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Performance & Financial Analysis

Prepared September 24, 2017 for
John And Jane Homeowner
1 Rolling Hills
Rolling Hills, CA 90274
 
Prepared by WILLIAM HOWE
OWNER
HOWE BUILDERS
4135 228 TH. PLACE
TORRANCE, CA 90505
Phone: 310-373-9658 | Email: HOWETOBUILDSOLAR@AOL.COM

Executive Summary

Electric Utility Savings: Anticipate a savings of approximately $6,281 in electric bills (93%) at current utility rates in the first year. Savings will grow as electric utility rates are expected to rise 4.25% a year. The purchase of electric energy (kWh) from your utility is expected to be reduced by 58%. Also, your electric rate has Tiered and Time-of-Use attributes, and this project will reduce your average utility electric cost from $0.27 to $0.05 per kWh.

Over 25 years, annual utility savings are anticipated to average $11,236, for a total utility savings of $280,896. In gross income (pre-tax) dollars, savings average $18,122 annually or $453,058 over the system life.

Performance Summary
Energy Efficiency Improvements:Total Electric use will be reduced by 5,294 kWh/Year.
See Energy Efficiency Summary page for details.
Solar Electric (PV) System:6.12 kW DC (5.875 kW AC, 5.361 kW CEC) producing 9,465 kWh/Year.
Purchase Price & Net Cost
Contract Price:$28,145
Incentives to Customer:($8,444)
Net Purchase Cost:$19,701
Financial Ratios
Customer`s Profitability Index:11.7
Cashflow Payback:1.8 years
Internal Rate of Return (IRR):57.9%
Modified IRR (MIRR):17.6%
Net Present Value (NPV):$210,551
Cash Gained over Life:$433,357
  • Property Value Appreciation: $130,960 (first-year utility savings x 20 years)
  • CO2 Saved over System Life: 303 tons. Equivalent to driving 606,000 auto miles

Finance: Cash

cashflow

The Cost of Doing Nothing

 

UCost

Your Hedge Against Utility Inflation: Your investment in this project will protect you from utility rate inflation.

Utility Cost by Month

Includes monthly Net-Metering "True-Up" to reconcile any net-meter credits accumulated in prior month(s).

Monthly UCost

Your Hedge Against Utility Inflation: Your investment in this project will protect you from utility rate inflation. Levelized Energy Cost (LEC) analysis provides us with a "hurdle rate" (the levelized energy cost) which can be compared to the expected change in utility rates (by way of utility rate inflation). LEC is the average lifetime cost of energy produced by a particular system. We can compare the LEC to the current utility rate and its expected change in price as time goes on. In this manner one can judge the investment as a "better bet" than utility rates to contain energy costs. Represented below is the average cost of utility energy versus the cost of energy produced (LEC) by your system over time.

Electric: Levelized Energy Cost (LEC)

LEC Electric

Carbon Footprint

Your carbon footprint will be reduced. Over the life of your system 303 tons of carbon dioxide (CO2) will be eliminated from your footprint. Equivalent to:

treesPlanting 7,060 trees.
gasDriving reduced by 606,000 auto miles, or 30,906 gallons of gasoline.
trashRecycling 957 tons of waste instead of sending it to landfill.
coal295,250 pounds (147.6 tons) of coal burned.
waterand you will help avoid the use of up to
7,380,000 gallons of water by Thermoelectric Powerplants.

Energy Efficiency Summary

 

electric eff
Energy Efficiency Improvements
Change outdoor lighting from Incandescent to Compact Flourescent .
Change outdoor lighting from Incandescent to Compact Flourescent .
Improve Replace Existing Pool Filter Pump With Hybrid efficiency by 75%.
Improve Use Hybrid Pump Off Peak efficiency by 5%.
CategoryAnnual Energy Savings
Space Cooling228 kWh Electric
Electrical Appliances & Equipment5,066 kWh Electric
Contract Price Summary: Energy Efficiency Improvements
No cost for energy efficiency improvements.

