Are solar panels worth it? Evaluating your business’s return on potential solar solutions

October 19, 2016

 

BUSINESS BRIEF


Is solar energy affordable for businesses?More and more businesses are going solar. But are solar panels worth it or even a good investment for you? Understanding the true value of any business decision requires that you weigh the total benefit against the total cost. Evaluating potential solar solutions and determining the overall return on your investment goes well beyond a simple pricing exercise. The benefits are multilayered and play out over many years—decades, really. 

Here are a few items to consider when evaluating potential solar solutions:

Short-term costs vs. long-term savings

When your business is considering going solar, your first impulse might be to focus on the short-term—i.e. on the costs. However, purchase price, cost-per-watt, a monthly lease payment etc. can be incomplete measures of the true value of a solar installation. Due to wide variations in solar panel efficiency, degradation and power production capabilities (in addition to the available financing options), a long-term view of the net effect on your bottom line is much more meaningful when determining if solar panels are worth it for your business.

Solar panels are built to last for decades. Depending on your organization’s location and energy use, a purchased high-efficiency system with a useful life of 30 or more years could pay for itself in just a few years or less. How quickly this occurs is determined by reduction in your energy costs combined with any available incentives.

...a long-term view of the net effect on your bottom line is much more meaningful when determining if solar panels are worth it for your business.

Purchasing offers the long-term advantage of owning the equipment and benefitting from the full useful life of the system. But, for a variety of reasons, a solar lease or PPA (Power Purchase Agreement) might make the most sense in both the short and long term. With a solar lease or PPA, you can see immediate savings on electric bills as soon as your system is installed and running, with little or no cash up front. However, you will have to make monthly payments throughout the term of the agreement. A typical lease or PPA runs 20–30 years and may include a variety of purchase and renewal options (terms and conditions will apply).

Even if the total savings from a lease or PPA aren’t as great as they would be if you purchased a system outright, they’re often enough to justify going solar. Solar leases and PPAs offer an increasing number of organizations access to the benefits of solar power without having to own, operate or maintain a solar installation themselves.

Product quality, performance and warranty

The performance of the solar technology you choose will have a tremendous impact on your long-term savings potential. A single percentage point change in a solar system’s efficiency could have a significant impact on your bottom line over the lifetime of power production. In addition, the quality of, and guarantees associated with your system will affect the security of your investment. Therefore, it’s smart to compare and weigh the long-term return on investment associated with:

  • How to determine solar power return on investmentDurability and reliability—How well does the solar installation stand up to harsh weather conditions, temperature variations and the normal wear-and-tear in your area? How often do panels need to be repaired or replaced?
  • Production/yield—How consistently does a panel perform, even in low-light or partly shaded conditions?
  • Useful life—How long are the solar equipment and related technology expected to last?
  • Degradation rate—All solar panel systems degrade over time, but some lose their production capacity much more slowly than others. How well can you expect your panels to be producing 10, 20 and 30 years from now?
  • Warranty—What does the warranty cover and for how long? Invest time to review the details when you’re comparing alternatives. Select a solar option with a solid warranty to reduce risk and offer your stakeholders greater peace of mind. Additionally, make sure the company offering the warranty is one that will be around in 10–25 years (or longer) to honor its guarantee.

Design, installation and maintenance 

How your solar system is designed is another factor that can impact your immediate and long-term bottom line. Do you have sufficient clear roof space for the system you want? What about parking lots or unused land where you could install solar carports or a ground array—either as a standalone system or in combination with rooftop panels? Would you need to invest more up front to acquire or modify the space required? Do you need higher efficiency panels to make the most of a smaller site footprint? Do the aesthetics of the panels and mounting hardware matter to you?

Some solar power solutions can accelerate your rate of return by offering extras such as energy monitoring and management software or battery storage. Are these options you would want to explore?

How your solar system is designed is another factor that can impact your immediate and long-term bottom line.

The solar company you choose should be able to help you answer these questions. They can also help you determine how your soil and surface types, shading, landscape or roof orientation, water availability and other site characteristics will factor into your solar project’s design and product decisions.

Designing a system that maximizes your return involves many variables. Solar energy production is only one part of the equation. Long-term operation and maintenance expenses once your commercial solar system is running also need to be considered. Whether you use the provider who installs your system, hire a third party or leave O&M responsibilities to the entity you lease your system from—understanding what it takes to ensure your solar panels work effectively for decades should be an important part of your decision process.

Regulatory issues and renewable energy incentives

Commercial solar panel investmentLocal, state and federal regulations will also factor into your solar project’s cost and viability. You’ll need to account for how the solar technology you choose connects to the local electrical grid and abide by any rules surrounding that connection. Your solar installer should be able to help you navigate these requirements.

The good news is that many local, state and federal incentives may be available to help your business adopt solar (or other green initiatives). For example, some areas offer net metering* options that help offset nighttime or demand-peak grid usage by allowing you to sell any surplus energy you produce. Many also have rebates or tax incentives available. Look into all possible government incentives to minimize your up-front solar investment and maximize your long-term return. This list of resources offers a solid launching point.

Financing options

As mentioned above, how you pay for your solar project also impacts the system’s long-term return on investment and will help you determine whether solar panels are worth it. Explore your options and compare them in light of your current budget and long-term needs and expectations. Possibilities include buying a system outright with cash on hand, getting a loan, leasing or entering into a Power Purchase Agreement (PPA). There are pros and cons associated with each.

SUMMARY

Are solar panels worth it? For most businesses, these are the top considerations in determining the long-term value of a solar installation. But there could be others depending on your industry, region, economics and the stakeholders involved in the decision making process.

So how do you put these considerations into action? Start by setting your priorities on paper and asking each solar company you’re considering to address them on your terms. This way you can do a true apples-to-apples comparison and determine the best long-term solution for your organization.

*Check with your local electric utility company to confirm net metering is available in your area. Utility credits and incentives vary by location and are subject to change. Please visit the dsireusa.org website for detailed solar policy information.

 

Related links:

Understanding commercial solar financing options: power purchase agreement (PPA)

How long does a commercial solar panel warranty last?

10 questions to shed light on Renewable Energy Credits

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