Consumer

The Importance of Reducing Solar Soft Costs

What are solar soft costs? Soft costs are any costs, fees, or taxes that are included with a product after material and labor. While solar energy is worthwhile, thanks to the long term savings and the benefits for the environment, many potential users are hesitant at first due to the initial cost. A significant portion of the heavy sticker price is the “extra” added when taking soft costs into account.

Solar is becoming more prevalent in America, and many users are beginning to see their investment come to fruition. Unfortunately, many potential users are halted before they get started; so let’s look at some of the soft costs and how they could be reduced.

Courtesy of U.S. Department of Energy

As the graph shows, a massive 64% of the cost of solar is due to soft costs. Costs like permitting fees, interconnection labor, installation labor, and installer profit are significant portions of the soft costs, but are also necessary. The solar system needs to be approved by the city (permitting fee), connected to the grid (interconnection labor), installed (installation labor), and the company selling it needs to make some profit to stay open and continue selling their product (installer profit). However, most of the other costs could be trimmed down so there isn’t as much of a cost for each one.

The other portions of soft cost: sales tax, transaction costs, supply chain costs, indirect corporate costs, and customer acquisition, CAN be reduced, sometimes to virtually nothing. Some states actually pay the solar user, through stipends or other incentives, to install rather than charge sales tax; therefore, sales tax could be done away with or reworked so the user gets that cost back. In fact, some states like Florida, do not charge sales tax on renewable energy, effectively eliminating this soft cost.

Transaction costs are costs that come from a third-party lender when the buyer needs a loan and could be reduced to a lower rate. We find that buyers need to be aware of the hidden fees and transactions costs that can quickly add significant cost to their installation. Some transaction costs are unavoidable and more than fair. After all, no one is going to loan you money at 0% interest. That being said, be aware of who is charging what fees and where they’re being charged in the process. Supply chain costs are from the transporting and housing of solar units from the company to the buyer. Better supply chain management and cooperative buying can help reduce this cost.

Lastly, and probably most interestingly, customer acquisition is the cost for the solar installer to reach out and connect its potential customers. This cost is effectively sales and marketing; and while it’s a necessary function, you can immediately see the issue. If hundreds of people contact their local solar installer only to be turned away because of bad site conditions, not being able to finance the system, or any number of reasons, the solar contractor has spent money on a customer that ultimately cannot buy its product. That means this cost must be charged to the next customer who CAN purchase the system. The U.S. Department of Energy and many startups around the country are developing tools explicitly designed to attack this problem. The more information at the fingertips of consumers and contractors helps reduce the amount of time spent on projects that just simply could never be built.

A good way to think of solar installation with lower soft costs is to merely look overseas. Germany is one example of solar installation working without high soft costs and their wide user base is proof it’s effective. By making solar more available (cheaper), Germany has a much bigger user base than the United States and they see more users every year. Although the process of buying solar is different in Germany, they immediately provide savings by getting rid of most soft costs from the start.

Let’s not handicap solar right out of the gate. By working to significantly reduce soft costs, we can make solar more affordable for everyday Alabamians. Quite literally, giving them the power back.

Perfect Utility Rate Design

The Ins and Outs of Electricity Rate Design

Electricity rate design has the power to completely alter the energy sector, for better or worse. The world of electricity rate design can be a confusing one, so before we get into which rate design would be most beneficial for you and the energy sector (that’s for a later blog post!), let us first define and explore three of the main types of rate designs.

Fixed Charges and Consumption Charges – The current system for billing electricity for most utilities across the country, this rate design charges fixed fees in tandem with a usage bill and is most common with residential consumers. Fixed charges never change from month to month (as the name implies), as they are there as a result of your connection to the grid. Recently, utility companies across the country have been advocating for significant fixed charge increases. In theory, a fixed charge is there to compensate the utility for the fixed portion of their costs as a result of having you as a customer (for instance, the cost to bill you and read your meter).

Related: Are fixed utility charges bad for consumers?

Time of Use – This system is decidedly more complicated than the previous one, and would require some work on the part of you, the consumer. The idea is simple: the cost of using electricity would change according to the time of day (for instance, customers would be charged higher rates for using electricity during specified peak demand times).

Figure 1: An example of a suggested TOU rate for summer months. Source: www.pge.com

The execution of Time of Use (TOU) rates (such as advocacy and ensuring customer understanding) is where the system becomes more complicated. States such as California and Massachusetts have already adopted a TOU rate design, and our own Tennessee Valley Authority has also proposed making the transition to TOU rates. Additionally, TOU rates are already available in most states on a voluntary basis. At its most basic, TOU rates provide price signals to customers to encourage them to use when rates are low and conserve when rates are high.

Related: 6 Reasons Why Time of Use Rates Are the Best Option

Peak Demand Charges – In many states and especially for commercial customers, electricity use is billed in two ways by the utility: based on consumption, that is, how much electricity you actually used in a given period, and peak demand, or the highest capacity required during that billing period. A simple way to think about this is with an analogy: the odometer in your car would represent the “consumption,” and the fastest speed you traveled during that period would be the “peak demand.” Your car needs to be able to last for a long time (high mileage) but also may need to go fast from time to time (of course, if you drive a Tesla Model S, that’s all the time! But we digress…). In the case of this electricity rate design, you would be charged for both consumption and peak demand, and oftentimes these two charges appear as one combined charge.