Solar Electric (PV) System Summary

 

PV Production
 Tilt: 19°   Azimuth: 180°   3" Air Gap
Shade reduces production: 0%
PV Panels:24 x Canadian Solar, Model: CS6P-255M
Inverters:24 x Enphase Energy, Model: M215-60-SLL-S2x
Total Panel Area:400 sq-ft
System Peak Power:6.12 kW DC (5.875 kW AC, 5.361 kW CEC)
Annual Production:9,465 kWh. Supplying 37% of annual electric use (47% after efficiency)
Contract Price Summary: Solar Electric (PV) System
Contract Amount:$28,145 ($4.60 per watt DC)
Incentives available to Customer in 1st Year 
Federal Tax Credit (30% of Gross Cost at Installation):($8,444)
Net Cost at Install (after incentives):$19,701
Net Installed Price per Watt:$3.22 per watt DC ($3.35 per watt AC)

Sensitivity Analysis: Utility Rate Inflation Scenarios

Sensitivity Analysis is a process of analyzing possible future events by considering alternative possible outcomes.

The average change in utility rates (inflation) over the system life is perhaps the variable which may most affect the return on your investment. The following table summarizes how utility rate inflation may impact your investment. The project, as quoted, is compared to utility rate inflation that averages -5%, 0% and +5% over the system life.

 

 As Quoted-5% Inflation0% Inflation+5% Inflation
Total Utility Savings:$280,896$85,998$156,473$313,431
Cash Gained over Life:$433,357$119,004$232,674$485,833
Return on Initial Cash Invested (IRR):57.9%43.9%51.4%59%
Wealth Created Over System Life (NPV):$210,551$68,467$122,680$232,677

 

Utility Inflation, as Quoted: Electric Rates: 4.25%, Natural Gas Rates: 3.78%


How to Interpret Financial Ratios and Measures

A Measure of Security: Cashflow Payback: 1.8 years - 1.8 years (modified)

The most common measure of the security of a proposed investment is its payback, defined as the length of time until one gets one`s money back. Cashflow Payback is when cumulative cash flow stays positive for good. Modified Cashflow Payback is when the cumulative cash in-flows exceed the total of all cash out-flows over the system life; future maintenance expenses are accommodated.

Profitability Index: 11.7

What PI Means: Generally, if PI > 1 then accept the project. If PI < 1 then "qualitative" factors may justify the project.

Profitability Index (PI) is a measure of investment efficiency. It identifies the relationship of investment to its return. Profitability Index (PI) is calculated as: (Net-Present Value of the Returns plus the Initial Investment) divided by the Initial Investment. For example: $19,701 is invested and the NPV of the returns is $210,551, then the PI = ($19,701 + $210,551)/$19,701 = 11.7, or more generically, for every $1 invested you received $11.7 in return.

Net Present Value (NPV): $210,551

What NPV Means: NPV is an indicator of how much value (wealth) an investment adds to the customer. If NPV is positive then the investment would add value. If NPV is zero or negative then other "qualitative" factors may be of adequate value to justify the project (for example, lengthening a swimming pool season). Net Present Value (NPV) is one way to account for the time value of money. NPV calculates the current value of each future cash flow. For example, $1.00 received two years from now is equivalent to something less today, if it can be invested now at some interest rate. This allows us to "discount" the cash flows (whether positive or negative) that the proposed investment is expected to generate at various times in the future back to their equivalent value today (that is, their "present value"). If one then subtracts the cost of the proposed investment from the sum of the present values of the ongoing cash inflows, one obtains the net present value (NPV) of the investment.

Internal Rate of Return (IRR): 57.9%

Internal Rate of Return (IRR) is a common measure of investment efficiency. Equivalent to the yield to maturity of a bond. The internal rate of return (IRR) is the annualized effective compounded rate of return earned on the invested capital.

