Solarnomics

Setting Up and Managing a Profitable Solar Business

David Wright

• Publisher: Routledge
• Year: 2022
• ISBN:
  9781000557497
• Edition: 1
• Topic: Economics
• Subtopic: Sustainable Development
• Index: Economics

Solar power has come of age. Not only has it become one of the key alternatives to fossil fuels, it can now be deployed in a way that makes a viable business with a financial profit. This book shows industry professionals and students how to do just that.

Solarnomics describes the economics of building and operating a solar power plant today and provides a window into a future in which several technologies collaborate, and in which all participants in the electricity grid become smarter at scheduling both the supply and demand for electric power to give humanity a future that is sustainable, both environmentally and economically. The book shows how to estimate costs and revenues, how to tweak the design of a project to improve profitability, how to calculate return on investment, how to assess and deal with risk, how to raise capital, how to combine solar with batteries to make a hybrid microgrid, and how to be prepared for future developments in the evolving smart electricity grid.

Solarnomics will enable professionals in the solar industry to assess the potential profitability of a proposed solar project, and it will enable students to add an extra dimension to their understanding of sustainability.

Part 1 Deploying Solar: Costs and Revenues

DOI: 10.4324/9781003262435-1

Part 1 of this book puts the reader in the driving seat of a developer planning a solar project. As we drive down that road, we aim to answer two main questions. How much will it cost? How much revenue will it bring in? There will be twists, turns and obstacles on our journey. What factors are beyond our control that inevitably limit our revenues or add to our costs? But there will also be shortcuts that we can use to improve our profitability. In what ways can we tweak the design of our project to improve revenues or reduce costs? The end of the road in Part 1 will be the ability to assess and improve cash flows of a project at the planning stage. We will use these in Part 2 to answer two major questions. How much return will we get on our investment? Should the project go ahead?

Solar modules do one thing and one thing only: they use semiconductors to convert light into electricity. This is known as photovoltaics (PV): photo (light) to electricity (volts). There are many semiconductors that can do this trick and the solar industry has homed in on just one that is used in 96% of today’s solar installations: crystalline silicon.

We have one semiconductor doing a single job, but its profitability depends crucially on how it is deployed. A few dozen solar modules on the roof of a school, serried ranks on the roof of a hospital or a vista of glistening modules in a desert stretching off to the horizon all use the same technology, but deployed differently. Part 1 of Solarnomics shows how diverse these deployments are when seen through the lens of profitability.

First the costs are different. The cost of the solar modules is the same but installing thousands of modules across a flat desert brings enormous economies of scale compared with a bespoke job on a residential rooftop. Second, the revenue streams are different, reflecting the value of electricity at different times of day. A residence may pay a flat rate price for electricity at any time of day or year. An office building may pay a base price for electricity plus a charge that depends on the peak consumption of the building. If we can generate solar at that peak time, our solar is worth much more than at other times.

We will cover four different types of deployment of solar power in different parts of the electricity grid. This will allow us to choose which type of deployment gives us the biggest bang for our buck.

1. Utility-scale: large installations feeding directly into the electricity grid, the same way that a nuclear power station feeds into the grid. They benefit from more economies of scale than the other types of deployment.
2. Commercial and industrial behind-the-meter: medium-sized installations at a customer premises, mainly generating electricity that is used by the customer (rather than being fed into the grid, as with utility-scale deployments). At an office building, the installation is typically on the roof or as an awning over a parking lot. Mounting modules on the ground is less costly and is used at some industrial sites if there is sufficient space.
3. Small business and residences behind-the-meter: small installations on individual rooftops (e.g. on strip malls and houses) used primarily to reduce purchases of electricity from the grid (as with the commercial and industrial deployments). The layout of modules needs to be customized to individual roof architectures increasing the cost of these installations.
4. Off-grid: not just the iconic log cabin in the woods, but also villages in rural areas and mining operations in remote regions. The key issue here is how to provide electricity after the sun has set, so storage (e.g. batteries) and/or another power source (e.g. wind or hydro) is much more important here than in the previous three deployment scenarios.

A common element in each of the following chapters is facing the solar modules in the right direction. The sun rises in the east and sets in the west, and in the Northern Hemisphere, during the day, it passes through the southern sky, so we set up solar modules facing south. In the winter, the midday sun is low in the sky, and in the summer, it is high; the average altitude angle of the sun is 90° minus the latitude of our location. If we are installing fixed^* solar modules, we tilt them at an angle approximately equal to our latitude to generate the most electricity during the course of a year. If we are near the equator, they are hardly tilted at all, facing almost straight up. In Perth, Western Australia, they should face north with a tilt of approximately 32°, and in Frankfurt, Germany, they should face south tilted at 50°. There are two basic reasons why we might not orient them in this way:

^* See Chapter 1 for reasons for installing ground-mounted modules that rotate so as to track the sun.

