One of the most common things we hear when first speaking with energy managers at large commercial and government facilities is, “I looked at solar a few years ago, but the economics weren’t where we needed them to be in order for us to justify the investment—what’s changed?” These energy managers were once excited about solar, but at some point they became soured by the perception of meager economic returns or technical hurdles. Now they’re cautious about investing their time again in evaluating a solar project.
What many don’t know is that the solar market has matured so much over the past few years that several of the issues that once stalled a project are no longer problems. Here’s what has changed—as well as what hasn’t—and why large commercial and government facilities should take another look.
The cost of solar photovoltaic (PV) systems has been rapidly declining since 2009, although it’s starting to flatten out a little now. In 2014, costs for non-residential installations less than 500kW declined by 10% from the previous year, and for systems larger than 500kW, the decrease was more than 20%, according to a report from the Lawrence Berkeley National Lab. Preliminary data for 2015 is showing a similar trend. While government incentives overall are also declining, this reduction in system cost has improved the economics of solar so that it is now cost-competitive with utility rates in many markets.
Advancements in technology across all areas of the system have contributed to lower construction costs. In addition, thanks to innovations requiring less racking, wiring, and installation hours, solar PV systems are more flexible than ever. And with the improving efficiency of the panels, a system can produce more kilowatt hours (kWh) per kW installed, increasing the overall value of the project. Technology has become more standardized, more reliable, and more readily deployed across more installation types than ever before, thus addressing many of the traditional concerns about structural capacity of roofs, underground conditions, or snow and ice.
The combination of cost reduction, advancements in technology, and the maturation of the industry have reduced the risks for solar project owners and financiers. This has attracted new money to the industry, which has lowered the cost of capital for financing, further improving the economics for commercial and government energy users. Financing options have become more varied to match capital structures, return hurdles, and credit profiles. At the same time, industry consolidation and increased comfort with standardized warranties, production guarantees, and life cycle services, have also reduced risk for businesses and public agencies that choose self-financing rather than power purchase agreements (PPAs), operating leases, or similar third party ownership structures.
Markets and Incentives
While the cost to purchase energy from traditional generation varies across the U.S. and is volatile in the short term, it will certainly increase over time. This is driving many energy users to invest in solar and take more control over their energy costs. Legislators and utilities in certain markets have enacted various solar-friendly policies and programs. In some states, those incentives are just coming online, but in more established markets they are poised to sunset, reflecting solar’s reduced reliance on subsidies.
There is, of course, a prevailing theme here: The maturation of the industry has enabled those who don’t want to be on the bleeding edge to still benefit from solar. Not only have the technologies improved, but the industry now has a cadre of experienced professionals. Many—though not all—of the fly-by-night installers are now gone, and buyers should expect the same level of professionalism from their solar vendors as they do from any other major electrical or mechanical system integrator.