By Andrew
I’m writing today as a guest blogger for Old Town Plaza to provide some musings about how clean energy technologies may, or may not, be beneficial for commercial real estate. Before I go into my spiel I feel I should provide a brief background about myself. For the past three years I’ve worked for a company focused on funding venture capital/growth equity opportunities in the clean energy space. During that time, we’ve looked at hundreds of deals, making over a dozen investments in cleantech subsectors like solar, biofuels, wind, etc. While there are a multitude of cleantech options for commercial real estate, I’m going to narrow the focus to solar today.
Ok, so I said I was going to focus on solar, but I feel the need to stress that the easiest way to become “greener” is to curb energy/water usage. This costs you ZERO dollars and takes very little effort. Simple steps like shutting down office computers when you leave for the night, making sure all the lights are off when you leave the office, fixing leaky faucets, setting the thermostat a few degrees higher in summer or a few degrees lower in winter, etc, can result in big savings over time. The act of conservation is by far the most cost effective way to reduce energy bills. Ok, now on to solar.
Solar
While there are a number of different sub-segments in the solar industry, the most well-known is the solar photovoltaic (“PV”) sub-segment. In Solar PV, the industry primarily consists of crystalline silicon (“c-Si”), thin-film silicon (amorphous silicon, or “a-Si”) and thin-film non-silicon (which is dominated by cadmium-telluride-solar-panel-maker First Solar [NASDAQ: FSLR]). I’m not going to describe the differences in each panel type in the blog—that’ll take up too much space and you can get a better explanation through Wikipedia here (c-Si), here (a-Si), and here (“CdTe”). The basic differences that buyers would care about are in the efficiency and the cost of each system. Crystalline silicon is currently the most efficient option, with thin-film non silicon and thin-film silicon coming in second and third, respectively. CdTe is generally recognized as the cheapest option and c-Si is the most expensive (a-Si falls somewhere in between, but closer to the CdTe price point). There are benefits to each type of technology depending on your location and the size of your property(ies).
What factors do you look at when looking at solar?
Every situation is unique. Factors that will influence your decision include available rooftop space, solar irradiance in your area (how much sunlight hits that part of the country), any shading of the roof, how much you want to spend on the system, how much energy use your trying to offset, what is the weight bearing ability of your rooftop, etc. I’d say, on average, crystalline silicon would be the best choice for commercial real estate applications, especially in California. Why you might ask? It’s relatively simple; the square footage of your rooftop is finite and you want the most bang for your buck. Since crystalline silicon is the most efficient option, you can get the highest energy output per square foot.
Another big factor that will influence your decision is the cost. Thin-film modules are typically the lowest cost option available for you, and if you’re operating with a tight budget, it may make financial sense to go with a thin-film option. However, before you set your sights on something that has the lowest cost per watt (the cost of the panel divided by its rated energy output – a $1000 module that has 250w of output would be $4/w), be aware that there is another, possibly more important factor when buying a solar system as the upfront cost does not tell the whole story. When you buy a solar system, you’re investing in something that is going to provide you with “free” electricity for 20-25 years (even more with proper maintenance). As this asset is providing returns in the form of offsetting your electricity bill, you also want to be aware of the levelized cost of electricity (“LCOE”) that a system would provide you over its lifetime. The LCOE is used to approximate how much each kilowatt-hour (“kWh”) of electricity your system produces costs you, providing you a reference point to compare to your current utility bill electricity cost (you can find a more detailed description of the LCOE calculation in this PDF). While a thin-film module may have a lower upfront installed cost, its lower efficiency, over a 20-25 year lifetime may mean that its LCOE is actually higher than a c-Si module.
A third area you’ll want to look at is the inverter choice. Inverters are what convert the electricity produced by the solar cells into electricity that is usable by your building. There are central inverters, where all the electricity from the solar panels is funneled to one main inverter, and there are microinverters, where each panel has its own inverter. With a central inverter, the solar panels are connected in series; and thus, the weakest panel sets the output for the entire system. For example, if you have a cloud covering one panel and it’s only producing 50% of its expected output, your whole system is going to be dragged down to the output of that panel. With microinverters, you avoid this problem as the other panels will remain at full output since they are not connected in a series. This benefit comes at a price though, as microinverters, on a system-wide level, are more expensive than central inverters. Again, every situation is unique, if you’re located in the desert and cloud cover is rarely an issue, central inverters are the way to go. If you’re located in a spot where there can be significant cloud cover, or you have trees shading part of the rooftop, microinverters are probably a better option. When you’re judging what would be best for your situation, talk to a local solar installer and see if they can provide any insight.
My thoughts on solar’s place in commercial real estate.
I would say that solar is still a bit too expensive for the average commercial user at this point in time, even after the federal and state incentives. Again, this is on a case by case basis, and there a number of benefits that solar can provide that I did not discuss, but may be applicable to your situation (like keeping the lights on during the day if the utility power is cut). Even though it may be too expensive today, the industry is trending in the right direction for consumers, with installed costs dropping in half over the past three years. With a plethora of new capacity coming online in China, the solar industry is rapidly becoming commoditized, and it will only be a matter of time, measured in months, not years, before solar is competitive with retail electricity prices in many markets. My suggestion is to start investigating the solar option now, get quotes from installers, and see where prices head over the next year. By this time next year, you may be the proud owner of a solar energy system that provides a cheaper source of electricity than utilities.