See Chapter 2 for reasons for installing fixed modules on rooftops.

1. We might not want to. If the value of electricity is more in the afternoon than in the morning, we would angle them slightly west, where the sun is at the time when our electricity is more valuable.
2. We might not be able to. On the roof of an office tower, in a windy city like Chicago we might tilt them much less than the latitude (42° for Chicago), because a storm would cause undue stress to the modules themselves, the racking and possibly to the roof of the building. A flatter installation of 10° − 25° might be required by local building codes. Suppose we install them at 22° in Chicago, i.e. 20° away from optimal, we can expect a reduction in electricity output by about 6%.

This book is about the profitability of solar power for which we inevitably need a few engineering concepts, given in the boxes below. Also there is an extensive glossary that explains the terminology we use.

Electric Power

Solar modules usually have a power rating stamped on them (e.g. 250 watts (W) or 0.250 kilowatts (kW)). This measures the electric power output, which is analogous to the rate of flow of water from a pump in liters per second (L/sec). A kilowatt measures the rate of flow of electricity.

Batteries deliver electric power at a rate specified in kW. For instance, a battery with a capacity of 50 kWh that delivers power at a rate of 25 kW will last 50/25 = 2 hours. A tank holding 50 liters of water, which drains out at 25 L/sec will take 2 hours to drain.

Electric Energy

Electricity bills give prices in dollars per kilowatt hour ($/kWh). If your TV consumes 0.250 kW of power and you watch it for 4 hours, you consume 0.250 * 4 = 1 kWh of electric energy. A kWh of electricity is like a liter of water. It is an amount of electrical energy.

Batteries store electric energy, for example, an electric car battery might store 50 kWh, which would let you watch your TV for 50 / 0.250 = 200 hours.

Buying Solar Modules to Generate Electric Power

The cost of a solar module can be given in dollars per watt ($/W). What we are buying is the capability to generate a certain rate of flow of electricity measured in watts. It is like buying a water pump with a flow rate specified in liters per second.

Buying Batteries to Store Electric Energy

The cost of a battery can be given in $/kWh. We are paying for the capability to store an amount of electric energy measured in kWh.

We feed electric energy into the battery and get it back out again at a certain rate measured in kW. A 100 kWh battery capable of delivering power at 50 kW will cost more than one limited to 20 kW.

In case you are not familiar with the structure of the electricity grid, you may wish to take a look at Figure B and get a primer on the major players from the box below. Another box describes the structure of the solar power industry,¹ which is important for appreciating the costs of building and operating a solar project.

Figure B Structure of the electricity grid.

Players in the Electricity Grid

In some jurisdictions (e.g. SE USA), there is one vertically integrated company providing generation, transmission and distribution of electricity with its monopoly power controlled by a government regulator. To promote competition, many jurisdictions have split the electric power industry into five main components: generation, transmission, distribution, system operation and regulation.

• Bulk generators like natural gas, coal, hydro, nuclear and large solar farms compete with each other to supply electricity to the electricity grid. They are typically connected to the transmission network.
• Transmission companies (sometimes called transmission system operators (TSOs)) operate those lines of pylons we see straddling the countryside and delivering power to individual cities. Bulk generators including large solar farms feed power into the transmission network.
• Once electricity arrives at a city, it is transferred from the transmission company to the distribution company (sometimes called the distribution system operator (DSO)), which distributes it throughout that city to end-customers. Smaller-scale solar farms may sell directly to the distribution companies. Distribution companies are highly regulated since they are in a monopoly position, maintaining and controlling the wires and equipment that deliver power to customers.
• The independent systems operator (ISO) balances supply and demand in the public electricity grid (e.g. by operating wholesale markets for electric power), including day-ahead and intra-day markets; see also Chapters 11 and 12. Large consumers of power also have market access and can buy when the price is low. For instance, a cement factory may have its own natural gas generators and can switch them off and buy from the grid if the price is lower. It takes time to ramp up and down the power from nuclear and coal-fired power stations, so they cannot respond quickly to price fluctuations and instead typically provide baseload power under long-term contracts. In North America, there are nine system operators, and some of the larger ones, spanning several U.S. states, are known as regional transmission organizations (RTOs). In some jurisdictions, the ISO and TSO are the same organization.
• Government regulators control the prices charged to residences and businesses acc...