Is Solar Right for Your City?

A TCAP White Paper

It may sometimes seem like there are more folks out there selling solar systems than there are car salesmen. From homeowners to city officials—everyone gets inundated with offers to lower their energy costs with solar.

These offers can sound too good to be true and—based on claims we’ve seen and heard—they sometimes are. The bottom line is that solar is not a slam dunk for everyone. While some customers may benefit, others may not see a significant change in what they’re paying once the costs of installing and operating the project are factored in. Some customers could even end up paying more.

There are customers that don’t seem as concerned over cost because they simply want solar. They “like the idea” of renewable energy—in whole or in part. Yet, even if cost is not a consideration, there’s still a lot to know and understand about taking on a solar project. The remainder of this paper is intended to lay out some important considerations. The following are some typical claims made about solar power and a short discussion of the complexities involved with each of them.

1. I will get free power from my solar installation.

As the old saying goes, there is no such thing as a free lunch. With any energy project, the cost must ultimately include purchase and installation of the necessary infrastructure to generate the power; as well as the ongoing, variable costs involved in continuing to generate it—including maintenance of the panels.

Since solar panels represent an up-front investment as opposed to the pay-as-you-go use basis of most utility bills, the lost opportunity cost of those committed funds should be considered. And, not just the cost of the panels and installation, but the expense associated with the tie-in to your existing electrical infrastructure.

These costs can be amortized over the life of the solar panels (often 20 years) but still need to be factored against the availability of output—typically between 30% and 50%. Those percentages reflect the fact that your solar panels will not generate power at night, and that they will output less electricity during morning and evening hours as well as on cloudy days. Therefore, these realities need to be included in your overall calculus.

To arrive at a $/kWh cost/benefit estimate, you’ll need to know a realistic, total projected output of the solar installation you are considering, factored over its useful life.

A diagram of the layers of a typical solar panel.

2. I can make my electricity bill disappear with solar power.

As mentioned earlier, solar panels only produce power when the sun is shining. Many residential rooftop solar installations cannot generate sufficient electricity to meet the needs of the home during high use conditions—during a hot Texas summer, for example. So you will probably still be buying at least some power from a traditional electric provider. In addition, as long as you remain connected to the conventional electrical grid, you are likely to see non-usage based charges on your bill or, possibly, stand-by charges. Stand-by charges compensate the utility that “stands ready” to make up for the shortfall, should your solar production fail to meet all your needs.

3. All of my energy will come from solar panels.

Often, rooftop solar applications cannot provide sufficient power during high use periods to entirely meet the demands of that home or business. Adding battery storage, such as the Tesla® Powerwall, may allow you to retain some of your solar system’s excess power generation for later use. However, adding batteries can significantly increase the price of your solar project and increase its complexity.

4. Solar Power will save me lots of money because it produces the most power when energy costs are also the highest.

It is true that solar does produce most of its energy during times when spot energy prices are higher. However, most commercial and residential customers buy electricity at a fixed energy price that already takes into account the expected high- and low-cost periods. If you want to make sure that you are receiving the cost-benefit from your solar installation, look for the option to convert to a time-of-use rate reflective of spot-market pricing dynamics.

Be aware, though, that these energy plans are less popular with customers because they are subject to higher price volatility and cost. Finally, if you are a frugal user of electricity, your electric bill may not be large enough to make any potential cost savings to justify the investment in a solar project installation.

5. I can make lots of money selling my excess power to others.

This notion is a common selling point used to help persuade customers to go solar. However, you need to know that, in Texas, you will not automatically be compensated for the excess capacity your system contributes to the grid. You will have to obtain an agreement from your local municipal utility, electric cooperative, or Retail Energy Provider (REP) to buy your excess power. If they do agree to buy power back from you, they will compensate you during those periods.

At other times—during your periods of high overall use—you will end up paying them because your solar installation won’t be capable of meeting your demand.

So, it’s likely to end up being a wash. Keep in mind, too, that they’re not likely to pay more than the current market price for the excess power you sell back to them. Moreover, if yours is a typical installation, you won’t have any excess power to sell during the highest price, peak usage periods.

6. I can claim to use renewable power for all of the power that comes from my solar installation.

Maybe. But, Texas has its own systematic definition that it applies to renewable power claims. That means that residential users typically have to buy power from a renewable power program offered by their municipal utility, electric cooperative, or REP. In such instances, you would be relying on your provider to issue you Renewable Energy Certificates (RECs) to prove that a portion of your consumption was fulfilled using renewable-based sources.

RECs are the currency of the renewable energy market—one REC is issued per megawatt-hour of energy produced by renewables. You can get  RECs, too, based on the power you generate with your own solar or wind power installation. Just remember that, if you are buying power under a contract, you’ll have to be sure to get the RECs associated with your usage in order to validate your renewable power claim. Alternately, you can purchase RECs on the secondary markets to meet your renewable goals.

Regardless, the number of RECs you have must match the usage you wish to claim as renewable, and it will add expenses to your total energy costs.

7. All solar projects are just about the same.

There are different options available for you, should you choose to pursue a solar project. Some companies will install the solar project on your site and turn the ownership over to you. Others want to install on your site, continue to own the equipment, and only sell you the power it generates. Either of these approaches have pluses and minuses.

Generally speaking, though, it’s more advantageous to both own the installation and the power it generates.  Projects that are on your property, but owned by others, can be fraught with complexities and problems. It is wise to seek out some market expertise to assist you in deciding which approach works best for you. Keep in mind that market dynamics and governing rules do change and that the criteria for determining the best approach change over time, too.

Closing thought:

Solar power is gaining in popularity and can provide real savings to customers. But, the key is getting it all right: the right project scope, the right site, and the right contract terms.

TCAP can assist its members with making the most of their future solar initiatives.

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