Creating PV Proposals (aka Selling Solar)

with CPF’s Proposal Creation Tool

The basics of PV Sales Sales Team structure Lead & Site Qualification Quick Quoting (size and gross price estimate) Utility Rates and Incentives structure Detailed System Sizing and Pricing Proposal pro forma (ROI and cash flow) Financing options

These topics are presented in theory and put to practice using CPF Tools, with an emphasis on financial return.

Presented by Jock Patterson(jpatterson@cleanpowerfinance.com)

Instructor

• Jock Patterson (jpatterson@cleanpowerfinance.com)

• Clean Power Finance (5/09 - current)• Tools Product Design & Support• Sales Technical Support• Newsletter Contributions• Trainer: PV and CPF Tools• General In-house ‘PV’ person

• Real Goods Solar (10/06 – 6/08)• Lead Qualification• Proposal Generation• Proposal Tool Creation (Excel)• CRM Tool Management

Presentation Contents

Objectives:Students will learn how to

• Manage the Sales Process:• Solar sales staffing• CRM Pipeline: Leads, Opportunities, and Customers• Qualify a lead and their site/location• Pencil a Quick Quote

• Create and Explain PV Proposal:• Inventory and Pricing• Utility Rates, options, and Incentives• Solar Savings net of tax effects• Return on Investment metrics• Financing and Leasing options

Jock will learn what students know

$

?

!

Gotta know how PV works!

1) Solar Energy absorbed by the array is first converted to what?2) Where does the string inverter go and what does it do?3) What happens to the AC electricity that leaves the inverter?

TE & EEDC to AC 60Hz

Load & Line

# Term Short For

1 kW kiloWatt

2 PTC PV USA (Utility Scale Application) Test Conditions

3 CEC-AC California Energy Commission – Alternating Current

4 LCOE Levelized Cost of Energy

5 PACE Property Assessed Clean Energy

6 IRR Internal Rate of Return

7 REC Renewable Energy Credit

8 STC Standard Test Conditions

9 TOU Time of Use

10 NOCT Nominal Operating Cell Temperature

11 UUT Utility Users Tax

# Acronym Ltr Match with best Meaning or Association

1 kW A California power rating of PV system (Arrays & Inverters)

2 PTC B County or City tax applied to utility services like electricity

3 CEC-AC C Interest/discount rate that indicates the yield of an investment

4 TOU D ‘clean’ component unit of clean energy; also called a Green Tag

5 PACE E ‘Real World’ output rating of DC Array

6 STC F Environmental test conditions for ‘Nameplate‘ PV panel rating

7 REC G Financing paid with real property tax assessments

8 IRR H Power rating equivalent to 1,000 Volt-Amps

9 NOCT I Unit energy cost of PV system over lifetime

10 LCOE J Energy/power rates based on when electricity is used

11 UUT K Solar cell temperature in Standard Operating Conditions

1H, 2E, 3A, 4J, 5G, 6F, 7D, 8C, 9K, 10I, 11B

Acronym Test

Solar Sales Staff (1/2): Ability

• Qualifications

• Sales experience, especially in bldg/home construction• Technical and Financial aptitude a bonus• An understanding of and ability to communicate

• the value of PV solar• how PV systems work

• Skills & (Cap)abilities

• Computer-based• Internet search and email• Mapping tool use (e.g. Google Earth)• Word-processing, Presentation, & Spreadsheet apps

• Site Evaluation• walk on most roofs safely• measure roof dimensions, condition, and major penetrations• measure azimuth, tilt (pitch), and shading• Evaluate electrical service and circuit panels

• By Major Sectors• Private:

• Residential: houses, townhomes, condos• Commercial: Warehouses, Office Bldgs, Plants

• Public: Federal, State, & Local Government

• By Territory• County(ies)• Zip Codes

• By Customer Type , Minor sector, or Size• Specialty User: Wineries, Dairy Farms, Apartment Buildings,

Utilities, Churches, Non-profits, schools• PV Size (kW): Small (<10), Medium (10-<100), Large (100-<500),

Industrial (>500kW) • Special Installation: Ground Mounts, Car Ports, Off-Grid

Solar Sales Staff (2/2): MarketPV Market Divisions and Sales Niches

It’s hard to cover it all; specialize in sector, size, type or create niche

Sales Process Overview• Lead Qualification:• Payoff, Back-up Power, Resale value, Price

• Site Assessment:• Energy Analysis, Building Parameters, System

Sizing

• Sales Presentation:• Financial & Environmental Analysis of system;

why you?