Yield

Modified Internal Rate of Return (MIRR): 17.6%

Modified Internal Rate of Return (MIRR), as the name implies, is a modification of the internal rate of return (IRR) and as such aims to resolve some problems with the IRR. First, IRR assumes that positive cash flows are reinvested at the same rate of return as that of the project that generated them. A more likely situation is that the funds will be reinvested at a rate closer to the cost of capital. For determining MIRR, we assumed a finance rate of 5.00% and a reinvestment rate of 8.00%.

Measures of Predictability: Using "hurdle rates" Levelized Energy Cost (LEC)
Solar Electric (PV): $0.14 per kWh

Another dimension of concern about a proposed investment is the predictability of its anticipated costs and returns, which requires measures of the uncertainty associated with them. Levelized Energy Cost (LEC) analysis provides us with a "hurdle rate" (the levelized energy cost). LEC is the average lifetime cost of energy produced by a particular system. We can compare LEC to the current utility rate and its expected change in price as time goes on. In this manner one can judge the investment as a "better bet" than utility rates to contain energy costs.

Assessing Option Value: The option value of a proposed investment represents the value of future opportunities that would be made available only if the investment were made. Like the ante in a poker game, the investment may promise no return other than the opportunity to look at the cards being dealt, at which point one can either fold or "exercise the option" by making additional investments in an attempt to win the pot. To realize future value here new investments are not necessarily required to "exercise the options" - ownership is enough. In the case of renewable energy systems in general, there are primarily two opportunities, or options, which may have future value: Property value appreciation, and Renewable energy certificates (RECs or SRECs):

Property Value Appreciation: $130,960

Installing a renewable energy system can result in increased property valuation. The (few) papers on this topic assume that by decreasing utility bills (operating costs) the property owner`s cash flow can accommodate higher loan-to-value ratios. In other words, by reducing monthly expenses, a property owner can afford to take on more debt. According to one report by the Appraisal Journal a home`s value can increase by $20,000 for every $1,000 reduction in annual operating costs due to energy efficiency improvements. This assumes a 5% cost of money ($20,000 x 5% interest = $1,000).

Property value appreciation is estimated to be:

$130,960 = 1st-year utility savings of $6,548 (post-tax) x 20 years

(Note: If system life is expected to be more than 20 years, then 20 years is used.)

The following factors should be kept in mind:

1. The annual savings will not be the same every year. Utility inflation rates, assuming the renewable energy system is grid connected, will alter the annual savings over time - more savings with utility rate inflation, less if utility rate deflation occurs..

2. At some point in the system`s life, its value as a "saleable" asset will start to reduce to zero as the system comes to its end of life.

3. Property valuations are based upon many variables (external factors), many of which are location-specific and/or contingent upon macro-economic and micro-economic factors such as interest rates, the economy, new developments, changing lifestyle and living patterns, etc. A property`s value can change by many percentage points as a result of these external factors and one needs to consider the amount of value a renewable energy system may add to a property vis-a-vis the overall property`s value.

Renewable Energy and/or Carbon Credits or Certificate (REC or SREC): Renewable Energy Certificates (sometimes called "solar renewable energy credits/certificates" - SRECs, S-RECs, or simply RECs) are a new and evolving method to ascribe future financial value to a renewable energy system. RECs represent the bundle of legal rights to the "green" part of each unit of energy produced by a renewable energy system. This green part can be sold for a value, which generates additional revenue for the seller. These certificates can be sold and traded or bartered and the owner of the REC can claim to have purchased renewable energy.


