Part I: The Crucial Fourth Piece of Energy Management

At this year’s Energy Smart conference, I had the opportunity to present to the people who are responsible for managing the energy use of America’s commercial, industrial and, institutional (CII) market segments—an evolving and complex job to say the least. Up until a few years ago, managing energy for these segments was a matter of addressing the three energy cost paradigm: how much you use, when you use it, and how much you pay for it. Now, there’s a crucial fourth dimension to consider—who owns it. With this new dimension, energy users can now take control of energy-generating assets like they do revenue-generating assets.

Starting with the basics, I presented a case study of a California hospital that included an onsite solar photovoltaic (PV) generation project in a broad-scope energy services contract. The system was originally sized to offset approximately 80% of the hospital’s consumption and a tariff switch implemented to increase the value of net metering credits generated by the solar array. As the project evolved, the solar solution size was reduced from two megawatts (MW) to one MW. While the net metering credits were more valuable, the greater share of consumption from the grid was also purchased at the higher rate.

When Borrego Solar performed post-installation production and bill analysis, we found that the customer was not realizing the expected savings. After returning to the hospital’s original utility rate, the 7% projected savings were realized. This example illustrates the importance of a holistic approach to distributed generation (DG) that includes all aspects of energy usage and procurement as well as planned upgrades and efficiency measures.

As illustrated above, a solar DG solution is more complex than its engineering description, which is a system that converts energy from the sun into electrons and delivers them to the electrical grid. You might think of the solar array as a mint that cranks out money on a predictable schedule. That is a more apt descriptor of how energy and financial managers can get their arms around a solar system as an asset.

In those terms, you can treat solar systems like other value-generating assets in your portfolio, which requires deciding whether to buy or lease and, operate in-house or outsource, comparing financial returns, and determining procurement and hedging strategies for fuels and production inputs. These are all correct and begin to provide the framework for procuring and managing a solar generation system. However, reality is a bit more complex for most energy-consuming organizations that want to take control of their own generation and hedge against utility price increases.

Following the mint analogy, a solar DG solution produces something that looks more like multicolored tournament poker chips. Like these poker chips, electrons generated by a DG solution have different values, which vary by time, location and—most importantly—what “casino” (i.e., utility) you are playing in. The factors that impact the value of the electrons generated include:

  • Whether the solution’s production is offsetting onsite load or is being exported to the grid
  • If exported, is their value set by a feed-in tariff (FIT) or by net energy metering rules
  • Is the net energy metering regime remote/virtual or on-site? If remote/virtual, are credits applied monetarily or volumetrically?
  • What tariffs are in place and is a rate switch advisable?
  • Are additional incentives and/or credits available and, if so, are they fixed or variable?
  • How does solar production interact with on-site load and the tariff? How is the system optimized for time-of-use (TOU) tariffs and are demand charges impacted as a result?
  • Is energy purchased from the utility or through competitive supply contracts?

Perhaps the most important guidance that I can offer is that these considerations impact not just the financing and economic evaluation of the solar system but the system design itself.  In addition, the market, regulatory, and technology landscapes are changing rapidly—sometimes weekly! In many cases, the incentives and regulatory structures that impart the greatest value to going solar are capped or set to decrease as time or adoption progress.

It is critical that organizations considering solar partner with vendors that can provide a choice of engineering and financial solutions that are optimized for them and are deeply involved in the markets that they serve in order to capture all of the benefits available.

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