Tuesday, September 19, 2017

Solar Power in NH – Part 5 - Financing a Residential Solar System in New Hampshire

In this post, I take a closer look at funding a residential solar photovoltaic system in New Hampshire. Solar power has received a lot of coverage recently because the State rebates for new solar systems have been halted due to a lack of money in the Renewable Energy Fund that is set aside for this purpose and there have also been changes in the net metering regulations. The key point I want to make in this post is that there are still a lot of good reasons to install solar in NH - the net metering changes and the lack of a state rebate should not deter you.
Among the many good reasons to install solar on your home in NH are the following:
  • Electricity prices in NH are high and the production of your own solar power will provide you with some protection from further increases;
  • There is a generous federal investment tax credit on the installed cost of your solar system;
  • You have the ability to earn money through the sale of renewable energy credits (RECS);
  • Net metering of electricity in NH means that you get credit for the excess solar generated electricity that you feed into the grid during the daylight hours and you only pay for the net amount of electricity that you draw from the grid;
  • NH state rebates on the costs of installed solar might become available again in the near future.
In this post, I look at a typical system and figure out how these incentives come into play so that your solar system will eventually pay for itself over time. For my calculations and the rest of this discussion, I have assumed that a homeowner installs a 5 kW solar system (about 17 panels) at an installed cost of $15,000, which would produce 6500 kWh per year, and that the homeowner uses about 600 kWh/month (7200 kWh/year) of electricity at a rate of $0.16/kWh. I have also assumed that the homeowner lives in an area where there is a property tax exemption for installed solar. (See the NH Office of Energy and Planning website for a list of NH towns with property tax exemptions for solar installations.)
One of the most important incentives for residential solar systems is the federal investment solar tax credit. This program provides you with a tax credit of 30% of the installed cost of your solar system. This program is in effect until 2019, but the tax credit begins to decrease in 2020 and, beyond 2021, the program has not been renewed and it is possible that it will no longer be available in the future.
Another good incentive is the rebate provided by the NH Public Utility Commission (PUC). Until recently, a homeowner could receive up to $2500 from the Renewable Energy Fund administered by the PUC.. However, this program is presently on hold as has been reported in the press. The program has been a popular one and, owing to the flood of applications, the PUC has had to cease approving projects and awarding rebates until they know how much money they have to work with. The funds for this program come from Alternative Compliance Payments paid by the utilities. As noted in a previous post, these vary from year to year and the funding available from this source is unpredictable. I expect that the PUC will go back to funding projects, but not all installations will be able to get rebates and I expect the rebate amounts to be smaller. For the purposes of my analysis in this post, I have assumed that the rebate is not available. If you are fortunate enough to be awarded a state rebate in the future, this will just improve the cash flow and payback on your solar investment.
Another incentive is the sale of RECs, which I discussed in a previous post. Solar has a special carve-out class – Class II – in the NH Renewable Portfolio Standard: for every 1 MWh (1000 kWh) of electricity you produce from your solar system, you can sell the equivalent REC. Class II solar RECs are presently selling for between $15 and $20, so, if your 5 kW solar system produces 6500 kWh/year, you could sell your six RECs for  $15 each to earn an additional $90. However, it is important to keep in mind that, as a small producer of RECs, the administrative and commission costs involved in tracking, verifying and selling those RECs could be of the order of $50, eating up a good amount of  your REC income. To benefit to a greater degree from REC sales,  homeowners would need higher RECs prices or should install a larger solar system to produce more RECs to defray the administration costs.
Net metering is an important incentive but as of June 2017, new regulations were issued by the NH PUC, which reduced some of the monetary benefits of net metering. With the new regulations, homeowners, whose exports of power exceed their consumption, will receive a reduced rate for their monthly net exports. I discussed this in detail in my last post and determined the rate reduction would be of the order of 20%. Homeowners with monthly net imports will continue to pay the retail rates for their net imports but the non-bypassable charges are treated separately. These charges, which include the system benefits charge, stranded cost recovery charge, and the state electricity consumption tax, are of the order of 0.5 cent/kWh and will be billed for every imported kWh no matter how much electricity is exported. The homeowner will not receive any credit for these charges for their exported kWhs.
To get a better appreciation of net metering at work, consider the following chart which shows the projected usage and solar generation for that typical NH home with a 5 kW solar system. The chart was prepared using generation data from the PVWatt calculator and residential load profiles for a NH residence from the Department of Energy. The graph shows monthly usage and generation and is different from my graph in my previous post which charted hourly data. The monthly view is important one as net metering is presently carried out on a monthly basis. The data shows that in the winter months, October to March, electricity demand is greater than solar power generation so there will be a net import of electricity into the home in those months. Homeowners would pay retail prices for those net monthly electricity imports. For the summer months, April through September, the amount of solar generation is greater than usage so there will be a net export of electricity and the homeowner would earn the lower export rates for their net exports during those months. My calculations indicate that, for the NH home we are considering in this post, a 5 kW solar system would save a homeowner $990 in electricity charges over the year. This is about $57 or 5% lower than the savings that would have been expected from net metering before the recent set of changes to the net metering regulations.

