Today from 12-1pm Twitter was buzzing about #DaylightHour, companies posted pictures of unlit offices and conference rooms, meanwhile employees went about their daily routine. Daylight Hour is an event hosted by the Building Energy Exchange in which they asked that everyone “turn it off” for an hour. This is actually an effective idea since afternoon hours, while most people are at work, overlap with peak demand, which is when the demand for energy is at its highest point throughout the day. Considering demand is high during the afternoon, the price of energy is also more expensive. If we take the time to “turn it off” for an hour during the day, we not only conserve energy, but cost as well. Instead of having this be a one-time event, let’s try to make Daylight Hour a daily occurrence. The Building Energy Exchange actually conducted a study titled, Let There Be Daylight, which outlines Daylight Hour’s cost savings and how it makes for a better work environment. For more information about the event please visit: http://be-exchange.org/events/63
Published to LA Confidential, Summer 2015
Technical issues may compromise the value of an on-site photovoltaic (PV) system. Reduced output, PV outages, or electrical problems may leave a host wondering if the decision to go solar was wise.
One way to minimize this risk is to consider a Power Purchasing Agreement (PPA), in which a developer owns, installs, and operates the equipment, so all such issues should be his/her responsibility. If the system goes down, the developer loses electricity sales. That is a good incentive to ensure a quality installation, and most PPA-based systems have a decent track record.
Entering into a 20-year arrangement involves trust, and some risk. The previous article covers in detail some of the risks involved with PPAs, meanwhile, this article addresses the technical issues.
Before spending time and legal fees negotiating a PPA it is wise to develop a short Memorandum of Understanding (MOU) to clarify and settle any technical issues. Clarification of these technical issues may then be incorporated into the PPA, with failure to adhere seen as a breach by the developer, thus releasing the host.
A technical MOU may cover:
A professional feasibility study (done preferably by an independent third party) is required to verify the claimed economic and energy values of a PV system. Analysis should use acceptable software and methods that optimize location, tilt, and orientation, of the site and panels.
Will the design maximize kWh production or financial gain? The latter could alter the orientation of the panels so peak demand is reduced instead of merely making the most kWh.
How will aesthetic issues be addressed? In one case, a host realized that the PV panels would be visible atop a historic building, leading to complaints from preservationists. The panels were then placed flat on a vertical wall, rather than at the optimal tilt angle for power production. Neither the host nor the developer were happy with the resulting output, which was almost 40% below expectations.
How should the system be sized? Some say projects should be designed to produce 90% of the facility’s annual kWh, with capacity limited to the net metering limit e.g., 125% of peak facility demand, up to 2 MW. But a developer may seek to use the site to generate more power than needed in order to sell the excess in the wholesale market.
If the host decides not to proceed, how are the development costs incurred by the developer or host prior to a PPA to be compensated or shared?
To ensure quality and future serviceability, a host should have input on characteristics of critical components e.g., panels, inverters, commercial transformers including efficiency, warrantees, ratings, and brands/sources. While the developer will be expected to meet all local electric and building codes, there may be a desire to exceed them to ensure performance and durability. Those specs should then apply to any future changes to the system.
The choice of equipment may also impact performance. The type of inverter, which converts the PV’s direct current (DC) output to alternating current (AC) power, for example, may affect how much power is produced. Common in residential PV systems, micro-inverters are more expensive than the string inverters typical in commercial applications. However, unlike the string units, the micro units may yield higher overall performance if some panels are occasionally shaded, which should be minimized as part of the system’s design. The quality of inverters may also have consequences. In a system atop a firehouse, a poor quality inverter failed, resulting in a voltage spike that “fried” some of the host’s appliances and a computer’s power supply. The installer went out of business, leaving the host to deal with the damage.
System Safety and Security
How will the system be hardened to ward off squirrels, birds, and severe weather? What measures or equipment will be taken to secure against theft?
If future problems arise, it pays to have copies of drawings (in both hard copy and electronic form, at both the site and in the host’s files) for all electrical and mechanical installations. Copies of all inspection reports and permits that were required to attain utility and city permission to start the system should be included in the documentation.
Addressing such issues before getting deep into a PPA may identify potential sources of conflict. Ironing them out early reduces future risk and helps create a win-win scenario.
Published to LA Confidential, Summer 2015
Rather than buying a solar power system, many commercial customers purchase just the power they produce by using a Power Purchasing Agreement (PPA). Like retail power contracts, PPAs (which may run for 20 years) need to be reviewed by an experienced consultant, as well as an attorney before it is accepted by a customer. In a subsequent article, we will discuss the technical issues involved with solar projects, but for now we will focus on the financial and commercial terms of an agreement.
In a PPA, a hosting facility allows a developer to install photovoltaic (PV) modules on their roof or grounds. The developer covers the installation cost, based on the host’s promise to buy all of the system’s power during the PPA’s term. The power is consumed on-site, and any excess is “net metered”, i.e., fed back into the distribution grid, with a credit given to the host’s electric account.
