[RE-wrenches] Solar electric generation system seems to make noeconomic sense

Mon Jul 27 11:40:57 PDT 2009

The analysis on the business side leaves out the 5 year accelerated depreciation allowed (federal level - in Texas it holds true with state business tax, so he might want to see if that applies there). It gets slightly convaluted in how the mechanics work depending on how depreciation is taken and what quarter the property is installed, so an accountant can best do the quick numbers.
I always want to ask these guys (but never do) how they ever justify buying a car or furniture.

Holt E. Kelly
Holtek Fireplace & Solar Products
500 Jewell Dr.
Waco TX. 76712
254-751-9111
www.holteksolar.com

  ----- Original Message ----- 
  From: dan at foxfire-energy.com 
  To: RE-wrenches at lists.re-wrenches.org 
  Sent: Monday, July 27, 2009 7:07 AM
  Subject: [RE-wrenches] Solar electric generation system seems to make noeconomic sense

  Hey everyone;
      I've been asked to assist a customer in investigating the possibilities of utilizing renewable energy in his small manufacturing company. following is his last email. I'm up to me arm pits in summer work at the moment, and not in the position to properly investigate or respond. was wondering if any of you were in the position to share a perspective. (only the names have been changed to protect the innocent). thanks , db:

  Dan,

  Residential Analysis

  On the residential analysis, at best case ( NH $6k rebate not being taxable) at $35k minus $6k and -30% federal tax credit you have $20,300. net cost today.  At a 25 year interest rate of 3.25% (5.41% available today - 40% tax rate) the same dollars placed in a 25 year interest earning account would grow to $45,696. (That is after taxes are paid at 40%)

  My present residential kWh rate (not business rate) is .0633/kWh.  Your 5kW system at 465 kWh generated per month x .0633/kWh = $29.43 saved per year.  If the savings per year earns a compounded interest at 3.25% (after taxes)  and the kWh stays the same each year, the compounded savings in the 25 yr. lifespan at 3.25% (after taxes yield) = $13,653.  Now this assumes the $29.43 increases at a rate of 3.25% annually (increase in utility charge per kWh) .

  So in 25 years (the projected lifespan of the solar system, if all goes according to the plan) the $20,300. would grow to $45,696. after taxes.
  The savings each month would grow too, at the same rate as the money placed at 3.25% and that total in 25 yrs. = $13,653.

  In order to reach $45,696. based on kWh savings, even at an astounding 6% annual increase in the utility rate for 25 years, the savings the first month would have to be $66.18 (not $29.43 which is today's reality) and increasing from that number at an annual rate of 6% compounded monthly to equal the same $45,696.   

  I have ignored the $5.41 monthly basic charge that all rate-D (domestic use) customers have, which would add to $2541. in 25 years at 3.25% increase annually.  I have ignored any maintenance costs, failed electronic components beyond warranty period,  and breakages on the solar equipment in 25 years.

  I used www.bankrate.com loan calculators, savings goal calculators, and savings calculators to arrive at these numbers.

  Business Analysis

  On the business analysis, it is a disaster because putting the kWh aside, the utility company will not reverse the peak load (called demand charge or distribution charge) per kW.  Today they charge $4.44 per kW.  We run about 32kW now and 2400 kWh monthly.  Even if we generated 100% of the kWh we consumed per month (on a much larger solar array) the Demand Charge still hits us at about 40% of our electric bill, and it will never be reduced by the solar energy.  Since the reduction in our electric bill will only be to a maximum of 60% reduction monthly, the business side comes out worse than residential.  The utility company bases the peak kW number on ANY 15 minute period of time at anytime during the billing cycle(a month) and it can only ratchet upwards, never downward.

  The business rate G-2 is 9.2 cents per kWh today (not the 17 cents I previously assumed by dividing the total monthly kWh into the utility bill $ total.) Even at best possible rate of $6. per watt, which doesn't exist, At 465kWh monthly from 5000 watts, we'd need to have a 25.8kW solar array to satisfy 2400kWh monthly.  $6. x 25800 watts = $154,800. for the system.  That cost -30% = $107,800.  When placed in an interest bearing account for 25 yrs. at 3.25% (after 40% taxes on 5.41% APY) that money grows to $242,664.  

  Say we matched our consumption in kWh with the energy generated, so our supply cost drops to zero.  That still leaves our $4.44 per kW which is unaffected by the solar electric generation system.  At $142.08 per month (32kW x $4.44), each and every month, with an assumed increase of the kW rate at 3.25% it amounts to $65,950. in demand charges.  

  On the kWh, at 9.2 cents per kWh, 2400 kWh would generate a bill of $220.80 monthly.  Say we see an annual increase of 3.25% annually for 25 years.  The potential savings is $102,491.  Say we matched the kWh consumption with the solar system 100%.  That would leave us with an outlay of $65,950. in demand charges.  Take the $102,491. savings and subtract the $65,950 demand costs.  That leaves the business with $36,541. compared to $74,223. left over if the utility bills had just been paid in full at an increase of 3.25% annually.

  In the business example, note I am stretching the cost of the installed system downward at $6. per watt,
  stretching the increase in the cost per kWh to a rate of 3.25% over a span of 25 years (perhaps it will not increase at that rate),
  assuming no maintenance nor repair, nor replacement expenditures in 25 years operating the solar system,
  and overlooking the monthly basic charge of $24.61 which when increased 3.25% annually for 25 years amounts to $11,423.

  Interestingly enough, aside from this analysis, I have never read anything about the economic trap the utility company Demand Charge creates for the installation of a solar electric system for small business.  

  The my competitor's solar array at $400k - $226k VT grant - 30% federal tax credit calculates out to $2.09 per watt installed cost.  Do they pay a Demand Charge per kW load?.

  Doesn't it make more sense to wait until the price per watt on solar electric generation makes economic sense?  Correct me if I made any mistakes in my analysis please.  I would love to justify the installation from an economic standpoint.

  I contacted the NH PUC and brought the issue of the Demand Charge to their attention.  I was told there is nothing they can do about it, it is up to the small business consumer to uncover that little gem.

  Jim

  Dan Brown
  President
  Foxfire Energy Corp.
  Renewable Energy Systems
  (802)-483-2564
  www.Foxfire-Energy.com
  NABCEP #092907-44 

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