The main idea behind peak demand charges is that they provide customers with price signals to encourage them not to make large, instantaneous demands on the systems but instead to spread their usage out over the day more smoothly. Depending on the rate structure in a given area, and your habits, demand charges can constitute up to 30% of an electricity bill.

Related: Probing Residential Demand Charges

 

Energy vs Power

Understanding What Demand Response Can Do for You

So what is demand response? It is a change in USAGE of energy of an electric utility customer to better match the demand for power with the supply. It can also be thought of as a method of how electric companies compensate for the extra energy used during a “peak time”. When you hear “peak time”, think of a hot Alabama summer day when everyone is running their air conditioners at 2 PM.

What is demand?

Electric energy cannot be easily stored, so utilities have traditionally matched demand and supply by throttling the production rate of their power plants, taking generating units on or off line, or importing power from other utilities. But there are limits to what can be achieved on the supply side, as some generating units can take a long time to come up to full power, some may be very expensive to operate, and demand can be greater than the capacity of all the available power plants put together. Demand response is one of the solutions to these limits and seeks to adjust the demand for power instead of adjusting the supply.

At the consumer level, demand response is a way for certain areas to maintain adequate power during busier peak times and can save them money in the process. One example of this was in 2016, when the New York City grid “shed load” by reducing power at a number of public services, including the Metropolitan Transportation Authority; and utility ConEdison activated a voluntary program to adjust consumers’ air-conditioner thermostats at peak hours. In exchange for participating in these voluntary programs, electricity customers received a rebate varying in amount based on participation.

To help visualize what this looks like, think about the traffic on an interstate. Everyone suffers if the traffic is at a standstill; but once portions of traffic begins taking proper detour routes or delaying their trip, it allows everyone to get to their destination faster. Similarly, if some consumers participate in demand response by lessening their own energy use, or when they use it, then everyone on the grid can maintain their energy usage during peak hours at cheaper prices.

While the main goal of demand response is to maintain energy availability through all times of the year, consumers can earn financial rewards by participating. In many states, regulators create incentives for utilities to use less energy, especially during peak hours of the day. Demand response programs were originally put in place to avoid having to turn on “peaker plants,” or auxiliary power plants that may be used only 10 days a year to meet the traffic of high demand days. You can imagine how expensive these “peaker plants” are to operate by thinking about if we added lanes to our highways just to accommodate Black Friday traffic.

Instead of building new power plants to meet demand, utilities instead can rely on demand response. For example, in New York, 543 megawatts of demand reduction are available just from commercial and industrial customers participating in demand response, which is about the same capacity as a medium size power plant. Keeping these plants idle also helps keep the price of power down, which saves money for the entire customer base. Instead of having to call on very expensive power generators to meet high demand in the late afternoon, grid operators can reduce the load in the system and avoid paying peak-time pricing.

Much like consumers, demand response saves the system money, sometimes on the upper end of millions a week, but the program also creates a better and safer grid in doing so. The grid benefits from not needing to build any extra power plants to supply power during those “peaker times”, which are only about 10 days out of the year, which in turn would require extra power to operate and build. Furthermore, if consumers are using the demand response program, the grid will be less taxed for power output on a daily basis. By conserving energy, grid alterations can be delayed or significantly reduced. In an electricity grid, electricity consumption and production must balance at all times; any significant imbalance could cause grid instability or severe voltage fluctuations, and cause failures within the grid. Don’t forget that demand response can ALSO be used to INCREASE demand during periods of high supply and/or low demand, which, unchecked, could cause an imbalance.

Overall, demand response is beneficial to everyone involved. It saves consumers, businesses, and utilities, money and helps the grid run more efficiently. If given the opportunity, everyone should opt-in to this program for themselves, the grid, and the environmental benefits from using less energy. And if you don’t currently have the opportunity, ask your utility and your Public Service Commission about starting demand response programs to save you money.

Related: Probing Residential Demand Charges

Battery Storage and Ancillary Services

Ancillary services by definition are services that support the transmission of electricity from its generation site to the customer or helps maintain its usability throughout the system. Many people may not know that the standard 120 volts we are used to receiving from the wall actually varies a tiny amount from second to second. If you were to monitor the power from the wall, the voltage may swing from 118-122 volts. We do not typically think about the mechanisms that take place to keep our power useful and ready for when we flip the switch.

On a larger scale, ancillary services are generators or other service providers that are synchronized to the grid and are able to rapidly increase output in three major categories: contingency, regulation, and flexibility reserves. The contingency reserve requirement is assumed to be constant for all hours of the year and corresponds to a spinning reserve equal to about 3% of peak load and about 4.5% of the average load. Another way to think of “spinning reserves” are the backup or redundancy built into the grid. Basically, we slightly overbuild the total generation needed so the grid can be provided with ancillary services making good quality power possible.

