A seemingly simple question – and yet the answer can be elusive, particularly when trying to compare different commercial solar project alternatives or financing options on an “apples-to apples” basis.
The situation is further complicated today by numerous Power Purchase Agreement (PPA) and Solar Leasing alternatives that require no capital investment from the customer while providing immediate and significant savings in electrical costs (i.e. it costs my business zero to go solar). The PowerFlex team has completed a number of such PPA-style solar projects over the last several years; the benefits can be extremely attractive, particularly for non-tax paying entities or corporate entities with specific capital investment constraints.
Historically, however, most of the commercial solar installation projects we have developed at PowerFlex have involved the outright purchase of solar PV systems by businesses. The economics of solar project ownership are compelling, particularly for tax-paying corporate entities in states with attractive solar investment and solar incentive programs, like New Jersey.
The chart below is from the 2010 Annual Report prepared by the Office of Clean Energy in New Jersey’s Board of Public Utilities. It shows the significant increase in NJ solar installations driven by reduced solar equipment costs in conjunction with the attractive NJ State SREC market, as well as Federal and even Utility-level solar incentives:
Source: Office of Clean Energy in New Jersey’s Board of Public Utilities 2010 Annual Report
Purchasing a commercial solar photovoltaic system in this manner is often characterized as the equivalent of “pre-paying” for 30 years of electricity. This is a fitting analogy as going solar for businesses typically requires a large upfront investment but will then provide years of predictable power generation with minimal ongoing operational & maintenance costs.
The actual gross cost of solar PV systems is easy enough to determine, and these costs are typically expressed on a “dollar cost per watt” basis. For example:
Note that New Jersey ranks 4th for the entire nation, due to the very attractive solar incentive programs and solar tax credits offered by the state. Source: http://openpv.nrel.gov/rankings
The good news for businesses currently evaluating the cost of solar systems is that there are a number of excellent resources that provide greater transparency into commercial solar system pricing and cost information.
However, even with ample solar system pricing data, it can be difficult to accurately compare cost information between commercial solar projects. The solar cost per watt metric itself can be problematic, in some ways it is similar to buying a car on a “cost per horsepower” metric.
The answers to questions like these can materially impact the cost of solar power systems for businesses.
One final caveat is that the ultimate net cost per watt of a solar PV system can be quite different than the initial gross cost per watt. Many of the available federal and state solar incentive programs significantly reduce the cost of solar through upfront cash solar grants or solar investment tax credits..
We at PowerFlex advise our clients to focus on the overall Return on Investment for prospective solar projects in addition to the solar cost per watt. Our objective is to maximize project returns and cash flow certainty while minimizing risk and limiting our client’s exposure to unknown variables.
If you would like to learn more about the cost of commercial solar systems for your business, please contact us at PowerFlex.Contact Us Today!