[Photos] Repairing a 30 Year Old Solar Thermal System in NYC

Last week, I spent a day repairing a solar thermal system that has been operating for more then 30 years in NYC. I just wanted to share a few pictures and points because it’s super cool.

The system was installed in installed in 1980, expected “payback” (don’t ever use that term again) was just around 3 years
The client paid $3,200 for the system, which is about $8,900 in todays dollars.
The system was providing 70-80% of the hot water for 2 families
It was offsetting natural gas, which was expensive for a long time, and current prices are going back up, to the tune of 70%.  
DAS Solar Systems was the name of the EPC contractor in NYC. They’re aren’t around anymore.
The name of the module manufacture was SunWorks, the spec sheet said New Haven, CT but I’m assuming they were imported from Israel.

The system is in the heart of NYC
You can even see the module from google earth! There were 6 existing modules, but we replaced them with 4.

Front of the house. Getting equipment on roofs in NYC can be an issue.

The old modules. They held up pretty well, and managed to work 12 years after their “warranty” expired.

Again, the help up remarkably well well. There was a small amount of rust on the back sheets.

The rack was pretty simple and standard using unistrut. In fact, I’ve built a system that was 6 modules in Medford and were used the exact same parts as this! Though the roof flashing was a little different.

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August 27th, 2012|Categories: Geothermal and Solar Design and Installation Tips, Solar, Solar Thermal|Tags: , , , , |
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Guide to Bridge Financing For Solar EPC Contractors

Over the past month, I’ve seen a pick up in the amount of companies that are offering ‘bridge financing’ to small and middle size solar PV contractors. So, I thought I would put together a short post and a free downloadable guide based on my research that outlines what bridge financing is, the best markets […]

August 1st, 2012|Categories: Financing, Solar, Solar Design & Installation, Solar Finance, Solar Thermal|Tags: , , , , , , , , , , , |
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“What’s the Most Efficient?” Geo VS Solar Thermal VS Solar PV

 I’m doing some sales consulting work in NYC, and there’s one question I’m getting a lot from property owners: “What is the most efficient renewable energy technology?”

In the city, they are mainly speaking of solar PV vs solar thermal, because generally there’s not enough room for geothermal in the city. However, for fun, I’ll expand it and include geothermal.

The answer is, of course, it depends on how you’re defining efficient.

 Which technology produces the most energy in the least amount of area
Which technology produces the most valuable energy
Which technology has the best financial return. Again, however you’re defining return.

There are two ways that I’m going to frame the discussion to search for an answer, or a methodology for finding an answer: 

 Efficiency of the technology (is this a good design for this specific application)
Efficiency of cash, which takes into consideration the site characteristics and policy (is this a good investment?)

As always, it’s easiest to see this when we look at a few examples, being clear to highlight when and where the examples might be different in the real world and how said sensitivity might impact our results.

1. Technology Efficiency. Right now, let’s just look at GROSS INSTALLED Costs and raw energy production. 

Here’s what I’m going to calculate: Gross Installed cost / Net energy produced in year 1 (energy produced / energy used)

Again, I’ll keep it in residential for simplicity. And I’ll focus on Boston because I’m most familiar with the solar resource available and the average heating degree days needed when understanding geothermal production.

Our example home will be:

1500 square feet
Average home shell construction.
South Facing roof, no shading, 10 pitch, that is 60 feet by 12 feet.

Solar PV: $25,000 /  6,843 kWH produced per year = 3.65, which means that you must invest 3.65 dollars in year 1 to get 1 kWh of production

5kw DC Installed @ $5.00/watt  = $25,000
Avg Insolution = 5 hours of full sunlight per day.
We’ll derate from DC to AC is .75, which is extremely conservative.
AC Production = 3.75 AC output
3.75 X 5 hours per day = 18.75 kWh production per day on average.
18.75 X 365 = 6,843 kWH produced per year

$25,000 /  6,843 kWH produced per year = 3.65, which means that you must invest 3.65 dollars in year 1 to get 1 kWh of production

Solar Thermal: $8,000 / 4,982kWh = 1.6. For every $1.6 dollars invested you get 1kWh of production.

