250)
3. Take the 20 hour CGD Prep Course
4. Pass the CGD Exam

Important Logistical Point

Training and the exam can happen in parallel with your application to AEE and IGSHPA.  If you pass the exam before you’re approved by the AEE, you are a “GeoExchange Designer In-Training” until your approval comes through.

I’ve met so many smart engineers and experienced geo junkies that could, and should, have their CGD.  I’ve been researching and thinking about this a lot in hopes that we could simplify the process for those who want it – so feel free to reach out to me directly if you have any questions about the CGD: bhayden@heatspring.com or 800-393-2044 x44.

He outlined a 25kw project in Kentucky installed for $3.45/watt, a 5MW project in North Carolina installed for $1.85/watt, and projects at Walmart getting installed for $2.05/watt.

“If you’re a solar installer and you can’t get to these numbers over the next couple years, you should start looking for a job.  You’re going to be out of business.”

Several in the audience lamented the fact that their utility isn’t easier to deal with and puts too many hurdles in place around permitting and interconnection.  Mr. Shah shared his experiences putting at least one utility into bankruptcy and urged people to think of utilities as any other company that can be taken on and defeated.  It was a subversive message that felt powerful and a little dangerous.  The audience loved it.

When asked about what incentives the solar industry should be pushing for, he said:

“It doesn’t matter what subsidies exist for oil and gas – we’re in an age of austerity.  Pigs get fed and hogs get slaughtered.  Solar looks like a hog right now.”

During the Q&A session a member of the audience criticized Mr. Shah’s focus on solar, saying building efficiency investments have a bigger potential impact, to which Mr. Shah responded,

“I hate building efficiency people because you’re so self-righteous.”

He went on to explain that the progress made in the solar industry was hard won and as much as he would like to do more for other technologies, it’s not that simple.  He urged other industries to do what it takes to make change happen, rather than criticizing the efforts of others.

“Solar thermal is a backwater industry because companies in the industry refuse to step up when it comes time to pass the hat and fund the trade organizations and build infrastructure.” (this point clearly applies to the geothermal heat pump industry too)

Mr. Shah is abrasive, but he pulls it off because he has accomplished so much and is surprisingly warm and likable, even when he’s telling you you’re wrong.  His style stood out as honest, militant, and effective.  I left energized.

Those of us in the ground source heat pump (GSHP) industry already know of the many benefits that these systems hold over conventional heating and cooling systems (and have probably explained them a hundred times over).  But as the appeal of geothermal technology shifts to the masses, we must find ways to relate to everyday consumers through metrics such as return on investment, life cycle cost and the like.

When it comes time to give the sales pitch, economics can be a very powerful tool.  How many of you have ever made the case for a GSHP system from the standpoint of hedging against inflationary energy prices?  In this article we intend to show that when energy prices rise, it actually gets easier to justify an investment in a GSHP system.

First, A Little Ground-Work

In order to make this case, some calculations will be required.  The simplest way to compare the cost of heating with a given fuel source is to calculate the cost to deliver a fixed amount of energy to a space.  For the purpose of illustration, we will calculate the cost to deliver 1,000,000 Btu’s of heating energy (1 MBtu) using the following equation:

Before getting started, we need to know a few things, such as the amount of energy contained in a given amount of electricity, natural gas, propane and heating oil:

Fuel Type vs. Energy Content (HHV, Higher Heating Value)

We also need to know the efficiency of each system and the price we’ll pay for fuel:

Assumed Energy Prices & Efficiencies

⁺ASHP – Air Source Heat Pump

⁺⁺Equivalent to a Heating Seasonal Performance Factor (HSPF) value of 6.8 for ASHP’s

The Calculations

Now that we have all of the necessary information, we can get started with the calculations.  For example, the cost to deliver 1 MBtu with natural gas is calculated as follows:

The results of the calculations for each system are summarized in the illustration and table below:

Direct Heating Cost Comparisons

Note that we also calculated the cost relative to heating with a GSHP system (because it is the cheapest method) and the savings associated with the GSHP itself.  For example, the table shows that heating with the propane-fired furnace while paying $2.75 per gallon is almost three times as expensive  as heating with a GSHP system (actually, 2.8x).  Furthermore, a GSHP system would save about 65% per year in heating costs (or $21.49 per MBtu’s of heating energy delivered) over the propane system, based on our assumptions.

