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Four cases in favor of commercial solar

Costco. The Gap. FedEx. Staples. Frito Lay.  Macy’s. BJ’s Wholesale. Toyota Motor Sales USA. Target. Khol’s. Google. Whole Foods. Wal-Mart. Kettle Foods.

Question: What do these companies have in common?                                                                
Answer: They've all invested in solar energy in recent years.

And they’re not alone: A countless number of small and mid-size businesses have gone solar, too. This growing commercial demand may in part explain why the solar sector has seen such phenomenal growth in recent years. In 2007, the global market for photovoltaics (PV) grew over 60 percent, this atop 20 percent growth in 2006. Investors, too, see bright prospects for PV manufacturers: the Cleantech Group’s Cleantech Index  saw a gain of nearly 43 percent in 2007. The S&P 500 returned a comparably sluggish 5.5 percent.

Given these sun-shiny trends, it may be appropriate to ask if all this corporate interest in installing PV is well founded, or whether Wal-Mart and Macy’s have gone completely mad. As it turns out, the management at these companies do actually know what they’re doing. More and more companies are getting solar because it makes both financial and strategic sense.

We present here four ways solar energy can help add real value to your bottom line: (1) Peak shaving; (2) Price-hedging and price “lock-in"; (3) Getting ahead of the regulatory curve; and (4) Corporate Social Responsibility (CSR). Here we go.

 

(1) Peak Shaving

Large buildings draw a lot of power. Beyond the amount your company pays for the energy it consumes (measured in kilowatt-hours), it may also be subject to something called a “Peak Use Charge." This is because electricity is more expensive during hours of peak demand. So if your building uses a lot of power during this time -- typically during mid-day -- you’re probably being dinged by a stiff surcharge. This amount can sometimes be higher than the charge for the actual energy consumed!

Luckily, PV systems typically generate more power during the times of day when demand is the highest. This means that solar panels can effectively reduce the amount of electricity you purchase from the utility precisely when they are charging the most for it. In industry speak this is called “peak shaving," or reducing a building’s load during high-demand hours.

In 2005, FedEx installed 904-kW worth of Sharp solar panels atop their hub at Oakland International Airport. The system has consistently eliminated about 80 percent of the facility’s peak load demand, and cut electricity costs by 30 percent. The company has since installed a 282-kW system at their Whittier, California freight facility, and is nearing completion of a 269-kW system in Fontana, California. “It makes good sense over the long term because of the changing energy prices in California," says Mitch Jackson, managing director of Corporate and International Environmental Programs. For more details on the project, check out the case study (PDF).

Building operators face a few challenges when try to attain consistent peak shaving. A PV system’s output is, after all, dependent on the sun. A cloudy or rainy day can significantly reduce power generation. Also, if your building’s peak load happens to occur in the morning or late afternoon, instead of a mid-day when solar radiation is the greatest, your PV system may not optimally reduce demand charges. Fear not, however: there exist a number of work-around solutions.

The first, called “dispatchable" peak-shaving, uses a battery system to store PV output during off-peak hours for use when demand and prices spike. For further reading, check out this report (PDF), "Development of a Dispatchable PV Peak Shaving System," prepared by Delmarva Power & Light Company for the U.S. Department of Energy.

The second approach makes use of a solar load controller—essentially a device that monitors and manages PV output. If PV performance dips during a cloudy morning, for example, the load controller automatically readjusts electrical loads within the building to minimize demand. Load controllers have been installed at numerous locations around the country, and are a promising method of both optimizing demand and reducing expensive demand charges.

 

(2) Price “Lock In" and Price Hedging

This next important aspect of PV systems is related to, but not dependent on, peak-shaving. As previously discussed, retail electricity prices fluctuate relative to your electricity load. They also are prone to seasonal price fluctuations. PV systems can help to remove part of this price uncertainty and thus allow for improved forecasting of future energy costs. Power Purchase Agreements -- or PPAs -- provide a straightforward means of locking in consistently priced power while taking advantage of clean, low-carbon energy. PPAs are becoming increasingly popular among firms that want to source solar power. 

The Gap, for example, will soon play host to a 1-megawatt solar power installation at its West Cost distribution center in Fresno, California. The system will take up five acres of land adjacent to the center’s campus, and will be financed, owned and operated by MMA Renewable Ventures, LLC, a subsidiary of MuniMae. As outlined in their agreement, Gap Inc. will purchase predictably priced electricity from MMA Renewable Ventures for the next 20 years, reducing uncertainty and shielding the company from future price fluctuations.

“This project demonstrates that, under experienced management, solar power can deliver energy and long-term costs savings," notes Matt Cheney, CEO of MMA Renewable Ventures. “It’s encouraging to see one of the country’s top retailers moving to solar, and we commend Gap’s continued commitment to renewable energy."

 

(3) Getting Ahead of the Regulatory Curve

Point Carbon, a carbon-trading consultancy, released in 2008 poll numbers indicating that nearly 60 percent of respondents expect the United States to adopt some sort of binding commitment to reduce greenhouse gas emissions in the coming years. It's no longer a question of if the U.S. will apply a price to carbon emissions -- it's simply a question of when. Accordingly, many corporations are already building the prospect of carbon regulation into their strategic planning. For instance, the county’s first voluntary carbon market, the Chicago Climate Exchange,  has already attracted well over 200 prominent corporate members. 

While solar energy won’t entirely eliminate your company’s reliance on carbon-intensive fossil fuels, a well-planned PV installation can play an important role in shifting your company onto a less-carbon-intensive track of growth -- so that when regulators do throw the switch, you can hit the ground running.

For an excellent review of how companies are developing strategies on this front, Andrew Hoffman’s “Getting Ahead of the Curve: Corporate Strategies that Address Climate Change" (PDF), is a must read. Prepared for the Pew Center on Global Climate Change, the piece includes case studies on Alcoa, The Shell Group, Whirlpool, Dupont, Swiss Re and Cinergy.

 

(4) Corporate Social Responsibility

It’s clear that CSR is here to stay -- and the world will no doubt be a better place because of it. Solar energy clearly improves your company’s environmental bottom line. Put simply, it is clean, carbon net-negative technology.

What’s more, solar energy has gained considerable prominence in recent years. One needs only to point to Google’s entrance into the sector to see evidence of this trend. Solar power not only offers the chance to contribute to responsible environmental stewardship, it represents a compelling -- and effective -- narrative with which to achieve your company’s external communications goals. In brief, it’s a win-win.

In conclusion, more and more companies are coming to view solar energy as a means of driving real returns on investment. As we’ve seen here, primary motivations can vary a bit from company to company. Regardless of whether your company seeks to reduce long-term costs, hedge against rising and often fickle energy prices, enhance its role as an environmental leader, or prepare for the inevitable -- carbon legislation -- solar energy is proving to be an effective means toward these ends.

 

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