3 to 4 family home
Gross Installed Costs for a simple drawback system by a well trained crew is ~$8k
Each Module will likely produce around 85 therms per year, totally 170 therms per year
170 therms is 17,000,000 BTUs / 3,412 = 4,982 kWH equivalent.
$8,000 / 4,982kWh = 1.6
For every $1.6 dollars invested you get 1kWh of production.

Note: For solar thermal, unlike solar PV, production of solar energy and usage of that energy doesn’t necessarily match. For this example, I’ll assume it does.

Geothermal: $27,000 / 13,478 kWh equivalent = 2. You must invest $2 in year 1 to get 1kWh of energy production.

We’ll assume the heat pump is only heating, to make the calculation more simple and keeping in mind that our ratio of dollars invested to energy produced will be a little larger, if we considered cooling.
63 MBTU average heating load
Avg COP of 3.75 (this is important, because lower efficiency will increase the tonnage needed for the same btu’s delivered, all else equal)
3 Ton system
9k ton X 3 tons = 27k
Energy Produced = 63 M BTU –> Let’s convert BTU to kWh equivalant
63 M BTU = 18,463 kWH (Remember that 1kWh = 3,412 BTUs. Thus long calc is 63MBTU = 630 Therms (10 therms = 1MMBTU) 630 therms = 63,000,000 BTUS divide by 3,412 = 18,464)
Many will point out that geothermal uses energy (in pumps and fans) to produce more energy, which is true. However, we want to find out what EXTRA energy that was created by the system, this is the renewable part. With an average COP of 3.75 it means that 3.75 units of energy was created for every equivalivent energy put into the system.
3.75 means we need to reduce the energy produced by 26.66% (1 / 3.75) to find the amount that was produced by the system.
18,464 X 73% = 13,478 kWh equivalent produced
27k installed costs gross / 13,478 kWh = 2 in equivalent energy produced. Which means, that for you must invest $2 in year 1 to get 1kWh of energy

Here is our conclusion about gross installed costs and energy produced: 

Solar PV: $25,000 /  6,843 kWH
Solar Thermal: 8,000k / 4,982 kWh
Geothermal: 27k installed costs gross / 13,478 kWh

A few things to note about the sample examples

PV: $5 a watt is average and there are much higher installed costs.
Thermal – Production of modules and usage don’t necessarily match. Also, assumptions around water usage are not accurate. ~8k is also for a great site and a well trained crew. It’s common to see $10k+ projects.
Geothermal – Only assumed it was heating. Assuming 72 set point and 62MMBTU needed to heat the home. 3.75 COP also impact the energy produced from that invested cash. Higher COP = greater output, all else equal, per dollar invested.
As we’ll discuss in section 3, site characteristics can change the analysis of any one of these by making some technologies, cheaper or non-available in certain areas.

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July 9th, 2012|Categories: Geothermal and Solar Design and Installation Tips, Geothermal Heat Pumps, Solar, Solar Design & Installation, Solar Thermal|Tags: , , , |
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Finance 101 for Solar Thermal Pros

In this article, I’ll go through the basic step-by-step process of how to evaluate, understand and communicate the financial benefits of investing in a solar thermal system. The analysis will be on the client side, but obviously it’s critical for sales as well.
Before you read: get familiar with financial terms and analysis, you should read the first article in the series “Finance 101 for Renewable Energy Pros”. Also, it’s important to note that I’m using the word “finance” as a way to build financial models, understand the economic drivers and benefits of specific  technology – not finance as in ‘we financed our car instead of paying cash’.

Here are the other articles in this series:

 Finance 101 for RE Pros
Finance 101 for PV Pros
Finance 101 for Geo Pros

We’ll be going through the same drill that I did with solar PV and geothermal in terms of the outline but the specific content will be tailored to the technology that we’re looking at, solar thermal.

Here’s the outline

What makes SHW special and a little different then analyzing other technologies
Step 1. Estimating solar thermal load, array size and power production
Step 2. Gross and net installed costs
Step 3. Determine the value of a SHW BTU
Step 4. Estimating operations and maintenance costs
Step 5. A few examples IRRs and sensitivity analysis for residential and commercial projects based on 1) load 2) fuel source 3) site characteristics
Marketing Implications
What I did not address that could be investigated.

