Webinar: PV Financial Analysis

1. Matt Heling Program Manager Solar & Customer Generation Pacific Gas & Electric Co. Webinar:PV Financial Analysis • Garen Grigoryan • Business Analyst • Solar & Customer Generation • Pacific Gas & Electric Co.

2. Webinar Goal • Review concepts and resources needed to understand and/or perform an analysis of PV system cost-effectiveness.

3. Agenda • PV system costs • PV systems benefits (financial) • Methods of financial analysis

4. Energy Efficiency

5. Energy Efficiency • Energy efficiency is typically the most cost-effective way to reduce your energy bill • Energy efficiency also reduces the size of the solar system you need • Can save $1,000’s of dollars on the cost of the system • An energy efficiency audit is required to be eligible for some customer-side incentive programs

6. Large Solar PG&E Home: PV System Cost and Payback Large Solar PG&E Home Total Upfront Savings: $8,889 11.9 Panel Reduction *($9/watt)-CSI Incentive -30% Federal Tax

7. Site Screening Criteria

8. Site Screening • What physical site characteristics makes a site a good candidate for PV? • Orientation – S or SW is best • Solar “window” – Access to mid-day sunlight • Roof tilt – ~30º is ideal, but even flat is okay • Weather – Typically good in CA

9. System Performance

10. PV System Performance Rules of thumb: • Each 1 kW of PV system capacity typically*… • Requires ~100 ft2 of roof space • Produces ~1,300 – 1,700 kWh/yr. • Depends on many factors, including: • Location • Shading • System orientation • etc. PV production calculators can estimate production for specific PV system types, locations, technologies, configurations, etc. * Values presented are approximations only and may vary depending on a variety of factors.

11. System Costs

12. Capital Investment • Modules (Panels) • Inverters • Balance of system cost Typical installed costs are $8 to $10 per Watt

13. Operations and Maintenance Costs • Washing • Cost related to hiring a service to perform this maintenance twice a year • Inverter replacement • Typically every ten years • PMRS (Performance Monitoring and Reporting Service) • Additional monthly cost - offset by owner’s awareness of system performance

14. Incentives

15. Types of Incentives • CSI – California Solar Initiative • NSHP – New Solar Homes Partnership • MASH – Multifamily Affordable Solar Homes • SASH – Single Family Affordable Solar Homes • Local Incentives and Financing Opportunities • San Francisco • Berkeley (Berkeley First) • Sonoma (SCEIP) • Federal ITC / Depreciation

16. CSI – California Solar Initiative • Applies to Retrofit Residential and Non-Residential, plus New Construction Non-Residential • Incentives designed to decline over time • Currently both Residential & Non-Residential are in step 6 • Two types of Incentive Payments • EPBB (Expected Performance Based Buy-Down) – one lump sum paid upfront • PBI (Performance Based Incentive) – once a month payments made over 5 years

17. CSI Current Incentive Availability

18. NHSP – New Solar Homes Partnership • Only For New Residential Home Construction • Builders • Developers • Custom home owners • Aims to install 400MW • Incentive budget is $400MM • One time, upfront, expected performance based incentive (EPBI) • PV system size 1kW AC or larger (>5kW requires justification)

19. MASH and SASH • Designed to encourage solar adoption for low income housing residents • MASH • Administered by PG&E • $108MM available for incentives • Track 1a: $3.30/Watt for systems that offset common load • Track 1b: $4.00/Watt for systems that offset tenant load • SASH • Administered by Grid Alternatives • $108MM available for incentives • Very low income customers may receive a 1kW fully subsidized (up to $10,000) system

20. City Government Incentive • San Francisco • 10 year program • In addition to other incentives • $1,000 to $3,500 for Residential • Up to $10,000 for Commercial • Low income residents may qualify for additional grants

21. Federal ITC • Solar Investment Tax Credit* • Went into effect January 1st 2009 • Available for next 8 years (through 2016) • 30% of net solar system cost • No monetary cap • Applies to residential & commercial *All tax related statement are designed to inform and not to be construed as tax advise. Please consult a tax attorney before making any purchasing decisions.

22. Bonus Depreciation • Applies to commercial system owners Only • Benefits extended for systems installed in 2009 • 50% of cost of capital investment • Up to $250,000 with phase-out threshold of $800,000 • Benefits will continue for systems installed 2010 with reduced depreciation allowances • Allowed write-off up to $125,000 of capital expenditure • Subject to phase-out once capital expenditure exceeds $500,000 *All tax related statement are designed to inform and not to be construed as tax advise. Please consult a tax attorney before making any purchasing decisions.

