When assessing whether a grid-tie solar PV system is a worthwhile investment for your business, you will be presented with a variety of metrics that should assist you with your decision.
Unfortunately, there isn’t a set standard in the market on how to calculate these metrics and each solar provider presents it in their own way, which can be rather confusing for a client when trying to compare different proposals.
And where there’s confusing, there are inevitably shifty-eyed providers who push the envelope when simulating returns on investment.
Although the golden rule of “if it looks too good to be true, it probably is” should always apply, here are some things to look out for when assessing the financial viability of a solar system:
- System Sizing: how do you know if the system proposed is the optimal size?
- Get 2-3 quotes and don’t ask providers to quote on a pre-determined size system. See what they all suggest. If there are variations in what they offer, then you know something is not right.
- Insist that your provider measures your midday loads by installing a logger and make sure they size the system accordingly.
- 2-year payback!
- Otherwise known as a unicorn.
- If you have a proposal promising a 2-year payback, get a second opinion.
- At the very best, if you are paying a utility tariff of over R2.00/kWh, you could get a payback in the region of 3-4 years.
- Utility tariff escalation
- Many solar providers are masters at selling clients on the fear factor of exponentially rising Eskom tariffs, which makes the payback period look very attractive.
- In 2017, the media and public opinion predicted we were in for a 15-25% tariff increase. Yet NERSA subsequently only approved a 2.20% increase!
- While we’re definitely in a for a rocky ride with Eskom tariff increases, they’re unlikely to increase at 20% per annum. And even if they did, it’s prudent to estimate at the already approved rates for the forthcoming years and then take a view of perhaps 7-9% per annum thereafter. If it works at 7% per annum and we end up with 15% increases, then you’ll be smiling even more.
- Demand/kVA Savings
- No self-respecting solar PV provider will factor this into their savings calculations.
- Unless coupled with other technology, such as storage or demand management controllers, grid-tie PV cannot guarantee demand savings.
- Ask your provider to explain exactly how they worked out your estimated savings and make sure kVA/demand savings are excluded.
- Utilised solar energy
- Many businesses only operate Mondays-Fridays. So, on weekends and holidays, your solar system will generate energy that you won’t utilise. And unless your utility provider (municipality) has a Feed-in Tariff (FiT) scheme that remunerates you for excess energy fed back into the grid, you will effectively lose 2 days’ generation for every week from your system.
- Your solar provider must account for this in their return calculation and adjust the system output accordingly. For example, a business in South Africa that is closed on weekends and holidays will effectively only operate for around 230 out of 365 days (63%).
- Operating Costs
- “Solar systems don’t need any maintenance. They just sit in the sun and generate free energy.” Rubbish! While there are very few moving parts in a PV system, it still has parts that wear out over time.
- Over the life of the system, there will be certain components that will need to repairing or replacement. Depending on the type of inverter you use, these will generally need to be replaced once or twice during a 20-year term. Panels should last 20 years, but items such as mounting structure and cabling reticulation that are exposed to the harsh African sun will need attention throughout the life of the system. The ROI calculation should factor in an estimated cost of component replacement over the life of the system.
- Cleaning of panels is also necessary. Dust levels inland over the Winter months are terrible and can dramatically affect the output of a system, whereas along the coast the soiling from humid sea air and winds can also harm the performance. Ask your solar provider whether the cost of cleaning panels has been factored into their ROI calculations. The number of cleans per year is site-dependent, but on average 2-3 a year should be sufficient.
- Insurance: it is advised that you insure the panels against damage, theft, hail, accidents, etc. Costs can range from 0.5-0.8% of the capital amount per annum, depending on your provider.
These are some of the key factors that affect the returns of a solar PV system. Get some written referrals from your provider’s clients who have had solar systems operating for a while.
And ask your provider whether they can guarantee the performance of the system. This may require some additional monitoring equipment to be installed, but when you’re talking about a substantial investment, this is often a minor cost.
Lastly, sign a Service Level Agreement with your provider that at the very least covers the following:
- Daily monitoring
- Monthly performance reports vs estimated performance
- Annual service
This will allow you to proactively pick up any issues before they become costly problems.