A few issues around the difficulties and issues with determining the exact NPV of a SHW system. 

On residential applications, it’s too costly to figure out exactly how much hot water is being used. Thus, we use assumptions that frankly, are not very accurate. See the Canadian study that found out the average of 65 gallons used per day, was actually around 44.
Unless the hot water generator is the only fuel source of that specific kind, it’s difficult to estimate on residential applications and mainly based on assumptions, which can be very wrong.
On commercial applications, it is common to use ultrasonic BTU meters for a week or so to understand exactly how much water is being used. However, it’s still key to understand daily and yearly usage patterns. For example, if a laundromat is used heavily in the morning or a college dormitory is not used during the summer that will have implications for the value of the heat the solar thermal system is creating. See point 2.
Production and usage of solar thermal energy are not equal. A property owner only gets the value of a solar BTU when they’re using water that is getting preheated by a solar thermal system. If they’re not using water, and the solar thermal system is producing that energy gets lost. Not all of it is lost, because the storage tank is able to hold a lot of water but they can’t hold it forever. The reason this is important for financial modeling is because, UNLIKE SOLAR PV, just because the solar thermal modules produce power doesn’t mean it was used and thus doesn’t mean the financial benefit was realized. The classic example is a family that goes on vacation for 2 weeks, if it’s a pressurized solar thermal system (we’re not going to get into pressurized vs drawback in this article and the design and financial implications of each) the pump will likely still cycle and energy will be produced, but nothing will be used. From a finance perspective, nothing is gained, only lost in the power the pump needed to run.
Quoted prices for solar thermal systems can vary widely from site to site and between geographic regions. The main drivers between sites will likely be 1) structural support needed. All else equal pitched shingle roofs are cheaper then flat roofs. 2) If a storage tank is required. For buildings that have a constant load 365, storage is typically not required. Pool heating is a good example. This will decrease installed costs. Between geographic regions that main drivers of costs tend to be the training of the crew. Almost all of the parts are off the shelf, or close to it, so it’s difficult to get better pricing on equipment, however a crew’s ability to executive and their level of training will be different between regions.
Module output is based on more factors then in solar PV. In a solar PV product output is mainly based on 1) the solar resource available 2) orientation of the module 3) efficiency of the module 4) temperature. With solar thermal, all of those factors also apply IN ADDITION to the load profile of the building. Why? The higher the load of the building the colder the water will tend to be, all else equal, when entering the solar therm module. This will increase heat exchange. So for example, if the modules were 180 degrees, the water passing through them will collect more BTUs if it enter the modules at 50, then if it entered the modules at 100. What this means is that if we installed 10 modules on a building with a load of X, if the same number of modules were installed on a building and the load was 2X, the production of the modules would be much higher. For this reason, it’s a good idea to keep the solar fraction low in a design, to maximize the BTU production of each module. How low? Dr. Ben suggestions between around 30% and 60%, see his great explanation of the subject here.
Maintenance costs can vary widely based on the type of system, equipment used, equipment warranties, and what the type of system is connected to. Also, because the solar thermal industry is relatively small, I haven’t been able to find large data sets of warranty information that I can be confident in.

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June 27th, 2012|Categories: Financing, Solar, Solar Finance, Solar Thermal|Tags: , , , , , |
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Finance 101 for Renewable Energy Professionals

Understanding finance is required to sell renewable energy projects. It’s needed to communicate the value of both residential and commercial projects, and for all types of technologies: solar PV, solar hot water, and geothermal heat pumps.
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.
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

Net Present Value (NPV)
Present Value
Future Value
Discount Rate
Internal Rate of Return (IRR)
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.

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.
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.
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.

CASE STUDY: A Sample Solar Hot Water Customer in Greenfield, 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

Here’s the T*Sol estimation for the system production and load. 

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March 27th, 2012|Categories: Financing, Geothermal Heat Pumps, Solar Design & Installation, Solar Finance, Solar Thermal|Tags: , , , , , , , , |
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