By Lisa Walsh | Commercial Solar Developer | Solar Energy Services, Inc.
SOLAR FOR MY MARYLAND CAR WASH?
A 5-year payback for 25+ years of electricity?
That’s a no-brainer!
The year 2020 is the last year that commercial building owners can qualify for the 26% Federal tax credit and other solar incentives that, together, combine to offer an excellent return on investment. Economics that work, speak for themselves. In that spirit, let’s have a real-time, real-design, real-numbers, deep-dive into the solar conversation between SES and a Maryland business owner looking to decrease their utility costs.
The Status Quo…
|Roof Size:||~8000 square feet|
|Roof Type:||Flat, standing seam metal|
|Business Type:||S-Corp (for-profit entity eligible for tax credit)|
The Solar Solution…
|Solar System:||212 panels / 81.62kW|
|26% Federal Tax Credit:||$44,902|
|MD State Grant:||$12,043|
|Sale of SRECs:||$54,000|
|Tax Depreciation Year 1:||$42,070|
|25-Year Energy Savings:||$346,954|
|Business Type:||S-Corp (for-profit entity eligible for tax credit)|
The questions from this building owner followed much the same track as most solar prospects:
#1 = Economics: Is this good for my bottom line?
#2 = Building Preservation: What risks are there to my building and/or daily operations?
#3 = Construction Process: Why SES and how long will it take?
E C O N O M I C S
Do I pay the whole amount upfront or are any of the incentives deducted first?
You are responsible for the $172,200 upfront cost upon contract execution. Over 60% of the incentives are realized in YEAR 1 (tax credit, state grant, depreciation). The remaining incentives (ongoing sale of SRECs and energy savings) recur throughout the 25-year warrantied life of the system (and beyond!).
How do I know I’m eligible for the Federal Tax Credit and 100% Year 1 equipment depreciation?
A quick phone call to your tax advisor will answer this. Most for-profit businesses that owe Federal taxes have plenty of tax appetite, even if they carry some of the earned credits into future tax years. In this case that is a $44,902 tax CREDIT (as opposed to the less valuable “tax deduction”). NOTE: 2020 is the last year for a 26% credit – in 2021 it drops down to 22% and then 10% in 2022, but projects started in 2020 can carry the 26% credit into future tax years.
What are SRECs?
SRECs = Solar Renewable Energy Certificates. Their goal is to encourage building owner’s like yourself to invest in solar. As per the legislated Renewable Portfolio Standard, each time any grid-tied solar system in Maryland (residential or commercial) generates 1MWhr of energy – the system owner earns a tradable credit that is sold on a competitive SREC market. Currently, an SREC in Maryland is worth $77 (or, 77% of the ACP – Alternative Compliance Payment, currently $100). The 88.62kW system SES as designed for this car wash is slated to generate ~102 SRECs annually allowing the system owner to receive payment quarterly via an SREC aggregator such as Sol Systems in Washington DC.
Who buys my SRECs?
Ultimately, SRECs are purchased by electricity suppliers who are mandated by the State of Maryland (and various States throughout the US who have adopted the Renewable Portfolio Standard) to deliver a specific % of their energy from renewable sources. They can do this in one or more of three ways:
- Build their own renewable energy plants
- Pay a fine (Alternative Compliance Payment currently at $100 per MWh here in MD)
- Purchase SRECs from currently operating solar systems (currently $77 per MWh)
For many of these electricity suppliers, the most cost-effective path is to buy your SREC. They do not buy your SREC directly from you – but through an SREC aggregator (broker). SES’s preferred aggregator is Sol Systems – although we are happy to support you in contracting with the SREC broker of your choice (SES has no involvement in your SREC contract after the initial setup).
How do I apply for the Maryland State Grant?
SES takes care of the paperwork requiring only your signature. Grants are usually received several months following the application.
Are there any loan products available?
PACE financing is an excellent vehicle for small/mid-sized commercial solar projects. The solar asset is financed with private financing and is repaid through the property’s tax account (much like a sewer or road assessment). Some of the many benefits include: cash flow positive from day 1, loan is off-balance sheet, no personal guarantees, little or no out of pocket costs, and the solar system asset and any loan balance, simply transfers with sale of building.
D E S I G N
How does the solar energy work to reduce my utility bill?
