Should My Business Invest in Solar?
A conversation with Vaughan Woodruff
In January 2018, businesses across Maine saw a steep increase in the cost of their electricity. This was due to a big jump in electricity supply rates that caused many small businesses to see their bills go up by as much as 10%. If you’re operating a small business, your relationship with the utility can feel pretty helpless. Our two largest transmission and delivery utilities are regulated monopolies, which leaves many businesses without alternatives for the delivery of your electricity. Maine does have competitive energy suppliers for electricity (i.e. companies that supply the electrons to the grids operated by CMP and Emera), but the track record for achieving long-term savings by switching from the standard offer to one of these companies is not great. In this article, Insource Renewables president Vaughan Woodruff answers some common questions posed by business owners who are seeking alternatives to relying solely on the utilities for their energy needs. Insource Renewables is a full-service solar construction firm based in Pittsfield, Maine. Woodruff is the founder and owner of Insource. He was the first professional in Maine to earn NABCEP Solar Technical Sales certification, has led Insource Renewables to be one of only ten nationally-accredited solar installation companies in the U.S. (and the only one in Maine), and knows quite intimately the challenges of running a small business. Here's some advice from Woodruff on common questions posed by Maine's small business owners:
Question: “What are my options for dealing with escalating energy costs?”
VW: Two viable options that can give a business better control over their utility costs are energy efficiency and solar energy. The level of opportunity available through these options is nuanced and can often be overwhelming when trying to juggle all of the responsibilities of running a business. Both options require a thorough assessment of your company’s energy needs.
Q: “How can I assess energy efficiency opportunities for my business?”
VW: Energy efficiency opportunities are very dependent upon the type of business you are operating. For example, a law office has far different electrical demand than a dairy farm. Energy use in an office is typically driven by lighting, heating and cooling systems, and various electrical equipment, whereas a dairy is commonly running compressors and water heaters. While it can get a bit complicated to know where the best investment might be, here are a couple of guidelines:
- If recent increases in energy costs had a measurable impact on your bottom line and you haven’t taken any energy efficiency measures in the past, there is likely a sizable opportunity to save money with some strategic investments. If your bills are driven heavily by lighting, investment in high efficiency LEDs can reduce the electricity needed for lighting while also reducing cooling loads. Replacing older motors in pumps and compressors might provide a great opportunity for manufacturers or companies that require ample refrigeration.
- A commercial energy auditor can help identify your best opportunities. Energy auditors can evaluate your historical electrical usage, examine the loads that are driving your demand, and prioritize measures that will provide the best payback. In addition, these professionals should be aware of incentive programs through Efficiency Maine or other small business support entities that can further leverage your investment.
Q: “How can solar help?” VW: A grid-tied solar electric system provides benefit by offsetting a business’s electrical consumption. The system directly provides electricity to the facility as the energy is being generated and credits can be amassed with the utility if the system is generating more electricity than the business is using at any given time. These credits can be used when the business is using more energy than it is generating (e.g. nights, cloudy days, periods of high electrical demand).
Q: “How much benefit can I receive for my business?”
VW: When it comes to opportunities to utilize solar, a huge consideration is your rate class. The utilities differentiate the way they bill individual businesses based upon how the business uses electricity. Businesses with smaller electrical loads are classified as General Business Class (B-1) with Emera Maine or Small General Service (SGS) by CMP. If you fall into one of these rate classes, you are billed quite similarly to how you are billed at home: by volume. SGS and B-1 customers pay a minimum monthly charge and then pay a set amount for every kilowatt-hour of electricity they consume. If the magnitude of electricity that you use at a given instant exceeds a certain threshold, your rate class may change to medium general service (MGS in CMP territory; M-2 in Emera’s Bangor Hydro district). For example, let’s say that you run a manufacturing facility that requires a majority of the equipment to be operated simultaneously. If the instantaneous load from that equipment exceeds 20,000 Watts in CMP’s service territory or 25,000 Watts in Emera Maine’s Bangor Hydro district, you will exceed the demand limit for a small customer. In Emera territory, you only need to exceed this threshold once to be reclassified to the M-2 class. In CMP territory, you are bumped up to the MGS rate class if you exceed the 20,000 Watt threshold in six months out of a 12-month cycle. This delineation is important for solar customers because the monthly costs for a medium general service customer is based less on the volume of energy they consume and takes into account the magnitude of demand you have at any given time. This billing mechanism is commonly referred to as a “demand charge”.
Q: “How does my rate class affect the bottom line of a solar investment?”