Utility Energy Summary: Electric

Electric Utility Rates
Current RatePost Project Rate
Southern California Edison Co: Schedule D Domestic Service (Single Family, Reg 6)Southern California Edison Co: Schedule TOU-D-TEV Domestic Tiered EV Charging (Single Family, Reg 6)
Average Cost:$0.266 per kWhAverage Cost:$0.046 per kWh
Tiered Rate:YesTiered Rate:Yes
Time-of-Use Rate:NoTime-of-Use Rate:Yes
Demand Charges:NoDemand Charges:No
Summary of Utility & New Source Electricity
Electric by Month (kWh)JanFebMarAprMayJunJulAugSepOctNovDecTotal
Entered into Software (historical)
Monthly Use1,8501,5101,8552,1601,9861,5241,8152,8652,7752,1751,6131,17523,303
Historical Cost$0$0$0$0$0$0$0$0$0$0$0$0$0
Estimated by Software at Current Rates (Includes any planned energy increases)
Estimated Use2,0371,6782,0412,3402,1721,7042,0023,0502,9552,3611,7921,36125,493
Current Cost$535$432$536$633$577$436$526$853$827$636$461$324$6,776
Baseline Use after Efficiency and Use Change1,5931,2771,5971,9071,7281,2501,6622,5502,4631,9101,34591720,199
Baseline Cost after Efficiency and Use Change$396$307$397$497$438$294$420$697$673$495$322$203$5,139
PV Production(599)(584)(811)(978)(920)(950)(1,022)(963)(780)(655)(618)(586) 
Post Project Use9936937879298083006401,5881,6831,25572633110,733
Post Project Cost$44$35$39$42$39$26$35$59$61$51$37$27$495
Production Self-Consumption Percent: (Non-bypassable charge of $0.02569 per kWh consumed from the grid, net of exports)
38%35%31%31%30%21%26%42%48%42%31%23%
Net-Meter Credit Values: Amounts Accrued and Applied to Post-Project Cost
The Value of Net Meter Credits applied to the Post Project Cost totals take into account the value of annual net excess generation, less any meter fees and minimum bill amounts.
Value Accrued in Month at Utility Retail Rate less Non-bypassable charges of $0.02569 per kWh:
$(6)$(26)$(51)$(62)$(63)$(115)$(146)$(69)$(13)$0$(28)$(25)$(604)
Value Applied$0$0$0$0$0$0$0$0$0$(10)$0$0$(10)
 

Electric Utility: Tiered Pricing Attributes


Tiered electric rates change based upon how much electric energy (kWh) is purchased. The graph below displays the energy (kWh) portion of your electric bill by Tier. Costs shown assume retail energy (kWh) rates. Actual amounts will be different depending upon meter fees, taxes, net-meter credit methods and other billing specifics. See "Utility Energy Summary: Electric" for total estimated bills.


Tiers

Time-Of-Use (TOU) electric rates change based upon when (the hour) electric energy (kWh) is purchased or credited ("sold") to the utility. The graph below displays the energy (kWh) portion of your electric bill by TOU.


TOU

Winter & Summer TOU Patterns: Here is how electric use is distributed across a typical day.

Feb TOUAug TOU

Utility Energy Summary: Natural Gas

Natural Gas Utility Rates
Current RatePost Project Rate
Fixed Price per unit $0.0000 per ThermFixed Price per unit
Tiered Rate:NoTiered Rate:No
Summary of Utility Natural Gas & New Source Energy
Natural Gas by Month (Therm)JanFebMarAprMayJunJulAugSepOctNovDecTotal
Entered into Software (historical)
Monthly Use0000000000000
Historical Cost$0$0$0$0$0$0$0$0$0$0$0$0$0
Estimated by Software at Current Rates
Estimated Use0000000000000
Current Cost$0$0$0$0$0$0$0$0$0$0$0$0$0
Post Project Use0000000000000
Post Project Cost$0$0$0$0$0$0$0$0$0$0$0$0$0

Minimum monthly meter fees may apply and are not included in this analysis.


Cash Flow Details for the System

Cash Flows in Year01234
Gross Cost: Efficiency0    
Gross Cost: PV(28,145)    
Gross Cost: TOTAL(28,145)    
Reference: Utility Bill Savings with Inflation Applied06,5486,8247,1127,412
Utility Bill Savings as Gross Income Dollars010,56111,00611,47111,955
Solar Electric (PV) Incentives 
Federal Tax Credit (30% of Gross Cost at Installation)8,4440000
Total Incentives8,4440000
Net Annual Cash Flow(19,701)10,56111,00611,47111,955
Cumulative Cash Flow(19,701)(9,140)1,86613,33725,292

Net Annual Cash Flow is the sum of values in gray lines.

