Midterm

Question 1

1) Define net-metering. How does this help solar?

Answer 1

Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid. It allows the the owners of the system to be credited for their overproduction, or excess energy production they produce during the day, and receive credits that can offset the energy they consumer from the grid at night.

Question 2

2) What the main value drivers for solar? How do each play a part?

Answer 2

Sunlight: The greater the sun resource, the more energy a system will produce

Energy Rate: The higher the cost of electricity, the greater the value of energy saved or offset (i.e., if you pay the utility $0.15/kWh for electricity and you now install solar, you are saving $0.15/kWh for every unit of solar energy you generate)

Incentives: The Cash incentives (rebates, SRECs) provide additional cash value that allows for greater return on investment and a faster payback.

Tax Credits: Additional financial value that increase return on investment and quickens payback.

Question 3

3) In New York City, which direction should solar panels be tilted? Why? What are the considerations for how much to tilt the modules?

Answer 3

They should face south. Optimal azimuth is always 180 degrees facing south when in the northern hemisphere. A tilt of ~25 degrees may be the most efficient in a New York.
If you have a roof mounted system, the panels will not be tilted at 25 degrees but at 10 or 5 degrees. This is to minimize the cost of the racking used, meet all wind codes, and to minimize shading from panels. At a higher tilt, the panels will create more shade from themselves, decreasing the overall system size and diminishing the production gains from the optimal tilt angle.

Question 4

4) If a building in Los Angeles consumes 1,000,000 kWh of energy per year, what size solar system is appropriate to offset approximately 90% of this consumption? Assume Yield is 1,400 kWh/kW

Answer 4

A) 6.5 Megawatts B) 650 kilowatts C) 65 kilowatts D) 650 Watts

1) Calculating amount needed to Offset 1,000,000 x 90% = 900,000 kWh per year
2) Divide the total amount to be offset by your yield 900,000 kWh / 1,400 kWh/kW = 642 kW;

Question 5

5) What is a demand charge?

Answer 5

A demand charge is based on a users “peak demand.” (ie, how much power capacity needs to be on hand to meet a users peak usage). Demand charges are based on the highest 15-minute average usage recorded within a given month. These are charge based on a kW charge, which measures the peak power needed to satisfy that users peak

Question 6

7) A building consumes 700,000 kWh per month. A system will produce 1,000 kWh/kW/year. The building is on a flat rate schedule. How large of a solar system will offset 80% of the buildings electric consumption?

Answer 6

1) Convert consumption from month to year - 700,000 kWh x 12 months = 8,400,000 kWh per year;
2) Calculating amount needed to Offset - 80% of 8.4mm kWh = 6,720,000 kWh to be offset;
3) Divide the total amount to be offset by your yield 6,720,000 kWh / 1,000 kWh/kW= 6,720 kW or 6.72 MW

Question 7

6) What is a consumption charge?

Answer 7

A kWh charge that is based on the amount of electricity consumed. It is the sum of the total “flow” through a meter. It is based on the total energy consumed.

Question 8

8) What type of power plants are base load?

Answer 8

Base load plants are plants that run continuously throughout the year and are only down for routine maintenance or servicing. They run continuously and commonly have a low marginal cost of production relative to other plants. (ex; Nuclear, Coal)

Question 9

9) What type of power plants are intermediate load?

Answer 9

A power plant that runs for 40-60% of the time. These plants usual are dispatched during daylight hours, turning on in the morning and ramping down in the evening, not running at night. These will have a higher marginal production cost that base load. (ex: Natural Gas, Coal)

Question 10

10) What type of power plants are peaking plants?

Answer 10

Power plants which serves peak demand, typically in the mid-to-late afternoon periods when the grid is at peak demand. (ex: Natural Gas plants, fuel oil)

Question 11

11) What does it mean to be a peaking power plant?

Answer 11

A peaking power plant serves peak load or the time of the day when the power grid demands is highest amount of power. Peakers usually run for <30% of the time and can be as little as <10%. These plants are able to ramp up quickly, albeit at high cost. They are there to serve peak demand and be “on-hand” to ensure reliability.

Question 12

12) What type of power plants are “must-take?”

Answer 12

Must take plants are those which cannot be dispatched, meaning users cannot choose when to turn the plant on or off. The power is sent the grid and the grid must take the power. (ex: solar, wind)

Question 13

13) What is locational marginal pricing?

Answer 13

The way wholesale electric energy prices are determined by using local load centers to create a local market to reflect the value of electric energy at different locations, accounting for the patterns of load, generation, and the physical limits of the transmission system.

