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  • SolarInvest2020: Residential Solar is Good, but Commercial Solar can be Crazy Profitable!

    Business/Commercial Solar can be crazy profitable.

    [UPDATE: 30% Investment Tax Credit on renewables in the IRA Act 2022. See our Blog post here. This makes all the financial discussions below much more profitable. Also, higher inflation and higher power inflation.]

    Consistently three-fourths or more of people surveyed believe
    that renewable energy – especially solar – is good and that we should do more
    solar on the buildings where the sun shines consistently. But is doing the good
    thing of going solar a good financial investment?

    Solar for residential can be a very good investment, but for
    businesses, solar can be crazy profitable. One reason it is such a good
    investment is the safety of producing your own power. If the home or business
    is to be used, you are already committing to the electric power to operate it. So,
    the decision to go solar is more like an own-verses-rent analysis: do you want to own your
    own power generation, or rent power indefinitely. You still need power either
    way.
    In every case, even for the power utilities, the federal
    government offers a Solar Investment Tax Credit (ITC). Instead of paying taxes
    to the IRS, you save the amount of the investment tax credit. The ITC for 2019 was
    30% of the qualifying investment which has been a wonderful incentive to
    install renewable power including solar, wind and qualifying battery backup.
    The ITC dropped down by 4% in 2020 to 26%; it drops again by 4% in 2021.* After
    2021, the ITC drops off a cliff, to 10% for businesses and zero (0%) for
    residential.* Some states have renewable incentives as well, so the analysis
    might be even better than the profitability for residential and businesses
    described here.
    * Update: As of January 2021 the ITC has been extended at 26% for 2021 and 2022. See Discussion at SEIA.

    Residential, a Good Investment

    For residential, a $30,000 system would have an investment
    tax credit of $7,800, meaning that the net investment is only $22,200 once the
    tax benefits have been realized. Savings each year might be about $1,560 ($130/mo)
    or 7% of the net investment. Stated differently, the savings that you do not
    pay the power company could be 7% or more of the net investment each year,
    assuming the power company does not raise rates. If the power company raises
    rates 1% per year, on average, the savings would be more like 8%+ per year.
    However, the solar investment is actually a better investment than the 7% to 8%
    return might imply.
    The really big difference between buying a solar system to
    produce your own power and other things you might buy, say a car, is savings vs
    spending. As long as the house is being used, you (or your renter) are
    committed to paying for power. So, you are already committed to spending $130
    to $200 per month, you simply wait for the bills to come in. If you could have
    a loan (for maybe 15 years), the payment would be less than what the power bill
    would have been; you would be cash positive compared to the utility power
    option that we have come to expect. Some loan packages for solar include
    interest only initially, let the homeowner apply the tax credit to the
    principle, and them pay off the loan in regular payment for 10 or more years;
    every month would likely be cash positive compared to utility power. Of course,
    once the loan (or home equity line of credit) is payed off, the power generated
    is free for decades.
    Savings has another paradox. Going out and buying a car for
    $30,000 on loan, gives you a monthly payment of maybe $677 per month (4 years,
    4%) or $8,265 each year. You use after-tax income to pay car loan payments, so your
    disposable income reduces by almost
    $700 per month for four years. If your marginal income tax rate is 23% (not average tax rate), you would need an additional
    $200 before taxes, for about $900 per month in gross income to cover the car
    payments.
    One more point on the car example. The net asset value is
    what you can sell it for, after you pay off the loan. For several years, you
    will owe more on the car than you can sell it for. After the loan is payed off
    in 4 years (or more), the vehicle will probably be worth only about $10,000,
    just a third of what you paid. In the solar example, the house is cheaper to
    operate because of the free power generated, so it is reasonable to expect that
    the house will appreciate by more than the price of the solar system. Mortgage
    lenders account for the increase in purchasing power of the buyer because of
    improved operating costs. (TIP. When considering buying a house, call the
    utilities and ask about the operating costs associated with electric, water and
    gas.)
    These same concepts apply as well to businesses, but with
    additional possible tax benefits.