Cash Flows in Year56789
Reference: Utility Bill Savings with Inflation Applied7,7258,0518,3918,7449,114
Utility Bill Savings as Gross Income Dollars12,46012,98513,53414,10314,700
Net Annual Cash Flow12,46012,98513,53414,10314,700
Cumulative Cash Flow37,75250,73764,27178,37493,074
Cash Flows in Year1011121314
Reference: Utility Bill Savings with Inflation Applied9,4989,90010,31710,75211,206
Utility Bill Savings as Gross Income Dollars15,31915,96816,64017,34218,074
Net Annual Cash Flow15,31915,96816,64017,34218,074
Cumulative Cash Flow108,393124,361141,001158,343176,417
Cash Flows in Year1516171819
Reference: Utility Bill Savings with Inflation Applied11,67912,17112,68513,22013,777
Utility Bill Savings as Gross Income Dollars18,83719,63120,46021,32322,221
Net Annual Cash Flow18,83719,63120,46021,32322,221
Cumulative Cash Flow195,254214,885235,345256,668278,889
Cash Flows in Year2021222324
Reference: Utility Bill Savings with Inflation Applied14,35914,96515,59716,25416,940
Utility Bill Savings as Gross Income Dollars23,16024,13725,15626,21627,323
Net Annual Cash Flow23,16024,13725,15626,21627,323
Cumulative Cash Flow302,049326,186351,342377,558404,881
Cash Flows in Year2526272829
Reference: Utility Bill Savings with Inflation Applied17,6550000
Utility Bill Savings as Gross Income Dollars28,4760000
Net Annual Cash Flow28,4760000
Cumulative Cash Flow433,3570000

Other Assumptions Used in this Analysis

Customer Type: Residential.

Tax Effects Applied to Utility Savings: As a residential customer, we have assumed Pre-tax (gross income) dollars are saved. This means the Utility Savings are divided by 1 minus the effective income tax rate (28.00% federal and 10.00% state).

System Life: PV System: 25 years. Inverters: 25 years. Appliance/Lighting: 10 years.

PV System Modeling Variables (PVWatts references): System Losses: 7%, DC-to-AC Ratio: 1.19, Module Type: Standard, Inverter Efficiency: 96.00%. Software`s suggested production adjusted by 91% for this estimate.

Performance Degradation and O&M Costs: We have assumed performance will degrade by 1.00% per year due to soiling and general wear. Annual operating and maintenance (O&M) costs are inflated 2.80% per year, and are estimated as a percent of gross system price, as follows: Solar Electric (PV): 0.00%. Efficiency measures: None.

Income Tax Rates: Federal: 28.00%, State: 10.00%

Annual Inflation Rates: Consumer price index: 2.80%, Electric Rates: 4.25%, Natural Gas Rates: 3.78%

Energy Metering Type: Net Metering

Net Excess Generation (NEG): Monthly NEG credited at Utility Rate less Non-bypassable charges of $0.02569 per kWh, which also apply to energy produced and not self-consumed (fed to grid). Monthly NEG may be carried forward to the next month for application to future utility bills. Annual NEG sold at $0.06000 per kWh.

Discount Rate: 5.00%. Used to estimate net present value of future cash flows. This is also assumed to be the finance rate, as used to calculate MIRR.

Reinvestment Rate: 8.00%. Used to calculate MIRR.

