Selling Renewable Energy (Solar Etc.) Without Incentives

 

Selling Renewable Energy (Solar Etc.) Without Incentives

In short, we need to market solar as an investment that will save money while you own it and return most or all of your investment when you sell the building it's sitting on.

Chances are, as natural gas and oil prices go up, there will be a corresponding jump in your monthly electricity bill. So, instead of promoting a solar power system based on today's savings in electricity, we need to have easily understandable projections on what the savings will be over the life of a system. These numbers need to reflect what's really happening to the cost of energy!

Here are some ideas I'd like to share. First, we need to find a way to make renewable energy economically competitive without the tax incentives. We do this by answering the question: "What is the opportunity cost of not using solar to decrease your energy bill?"

There's something interesting I've found. There's a direct correlation among electrical rates, the cost of air conditioning a building, the heat index and the amount of sunshine on any given day. In other words, on the hottest, sunniest days, we use more electricity that costs more per kilowatt. So, why do we continue to promote average hours of solar production, when in fact (at least down here in California), we produce far more solar power per day during the heat of the summer when energy costs are highest, than we do in our temperate winter months when energy costs are lowest. A sound marketing approach would be to evaluate solar energy in "dollars" of production per year instead of in kilowatts. I'm sure there are some smart people out there who can match kilowatts of solar production on any given day of the year to what the rates will be (based on the projected costs of electricity).

Secondly, we should stop trying to sell a solar package as a "cost." In real estate, there is a principle that says anything affixed to real estate becomes an integral part of the real estate. Once a solar package is installed, it immediately increases the value of a property. So how can you predict how much more a building will be worth in 5-10 years with a package as opposed to without one? In the real estate appraisal business, there are three approaches to appraising a property. The market approach (what are comparable properties selling for), the reproduction cost (the cost of creating an identical building at current construction and material prices) and the actual original cost adjusted for inflation. In all three methods, there's a strong case that a system installed today will make the building worth more today and in future years.

We need some realistic numbers to predict how much more a property will be worth in the years following installation. I believe that if you sell a building 5-10 years after installing solar, you should recoup all of your investment in the system plus an added bonus. If the rumors are true, a residential system (using the market approach) adds $20 of value to a home for every $1 it saves on the electric bill.

For commercial appraisals, you would divide the income (savings) by a cap rate (which was about 9% at last report). A system that saves $2000 a year then would be worth $40,000 on a home or $25,000 on a business. But if the cost of electricity goes up (if that is remotely possible), then wouldn't the value of the solar power system increase as well? In reality, we are not selling something that costs — we are actually offering a financial investment that grows comparably with other forms of energy.

In short, we need to market solar as an investment that will save money while you own it and return most or all of your investment when you sell the building it's sitting on. In commercial real estate, they use a "Cash Flow Analysis" form as the tool to evaluate a building's value using the income approach. We need a similar tool for putting a value on solar. If solar makes sense with this approach, then just think of how much better the systems look when you add the tax advantages!

This approach also applies to the cost of Energy efficiency implementation.

Reducing operational costs increases the value of the business and or property.

Compiled by YJ Draiman, Energy analyst