Through this example, we’ve already made a pretty strong case for the GSHP over a propane-fired furnace or boiler.  But so far, we’ve only looked at today’s prices without any real consideration to the future.  To show how GSHPs act as a hedge against rising energy prices, we performed the same calculations after an assumed 25% increase in ALL energy prices:

 Direct Heating Cost Comparisons (After 25% Increase)

Returning to the example of the propane system, after a 25% increase in energy prices, it is still almost three times as expensive to heat with propane compared to the GSHP system.  Additionally, the GSHP system still saves about 65% in annual heating costs.  However, because the numbers are larger, the savings are more significant.

Compared to propane, the GSHP system saves $26.86 per MBtu of heating energy delivered (compared to $21.49 per MBtu in the previous example).  As shown in the table, the 25% increase in energy prices leads to a $8.30/MBtu increase in the cost of heating with propane compared to a $2.93/MBtu increase in heating with the GSHP system.

The Big Picture

Hopefully, the results of these calculations drive home two main points.  The first point is that heating costs and the savings associated with a GSHP system are relative to energy prices.  As the prices of natural gas, propane, and heating oil increase with respect to the price of electricity, GSHPs look more attractive.  Historically, the rise in electricity prices has been slow but steady while natural gas, propane, and heating oil prices tend to be more volatile.

The second point is that GSHP systems do act as a safeguard against increasing energy prices by virtue of how a GSHP works.  Only about one-third to one-fourth of the energy delivered in heating with a GSHP comes from electricity consumption, the rest is extracted from the Earth.  ALL of the energy delivered with a combustion-based heating system comes from the consumption of a fuel source whether it is natural gas, propane or heating oil.  To put it simply, a 50% increase in a small number makes a much smaller impact than a 50% increase in a large number.

One Final Thought

Keep in mind that our calculations were based on the cost to deliver 1 MBtu to a space.  In reality, 1 MBtu isn’t that much energy.  It would probably be more useful to know how much energy it actually takes to heat your home.

We decided to estimate the heating load and associated energy requirements for a 1,500 ft² home (on the main level) with fully conditioned basement (assuming average construction: R-19 walls, R-20 ceiling and average tightness levels).  The table below will give you an idea of how much energy it actually takes to heat a home of this size and construction for a year:

⁺Approximate Heating Energy Requirements vs. Location (1,500 ft² Home):

⁺LoopLink Load Estimator was used to estimate peak heating loads and energy requirements for the home in each location

By taking the information from this table and applying it to the Direct Heating Cost Comparison tables, you can easily figure out what your approximate heating costs would actually be.  For example, if your home is located in Brookings, SD and you wanted to know the cost to heat your home with a GSHP using $0.15/kWh electricity:

After the 25% Increase in Prices…

 It is hard to predict what the future will bring.  Energy prices rise and fall but the general trend is upward.  One major advantage of GSHP systems that is often overlooked is their power to act as a safeguard against rising energy prices.  It is relatively easy to show that as energy prices go up, GSHP systems become more and more economically attractive while retaining all of the other benefits.  It’s not likely that this point alone will sell the system for you; it’s just another tool for the arsenal.

Post Updates.

This post has received a great response from many people in the industry and I hope some can use the argument to improve their sales.

John Manning From Phoenix Energy Supply sent in this graph of real data captured by NYSERDA over the past 10 years.

Also, one of readers wrote in with this question:

Chris, my only issues with your graph is that we are installing air source heat pumps with an HSPF of 12-12.5, and SEER rating up to 27.2. These would be as or more efficient then a GSHP.

Ryan Carda responded with the following response: 

Two things to remember with air-source equipment:

1)      The SEER and HSPF ratings are based on tests done in a factory setting with mild outdoor air temperatures:

a.       They do not account for coil degradation over time

b.      They do not account for the defrost cycle or supplemental heat in the winter

2)      According to ASHRAE, the service life for ASHP equipment is 12 years whereas the service life for GSHP equipment is 25 years.

a.       On average, you will purchase two ASHPs to every GSHP unit.

This ASHRAE publication gives guidelines for how to adjust the performance of air-source equipment to more closely model it based on actual operating conditions.  When applying the adjustment suggested in this publication to the Fujistu equipment, you will come up these suggested ratings:

• ·         HSPF =  6.48 (equivalent to a COP of 1.90)
• ·         SEER = 22.1

These adjustments were based on the 27.2 SEER and 12.5 HSPF values given in the brochure for the design OATs of -3F in heating and 87F in cooling for Augusta, ME.

