Solar energy has attracted massive investments across the world in recent years and there are two strong reasons for this. Firstly, the cost of photovoltaic technology has been declining rapidly since the year 2000, when solar panels were around 10 times more expensive. Furthermore, many countries and companies have committed to reducing greenhouse gas emissions, and solar energy is a convenient way to achieve this.
For many building owners, implementing solar energy means becoming familiar with a new technology, which brings a unique set of technical challenges. Although photovoltaic systems have much simpler maintenance needs than other types of generating equipment, they still require specialized skills for installation and maintenance.
Solar energy systems have become much more affordable, but a large commercial or industrial installation can easily become a multi-million dollar investment. To maximize the value of such an investment, the photovoltaic system must be properly designed, installed and maintained.
There are three main options for building owners considering solar energy:
- Direct purchase, where the photovoltaic system becomes part of the property.
- Solar leasing, where the building owner leases a solar panel owned by a third party.
- Solar Power Purchase Agreement (PPA), where building owners purchase energy output from a third-party owned solar panel.
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Buying a Solar Power System
This option is the simplest to explain: the end user owns the photovoltaic array and its energy production is subtracted from the electricity bills. Savings made in the first few years are used to recover the cost of installation and all production beyond that point is essentially free electricity, with only a small maintenance cost.
Photovoltaic systems can often achieve a payback period of less than 5 years. On the other hand, solar panels can last 25 years, while inverters and batteries last around 10 years. This ensures a long-term power supply that operates with a free and clean input – sunlight.
Because solar energy systems for large C&I buildings involve a significant investment, companies often turn to loans to cover their costs. The advantage of this option is that savings can be used to pay off debt and the net expense is zero:
- Businesses often have access to low interest rates. They often buy equipment with loans to avoid a sudden outlay, even if they have funds available.
- In the case of solar energy, electricity savings can typically cover the entire debt, while leaving net savings.
The main advantage of purchasing a solar energy system is that the long-term benefits are maximized, in exchange for a higher initial cost. Also consider that solar incentive programs are typically for the legal owners of PV systems and go to the supplier if you sign a solar lease or PPA.
Of course, owning a solar photovoltaic system comes with maintenance responsibilities. The surface of solar panels must be kept clean to maximize energy production, and warranty claims may be required if a component of the system fails. To own a solar energy system, building owners may have to expand or train their maintenance staff, or they may hire an outside company for routine maintenance.
Rented Solar Energy Systems
Renting a solar power system is not much different from renting an apartment or car, where you pay a fixed fee at regular intervals to use the asset. The lease payment is always the same, regardless of solar productivity and the current season.
System maintenance is typically included in a solar lease, and this means the vendor files warranty claims if any system component fails. Double-check your contract to ensure these services are included, otherwise you will be responsible for maintaining a rented facility.
As mentioned above, a solar lease involves forgoing landlord incentives such as cash rebates and tax deductions. However, you can save immediately by avoiding paying upfront. Just remember that part of the savings is used to pay rent.
How power purchase agreements work
A solar PPA is similar to a lease, with one important change: Instead of paying a fixed fee for using a solar panel, you pay a variable fee based on kilowatt-hour output. As a result, you can expect to pay less during the winter months and more during the summer.
The kilowatt-hour price in a PPA is much lower than the local electricity tariff and building owners realize savings from the first month of operation. The kWh price can be fixed for the entire term of the PPA, or subject to a small inflationary adjustment each year, but the customer knows all the conditions in advance. On the other hand, conventional electricity tariffs are subject to unpredictable price increases and regulatory changes.
The Importance of Energy Efficiency
In many cases, buildings are equipped with solar energy systems without solving energy efficiency problems. However, energy consultants recommend a combination of both measures to achieve the best result.
- Energy efficiency measures reduce the building's energy demand, reducing electricity and gas bills.
- As electricity consumption is now lower, any solar energy system deployed will serve a greater portion of the total.
On the other hand, if an inefficient building is equipped with a solar energy system, electricity production may represent only a small fraction of total consumption.
An energy audit is strongly recommended as a first step before proceeding with any energy efficiency measures or installing renewable generation systems. Each building is unique, and effective upgrades to one building may have little or no effect on another. However, energy consultancy engineers can find the best approach for each property.
