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By the end of this program, it is my hope that you will not only understand solar design, but also be much more comfortable talking about it with friends, family and clients when incorporating it into your projects. My name is John Cromer, and I have been working in all aspects of solar, from teaching continuing education, designing systems, and now installing solar arrays for over ten years now. It might surprise you to know that i am a Texan who left the oil industry where I was doing control system engineering and contract management in order to devote my life to renewable energy in general, and solar in particular.
Let’s dive right in! As we talk about solar, I think the most important thing you can keep in the back of your mind is that the value of solar power has less to do with how much sunlight is available where you plan to build an array and more about how much that electricity is worth. For example, the desert in the southwest United States gets great sunlight while the Northeast gets comparatively little. People think that more solar arrays would exist in very sunny places. Not so. Places like Germany, and the Northeast of the United States have far more solar arrays than deserts because solar is more valuable where the price of electricity is very expensive.
Currently, I’m based in Mississippi where we have plenty of sunlight year round. There is very little, if any, snow in the deep South. The price of electricity is average. However, this brings us to our second point, which is about the buyback rate. Known as net metering, this is the other gauge for how valuable solar is to an array owner. Net metering is basically about how much you get from the utility or electric company when you sell back your excess solar energy. When a Mississippi solar array owner backfeeds her excess electricity, she only gets back about 20% of retail value of electricity. Other states have much higher buyback rates. Since net metering is determined by each individual state, what drives the solar industry is not the amount of sunlight available, but the raw cost of electricity in your area and how the utility compensates the user for backfeeding onto the grid.
There is a third, more nuanced issue regarding how users pay for the electricity that they buy from the grid, which we’ll get to a little bit later on in the program.
It all comes down to money, so let’s do a budget review.
We will use a real project that I did at the tail end of 2018, using the components which I will further define in class as my design aesthetic. I even threw in an upgrade to a Lithium ion battery inverter, however, we did not include the battery which could be added later. First, i used all black modules but not top shelf, because the all black solar panels are aesthetically pleasing on the roof, regardless of price point. I used an internal cable run through the attic, module-level panel electronics, with a small amount of additional infrastructure for system expansion. In other words, this is not the cheapest system you could possibly do, nor would it be considered top shelf.
Given that I install in a solar unfriendly state, selling top shelf products would mean my projects would not be cost-effective. Even so, there are certain items I think it’s worth spending more than the bare minimum to achieve a higher quality install while still remaining cost-effective. Hopefully you’re interested in learning what those things are throughout the class. We’re putting this price up at the very front of the program so you can easily refer to it later. So, these are real, hard installed cost numbers that you could achieve on a quality battery-less solar array with room for expansion. This was a 14 kilowatt array, something I referred to as a “two pallet” solar array.
In the solar industry, we price by the watt and so down at the at the bottom off the slide I put the total retail price, which is $2.50 a watt. But if we look at what the national average pricing is for residential installed solar in 2018, there’s a very different picture. In Mississippi, my competition is not other solar installers, as is the case in places like New York or California, but just hard economics. We can see here that most solar installed in the United States hovers a little over $3 per watt. However, depending on your state, even though solar could be cheaper, it doesn’t have to be, and that’s why there is plenty of opportunity in solar design and development. You may be able to lower your project cost below its regional average and become a stakeholder in this industry whether it be through project ownership, design and engineering, or even as an installation firm. In other words, there’s still opportunity to get into the market, even in the Northeast or California. Where solar is a better value because of the price of electricity, maybe you will choose to be more of a boutique shop with higher-end components, or you might go for more value driven projects to beat competitor pricing.
So, let’s take a look at what goes into solar pricing and I know this particular chart says 2015 and 2016 but this is still pretty good data. While solar has gotten cheaper, there have also been import tariffs, keeping the price of that solar panel high and so we can see in the dark blue that the solar module itself is hovering around $0.45 to $0.50 per watt including the import tariffs, at the residential level, while you have the solar inverter being a little bit less than that, maybe around $0.30 cents per watt. They can be cheaper for low-end systems or more expensive when you get into battery components. Here is your electrical Balance-of-System material which you don’t want to get too cheap on, and there’s some nice things you can do with that which we’ll be talking about in class to preserve system value, such as internal cable runs to keep the array looking nice. Most clients want their systems looking clean and polished. Minor upgrades will not increase your cost exorbitantly but you do end up spending a little bit more on your balance of system electrical components to achieve a high end look, regardless of what solar panels or inverter system you use.
Next, let’s talk about direct labor cost. Direct labor cost is the take-home pay of the installer, excluding things like profit and overhead, supply chain markup, and so direct cost is what the guys out in the field are taking home in their wallets at the end of the project, not necessarily the pay of the development company or the sales rep commission or the project manager salary. Racking is around $0.20 a watt. Design, engineering and permitting is a modest cost. And then the rest of this, which is pretty much half of your residential project cost, is what’s called, “soft cost” which includes profit, overhead, and supply chain markup. That’s also your sales commission, that’s also the 30% margin that the developer is charging to manage and do the construction financing and put it all together. So what we can see is that if you can get rid of soft cost, let’s say you are an ambitious do-it-yourselfer with some electrical skill and you want to add solar to your own roof as a as a hobby, you might only pay a little bit in supply chain markup and see your cost being below $2 a watt. You could also go through our competitive bid process and see some of these margins reduce.
Obviously, always get multiple quotes. Last year, an online sales company was targeting Mississippi and they were selling above the $4, grossly misrepresenting the economics of the system to the customer, and these customers would have saved alot of money and heartache if they had simply gotten some local pricing. It’s always good to have on your bid list a local installer who might provide more honest data and is likely to be more knowledgeable of your local buyback rates and utility policies. And by the end of the program, you will be able to do many project scope items such as array layouts, material lists, and performance estimation yourself.