• Closing:• Make Affordable & Sign Contract

• Installation/Commission => Commission

• Referral Request

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• “To Save Money” Go Net Metering!• Traditional: No Annual NEG Credit• Sell Excess: Annual NEG Credit/Payment

• “To Make Money” Feed-in Tariff, baby! Sell it All !!

Lead Qualification (1/2)

What’s the customer really want?“To be energy independent!” • Then go off the grid• Buy a generator

“To use clean energy/reduce carbon footprint”• Get a green rate• Consider EE first

“To be patriotic (CAlifornia not CAnada)”• Buy American-made (Incentive Bonus)• Reduce energy import (e.g. Hawaii)

Does Solar Fit ???

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• Appearance:• Aesthetics: architectural clash• Visibility: Can you hide it?

Lead Qualification (2/2)

• High Cost:• Reduce Upfront cost:

• “Float” incentives • Suggest Loan/Lease

• On-going cost concern:• Admin is up-to-you• Maint. is low

Challenges in selling ‘Go Solar’

• Return on Investment (ROI)• IRR (commercial)• Payback Period (residential)• Resale Value (Com & Res)

• Tomorrow will be better, right?• Price• Technology

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Site Assessment (1/2): Array Area

• Solar access/shading • Insolation Resource (e.g. NSRDB)• Azimuth & Tilt (175 deg x 23 deg)• Soft Shading (shadow casting)

• On-site (e.g. Roof Penetrations)• Off-site (e.g. Utility Poles)• Future Growth (e.g. Bldgs, Trees)

• Hard Shading: Soiling and Leaves

• Foundation readiness:• Roof: Original 1970’s Tar & Gravel• Roof: Real Slate• Marshy, muddy, quagmire bog?• terra (really darn) firma?

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Site Assessment (2/2): Electric Service

• Electrical compliance• Adequate power panel

• Bus & Main Breaker Amperage rating• Available breaker slot(s)

• Line-side tap option (commercial) ?• Acceptable transformer (commercial) ?

WARNING!Be careful inspecting panels, especially old ones that are corroded, filthy, or wet

[NEC 690.64(B): load-side connections]

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System Sizing (1/2)

Customer says, “Super-Size Me?”

• Foundation surface area & setbacks• Array shape and dimension• Building and Fire code setbacks• Penetrations• Roof weight limit

Electric Service Panel and Transformer limits

95% of Electricity Consumption limit if net metering

Budget limitations: What’s the upfront expense limit?

Module dimensions/orientation

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System Sizing (2/2)

Home Installer says, “Let’s get you the best ROI”

Residential Rates are often tiered in CA; Baseline amount depends on location and heat source

Season Tier Rate Breakpoint

Summer 1 (Baseline) $0.13 0 < 100%

2 $0.16 100 < 130%

3 $0.27 130 < 200%

4 $0.29 200% +

Winter 1 (Baseline) $0.13 0 < 100%

2 $0.16 100 < 130%

Etc …

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System Sizing (3/3)

Customer says, “The smallest possible, please”

• Poor ROI unless high rates or progressive tiered rates

• High Cost per Watt due to fixed costs

• Consider micro-inverters v. small string inverter

Quick Quote: Size & Price (1/3)

• System Size DC = (# Modules) * (Watts STC / Module)

• Gross System Price = (System Size DC) * ($ / Watt STC)

• $ / Watt STC may vary with system size but tends to fall in the range of $6.00 to $8.00 per Watt residentially at this time, depending on equipment and labor needs

• Net System Price = Gross System Price less initial incentives

• Incentives can include upfront rebate(s), tax credit(s), and performance rebates

CSI EPBB 30% ITCGoSolarSF

Quick Quote: % Offset (2/3)

System Size DC = ( (Annual Usage * % offset) / Operational Effectiveness )

