THE SOLUTION FOR ALL OF YOUR ELECTRICAL NEEDS

Monthly Archives: June 2011

Structural Engineering – Do This First.

Rooftop solar – what a terrific idea. A chance for you to put an underutilized asset to productive use. Sign me up.

BUT — before you go telling all your friends about this, pull out your checkbook. Go hire a reputable structural engineering firm to analyze your building as to how much weight it can handle. I’m not talking about the roof, I’m talking about the structure. You don’t want a solar integrator to tell you how good it’s going to be when you have panels on your roof and then get that “Oops” phone call telling you that your building can’t handle the extra weight. Besides, your lender won’t take the solar company’s word for it…they’ll insist on an independent structural firm’s opinion.

So – if you want solar on your roof, spend a few bucks before you spend your time and the time of potential solar companies, and find out if your building can handle the weight of the solar system…you’ll be glad you did.

Doing Solar Projects Right is Hard Work – Don’t Expect a Boy to do a Man’s Job

Take a drive up and down the New Jersey Turnpike or across I-80 or the Atlantic City Expressway. I’ll bet you’ll pass at least several trucks or vans of solar companies. Seemingly, all it takes to claim you’re a solar company is a shrink-wrapped truck with a picture of the sun and grass on the side. There are no other certifications or barriers to entry to the business. While I’m no fan of certifications, you, as the customer, need to do your due diligence. Caveat emptor. Ask your solar company for the list of completed installations. Call these customers, especially the ones where the projects had some unexpected twists and turns. Make sure your solar company has LOTS of experience with your type of project – do you want to be the test case?

Experience counts. It always has, no matter what the industry. Commercial solar installations are very complex. There are a host of things that have to be done just right or the system will be worthless, regardless of what you’ve paid for it. These are complex construction projects, not just a quick equipment installation like some solar companies believe.

We get calls every week from customers who need someone to come out and fix problems caused by solar installers who ‘bit off more than they could chew.’ We’ve seen roofs damaged by improper ballasting, the wrong racking systems and a number of other bad decisions. Fixing these problems isn’t as simple as sending knowledgeable, experienced teams of electricians to the site. The customer usually has to litigate against the company that caused the problems in order to recover the money to fix them. That alone takes a lot of time and money, all the while the system isn’t producing, SRECs aren’t being generated and the roof is leaking, causing who knows what trouble down below. Not a good scenario.

It comes down to something I find myself saying often to our prospective customers – “If you can’t find the time or money to do it right, where do you think you’re going to find the time and money to do it over?” Think about it. Spend the time up front to vet your solar company. You’ll be glad you did.

The Financing Discussion with Your Banker…What to Expect

As you probably know, banks aren’t really looking to take much risk right now.  There’s money available but it’s not so easy to get for a solar project.  As the old saw goes, you have to prove you don’t need the money before a bank will lend it to you.

 

For solar projects, lenders are looking for several things – an ongoing, viable business that generates significant free cash flow to service the debt.  No difference there compared to financing a machine for your business.  But with solar, they are also demanding forward SREC sale contracts with strong counterparties.  Personal guarantees from the owner of the business are almost a given.  And many customers are surprised to find that lenders assign virtually no collateral value on the systems that cost so much money.

 

There are several reasons for the negligible collateral value of solar systems:

  1. A percentage of the cost of a solar system is ‘soft costs,’ meaning the design, engineering, permitting and labor.  Additionally, it is unlikely that a lender would be able to realize any value in the conduit, wire, combiner boxes, etc., that make up the balance of the system.  Should the bank repossess the assets that make up your system, those costs are all gone.  Figure at least 40% of the system cost.
  2. Solar systems are very incentive-oriented.  Once installed, the 30% federal tax credit (or grant) is used up.  That means, at best, the assets are worth no more than 70% of what they were prior to being installed because of the tax credit.
  3. Manufacturers’ warranties are generally limited to the first installation only, so they will not transfer to subsequent users, further diminishing the liquidation value.
  4. Most importantly, there is no established, liquid secondary market for solar equipment.  At some point there will be, but probably not for some time.  There are few solar integrators who would bother with used equipment so there are no buyers for used equipment.

All in all, if a lender gives you 15% in the underwriting process for collateral value of the solar equipment, you’re doing well.