    Solar Example in 2020 for Business, Crazy Profitable

    Let’s work an example for a business that owns their
    building and is considering a $100,000 solar investment that would save about
    $7,200 per year in utility power charges (a straight-forward case that does not
    have something called Demand charges). Assume that this is a limited liability
    (LLC) or S corporation where the marginal tax rate for the shareholders is
    33%, and all profits and losses pass through to the shareholders for tax
    purposes.




    First there’s the $26,000, 26%, tax credit that reduces the tax
    liabilities, dollar for dollar. This is $26,000 that you simply do not pay out
    to the IRS. Then there’s the possibility of 100% depreciation of an asset in
    the first year, so the $28,710 tax shield is based on the reduction in net
    income based on depreciation. (The tax shield is equal to the tax rate times
    the amount of depreciation; the asset bases is reduced by half of the ITC, or
    33% of $87k.) Therefore, the actual investment is only about 45% of the solar
    system costs once all the tax benefits of the investment are realized. If the power
    savings are $7,200 yearly (assuming no increases in power costs), then there’s
    15.9% return on net investment each year. Simple payback is about 6 years! Net
    Present Value (NPV) of the investment is $72k, almost double the net
    investment. (A positive NPV means that you get your money back, in present
    value terms, and then some.)
    That is crazy profitable for a long-term investment. It is
    especially profitable when considering that the business is already committing
    to paying for utility power indefinitely. So, taking a loan for 10 to 15 years
    could result in loan payments that are lower than what the payments would be for
    utility power, especially when considering that the power company raises rates
    (you should figure at least the rate of CPI inflation). At 2% power inflation, the
    NPV of the investment jumps to $105k, and a massive profitability index of 3.33.
    (The profitability index is often the best measure for comparing investment
    alternatives because it is a multiple of the present value of the returns based
    on the size of the investment – in this case, the size of the net investment. Anything
    greater than 1.0 is a positive investment.)

    Solar is a Different Kind of Investment

    There are three major points, however, that make this
    different from most typical investment analyses. (Four, really, if you were to
    discuss the environmental savings, but that’s another discussion.) First, the
    money you’re spending is committed money for power as long as the business is
    open and operating. Taking a loan to buy the solar system might prove to be
    cash positive indefinitely. Take $100,000 loan; pay interest only of $4,500
    (4.5%) for first year or two until you realize the tax benefits of the solar
    ITC and depreciation; apply the tax savings to the loan; and then make payments
    on the loan for 8 years. The loan payments should be several hundred dollars
    less per year than what you would have paid in electric bills, especially as
    the cost of power from the utility company increase over time. Once the loan is
    paid off, the value of the power that you generate for yourself is pure profit!
    Speaking of profit, here is the second point. Every dollar
    you reduce your power bill is savings, which is better than profits – profits
    are taxable. Things like smart thermostats, insulation, weather stripping, adjusting
    habits/processes, etc. might result in reducing the power bill by 5% to 25% with
    little or no out-of-pocket costs. That could result in a perpetuity of savings.
    If the firm’s cost of capital is, let’s say 8%, then the present value of the
    perpetuity of savings of $1,200 per year ($100/mo) would be $15,000 in present
    value terms ($1,200 / .08). Plus, being more energy efficient means that a
    smaller solar system is required when going solar. (But, 2% power inflation
    makes the PV of the perpetuity up to $60k present value.)
    An even more interesting concept related to energy savings
    is looking at the sales volume required to equal the $7,200 savings annually.
    If the firm has a 10% profit margin, the required sales to cover the power bill
    is $72,000 per year (once the loan is payed off). In the current loan example,
    cash flows (savings really) are positive every year and go up based on power
    inflation. When the loan is payed off in year 11 you start to realize huge
    savings.
    By the way, someone buying this property would pay more for
    the business because it comes with “free” electricity. A Lawrence-Berkley study
    found that some properties would appreciate by as much as 20 times the annual
    electric savings. Therefore, the property might be worth about $144k more based
    on 20 times the $7,200 annual savings. Since the net investment after taxes in
    this example is about $45k, the property could appreciate almost $100k more
    than the net solar investment. That’s a property appreciation of about 2.2
    times the net investment.
    The last point is related to structure, or infrastructure.
    If the fixture or structure is necessary to put up solar, then some or all the
    structure might be subject to the renewable investment tax credit. Let’s add an
    additional $100,000 investment in carport/canopy to support the solar panels.  You talk with your favorite accountant and
    she agrees that the entire structure qualifies for the investment tax credit.
    That’s an additional $26,000 in tax credits to help pay for the solar system;
    these tax credits are only possible if you do the solar system. This reduces
    the net investment for the solar system from about $45k to about $19k. Payback
    is now less than 3 years; on a system that should still be producing power 30
    to 40 years from now.