Gross System Price = System Size DC * ($ / Watt STC)[ Note: kWh and Watt are canceled out leaving “$” : (Annual kWh) / (Annual kWh/Watt) * ($ / Watt) ]

Example• Annual Usage = 12,000 kWh• % Offset = 80%• Operational Effectiveness = Annual 1.5 kwh/Watt• $ / Watt stc = $6.50

= (12,000 * .8) / 1.50 = 6,400 Watts= ( 6,400 * 6.50) = $41,600

Size based on how much utility usage to offset

Quick Quote: Largest Fit (2/2)System Size STC1 = (Array Surface Area) / (Module Surface Area) * Module STC

This is the optimistic method

System Size STC2 = Max [Truncate (Array Length / Module Length) * Truncate (Array Width / Module Width),

Truncate (Array Length / Module Width) * Truncate (Array Width / Module Length)] * Module STC

System Price = System Size STCX * ($ / Watt STC)Example• Array Dimensions & Surface Area = 20 ft x 30 ft = 600 s.f.• Module Dimensions & Surface Area = (65+1)” x (39+1)” = 2,640 s.i. = 18.33 s.f. • Module STC = 225W• $ / Watt stc = $6.50

STC1 = Truncate [600 / 18.33] = 32 modules ; 7.2kW STCSTC2 = Max [Trun(30/5.5)*(Trun(20/3.33), Trun(30/3.33)*(20/5.5)] = Max[(5*6),(9*3)]= 30 modules ; 6.75kW ; $43,875

Break Time

Electric Service & Tariffs

• Electric Service• Current: 60 Hz AC (DC no longer)• Voltage: 120+V (RMS)• Phase: 1 & 3 phase (2 phase no longer)

• Rates• Energy: Power x Time rate• Demand: Maximum Power Mgt rate• Power Factor: Reactive Power Fee

PG&E used for examples

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Tariff Book Review

Four Basic Charge types

1. Customer or Meter Charge ($/timeperiod)2. Energy use ($/kWh) 3. Demand peak ($/kW)4. Taxes, surcharges, adjustments, credits ($/kWh, %, $,)

Common Voltage Service levels

5. Primary: 2.4 – 20.78kV 6. Secondary: 120 – 480V (most customers)7. Transmission: >12kV

[see www.pge.com/tariffs]

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Billing Period Charges

Fixed Charge per billing period or per day; unrelated to consumption or demand. Minimum charge may differ

Customer/Meter Charge: $/month (per meter)• E1 (Basic Residential): $0.1478/day = $4.50 per avg month• A1 (Small Commercial): ~ $9• A6 (Small Commercial TOU): ~ $15• A10-TOU (Medium Commercial): ~ $120

You can’t remove a customer/meter charge with solar energy credits! You may be able to select a cheaper tariff option or a whole new tariff, but you can’t apply energy credits to a non-energy charges.

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Energy Rates (1/4)Energy Consumption Charges: $/kWh

The Aggregate (“Bundled”) Rate has charges for • Generation: Power plant generation• Transmission: Power plant to Substation transmission • Distribution: Substation to service end-users

Rates can be further altered by various ‘riders’ to the tariff• Fuel Charges• Plant Decommissioning• Energy Credits• Environmental Fees• etc

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Energy Rates (2/4)Example Consumption Charge

Schedule A-10 : Secondary Summer Rate = $0.13578/kWh(non-TOU) (winter rate is $0.10538)

A flat rate composed of• Generation: $0.08164• Distribution: $0.02124• Total: $0.10288• Other Charges

• Public Purpose Program $0.01467• Nuclear Decommissioning $0.00066• Competition Transition Charges $0.00778• DWR Bond $0.00505• Energy Cost Recovery Amount $0.00472

> 75%

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Energy Rates (3/4)Energy Charge Variation

Usually Flat but variable by Time:

Flat v. Tiered: rates change with Volume• Residentially: rates tend to increase• Commercially: rates tend to decrease

Constant v. TOU: rates change with Day Time• More Common commercially• TOU period times can vary

• From weekday to weekend• Seasonally

• TOU period rates and non-TOU rates can vary seasonally

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Energy Rates (4/4)Energy Consumption TOU Charges: $/kWh