With these incentives in mind, let’s look at funding a solar system. There are three basic ways that homeowners can finance their solar systems:
  • The first, and very popular with frugal northern New England Yankee types, is simply to buy the system outright using savings. The system then pays for itself through electricity savings, the federal solar tax credit, REC sales, and, if available, the NH rebate.
  • The second is taking out a loan from a bank to fund the solar system and paying it back over a number of years. For the purposes of my calculations, I have assumed a $15,000 home equity line of credit (HELOC) with an interest rate of 6%, no down payment, payable over 15 years, and that the interest payments on the loan are tax deductible.
  • The third approach is having a solar company pay to install the panels on your roof and you sign an agreement, known as a power purchase agreement (PPA), to purchase electricity at a reduced rate for an agreed number of years (typically 15). In a variant of this approach, known as a solar lease, you can end up owning the system after a number of years. The advantage of this approach is that there are no upfront costs, no bank loan, and you benefit during the period of the agreement from reduced electricity rates. However, in this approach, the solar company makes the investment and benefits from the incentives.
Each of these approaches have their respective pros and cons and will work for you in different ways – what is right for you depends on your savings and financial situation and how long you plan to be in your home. I took a look at each option and calculated the annual cash flows  over 15 and 20 years to compare how much money each of these options would put into your pocket. My key assumptions are that the electricity price is currently 16 cents/kWh and will increase by 2%/year, that RECs are $15 each and prices will decrease by 5%/year and that the administrative costs involved in selling RECs are $50/year. The results for all three financing options are plotted below.
The outright purchase option is plotted in blue. The initial outlay of $15,000 for the system is offset in the first year by the federal solar tax credit, the electricity savings of $990/year and REC sales of $90 (offset by the associated administrative costs and commissions). Every year thereafter, the initial capital outlay is offset by the annual electricity savings and REC sales. Early in the ninth year, the cumulative cash flows go from negative to positive. This is the payback point, so the payback period would be just over 9 years. After this, the investment is cash flow-positive and, by Year 15, the cumulative cash flow from the project is almost $7000. By Year 20, it will have risen to almost $14,000. Another way to view this financing option is that it is equivalent to making a $15,000 investment and earning a 8.7% return over 20 years, a return which, for most of us, is very hard to find these days. (Should the NH rebate become available, the project cash flows would be larger, the payback period would improve to 7 years, and the 20-year investment return would increase to 11.7%.)
Should you not have $15,000 available for a solar investment, you could consider taking out a loan for the solar system. There are a number of solar-system-specific deals available from NH lenders but, for this post, I have assumed a simple 6% home equity loan paid back over 15 years with tax-deductible interest. The cash flows are shown in orange in the chart above. The attraction of this option is that there is no initial cash outlay on your part and you benefit right away in the first year from that $4500 federal tax credit, which immediately puts that nice stack of money in your pocket. Going forward, you then have annual benefits of electricity savings and REC sales, but you also have loan payments of approximately $1520 per year. In this scenario, your annual loan payments are higher than your annual savings and that, over time, eats into that Year 1 tax benefit. By Year 15 your loan has been paid off and, from that point on, you benefit fully from your electricity savings and REC sales. By Year 20, the cumulative cash flow from the project will have risen to ~$8100.
The third option, popular with many homeowners in other states, is to have a solar company install a system on your home and then sign an agreement with them to purchase the produced solar power at a rate lower than the prevailing utility rate. For this case, I have simply assumed no outlay on the part of the homeowner and they get to purchase solar generated electricity for 13 cents/kWh, instead of 16 cents/kWh, giving an annual saving of ~$200. The cash flows for this option are shown in green - the cumulative cash flow from the solar project by Year 15 is approximately $3400; by Year 20, it will have risen to $4700.
Should you have different numbers and want to consider different system sizes, interest rates, or loan periods, feel free to use the Excel-based calculator that I have posted on this site and see what works for you. Please use the calculator as a guide only. Collect as much information as you can from other sources, get multiple quotes for your solar system and quiz each solar company on their payback calculations. Ultimately the more informed you are, the better your decision is likely to be. If you have questions or comments about the calculator, please reach out to me via email.
I have summarized the 15- and 20-year cash flow information for the three options in the table below. If we look at the cash flows for the project, it is clear that the best option, assuming that a homeowner has the funds, is the outright purchase of the system. The loan option, especially after 20 years when the loan has paid off, starts looking good as well. The least favorable option, over the 20-year view, is the PPA; however, if you don’t have the funds, and don’t want to take out a loan, it might be an interesting possibility.

