Solar Executive MBA – Learn How to Model, Price, and Find Investors for Your Commercial Solar Projects

Whose job is it to understand all of the numbers behind a commercial or utility-scale solar project?
“That’s somebody else’s job,” is the response we hear from most people in the solar industry.  We built the Solar Executive MBA for those who want to do the hard part.

When you’re at the top of your organization, where […]

How We Financed a 13kW Solar Project on a Church in Massachusetts

The following is a guest post by Fred Paris, the instructor of our Solar PV Installer Boot Camp Training + NABCEP Entry Level Exam Prep. Fred tells the story of how he worked with members of a church to finance a solar PV project. This could serve as a model for non-profit clients that you […]

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.


Jigar Shah’s Call to Arms For Small Solar Companies Everywhere

This week I flew to Chicago for the Illinois Solar Energy Association fund raiser.  Jigar Shah delivered the keynote to 70 registrants, packed into Emmett’s Place in Palatine.  I left at 9:30pm with an excited sense that Solar PV in Illinois is going to take off.

This was my second Jigar Shah presentation, (here is my […]

Finance 101 for Solar PV Professionals

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 a system to your client.

Download the Commercial Solar Finance Model 
Read the Guide to Financing Commercial Solar Projects
Solar Executive MBA
LinkedIn group: Best Practices for Financing Commercial PPAs Between 200kW and 5MW
60-minute interview with Solar Executive MBA instructors on financing commercial solar PV projects and power purchase agreements (PPAs)
50-minute interview on what commercial solar developers need to understand about yieldcos

This is the follow-up to Finance 101 for Renewable Energy Professionals. In that post I did walk-throughs and provided examples of all the financing terms you will need to know (IRR, NPV, discount rates, nominal cash flows, etc.) 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 walk-through 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 complicated so you can do your own research.

I’m going to use Massachusetts-specific numbers because that’s the market I understand best. I will note if you should look into different elements depending on where you are located. 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 versus depreciation
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

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
Demand charges versus usage rates for commercial clients

5. Conclusion and Example 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 client’s demand charges on the value of a solar project?

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