VW: Due to this rate structure and the primary value of solar being based on the quantity of electricity being generated, SGS and B-1 customers receive the most benefit from solar electric systems. Since the amount of sun changes, solar cannot reliably reduce the magnitude of electrical demand from the grid without battery storage or changes in how the facility operates. Since SGS customers pay more per kilowatt-hour on energy consumption, they receive more benefit from the energy offset by solar than an MGS customer. To put it plainly, SGS and B-1 customers receive roughly twice the benefit of solar on their utility bills as MGS and M-2 customers.
Q: “Does it make sense to invest in solar if I have an SGS account?”
VW: It all depends on what value you are hoping to extract from your investment. From a purely financial perspective, a large consideration is your company’s tax appetite. The more money you are making, the more value your solar investment will have. This is due to rules related to accelerated depreciation. Solar energy systems can be depreciated in as few as 5 years. Companies with a higher marginal tax rate will receive greater depreciation benefits. In addition to depreciation benefits, there is a 30% business investment tax credit. Rural small businesses may also be able to secure a competitive Rural Energy for America Program (REAP) grant from the U.S. Department of Agriculture for up to 25% of the project cost. A business that is able to benefit from these programs may see a payback in as little as 2-3 years. We typically see payback periods for commercial systems ranging from 2-8 years for an SGS customer. Considering that the modules have a 25-year production guarantee and that we provide a 10-year labor warranty to minimize operating costs in the first decade of operation, solar can be a highly lucrative investment for a business. There are other considerations as well.
- Renewable energy certificates. Businesses that are looking at solar solely to benefit their bottom line can receive additional revenue by selling the renewable energy attributes of their system to other businesses seeking to further their renewable energy goals.
- Differentiating oneself in the market. Companies that see solar as a means to attract customers may see value by increasing revenues on the income side of their balance sheet.
- Mission-driven investment. Solar may satisfy corporate goals for companies that assessing their impacts on the community and the environment.
Q: “What if I am an MGS customer?”
VW: Evaluating the value for an MGS customer ultimately comes down to scale and the level of priority a solar investment is for the business. Every solar project has costs that are somewhat fixed regardless of the size of the project. We have to deal with the utility to approve the system for interconnection with the grid, we need to interconnect the system to the electrical service for the facility, we need to run wiring from the array to the inverters, and we have a certain level of project management that is similar from project-to-project. If these costs are spread over a larger system, the economics become increasingly attractive. Large systems have a much lower unit cost than small ones. Ultimately, a business’s decision to invest in solar comes down to value. Some customers see a 2-3 year payback and still opt not to proceed. Perhaps there are some major changes taking place in their market, and they want to see how they will weather the storm. For some the technology isn’t familiar enough, and they would rather wait until someone else demonstrates that the perceived risk is worth it. We also see customers that are fine with recouping their investment in 10-12 years. Our job is to help lay out the various considerations so the company can make an informed decision that aligns with their goals.
Q: “If I am an MGS customer, can I change to the SGS rate class?”
VW: Maybe. If your business is consistently near the threshold that delineates small general service from medium general service, energy efficiency measures and load management might be able to move you into the SGS rate class. It usually takes a year of staying below the demand threshold to qualify.
Q: “Are there loans available for solar investments?”
VW: Yes. Several commercial lenders are willing to consider financing solar installations. In addition, the USDA has a loan guarantee program that can be utilized by many local lenders.
Q: “How might this affect my property and equipment taxes?”
VW: The regulatory climate in Maine has been slow to adapt to the fast growth of solar. As a result, there are some areas of uncertainty related to the treatment of solar installations across the state. One of these areas is as it relates to property and equipment taxes. The tax assessment of solar energy systems happens at the municipal level. There have been significant differences in the treatment of solar from community to community. Without a statewide standard, it is critical that businesses connect with their municipality in the planning process to determine whether the town will tax the equipment and, if so, at what level.
Q: “If my municipality applies an equipment tax to my system, does it qualify for the Business Equipment Tax Exemption (BETE)?”
VW: As of today, grid-tied solar electric systems are not eligible for BETE.
Q: “Should I invest in solar?”
VW: Ultimately, a commercial solar project requires a thorough evaluation of your electricity usage, your growth strategy, your corporate goals, and your financial health. Insource Renewables provides technical expertise related to commercial projects and collaborates with various parties, including company leadership, accountants, tax professionals, property managers, and the utilities to help businesses determine whether solar is a good fit. We can give you a number of reasons to go solar, and we can give you multiple reasons not to do so. Our goal is to give you a comprehensive understanding of the benefits, costs, opportunities, and risks so that you can make the decision that best fits your goals.