Article by Samuel Adeyemo, COO at Aurora Solar
Solar is a dynamic, innovative market. Every few months there are new products, financing mechanisms, policies and organizations that affect how you design and sell solar. This article will help you keep track of the industry’s most frequently used acronyms, and bring you up to speed with what I think are solar’s most important emerging design and financing trends.
Acronym: PACE (Property Assessed Clean Energy)
What it means: PACE is a mechanism by which homeowners can finance solar and energy efficiency projects via their property taxes. Local or state governments, working with traditional financiers, fund the upfront cost of the solar installation or energy improvement. Homeowner’s pay back their local authority via an increased property tax bill, usually over a period of 20 years.
Why you need to know about it: PACE has been around since 2001 and for the first 10 years of its life it had a limited impact on the industry. However, PACE programs received a big boost in August 2015, when the Obama administration issued a new directive to implement legislative changes making it easier to buy and sell properties that have solar installations financed by a PACE loan. PACE offers low financing rates, tolerant credit requirements, but most importantly, local governments are incentivized to promote the product since they keep a portion of the PACE payment. I predict that over the next few years PACE based financing will be the fastest growing financing option in the solar market.
Acronym: LIDAR (Light Detection and Ranging)
What it means: LIDAR is a method of obtaining information about objects or areas from a distance by using light pulses emitted from a device to measure distances. The device also has a GPS fitted to it, and by combining GPS data with the distances it measures, it constructs precise three-dimensional information about the shape of the environment (see GIF below).
Why you need to know about it: LIDAR is slashing solar design costs by helping the solar industry avoid truck rolls. With LIDAR, a solar salesperson or engineer can quickly generate 3D models directly from their office. They can precisely calculate building, tree and obstruction heights as well as roof slopes. Aurora (www.aurorasolar.com) uses LIDAR data to help generate bankable Shade Reports which are accepted for rebate purposes by the largest rebate authorities in the U.S., as well as private lease financiers. Each week over 1,500 Shade Reports are generated in Aurora, and I predict that over the next year LIDAR will continue to help reducing the cost of residential solar.
Shade Report generated in Aurora
Acronym: LCOE (Levelized Cost of Energy)
What it means: The LCOE is the average cost per unit of energy that your solar project generates over its lifetime. Mathematically, it is the ratio of the lifecycle cost of the solar project, divided by the amount of energy it produces. The lifecycle cost of a solar project includes the initial cost to purchase it, financing costs (such as loan payments) and operations and maintenance costs (such as inverter replacement costs) over the life of the project.
Why you need to know about it: LCOE is one of the oldest metrics in the solar industry. It offers an “apples-to-apples” way of comparing different financing options. If your client wants to compare the financial returns of going solar via a loan, lease, PACE or cash purchase, LCOE is one of the best ways to determine their best option. Additionally, knowing your LCOE also has implications for solar design as seen in these articles I previously wrote [insert article 1 and 2]. Over the next few years there are going to be more, rather than fewer options for solar design and financing, so knowing how to calculate LCOE offers you the ability to evaluate them and determine the best option for your customer.
Acronym: LACE (Levelized Avoided Cost of Energy)
What it means: The LACE is the average revenue per unit of energy that your solar installation generates over its lifetime. Mathematically, it is the ratio of the revenue (or avoided cost in the case of net metering or other similar compensation schemes) divided by the lifetime energy production. Lifecycle revenue includes revenue earned from feed-in tariffs, avoided cost from net metering schemes and production-based incentives.
Why you need to know about it: One of the drawbacks of an LCOE calculation is that it does not explicitly take into account the revenue or avoided cost of a solar project. Since utility rates often vary by time of day, it is important to not only know how much energy you are offsetting, but when you are offsetting them. Without knowing the value of the energy you are saving, it makes it hard to compare two different solar designs that cost the same, but have different production profiles. Furthermore, LACE allows you to easily compare a solar installation to an energy efficiency retrofit, for example. This has made LACE popular in government and utility planning circles. For example, a utility can compare the avoided cost of purchasing LED light bulbs versus installing solar (spoiler alert: it partially depends on the differential between daytime and nighttime electricity rates). As the benefits of solar energy become increasingly explicit, customers will go from asking if they should go green to asking how they should go green. LACE provides a convenient way to compare the economic returns of different ways to reduce your carbon footprint.