I don’t imagine I’ll have a chance to write much about today until the conference is over.
I scored one of a limited number of seats in a session with Andy Black. Andy is CEO of OnGrid Solar. He is presenting on the complexities of financial analysis of solar across all various markets in the US.
Presenting this information is no easy task. In any given market there are different utility rates, rates structures, demand charges, SRECs, FITs, TOU charges, rebates, taxes, tax credits, etc.
On top of the local market structure we’ll be exploring various financial performance models. Most people looking into solar are familiar with the concept of “Simple Payback.” We’ll also be looking at Lifecycle Payback, ROI, APY and IRR, and increase in Resale Value.
You may not care about what’s on our syllabus for today, but I am stoked! Today and tomorrow are why I came to Denver. A full day of financial analysis, and tomorrow is a full day of electrical code update. I confess; I am a geek.
I was impressed with Andy’s presentation. When ever you get a bunch of solar geeks in the room politics are sure to be a big topic of conversation. Lucky for me, Andy was great at maintaining control of the room.
I have a couple of takeaways that I’ll talk about here without boring you of all the details. I’ll save that for another post
1) Solar payback is stupid.
2) Solar energy is complex.
Solar Payback is Stupid
Everyone in solar hates the question “When does my solar array pay for itself?” Why? Because homeowners don’t ask for the payback on any other product they buy in their lives. Car, pool, counter tops? No payback. Deck, porch, new vanity? No payback. So why solar?
People ask about payback with solar because electricity is a commodity. All the things I just listed have emotional reasons to buy them. The payback is the first time you use them and it feels good to have it.
The reason payback is stupid for solar is it is not a good metric to measure all the benefits an investment in solar energy provides. Payback ignores all the free energy, incentives, and other benefits that come after the system pays for itself.
The best metric presented for homeowners to consider is Annual Percentage Yield (APY). APY is the same as Internal Rate of Return if you have any business training. APY is what you get from your savings account or any other post-tax interest bearing account.
I’ll try to write more about other residential metrics you can use when thinking about solar at a later date.
Solar is Complex
As a solar contractor you have to know your shit. Many contractors that come to solar were electricians first. Great they know the electrical side, but how about roofing? Do they know how to keep your house from rotting from the top down the next time it rains? How about the financials?
Since I’m writing about the financials class, I’ll focus there. Even calculations like “simple payback” are complex. It is easy to make mistakes and mislead customers without meaning to.
One mistake I’ve seen recently myself was on a competitor’s proposal. Let me say that I respect this competitor a lot. I don’t think they would mean to mislead someone. They clearly stated a Return on Investment in the first year of more that 20%. Holy cow that sounds awesome! Why wouldn’t I buy? Because what they meant was Return of Investment. 20% of your money would come back in the first year. Completely different than Return on Investment.
Every one of the calculations we went through in our 8 hour class was simple on the surface. But as it happens in all math, one little mistake can make the results meaningless.
So now we’ve added “financial models” to the things a solar contractor has to know about. And don’t forget the assumptions that drive the results. What’s a reasonable degradation rate? Soiling? Escalation? Maintenance cost? Inverter replacement? Of course, these factors don’t even come into play if a contractor doesn’t know how to model system performance right.
What should you take away from this? In solar we still live a market of caveat emptor – “Buyer Beware.” I’m going to keep writing here to provide you the information you need to turn the tables to caveat venditor – “Seller Beware.”
So what do you do until our marketplace changes? Think critically about the numbers a contractor presents to you. Are they conservative? Are they too good to be true? Ask questions. Ask for sources. Can your contractor provide a defensible position for their assumptions?
Yesterday: Day 1 of the NABCEP Conference