Example: Schedule A6-TOU

• Secondary Summer Rates• Peak = $0.44815/kWh• Part-Peak = $0.20063/kWh• Off-Peak = $0.11987/kWh

• Summer TOU Periods• Peak: 12p – 6p M-F• Part-Peak: 8:30a – 12p and 6p – 9:30p M-F• Off-Peak: 9:30p – 8:30a M-F ; All Weekend & Holidays

3.7x

Time of Use (1/2): Overview• TOU Tariffs have time-dependent rates (versus fixed rates)

– Days are divided into TOU periods:

– Off-Peak: lowest cost; usually late evening to early morning; often the whole weekend and holidays.– On-Peak: highest cost, especially expensive in summer months; often occurs midday when utility demand

is high (machinery, A/C) but may not apply in winter season (e.g. temperate climates);– Part-Peak: if it exists, it occurs between Peak and Off-Peak periods; that means it usually occurs twice in

a day. For TOU tariffs with no winter peak period, a part-peak often exists.

– Two or three TOU rate periods most weekdays

– Period names vary among utilities (“Mid-Peak” or “Part-Peak”)

– A TOU period & rate can vary seasonally

• Other possible TOU tariff attributes:

– Tiered TOU rates– TOU & Demand:

• Base Only: Regardless of when max demand occurs• TOU with Highest Demand: Depends on when max demand occurs• Each TOU Period: A max demand is measured and charged for each TOU period.

TOU (2/2): Period Usage Allocation

TOU period usage is allocated by combining the TOU schedule with “Energy Usage Patterns” (or Demand Curves):

The area under the graph for each TOU period represents the amount of usage

0

0.5

1

1.5

2

2.5

3

1 3 5 7 9 11 13 15 17 19 21 23

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Demand

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Demand Rates (1/2)Demand Charges ($/KW): Maximum Monthly Demand• Measured every 15 minutes (every 5 minutes in some cases).

• Common for commercial but not seen in residential in CA

• Customer Power Demand often determines what rates are available for a customer.

• Solar may lower demand during daylight hours but it won’t necessarily lower maximum demand and it’s difficult to quantify.

• Non-TOU : Only one Demand Charge at Base Rate

• TOU : Charges in one or more periods• Off-peak only• Single TOU period with highest demand• Each TOU period with respective highest demand

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Demand Rates (2/2)

Examples of Demand Charges ($/KW)

• A10-TOU Primary Voltage• Summer $10.09• Winter $6.16

• A6 Primary Voltage• No Demand Charges• Can switch if have PV and don’t exceed

1,000 Watts demand

Still don’t get demand? Ask about the swimmer or track runner analogy.

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Taxes and Surcharges

Taxes

• Sales Tax: state sales tax (none in CA)

• CEC Tax: : $0.00022 / kWh consumed

• Utility User’s Tax : municipal sales tax (0 - 10%)

Surcharges: see individual bills

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Financial Incentives to PurchaseInstallation Cost Reduction• Upfront Rebates• Federal (DOT) Grant in-lieu of ITC (Section 1603), aka TGP

Tax Credits/Deductions• No CA tax credit• 30% Federal Investment Tax Credit (ITC)• Depreciation Deductions (Federal and State)

On-going Reductions to Cost of Ownership• Performance-based Rebates• SRECS• Avoided Green Tags

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Initial Financial Incentives (1/3)

California Solar Initiative (CSI)Expected Performance-Based Buydown (EPBB) Rebate• Authorization: SB1 2006; launched 2007• Administration: Each CA IOU administers their territory and CSI allocation• Applications: Reservation and Payment Request• Amount per array = product of the following:• Nominal Rebate Step Rate [Step 8 for PGE = $0.35/Watt-AC]• EPBB Design Factor [EPBB Calculator: www.csi-epbb.com]• AC Array Size [Array PTC * Inverter CEC Efficiency]

• ACME Array #1:• AC Array Size = 26.74kWac• Rebate Rate = $0.35• Design Factor = .9761• EPPB Rebate = 26,740 * $0.35 * .9761 = $9,135.33

• Q: Why won’t the ACME system proposal include EPBB?