Carbon Dioxide (CO2) Calculations: The following assumptions are used to calculate carbon dioxide (CO2) reductions: Electricity: 1.64 lbs. CO2 per kWh. Natural Gas: 0.12 lbs. CO2 per cubic foot (12 lbs. per Therm). Fuel Oil: 22.29 lbs. CO2 per gallon. Propane: 12.17 lbs. CO2 per gallon. Trees Planted: 0.0429 tons CO2 per Tree planted (23.3 Trees/Ton CO2). Automiles Saved: 1 lb CO2 per mile for medium passenger car (2,000 Miles/Ton CO2). Gallons Gasoline: 0.009812 tons CO2/gallon (102 Gal/Ton CO2). Landfill Tons: 3.16 tons CO2 per ton of waste recycled instead of landfilled. Single-family Homes (electric use): 8.82 tons CO2/home (0.11 Homes/Ton CO2). Tons of Coal Burned: 2.0525 lbs. of CO2 per lb. of Coal (2,000 lbs. per ton). Source: www.epa.gov/cleanenergy/energy-resources/refs.html

Water used by Thermoelectric Powerplants: Depending upon the technology used, natural gas and coal power plants withdraw up to 20 gallons of water for every kWh of energy produced and consume (via evaporation) about 0.47 gallons per kWh produced. Sources: http://nrel.gov/docs/fy04osti/33905.pdf and http://www.wri.org/resources/charts-graphs/typical-range-water-withdrawals-and-consumption-thermoelectric-power-plants which summarizes the Electric Power Research Institue`s report Water & Sustainability (Volume 3): U.S. Water Consumption for Power Production - The Next Half Century

PV Production by Year

PV system production will vary according to weather patterns, changes in obstacles that may shade the PV panels, and the like. Over time system production may also "degrade" due to general soiling and other effects of aging. The table below provides a range (+/- 20%) of typical annual production values for the system, by year, with an annual performance degradation of 1.00% included. The "Typical" values were used to provide this report.

YearLow TypicalTypicalHigh Typical
17,572 kWh9,465 kWh11,358 kWh
27,496 kWh9,370 kWh11,244 kWh
37,421 kWh9,276 kWh11,131 kWh
47,345 kWh9,181 kWh11,017 kWh
57,269 kWh9,086 kWh10,904 kWh
67,193 kWh8,992 kWh10,790 kWh
77,118 kWh8,897 kWh10,677 kWh
87,042 kWh8,802 kWh10,563 kWh
96,966 kWh8,708 kWh10,449 kWh
106,891 kWh8,613 kWh10,336 kWh
116,815 kWh8,519 kWh10,222 kWh
126,739 kWh8,424 kWh10,109 kWh
136,663 kWh8,329 kWh9,995 kWh
146,588 kWh8,235 kWh9,881 kWh
156,512 kWh8,140 kWh9,768 kWh
166,436 kWh8,045 kWh9,654 kWh
176,360 kWh7,951 kWh9,541 kWh
186,285 kWh7,856 kWh9,427 kWh
196,209 kWh7,761 kWh9,314 kWh
206,133 kWh7,667 kWh9,200 kWh
216,058 kWh7,572 kWh9,086 kWh
225,982 kWh7,477 kWh8,973 kWh
235,906 kWh7,383 kWh8,859 kWh
245,830 kWh7,288 kWh8,746 kWh
255,755 kWh7,193 kWh8,632 kWh
Totals166,584 kWh208,230 kWh249,876 kWh

The following renewable resource assumptions were used to develop estimates for the project location. These are typical values based upon observed data over several decades. Actual values (and system performance) will vary from month to month, and from year to year, in accordance to weather and climate pattern changes.

Weather station referenced: "JACK NORTHROP FLD H" (California)

Solar Resources: Flat-Plate, South-facing Tilted at Latitude
MonthJanFebMarAprMayJunJulAugSepOctNovDec
kWh/m2/day4.7524.8225.7256.8165.9376.3286.756.5895.7924.8495.1114.743
Ambient Temperature Data (Typical °F)
MonthJanFebMarAprMayJunJulAugSepOctNovDec
Mean °F565858596166696868646357
Max °F817577827381849693779081
Min °F434645485254615421514830