A growing number of building owners, developers and condo associations in the District of Columbia have come to realize that their building happens to be located in the most solar-friendly city in the USA . Solar contractors, investors and financing vehicles are falling over each other to get solar panels on District roofs and start generating the lucrative solar renewable energy credits (SRECs). Whether via Direct Purchase, or $0 solar leases – SRECs are undoubtedly the reason for the solar season in DC (more to follow on those below).
However, before you sign on the dotted line and fill your roof with a 25-year solar PV (electric) system, as offered by 9 out of 10 solar professionals, make sure that you’re not losing the opportunity to vastly increase your return on investment with a Solar Thermal System.
Solar Water Heating Feasibility
The pre-qualification for a Solar Thermal System involves three questions:
- Does your building have a substantial, daily (365 day) hot water need? (i.e. apartment building/condos, restaurant, laundry, brewery, health center)
- Does your building have a centralized water heating system (as opposed to individual units throughout the building)?
- Can the building accommodate additional storage tanks?
If you answered YES to these three questions you really (really) should first consider a Solar Water Heating system either before – or at a minimum – in tandem with, a solar PV system. (Shopper Beware – unless your solar contact has experience with solar thermal – which many do not – you’re going to have to be prepared to shop further).
What is Solar Water Heating (or Solar Thermal)?
Other than using the sun for energy generation, Solar Water Heating Systems operate entirely differently from their electron-shaking PV counterparts. These time-tested, technologically mature systems are mechanical in nature and relatively simple.
Moreover, a solar thermal panel is 60 – 70% efficient; whereas a solar PV (electric) panel is typically 17 – 24% efficient. Therefore, solar thermal panels generate substantially more energy per square foot than PV panels, monetizing many more SRECs.
Let’s Review SRECs…
SRECs (Solar Renewable Energy Credits) – along with the 30% Federal Tax Credit and 100% Year 1 depreciation– are what drive the tremendous economic benefits of solar in Washington DC; one of several jurisdictions that have enacted a Renewable Portfolio Standard requiring that a specific percentage of electricity consumed must come from solar. Whether residential, commercial, or institutional, each time a solar system generates 1 Megawatt hour of energy – the solar system owner generates 1 SREC. This SREC is then sold via aggregators to an SREC market where it is bought by competitive energy suppliers to allow them to meet their share of the compliance obligation, or else pay a legislated fine (Alternative Compliance Payment, or ACP) for every SREC they are short. Washington DC currently generates the highest SREC values in the country, largely due to the fact that DC does not have the real estate to install large solar farms which can rapidly oversupply a market and drive down SREC prices.
How much are SRECs Worth?
Washington DC SRECs are currently trading at $395/SREC. To provide a frame of reference, a 6000 sq ft rooftop in Washington DC outfitted with a 75kW solar PV (electric) system could generate around 90 SRECs/year (over $35,000/year). Depending on variables such as system size, corporate tax rate and and project site attributes, this SREC income – combined with a 30% Federal Tax Credit and 100% Year 1 depreciation, typically result in IRR’s between 30% – 60% and a Simple payback of 3 – 5 years. Assuming solar thermal is applicable, this same roof outfitted with a Solar Thermal System could fit a kWh equivalent of a 150kW+ system, generating 180 SRECs/year – and see an IRR of 50 – 80%, with a simple payback in the 1 – 2 year range.
Although Solar PV (electric) clients often opt for an O & M (operations and maintenance) contract through their solar installer, Solar PV Systems have relatively minor maintenance needs; usually an annual inspection along with ongoing monitoring. Solar thermal (water heating) requires a little more maintenance including a 3 – 5 yearly service which, at a minimum, includes a replacement of the propylene glycol/energy transfer fluid that can degrade with time. Nonetheless, the impact of service costs on the overall IRR is relatively small and easily absorbed by the increased SREC income.