Your solar system has 3 major components: the solar panels, the panel racking , and your inverter(s) that are usually installed near your electric panel/utility meter. Your solar panels will generate energy as the sun shines on them. This energy (DC/Direct Current) flows to the inverter whose job it is to convert this incoming DC energy to AC (Alternating Current) which is fully accessible both by the utility grid as well as all of your building’s electrical infrastructure/appliances. At any point in time the solar energy will be immediately offsetting your electricity consumption with any and all excess energy flowing to your BGE meter and essentially spinning it backwards, generating credits with the utility. This function is known as Net-Metering and ensures you receive full credit for 100% of the solar generated by your system. Any credits will be used up at nighttime or during winter/low sun.
I am concerned about the risk of leaks due to penetrations on my flat roof. How do the solar panels attach?
The current design utilizes a no-penetration attachment technique commonly referred to as “ballasted.” The solar panels are attached to racks, which are designed to incorporate a number of concrete block/bricks that – along with the weight of the solar panels and racking – ballast or weigh the system to down to the roof without us having to pierce holes and attach to the substructure.
If you have a pitched asphalt shingle roof or a metal roof, you can rest easy. We have time-tested racking solutions for each. These fully-engineered systems take into account the building structural loads as is required for permitting.
What informed the choice of solar panels for my design – are there other options?
We chose a REC 385 watt solar panel for your project for these reasons:
- Economics: These are highly cost-effective solar panels, without sacrificing quality. There are, for example 400 – 450 watt panels that are either currently or about-to-be available. However, when I plugged in the numbers for these higher-wattage panels, the increase in cost decreased the overall Internal Rate of Return. In a nutshell, those extra 15 or so watts per panel were not worth the cost increase, when considering the project strictly on economics. That said, some buyers choose to maximize energy production and the lifetime savings, even if it modestly degrades the 25 year economics (Internal Rate of Return).
- Warranty: Because SES is a certified REC installer, this bumps the manufacturer’s workmanship warranty from 20 to 25 years. So these panels come with a 25 year performance (typical) AND 25 year workmanship (atypical) warranty from the manufacturer. Most other panels – including higher wattage – do not offer this type of warranty
That said, SES offers a wide range of solar panels to meet all budgets and design criteria.
How will I know my solar system is working every day?
Your system will come with robust 25-year online monitoring. Each day you will be able to see both your current and historical solar output.
What warranties come with the system?
- Solar Panels = 25 year performance and 25 year materials and labor
- Inverter(s) = 12 years (extension to 25 years are available)
- Optimizers = 25 years
- Installer Workmanship = 2 years for all workmanship items
What kind of maintenance does the system need?
As Solar PV systems have no moving parts, there are very few and infrequent maintenance items. Your monitoring system (referenced above) will alert you to any errors in the system’s operations (we also have access to the online portal). Some solar system owners, especially out of town investors, may elect to contract with us for an annual Service agreement with 2 site visits per year and accompanying reports. However, most of our small/mid-sized commercial building owners simply monitor the systems and contact us with any questions as needed. SES does have a dedicated Service Department with hourly services available to both our own customers as well as solar systems installed by the many solar contractors who may have come and gone over the years.
C O N S T R U C T I O N
What are the permitting requirements and how long do they take?
We typically allow 12 to 16 weeks for the design, engineering and permitting phases of the project. Both building and electrical permits are procured through the county or city jurisdiction, and an interconnection permit is required through your utility company.
How long is construction?
An 81.62kW project such as this one would likely take around 4 weeks for material installation. Inspections and approvals require another 3 – 4 weeks post-installation before the system can be energized.
It is safe to say this is a minimum 6-month project from contract signing through fully operational.
Will there be any disruption to my daily operations?
80% of the construction process takes place on the roof, so there will be little to no disruption to the daily operations taking place in the car wash. Wiring of the solar system will require access to the Main Service Panel in your electric room. Any temporary disruption to the electric service will be arranged with you ahead of time and completed during an agreed-upon time.
Are there any time constraints regarding the current solar incentives applied to my system?
Yes. In order to qualify for the 2020 Federal Tax Credit of 26%, you must have a signed contract in place with us AND we need to have spent 5% of the total contract amount (permits/engineering) in 2020.
Additionally, the Renewable Portfolio Standard (RPS, which is state legislation that determines the length and the amount of SREC values) is designed to decline as more solar is installed and the State meets its clean energy goals. In a nutshell, the sooner the system is energized, the sooner you can realize the near-term, highest SREC values.