Evaluating Solar Proposals made simple

hexeiscoBusiness, Energy Management

How to evaluate a Solar PV proposal that has been presented to you.

So you are operating a business with sufficient roof space that there is a stream of Solar PV installers wanting to present a PV project to you, but how do you evaluate their proposal. I have seen a number of proposals that have been presented to clients and friends of ours over the last 12 to 18 months. Every one of the proposals has contained a spread sheet with a calculation of the payback time, Return on Investment, or a Net Present Value.

And here’s the kicker – EVERY SINGLE ONE HAS BEEN SERIOUSLY FLAWED.

Whether you are a spread sheet wizard or not it is very easy to do a few simple checks to see if the proposal you have is reasonable or a fantasy.
So lets have a look at what is important in Evaluating Solar Proposals.

1. First know which tariff you are on

This is a very simple thing to check and is often incorrect on the proposal.
If you are not sure what tariff you are on get out your last electricity bill.
There are broadly 2 ways the electricity is billed.

Energy Tariff

The first is a simple cents per kWh tariff the same as most peoples house hold electricity bill.
This is normally only available to small businesses and may still be in place for businesses with older types of power meters.
Because these are regulated tariffs in Queensland in 2015 this is around 23 cents per kWh.
You should be able to find this on the second page of your bill – see example below.

Charges kWh

An example Energy Bill breakdown for an Energy only Tariff

 

If you are on a simple tariff then check that the proposal reflects the correct c/kWh amount and does not factor in a demand or network charge. Also check if you have off peak, peak or shoulder rates that they have not been added together to create a single artificially high kWh charge rate that makes the payback look better.

Energy plus Demand Tariff

The second type of tariff is often called a demand tariff. If you are on a demand tariff then you will have a section of your electricity bill with a break down of the network charges. See the example below.

Charges Demand

Example of a Energy + Demand Tariff breakdown

 

The demand based tariffs are not regulated by the government in the same way so tend to vary a bit. The break down will include Energy charges like the first type but more likely around 6 or 7 c/kWh, network charges that are a combination of some smaller c/kWh amounts and some rather hefty demand charges in $/kW or $/kVA amounts, highlighted in red in the example. There may also be some other smaller charges as well.
On this tariff it is important to check that the proposal is not using the 24 c/kWh energy charge from the energy only tariff instead of the 6 to 8 c/kWh that is normal on a demand tariff. I have seen a number of proposals that had this wrong so be aware.

On demand you also need to check the amount of the charge that has been allowed for. This is currently around $22/kW in QLD.
The highest metered demand will be shown on your bill so you can check the amount proposed by the solar provider is not unrealistic.

2. How much will the proposed Solar system generate?

The number of kWh that the system may generate for you is worth review. All the proposals I have seen have been realistic, and you still need to check.

The ball park in South East Queensland is around 475 kWh per day for a 100 kW system.

Be aware that a system greater than 30 kW requires additional approvals from the utility and may include conditions prohibiting exporting power onto the grid. Approved zero export control solutions increase the cost of the installation, so check this has been included in the model if the system is over 30 kW.

Depending on the usage patterns of your building, your generation may be limited in this scenario if you would be exporting power to the grid.  For instance, a 100kW system may be limited to 50kW of generation if the building is not consuming more than 50kW of power. This needs to be taken into consideration when sizing your system.

3. Demand and Solar Generation

If you are on a demand tariff and the proposal has the correct c/kWh and $/kW amounts there are still some details to check.

The first: is your peak consumption at the peak of generation? Are you sure?

Second, because demand is charged for the whole month on the highest half hour during the month, a single cloud during your peak energy consumption period can render Solar useless in reducing the demand charge. Generation logs indicate that generation can drop to as low as 20% of the clear sky output when a cloud passes over and even worse if you get heavy rain.

As a result the proposal should not model more than 20% of the regular peak clear sky output of the system.

4. What is the peak generation capacity?

A typical Solar PV system will generate peak, during best case weather conditions, around 80 to 90% of the rated capacity of the PV cells.
This is due largely to dust and dirt accumulating on the cells and changing angle of the sun during the year.
Because the cells are rigidly mounted the output will peak at the time the sun is shining most directly on them so roof angle and direction is an important factor for consideration.

A Simple Worked Example of Evaluating Solar Proposals

Business on a Typical Demand Tariff evaluating a proposal for a 100 kW solar installation

Assuming that a Nil export condition has been imposed by the utility and that consumption is typically greater than the generating capacity.

Power rating of the PV system: 100 kW

Expected Peak Generation: 80 kW
Expected Energy per Day: 475 kWh

Energy charge: 8 c/kWh (combining all the various kWh charges and rounding)
Demand charge: $22 /kW (rounded)

Assuming 5 day a week operation or 20 operational days per month.

Expected saving off monthly bill = (475 kWh x 20 days x 8 c/kWh) + (80 kW x 20% x $22 /kW) = $760 + $352 = $1,112.00 / month

If you could buy this system installed for $150,000 after government rebates the simple pay back time calculation would be 11.25 years.

As you can see it really is easy Evaluating Solar Proposals for business returns, so make sure someone performs this simple set of checks before going ahead with an installation so you know what to expect on your power bill.