For the same location, using LoopLink to perform a closed-loop GHEX design using temperatures of 30F (min EWT) in heating and 70 (max EWT) in cooling, I calculate an average COP of 3.90 during the heating season to go along with an average EER of 30 during the cooling season.  In my example project, I used the performance of a Waterfurnace ND038 as the basis for comparison.

Already in 2012 I’ve had four conversations with geothermal organizations getting off the ground.  I’m a member at NEGPA here in New England, Phil Henry and a strong contingent are making inroads in California with the California Geothermal Heat Pump Coalition, and at least two other new state organizations have called to talk logistics.  This is great progress – I love seeing people getting out there and doing things.

If you’re completely new to the geothermal industry, check out our Geothermal 101 reading list. It has tons of free articles on design, installation, sales and marketing of geothermal systems. 

It occurs to me that we should have a set of best practices to share with one another. GEO and IGSHPA are great, but what’s the playbook for a small group of passionate geo junkies that want to make a difference in their state?  I put the question out to some smart people who’s input I value to get a conversation going.  Here is some of what they had to say:

Interview with Rich Baker, GeoSun Design

Q: What roles have you played in the Geothermal Heat Pump industry and how are you currently involved?   

Rich: I’m a geothermal designer, installer, and business owner

Q: How might the Geothermal industry look if members took a more active role in organizing themselves? 

Rich:  The industry could benefit form becoming a more organized, cohesive unit that promotes a standard of practice based on the latest ‘best practices’ information.

Q: What are the potential benefits of stronger national and state organizations? 

Rich: I see realtor associations as a good model.  They provide collective local, regional, and national advertising budgets.  It’s critical that consumers and legislators are presented with an organized group of technicians who are following time tested and results driven methods of design and installation along with support for the claims of efficiency, cost to operate information.  The organization should by example for training requirements.  I see the Geothermal Heat Pump industry developing a local/regional level, state level, and national level association.

Q: What are the roles to be played? 

Rich: At the local/regional level the association would offer members assistance with local promotions, assistance with soil data, possibly design assistance …. peer review…..PE for larger systems, education/training classes, updates on local laws and requirements.  State level would help with state level promotion, outreach to legislators, updates on state level changes in law, National level would help with national promotions, outreach to Federal legislators. Updates on federal laws and requirements.  All would promote, all would push member training, all would promote certification requirements, all would require members to follow a set protocol of methods for design and installation which are updated as actual field results prove the results.  We need to have outreach with our local Business Associations, board of health agents, building inspectors, builders, lenders, appraisers, and realtors to educate them on the benefits to all involved economically, socially, and environmentally.

Interview with Barry Nauss, Grundfos

Q: What roles have you played in the Geothermal Heat Pump industry and how are you currently involved?   

Barry: I am the Grundfos  DBS ( Domestic Buildings Service) OEM USA Sales Manager.  I’ve been here for 10 years  We at Grundfos have been providing pump and pump solutions to the Geo Thermal Market for over 20 + years in the USA.  I have been in the Domestic Buildings Service .Boilers- Water Heaters- for 15 years before Grundfos.

Q: How might the Geothermal industry look if members took a more active role in organizing themselves?  What are the potential benefits?  

Barry: The Industry has grown over the years, but I do feel to take it to the next level we need to have a very active Geothermal/ Renewable committee to educate the building community and the public on the benefits of the systems.  I am a true believer that our next major crisis in the USA will be for drinking water and power.  We can not simply continue abusing the resources we have today. We must find a way to reduce the cost of the installations with rebates or incentives. It would be huge to have a major builder commit to using Geothermal.

Q: What is your long term vision for how the Geothermal Heat Pump industry can and should be organized?  What are the roles to be played?

Barry: I think we should have a committee made up of Manufacturers , Installers, End Users, Marketing, and Lobbyist. Each Term should be 2 years.  The committee should be looking to handle today’s issue with and strong influence on what tomorrow brings. Geothermal systems need to become the standard – not the optional installation.  We need to get with the Solar guys and make some real noise in the channel.   I don’t think local Geothermal shows will never bring the Industry where it needs to be – we need to think bigger.

Q: The geothermal industry is very regional – what advice do you have for grass-roots organizing – what are the easiest things to do right now that have the maximum benefit?

Barry: Geothermal needs to be at all the association shows, including Boiler , Plumbing, Heating, and Drilling shows.    We need to expand into Canada and Mexico.. Right now try to find a Geothermal Ad in any trade Magazine.  We also need a spokesperson…the face of geothermal who people recognize.

Many thanks to Barry Nauss and Rich Baker for starting the conversation here.  If others have more ideas or a different perspective, we’d love to hear from you as well.