Additionally, regulation and flexibility reserve requirements vary by hour based on the net load and impact of variability and uncertainty of wind and solar. The availability and constraints of individual generators to provide reserves are a major source of the cost of providing reserves. Not all generators are capable of providing certain regulation reserves based on operational practice or lack of necessary equipment to follow a regulation signal.

So, what does the future of ancillary services hold and how can they be more beneficial?

At a residential level, a combination of solar and storage is only worthwhile when specific conditions are met that make the value of storage greater than the cost of installing It. For example, when the renewable energy creates an excess, the extra energy can be stored for later consumption. This would allow the customer to buy less power from the grid and enable them to cut their costs.

However, some customers are now being charged for using power during peak times, which is known as a demand charge. Energy storage can be used to lower peak time energy consumption, or the highest amount of power a customer draws from the grid; therefore, reducing the amount customers spend on demand charges. In North America, the break-even point for most demand charges is $9 per kilowatt. Energy storage can lower that cost to $4 or $5 per kilowatt by as early as 2020. As storage costs decrease, more customers will begin to see economic benefits and existing storage users will see the optimum size of energy storage increase.

Lastly, energy storage will impact electricity grids as a whole because it provides more function than just power on demand. Batteries can provide the grid with ancillary services like frequency regulation and should be compensated to do so. All this is to say, if utilities provide appropriate price signals to the market, customers will respond by installing battery storage where and how they can be compensated.

Currently, grids experience a continuous imbalance between the power they produce and its consumption because of the millions of devices that are turned on and off in an unrelated way. The imbalance can cause frequencies to deviate, which can affect equipment and potentially hurt the stability of the grid. Energy storage is well suited for frequency regulation because of its rapid response time and its ability to charge and discharge efficiently. This storage could significantly reduce the amount and cost of the reserves currently needed to provide such services to the grid.

One reason for the optimistic outlook on battery storage’s role with providing ancillary services is the progress lithium ion batteries have made in recent years. In 2015, lithium-ion batteries were responsible for 95 percent of energy storage at both the residential and grid levels. The reason for the increase in popularity is due to the price dropping, safety improving, and better performance characteristics. All of these qualities are leading to lithium-ion batteries being suitable for stationary energy storage across the grid; ranging from large-scale installations and transmission infrastructure to individual and residential use, even without being appropriately compensated for ancillary services.

The most important aspect is the large-scale deployment of energy storage that could overturn the status quo for many electricity markets. In developed countries, central or bulk generation traditionally has been used to satisfy instantaneous demand, with ancillary services helping to smooth out discrepancies between generation and load; and energy storage is well suited to provide such ancillary services. Eventually, as costs fall, it could move beyond that role, providing more and more power to the grid, displacing plants; however, that time has not yet come although approaching quickly. It is important to recognize that energy storage has the potential to upend the industry structures, both physical and economic, that have defined power markets for the last century or more.

Join Energy Alabama: Be a Friend of Sustainability

You love sustainable energy. We love sustainable energy. Hey, don’t you think it’s about time we teamed up?

 

If you’ve been on the Energy Alabama website lately, you’ve probably noticed that we’ve started a membership program. So what’s the deal? Well, basically we’re looking to team up with a whole bunch of sustainable energy superstars from all across Alabama. We’re hoping that includes you.

 

Here’s the idea. You sign up for a membership and contribute a small amount of money every month. In return, we give you a bunch of cool perks. Ta-da, everybody wins.

 

Join Energy Alabama, Skip the Gas

So, you might be wondering: How small is that “small contribution?” Well, memberships begin at just $2 a month. Over a full year, that adds up to $24, or less than the cost of a single tank of gas. Of course, with this transaction, you’re not even putting out any emissions. (Except for all those good vibes you’ll feel once you sign up.)

 

In return for that $2 monthly contribution, you’ll get all of this:

 

  • Recognition as a Friend of Sustainable Energy
  • Zero emissions (except for all the good vibes)
  • 100% guarantee that all contributions go to sustainable energy
  • Opportunity to decide how to use your contribution
  • Energy Alabama sticker and magnet
  • Potential to influence energy legislation and policy
  • Ability to make a difference in your community!

 

Not bad, huh? And the more you contribute, the better the perks. So for, say, $10 a month, you’ll get all of the above, plus an Energy Alabama t-shirt AND free entry into the first annual BrewNewable Fest.

 

Yeah, we know. Score.

 

Keeping Energy Alabama Strong

 

Most importantly, your contribution will also help keep Energy Alabama strong. Here at Energy Alabama, we know that changing the world won’t be easy — or cheap. But we also know this: When we all work together, we’re all stronger, and better.

 

That’s why we’re happy to offer memberships at all financial levels. Whether it’s with $2 a month or $200, you really can make a difference for our movement. Give what you can, and we promise we’ll use 100% of your contribution for the mission of accelerating Alabama’s transition to sustainable energy.

 

For more information, be sure to visit our membership page, or email CEO Daniel Tait.