Many of us don’t like home-investment projects with long payback periods or lengthy loans unless we are committed to staying in our homes for an extended amount of time. A report from the Lawrence Berkeley National Laboratory indicated that solar panels do increase the value of your home, but this only applied to homes with an owned solar system and not to homes where a solar company owned the system. So, if you pay to install a solar system and sell it before reaping all the long-term energy savings, you should gain from a higher sale price.
Take a look at the solar calculator I have developed and, if you have not done so already, seriously consider installing a solar system on your home. It will put money in your pocket over the long term, it will partially shield you from future electricity rate increases, and, most importantly, you will be helping to reduce greenhouse gas emissions from the burning of fossil fuels. In the meantime, while you are contemplating installing a solar system, remember to turn off the lights when you leave the room. 
Mike Mooiman
Franklin Pierce University

Tuesday, September 12, 2017

Solar Power in NH Part 4 – Residential Solar Output and Net Metering

In a previous post, I pointed out that there are many reasons for installing solar in New Hampshire and that residents should be taking advantage of these and benefiting from energy delivered daily by the sun to our homes. In this post, I take a look at a typical NH home with an installed solar system and examine its electricity consumption profile and its generation of solar power.
Let’s consider a typical NH home that uses about 600 kWh/month (7200 kWh/year). Such a home uses approximately 20 kWh/day, but this is highly variable and depends on the season, the outside temperatures, the number and nature of the installed electrical devices, and whether there is someone at home during the day.
Let’s assume that this home has installed a 5 kW system solar system (about 17 panels), which would (according to the NREL PVWatts calculator) produce about 6500 kWh/year or about 18 kWh/day. On an annual basis, this is a close match between consumption and generation. However, solar electricity generation only occurs when the sun is up and, as pointed out in a previous post, is highly dependent on the time of day, temperatures, and the amount of cloud cover. As a result, there is a significant mismatch between the hourly solar power generation and the consumption profiles, as shown in the figures below for typical winter and summer days in NH. The hourly consumption data were generated from a smart meter at a NH home and the hourly generation data from the PVWatts calculator.