23. Sample Costs • Example* for average SF household of four • - Monthly electrical bill $75 to $150 • - Installing 3.0kW AC System *These Incentive and ITC values are for demonstration purposes. Please consult a qualified tax attorney for applicability of various Incentives and grants.

24. Electricity Costs and Net Energy Metering

25. Electric Rates • Two basic types of rate schedules: • *Both incorporate the concept of tiers: • The more electricity is consumed, the more it costs. • Example: 0 - 100 kWh $0.10/kWh 100 - 200 kWh $0.12/kWh etc. • Tiers apply to both “flat” rates and TOU rates

26. Rate Tiers – Impact of PV Output from PV systems tends to offset the most costly electricity first.

27. TOU and PV

28. Net Energy Metering (NEM) • NEM allows customers to receive credit for electricity produced in excess of what is consumed on-site. • Utility grid acts as “battery” • Credit is at the relevant retail rate • Annual true-up • AB 920: Credits for excess generation (kWh) (details TBD) • Can zero out energy portion of bill, but other (minor) service charges still apply • Typical customer sizes PV system to ~80% of annual energy (kWh) consumption NEM is especially valuable for customers on TOU rates because PV system output tends to occur during the most expensive (peak) periods.

29. Financing Options

30. Purchasing Options • Cash / Financing • Power Purchase Agreement • Lease To Own

31. City and County Financing • Berkeley • Creative financing – Berkeley First • Sonoma County • SCEIP – Sonoma County Energy Independence Program • Financing is for existing buildings only • Repayments made through property tax bills over time

32. PPA Structure • Third Party owns system and is responsible for financing, designing, installing, monitoring and maintaining for the customer • No upfront fee required • Customer purchases electricity (kWh) the system generates at contracted rates • Customer may purchase system after contract expires • Contracts are typically 20 to 25 years • RECs (Renewable Energy Credits) are claimed by third party

33. Lease To Own • Third Party owns system and is responsible for financing, designing, installing, monitoring and maintaining for the customer • Customer typically pays a small upfront fee • Customer enters into a lease agreement • Significant reduction in electricity bill • Contracts are typically ~10 years • Leases may have annual built-in increases – typically not exceeding increases of electricity rates

34. Renewable Energy Credits

35. Renewable Energy Credits (RECs) • RECs are associated with the “green” component of electricity from renewable sources • RECs are presently traded in voluntary markets • ~$0.01–0.05/kWh • Generally, for PV systems on the customer side of the meter, RECs are owned by system owner • For PPAs, the owning 3rd party retains RECs • May become more valuable in the future – particularly if utilities are allowed to use RECs to meet Renewable Portfolio Standard (RPS) goals

36. Methods of Financial Analysis

37. The Key Questions • How much does/will my PV system cost? vs. • What is the value of the avoided electricity costs and other financial benefits?

38. Key Inputs and Variables • Incentives • May be received up-front or over time • Tax credits • ITC • Other local tax benefits • Financing method • Cash vs. loan vs. PPA vs. … • Other assumptions/concepts • Discount rate (opportunity cost) • Compound interest • Capital (installed) costs • PV modules, inverter, installation, monitoring equipment, etc. • Inverter replacement • O&M costs • Panel-washing, monitoring service, etc. • PV system performance • Annual energy production • Performance degradation • System life • Value of electricity displaced • Projected electricity production • Electric rate type (TOU vs. not) • Projected future electricity rate increases

39. Methods of Analysis • Simple payback • Years until costs are recovered • Total life cycle payback • Considers benefits received after simple payback is attained • Cash flow model • Shows expenses and revenues each year • See Appendix for example/illustration • Internal rate of return • Average annual profit (loss) over life of system

40. Information Resources

41. Information Resources

42. Thank you! • Your thoughts? • Suggestions for future content? • Opinions on content and delivery? • Topics to emphasize or de-emphasize? • How can we provide a better service? Feedback is welcomed! mgh9@pge.com

43. Appendix

44. Net Energy Metering (NEM) Sell Power to the Utility by Day • Buy Power at Night and Winter Exchange at retail Annual billing cycle

45. Average monthly usage PV system production kWh/mo Roll over 750 500 250 May October April “SUMMER” “WINTER” NEM

46. Example Up-front, cash purchase of PV system Profit increase with time (Simple) Payback at ~Year 15 Value of displaced electricity grows as assumed electricity cost increases outpace assumed performance degradation Inverter replacements Capital costs – (incentives + tax credit) Note: This chart and the values shown are for illustrative purposes only.