A PPA combines a construction document, a power contract, and a tenant lease into one overall agreement.
Analyze Before You Sign
Before embarking on a PPA, a feasibility study (done by an independent third party) is needed to estimate project value, cost, and to review major issues. At minimum, it should verify the numbers offered by the developer. In addition, it should utilize software (such as PVWatts) and solar analysis equipment to assure that the site is appropriate, and to determine the most economically favorable module capacity, location, tilt, and orientation.
The Construction Document
An acceptable timeline for the work is essential, with penalties to ensure it is finished in a timely fashion. Remember: you are giving the developer exclusive access to use your roof or other property, and long delays may deprive you of expected savings.
Attention to the usual activities such as, security, safety, cleanup, staging, storage, coordination of trades, subcontractors, and possible service interruptions is required during construction.
During and after construction, various types of insurance (for both the host and developer) must be maintained. Financial risks and obligations such as liens, and indemnifications must be defined.
Construction often reveals problems such as property conditions and necessary repairs or alterations to electric services. A PPA must contain provisions to address these issues as they arise. For roof mounted projects, always check to ensure your roof warranty is not compromised by the installation.
Costs for the utility interconnection must be defined, including permits; a review by the host’s electrical engineer; and, other charges by the utility.
The Power Contract
If this was a 20-year contract for power, what provisions would you want included?
First, what are your expectations? Many customers wrongfully assume that each kilowatt-hour (kWh) generated by the modules will cut their electric bill by its average cost per kWh.
While single-family residential rates are based solely on kWh consumption (plus some fixed charges), commercial rates charge for both kWh and monthly peak demand (kW). An averaged electric rate includes both cost components. PV power will reduce kWh seen by the utility meter, but may not do so (to the same degree) for monthly peak demand. To properly value solar PV, use interval metering to show exactly what kW was contributed at the time of each monthly peak and recalculate the bills using this new electricity profile.
If the PV system reduces peak demand, an annual capacity charge (based on a building’s summer load equal to that of the grid operator) may also occur. Since PV systems tend to peak in the afternoon, you may realize savings in reduced capacity costs. Be sure to consult with your commodity supplier to ensure you receive a credit for this reduction. In addition, a power contract is normally based on your previous electric profile. If you have not advised your competitive electric provider beforehand, you may be subject to balancing penalties as your electric purchase requirements decrease. Also, don’t forget that if your demand level changes, you may be reassigned to a new service class by your utility. This may actually be beneficial, but it helps to be aware of this possibility and its implications.
A PPA may have an annual price escalator e.g., 2%, that bumps up the fixed price each year, regardless of how the utility’s tariff changes. However, recent rate increases should inform negotiations around that number. Another approach would be to look into tying the price to an index. For example, in New York City you could use the New York Independent System Operator’s (NYISO), Zone J, On Peak Day Ahead price.
Another option is for the host to charge the developer rent for use of the property, in which case the operational risk is on the developer.
In the sales pitch, a developer may show how much power the system will produce based on a simulation. Though rarely stated, PPAs are based on “best efforts.” You get whatever the developer is able to supply. Components may fail, or be poorly maintained, reducing solar output. Since the host has, in effect, optioned use of your property for 20 years, any long-term reduction may cut significantly into the host’s expected savings. A minimum level of performance should be built into the PPA with a mechanism to reimburse the host for the extra cost of power they must secure elsewhere. Ask the developer to share the warranty provided by the manufacturer of the modules and electrical inverters. If the developer uses quality equipment, the warranty should guarantee an acceptable amount of output and savings throughout its lifespan.
Various “what ifs” also require your attention. The economics of a PPA take advantage of net metering, but some utilities want to reduce its dollar value. Will the PPA’s power price drop to reflect such a change? The opposite may occur if a “feed-in tariff” (FIT) is created that offers a developer much more for their solar power than they could get from the host. Does the PPA allow them to take advantage of a FIT without sharing that bounty with the host?
Like a power contract, may a PPA be terminated? If so, under what conditions, and at what specific cost?
Don’t forget about incentives. Many states can provide significant incentives such as those provided in New York (see http://ny-sun.ny.gov/ ).
The Tenant Lease
The solar developer becomes a long-term tenant on the host’s roof/property, similar to a billboard or cellphone tower. To what tenant services are they entitled, e.g., parking, security, snow removal? What modifications can be made, and under what limits e.g., hours/days of access?
Could the developer and his/her system be evicted, if so under what conditions? How would the resulting cessation of power service be handled as part of that action?
How will the host be insured in case of a lawsuit, e.g., due to off-site damages if PV modules are blown off the property or are damaged during a natural disaster?
If the inverter fails, resulting in a voltage spike that damages the host’s or other tenant’s equipment, can the host sue for losing use of the facility?
If the developer fails to maintain the system and/or goes bankrupt, at what point is the system deemed “abandoned” and becomes the host’s property?
At this point, it should be clear that an expert in energy contracts should be involved. Remember: sign in haste, repent at leisure.