Question 14

14) What fuel type is used in the power plants that typically determine the market price? Discuss the significance for power pricing and solar?

Answer 14

Natural Gas power plants are “on the margin” in many electricity markets around the country because of their ability to quick ramp up and down. Given that these types of plants set the market price and that price is determined by those power plants’ cost to operate, their input costs are vital to determining the market electricity prices. Because of this, the cost of natural gas, the resource, is strongly correlated with the price for electricity; as natural gas prices rise, electricity prices rise, as natural gas prices fall, electricity prices fall. With this in mind, the shale gas boom in the US, driven by hydraulic fracturing, has created an oversupplied market for natural gas at very low prices. These low natural gas prices have led to suppressed and low electricity prices. As the natural gas market becomes more of a global market, transitioning away from regional markets as liquefied natural gas terminals are developed, it is though that natural prices will rise, leading to higher electricity prices, creating more incentive to transition electricity generation from fossil fuel to solar.

Question 15

1) What is the duck curve? Discuss its significance including solar effect on it? Its affect on solar? What is the concern regarding it? What technology can help solve this issue? How?

Answer 15

The Duck curve is the result a grid demand curve that is heavily supplied by solar during the daytime, requiring little to no other generation sources, with then an enormous ramp up required of non-solar generating sources as the sun sets. As more solar is installed in a given market, the generation from those systems during the day, decreases the need for other non-renewable generation resources. In states such as California, this becomes very pronounced as solar can power entire markets during sunny days. For the grid operator, it stresses the grids ability to provide reliable power as it requires the grid to very quickly ramp up over the time when the sun sets. Battery technology, paired with solar is viewed as a silver bullet to climate change and as a way to manager grid reliability. Instead of pushing all the solar generation onto the grid during the day, solar can charge storage (batteries) during the day, when the sun sets, the batteries can discharge to serve evening demand. These systems can be designed to maintain a much more even demand for non-renewable resources, increasing grid reliability and smoothing electric market pricing.

Question 16

16) How are T&D rates determined? What would cause them to rise?

Answer 16

Transmission and distribution rates (commonly also called delivery) are charged a regulated utility under a cost recovery billing mechanism. The utilities file rate cases with the PUC requesting to earn an allowed ROI on their asset base or “rate base.” Total Revenue = Rate Base * Allowed ROI + Expenses. Total revenue is then split amongst ratepayers. ROI is commonly very rigid in that the PUC only allows a reasonable profit to be made. They also have a keen eye on expenses. Regulated Rates, (T&D) rates will rise due to increase in Rate Base. If there are billions of dollars in needed infrastructure upgrades that the utility needs and that the PUC will ratify, then rates will rise because the utility will still earn their allowed ROI on what is not a higher rate base.

Question 17

17) Discuss the impact different net metering crediting regimes have on solar system size that. (net export is rolled over indefinitely, net export is rolled over until year end and then paid out, net export cannot be rolled over, export is paid out at wholesale rates)

Answer 17

Net export rolling over indefinitely allows for the “banking” of net metering (kWh credits) credits with no end. Under a year end structure, any excess credit at year end will be paid out in cash at the wholesale rate (less $ value that if they had rolled over continuously to be used against future consumption at the retail rate). If net export cannot be rolled over at all month to month, your system will be sized much smaller as the excess generation from summer months would be compensated at a lower rate. To avoid that outcome, one would build a smaller system that generates less energy and thus decreases export in the summer, drastically under-sizing the system to annual consumption.

Question 18

18) Does a declining block or inclining block electric pricing rate schedule provide more value to solar? Explain.

Answer 18

a. An inclining block structure will provide the most incentive for solar as the energy that is offset will be the last kWh’s of consumption first which are being charged the highest rate. See Problem Set Question #1 for an Inclining Block Structure Example
b. Under a declining block structure, the reverse is true as the first units that solar will offset (ie the last units consumed) are of the lowest value or price. See Problem Set Question #2 for an Declining Block Structure Example

Question 19

19) If a building is a night peaking facility with time-of-use pricing, can onsite solar work to reduce their energy usage? Please explain. If no, what technology could be deployed?

Answer 19

Depending on their daytime usage, solar could be used to offset that consumption. Being a night peaking facility where a majority of their consumption is at night when solar does not generate and under a rate tariff that will require the time of day of solar production to offset usage during the same time period, solar will not be effective to offset the facility’s peak usage. What could be deployed is storage. The solar could charge the storage asset during the day and then the storage asset could discharge its power at night when the facility is peaking and consumes the most energy.