The daily electricity consumption profiles, shown in blue, are different in winter and summer. In winter, there is an early morning bump up in electricity use as the house is warmed up, showers are taken, and breakfast is made. It then it drops off until the evening, when the home is heated again, lights are turned on, cooking is done, and the TV is turned on. In the summertime, we don’t see as much of a bump in electricity use in the morning because home heating is not required, but towards the end of the afternoon, the air conditioner gets turned on, along with cooking, lights, and TV to produce a significant increase in electricity consumption. (For this particular home, the AC unit is clearly used very frugally because the late afternoon/evening AC bump up is typically larger.)
Overlaid on both charts is the generation of electricity from the solar panels. For both dates, a sunny day was chosen and it can be seen that, for a most of the daylight hours, the system generates more electricity than the home is using. In this case, the excess energy is fed back into the grid and is available to be used by someone else nearby who does not have an installed solar system. It is this excess electricity, produced from a multitude of solar systems in New England, that allows the coordinator of the electric grid, ISO-NE, to ratchet down the generation of electricity from large fossil-fuel generation plants during this period. However, as soon as the sun sets and solar electricity production plummets, these same plants need to be ready to turn on electricity production to keep on the lights in New England. This highly variable generation profile presents challenges for utility-scale electricity generation in these days of large-volume solar power generation.
This data is notable because it shows that approximately 15 kWh, ~70% of the solar electricity produced during the daylight hours, makes its way to grid because the home’s electricity consumption is low during the period of peak solar power production. Using generation data from the PVWatt calculator and residential load profiles for a NH residence from the Department of Energy, I did the same hourly analysis for a whole year and it turns out that more than 60% (!) of the generated solar power would be exported from the home and energy use profile I chose. For a home using more electricity, say 9500 kWh/yr, the exported amount drops to 51%. For homes with larger solar systems, the amount could increase to above 70%. It is not obvious, but it turns out that even if, on a daily (or monthly) basis, solar power production is short of a homeowner’s needs, most of the electricity generated by the solar system makes its way to the grid.

During the period of excess solar power production, the homeowner is delivering electricity into the grid and building up an electricity credit that can be used to offset their consumption during the nighttime hours. This, basically, is how the concept of net metering works – the homeowner gets credit for excess electricity generated and is only billed for their net consumption. In this example, the home consumed 20 kWh during the winter day but generated 19 kWh from their solar system, so the homeowner would only be billed for their net consumption of 1 kW (if it was done on a daily basis). For the summer day, the home used 22 kWh but produced 24 kWh, to earn the homeowner a credit of 2 kWh. Net metering is typically done over a month so the daily credits and debits are totaled and, at month end, the ratepayer is responsible for paying any shortfalls or enjoying any credits that they can then apply the following month’s electricity consumption.

However, net metering is changing. The approach of just netting the consumption and generation of kilowatt hours and being billed for the monthly difference at retail rates is being reconsidered. There has been a lot of pushback from utilities across the country because they are concerned that net metering customers do not pay their fair share of the transmission and distribution costs that are built into rates. Homeowners with larger solar systems, who generate more electricity than they consume, end up not paying for transmission and distribution(T&D) costs but enjoying the privilege of been connected to the T&D grid and of drawing on it when the sun sets. Net metering is under review across the country and in NH the Public Utilities Commission (PUC) recently decided that the matter was an important one, that an interim change was necessary and further study was warranted.

The PUC issued new net metering regulations in June 2017, and, as a result, homeowners installing new solar systems could see a reduced benefit from net metering. If a home imports electricity - calculated by the monthly netting of imported kWh and exported kWh - the home owner will pay the full retail rate for their net usage. This includes all components of their electrical bill which includes the energy service charge, transmission and distribution charges. Other charges such as the system benefits charge, stranded cost recovery charge, and the state electricity consumption tax (the so called non-bypassable charges) will be billed for every kWh imported and the homeowner will not receive any credit for these charges for their exported kWh. However if, on a monthly netting basis, a home exports electricity,  solar system owners will receive for the net exports the full retail rates for the energy service and transmission charges but only 25% of the distribution charges and no credit for the non-bypassable charges.

In the table below I have calculated the implications of these changes for a typical Eversource retail customer in NH. The second column shows the components of present retail rates for electricity which total up a retail cost of electricity of 18.1 cents/kWh. The last column shows what the homeowner would be paid if they export more than they use after the recent net metering changes. The export rates take into account full credit for energy services and transmission charges, 25% of the distribution charges and no credit for the non-bypassable charges. My calculations show that the homeowner with monthly exports would receive 14.5 cents/kilowatt hour for their net exports which is a 20% reduction off the retail rate for imported electricity. Of course, the exact reduction depends on the particular utility and their retail rates in effect at that time. These changes will largely impact homeowners who install larger solar systems that deliver net monthly exports of electricity and will extend the payback period for their solar investment.

It should be noted that these changes do not impact homeowners who already have installed solar systems. They will continue to benefit from the strict monthly netting of consumption and generation and they will receive the benefit of full retail rates for exported electricity until 2040.

In my next post, we will take a look at the same home and look at the financing of a solar system and the importance of the various incentives, including the net metering changes, in generating a return from a new solar installation in NH.