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Initial Financial Incentives (2/3)

Federal ITC GrantFor use in-lieu of “30% Solar ITC”

• Authorization: section 1603 of the ARRA• Administration: Department of Treasury• Qualification: Investment NOT Individual• Commercial for-profit entities only• Projects must start before 2012 (extended by Relief Act … of 2010)

• Application:• Funds wired to specified account (<60 days)• Payee can be assigned

• see http://www.treas.gov/recovery/1603.shtml

ACME

30% * Cost Basis where cost basis is net of untaxed upfront rebatesACME Cost Basis = $289,590 (Total Price) - $0.00 (no rebates) = $289,590ITC Grant = 30% of $289,590 = $86,877

Q: Is Jock an accountant, tax advisor, or lawyer ?

A: No, he is not any of these !

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Initial Financial Incentives (3/3)

Tax Credits: The ITC’sNo State tax credits in CA since 2005

Federal tax credits per US Code 26 (IRS): “Credits Against Tax” (26,A,1,A,IV)

• “Individual” Tax Credit: really “Personal” Tax Credit (PTC) (form 5695)• Authorization: IRS Code § 25D

• Title: Residential Energy Efficient Property• Amount: 30% of qualified PV property expenditures during tax year• Restriction: for residential property or ‘dwelling’

• “Investment” Tax Credit; the real ITC (forms 3468 & 3800)• Authorization: IRS Code § 48

• Title: Energy Credit• Amount: 30% of the cost basis of solar energy property placed in service

• Q: Which ITC does a Sole Proprietorship use?

Initial? Well, it can be carried over to subsequent tax years if tax credit > tax liability

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Depreciation (1/3)

Federal Depreciation via MACRS(CA uses the same depreciation method; so combine income tax rates)

• Accelerated Depreciation of a PV installation’s Cost Basis• As Energy Property [§48a3Ai], it has a 5 year period [§168e3BviI & 168c] • default method is 20% declining balance (v. straightline)

• Half-year convention: considered installed in middle of tax year

• Salvage Value• Zero after recovery period• If system sold, must consider ‘recapture’ tax

• Q: How many tax years does it take to depreciate a 5 year property?

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Depreciation (2/3)

Tax Year

% of Year 1 Cost Basis Half-Year Mid-Quarter

1 20.00% 5.00% 2 32.00% 38.00% 3 19.20% 22.80% 4 11.52% 13.68% 5 11.52% 10.94% 6 5.76% 9.58%

Tax Year

Recovery Period Remain-ing

Adjusted Basis for Depreciation

HY: 200% to Straight Line Method 5-yr Straight-line Method for comparison

40% annually (200% / 5yrs)

Annually Revised Straight-line (Basis / yrs left)

1 5.0 $100,000 $20,000 $20,000 $ 10,000 2 4.5 $ 80,000 $32,000 $17,778 $ 20,000 3 3.5 $ 48,000 $19,200 $13,714 $ 20,000 4 2.5 $ 28,800 $11,520 $11,520 $ 20,000 5 1.5 $ 17,280 $ 6,912 $11,520 $ 20,000 6 0.5 $ 5,760 $ 2,073.6 $ 5,760 $ 10,000 Total $100,000 $100,000

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ITC Amount 86,877$ 50% ITC 43,438$ Tax Rate 42%MACRS Basis 246,151$ Credit Balance Tax SavingsApply 50% ? No -$ 246,151$ -$ Year 1 20% 49,230$ 196,921$ 20,677$ Year 2 32% 78,768$ 118,153$ 33,083$ Year 3 19.2% 47,261$ 70,892$ 19,850$ Year 4 11.52% 28,357$ 42,535$ 11,910$ Year 5 11.52% 28,357$ 14,178$ 11,910$ Year 6 5.76% 14,178$ -$ 5,955$ Total 246,151$ 103,384$

Depreciation (3/3)

Q: What is the Cost Basis for MACRS?

Start Residential Job in CPF Tools

tools.cleanpowerfinance.com

Login Credentials?

Add Job: follow Jock’s example … switch to CPF Tools screen ….

End of Session #1

Wednesday we will get into Proposal creation, discuss ROI metrics, and consider financing options.