 

What should you do?  Assemble 3 years of audited financials.  Discuss your plans with your banker – not just the relationship manager but also the underwriting folks.  Get a feel for how they feel about lending for solar.  It’s been our experience that a number of lenders simply don’t understand the moving parts of a solar project and that makes them shy away from them.

 

Solar projects are complex.  The financing discussion is critical.  Banks make money by lending money, their customers grow their businesses by borrowing money.  There are common goals here.  Have patience, seek assistance from your solar integrator if they can provide it.  The good ones can offer significant assistance.

NJ SREC Market Volatility and the NJ Energy Master Plan

Boy, nobody saw this coming.  We all knew that Lee Solomon (BPU President) is a huge nuclear fan, but we never expected the EMP to be so anti-solar.  Hopefully, with the upcoming public hearings on the plan, the message will come through loud and clear that 2 primary stakeholder groups – potential solar customers and solar integrators – are concerned.  As I write this, lobbying groups are being formed fast and furiously.  For customers, the uncertainty that is the result of this plan will mean more difficulty making solar projects ‘pencil out.’  Lending and financial options will shrink.  For integrators, it’s all about jobs.  Fewer solar projects = fewer employees needed.  This runs counter to the theme espoused by Governor Christie since he was a candidate for Governor.

There is an overriding theme in the draft EMP that the RPS is too aggressive and that the targets for solar should be revised downward.  Additionally, comments contained in the plan suggest concern that every ratepayer is subsidizing the benefits of the relatively few who are taking advantage of solar.  Yet when you look at the numbers provided in the plan itself, you come away scratching your head — less than 8/10 of 1% of your electric bill goes to pay for SRECS.  Doesn’t sound like a significant hit to me.  Especially when you consider how many NJ residents we put to work in good paying jobs.  Statistics show a 4 to 1 effect of this.  For every $100K the solar industry pays in salaries, the NJ economy sees $400K in benefit.  In this economy, that’s something to be celebrated, not shut down.

Other things mentioned:

  • A suggestion to reduce the SACP by possibly 20% in 2017
  • A suggestion to subject all solar projects to a cost benefit test and to promote solar PV installations that provide economic and environmental benefit (not sure what this is or how/who will determine)
  • Recommendation to not allow farmland to be turned into solar farms (we think this to be a good move)
  • A call to allow municipalities to levy property taxes on the improved value of the land after a solar installation.  This is huge.

In the next few weeks, there will be a series of public hearings where you can state your reaction to this draft plan.  Additionally, there are a number of lobbying groups being formed to try to get this plan to be more solar friendly.

SREC market values

It is a fact that the amount of solar installed in the 2012 energy year (6/1/11-5/31/12) is sufficient to meet the needs of electric generators under the state’s renewable portfolio standards.  That means the market is in equilibrium.  As a result, like any free commodity market, price has fallen.  Recent spot prices have fallen from $650 for the 2011 energy year to $460 for the 2012 energy year.  3 year forward contracts, which had been yielding about $525 for 2011-2013 are now about $355 for 2012-2014.  5 year forward contracts had been about $475 for 2011-2015 are now about $295 for 2012-2016.  So, yes, SREC values have fallen.  We all expected this to occur at some point, but most did not expect it to be so soon.

The reason for this is that the returns and paybacks on solar projects in the past few years in NJ were (unrealistically) far beyond any other form of investment.  As a result, huge sums of money flowed into the business.  Now, with SREC values where they are, this money is slowing down dramatically.  Large projects that had been slated to be built now will probably not be built because the economics have changed.

We believe that depressed SREC values are a short-term ‘bump in the road.’  We expect that in 2013 the amount of solar online will not be equal to what is required and that shortfall will once again cause SREC values to rise.  Will they hit where they had been?  Probably not.  However, we do expect paybacks on NJ solar projects to once again be about 5 years.

As has been the case with the solar business, stay tuned.

Princeton Racquet Club is going GREEN with Ray Angelini, Inc

princeton-raquet-club

June 2011—Colleen Cosgrove (left) and Judy Vogt, owners of the Princeton Racquet Club (PRC), have committed to installing a solar system on the roof of the club’s main building. Pictured with them are Bob Higgins, PRC accountant (left), and Jim Bryan, Ray Angelini, Inc.  Construction will begin immediately.

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