Until next time, remember to turn off the lights when you leave the room. 
Mike Mooiman
Franklin Pierce University

Tuesday, September 5, 2017

Solar Power in NH – Part 3 – Ranking NH’s Solar

This is my third installment dealing with solar power in NH. In the first two posts, I provided some basic concepts about solar power, as well as information about NH solar potential and the large solar farm in Peterborough. As I drive around New England, I see solar installations popping up everywhere, especially in Massachusetts and Vermont. Rhode Island recently passed new laws that will continue to support solar in a big way so I thought it would be useful to do a comparison between the various New England states to see how New Hampshire stacks up.
The first information I sought out was how much installed solar each state has. There are several sources for this information, which have different degrees of reliability, ease and cost of accessibility, and different bases for the rankings. Direct comparison of the various sources is complicated by the different ways of rating the power outputs of solar plants. As explained in my previous post, solar photovoltaic (PV) installations produce direct current (DC) electricity and the rating of solar PV operations is often given as the combined DC output capacity, in kilowatts (kW) or megawatts (MW) DC, of the panels under the standard test conditions of 1000 W/m2 irradiation and temperature of 25oC – conditions known as one peak sun (see an earlier post for an explanation of irradiation and the peak sun hour concept). To feed electricity into the grid, the DC electricity needs to be converted into alternating current (AC) through a device called an inverter. During this conversion, there are losses through the electrical system and wiring. These losses are typically of the order of 5 to 10%, so the peak AC output of a solar system, in in kW or MW AC, can vary from 90 to 95% of the DC rating. However, there are also performance losses due to dust on panels, degradation of the panels over time, and elevated temperatures. In my calculations, I typically assume that the peak output of AC electricity from a solar system is about 80% of its DC rating.
In searching for installed solar capacity information, the most useful I found was the 2016 data from ISO-NE, which is included in the table below, along with the 50 state ranking carried out by the Solar Energy Industries Association (SEIA). I have also included a chart from the ISO-NE Final 2017 Forecast that shows the growth in New England PV installations since December 2013. The ISO-NE data (reported in MWAC) shows that Massachusetts is clearly on top of the New England installed solar rankings, followed by Connecticut and Vermont. Massachusetts is also ranked #7 out of the 50 states in installed solar capacity. California, as one would expect, is ranked #1. In the 50-state ranking, NH is presently in 33rd position.

Source: ISO-NE

Even though Vermont’s installed solar capacity is a small fraction of that of Massachusetts, I was still impressed at how much solar they have installed, so I calculated the installed solar capacity on a per-person basis and generated the chart below. In this ranking, Vermont rises to the top, with installed solar capacity of 318 W AC per capita. To put this into perspective, this means that Vermont has installed the equivalent of more than one solar panel for each person in the state (modern solar panels have a DC rating of 300 W and an AC output rating of ~240 W (after losses)). This is a little lower than the California figure of ~370 WAC, but I’m still impressed.

 Source: ISO-NE and  Census.gov

In terms of installed solar, NH is very much at the back of the pack, but there are other solar ranking systems out there. I am a fan of the state rankings carried out by the folks at Solar Power Rocks. They order states on the basis of regulations, incentives, investment returns, and cost of electricity (among other factors that are supportive of solar power). In their ranking, which I have shared below, NH places fairly high, coming in at #10. The other New England states, MA, RI, VT and CT, also appear in the top 10, while Maine is found in 23rd position.
The specific scorecard for NH is reproduced below: it is clear that with a “B” grading, NH has a lot going for it in terms of support for solar power. The factors in NH’s favor include:
  • High electricity prices;
  • Net metering;
  • The Federal solar tax credit – presently 30% of the cost for installing a PV system;
  • Production credits through the sale of renewable energy credits;
  • State rebates on the costs for installing solar.
There has been a fair amount of news recently about the NH state rebates available from the Public Utilities Commission. The program is presently on hold due to its record demand and concerns about sufficient funding. Nevertheless, there is much in favor in terms of installing solar in NH, and we should be taking advantage of this. In my next posts, I will take a close look at how these factors play out in considering whether to install solar on your home in NH. So, until next time, remember to turn off the lights when you leave the room. 
Mike Mooiman
Franklin Pierce University

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