Question 20

20) Where in the US:

a. are there the highest energy prices? Why?

Answer 20

i. Highest energy prices are in Hawaii. Hawaii must import all its fossil fuels for electricity generation via ship. Given technological limits, as of now, that is oil instead of natural gas. Oil power plants are very expensive to run and thus yield high electricity prices. Behind Hawaii are the large population centers in California and the northeast. Congestion and maintenance of large and complex electric grids serving millions of people drives higher prices in these markets.

Question 21

Where in the US are the Lowest Energy Prices? Why?

Answer 21

i. The lowest can be found in parts of Washington State where the entire subregion is powered by hydroelectric power which has minimal operating costs. Other low power priced markets are those in the southeast US where the power is generated view coal power plants. Absent a cost on carbon emissions, these power sources are cheap, creating low power prices.

Question 22

21) What is a production based incentive?

Answer 22

A production based incentive is one which compensates the generator or system owner for how much renewable energy the system produces. This is commonly done through the creation of SRECs which are produced for every unit of solar energy produced.

Question 23

22) What is a feed-in-tariff?

Answer 23

A feed-in-tariff is a mechanism in which a solar owner will not net meter with its system but sell all the output of the system to the electric utility at a agreed upon price through a long-term contract. It is a mechanism used by some utilities to help meets its RPS requirements. Commonly, the environmental benefits transfer with the power to the utility and cannot be sold off separately.

Question 24

23) What constraints in solar development are community solar systems providing solutions for? Discuss.

Answer 24

Roof constraints: A roof may be shaded and thus not viable for onsite solar. Additionally a location may not be able to build a rooftop system that serves all its energy needs a requires a larger area for its system, community or offsite solar provides a viable solution.
Roof issues: Many homes and building will have roofs that are no structurally sound and thus cannot support a solar system. This solves this issue as the solar will located at a different site, with the solar energy credits being send to the location one wishes.
Credit issues: A solar PPA provider (ie a company that owns the solar and sells customers power) will be concerned with the credit quality of a buyer (homeowner or business) when putting solar on their roof. If they have bad credit, the solar PPA provider will not install the solar as if the buyer defaults (ie doesn’t make their payments) the system owner has not remedy for where to sell the power. Community solar will allow them to switch who receives the credits from the solar. If a buyer defaults, the owner will switch who receives the solar credits to another buyer.
Renters: Most home or apartment renters either do no have a roof (apartments) or the ability to commit to a 20-year contract or investment like a homeowner would. Community solar will allow them to participate in solar for a shorter duration. If they move out of their apartment, the system can switch who receives the credits to another buyer.

Question 25

24) What are the benefits to a solar system owner of string inverters versus central inverters?

Answer 25

String inverters allow for the system to maximize “up-time” or the time when the system is running. If one string inverter fails or requires maintenance, only modules connected to that inverter will be out of service as opposed to central inverters where the entire system will be out of service, creating a greater loss of energy production. Additionally, strings are small and light and can be stored on the roof, out of sight and thus take up less space. Central inverters are large and heavy and require being mounted on a concrete pad on the ground, using up what may be vital real estate.

Question 26

Please discuss how time-of-use pricing can constrict the system size that can be net metered.

Answer 26

The time of use periods each become their own consumption periods. If you have two periods, weekday and weekend, only weekend solar generation can offset weekend consumption and weekday production only offsets weekday consumption. As the time-of-use periods split up solar production times into different use periods and days of the week split the solar production into more use periods, constraints emerge that will constraint the system size one can build. A facility may no longer be able to offset all its load with solar because one of the time of use periods may run out of consumption to offset with solar sooner than other use periods.

Question 27

26) Why is it beneficial to face the solar modules 180 degrees south? Why is it beneficial to align the azimuth with the building’s orientation?

Answer 27

Facing the modules 180 degrees south maximizes energy production as it will receive the most direct sunlight throughout the course of the day. The building azimuth, or the direction a building faces is rarely every directly 180 degrees south. By utilizing the azimuth of the building (the direction is faces) which will not be 180 degrees south, allows for the most efficient placement or solar modules, wasting the least amount of space. This can result in larger system sizes that facing the system 180 degrees south. The larger system, despite slightly lower production per solar module, will produce more energy in aggregate than a system that facing 180 degrees south, but which has less modules.

Question 28

27) What are the benefits of string inverters over central inverters?

Answer 28

String inverters allow for the system to maximize “up-time” or the time when the system is running. If one string inverter fails or requires maintenance, only modules connected to that inverter will be out of service as opposed to central inverters where the entire system will be out of service, creating a greater loss of energy production. Additionally, strings are small and light and can be stored on the roof, out of sight and thus take up less space. Central inverters are large and heavy and require being mounted on a concrete pad on the ground, using up what may be vital real estate.

Question 29

28) What does it mean for an SREC contract to have a firm quantity?

Answer 29

A firm quantity contract is where the seller of SRECs agrees to sell a fixed number of SRECs to a buyer in a given year. The buyer is in turn promising to buy exactly that amount, no more or no less. If the seller produces more SRECs, they get to keep the excess; if they under produce they must purchase SRECs at the market price to deliver to the buyer.

Question 30

29) What does it mean for an SREC contract to have a unit contingent quantity with a cap

Answer 30

The contract will state that the buyer will purchase all the SRECs up to an agreed upon quantity from a seller. If the seller produces more than the cap, it keeps the excess; if the seller produces less than the agreed upon quantity, there is no penalty for under production.

Question 31

30) If a buyer and seller agree to a firm quantity of 500 SRECs per year firm and 100 per year unit contingent:
a. and the seller produces 550, Is there a penalty?

Answer 31

i. No penalty. 500 SRECs were delivered satisfying the firm requirement. The buyer then bought the 50 additional SRECs under the unit contingent component.

Question 32

If a buyer and seller agree to a firm quantity of 500 SRECs per year firm and 100 per year unit contingent: IF they produce 450, is there a penalty?

Answer 32

i. Yes. The seller would need to make the buyer whole by purchasing 50 SRECs on the open market to deliver to the buyer to satisfy the requirement of 500 SRECs.

Question 33

If a buyer and seller agree to a firm quantity of 500 SRECs per year firm and 100 per year unit contingent, and they produce 650

Answer 33

i. If they produces 650, the seller would sell 600 SRECs to the buyer (500 firm, 100 UC) and have 50 SRECs that they owned. The seller, owning those SRECs could sell them in the market at the market price whenever they choose, or “bank” the SRECs till a later date they can use them to satisfy this contract or sell into the market. They could also “retire” the SRECs if they so chose, claiming the environmental benefit.

Question 34

31) What are the benefits to the seller under a unit contingent contract? What are the negatives to the buyer?

Answer 34

A seller has no penalty for under production. Under a firm contract, if a seller under produces the fixed quantity they would be required to pay a penalty payment or must make the buyer whole. There is no such requirement under a unit contingent contract. The buyer will purchase whatever SRECs are produces by the seller.
A buyer would not prefer a unit contingent contract as they do not know what quantity they will be purchasing. This makes hedging or planning for compliance more difficult as there is uncertainty what quantity they will receive.

Question 35

32) What is an alternative compliance payment?

Answer 35

An alternative compliance payment is the penalty that a power produced must pay for every SREC that they are short in a compliance year. For example, if a power producer was required to procure 4% of its total generation from solar in a given year and it produced 1,000,000 MWHs or energy, it would need to provide 40,000 SRECs for compliance. If it only had 30,000 SRECs at the end of the year, it would be required to pay the alternative compliance penalty for 10,000 SRECs that it did not produce,

Question 36

33) What is the ITC? How much is it worth?

Answer 36

It is the investment tax credit. It is worth to 26% of the total project cost of a solar project. The ITC is a dollar for dollar federal income tax credit can be netted against tax liabilities. It can be rolled back 1 year and forward 20 years.

Question 37

34) Who qualifies for the ITC?

Answer 37

Corporations and other federal income tax payers who are considered active investors whose capital is at risk.

Question 38

35) What financial structures can work if you cannot utilize the ITC?

Answer 38

A power purchase agreement and an sale/leaseback (operating lease) allow for a third party to finance the solar system and utilize the tax credit while the entity who cannot use the tax credit can still benefit from the solar system.

Question 39

36) What is depreciation?

Answer 39

Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses throughout the useful life of an asset.

Question 40

37) How does accelerated depreciation create tax benefits for solar?

Answer 40

It allows for an owner/investor to depreciate a 30 year+ asset long-lived over a period of 5 years. The resulting high non-cash depreciation expenses during the 5 year period create large net operating losses which an owner/investor can net against gains elsewhere in their business, decreasing their tax liability, while leaving their cash position unaffected.