    Solar: From Good to Great

    Solar is a good investment for people and organizations that
    pay no taxes at all. Good for the environment, but not necessarily a great
    investment. Still, the investment is with money that you were already spending
    anyway, so that’s cool. The 26% Solar ITC improves the investment substantially
    for anyone who pays taxes. For businesses that are high tax brackets, solar can
    be a great investment, possibly even crazy profitable.
    In many states and other countries, there are additional
    incentives for renewable energy. California and many New England states have a
    price on carbon, so there’s extra money to be made by selling Renewable Energy
    Credits (RECs). Most companies now report on their sustainability initiatives
    to investors. Being more socially responsible can be good public relations and
    great publicity. Doing good – like reducing your carbon footprint and helping
    to improve the world’s situation – is very rewarding all by itself. With renewable
    energy, it can be very profitable to do good. Even better!
    Notes. There are
    a couple key points to keep in mind. You may want to produce only the power
    that you expect to use, the power utility typically pays only a small rebate
    per kilowatt hour if you overproduce beyond what you use. The business example
    shows 100% depreciation in the first year that some small businesses might be
    able to realize; the IRS has a 5-year accounting life for solar assets. Each
    state may have different incentives (or roadblocks) from the state Public
    Service Commission (PSC). Some solar companies offer a lease option which might
    be a good alternative is some situations. Not all solar companies and solar
    systems are created equal, nor are the warranties. Look for full warranty over
    at least 25 years for everything including parts and labor. Different solar
    panels have different depletion rates ranging from a tiny 0.25% to a high of
    about 0.60% per year (resulting in an estimated 92% to 80% efficiency by the 30th
    year, respectively).

    * Update: As of January 2021 the ITC has been extended at 26% for 2021 and 2022. See Discussion at SEIA.

    *[UPDATE: 30% Investment Tax Credit on renewables in the
    IRA Act 2022. See our Blog post here. This makes all the financial discussions
    below much more profitable. Also, higher inflation and higher power inflation.]

    Strategic Business Planning Company website: SBPlan.com Blog: SustainZine.com

  • PREDICT a Pandemic: First Kill those Pesty Scientists

    PREDICT a Pandemic: First Kill those Pesty Scientists

    Rough Road Ahead

    Oh My God!

    Trumps administration completely stopped the PREDICT program that did USAID training and response world-wide for pandemics.  Since the Bird Flu of 2005 (H5N1), the US presidents (Bush II and Obama) have moved toward building a program to identify potential pandemics and to help countries (including the USA) deal with such an eventuality. Of course, the PREDICT program got to deal with several pandemic-type events including SARS, MERS, Ebola and even Zika (mosquito). The idea, which apparently worked very well, is to fight a pandemic where it originates in other countries, so that you don’t have to fight it here in the USA. Of course, the train-the-trainer program would be developed and applied here in the USA.

    (more…)
  • Cool Motor that Runs on Air

    A lot like a perpetual motor: no fool’n.
    As a kid, college really, I was intrigued about the idea of a “perpetual” motor. A motor that ran forever. My idea seemed like it should work, but I had a hard time getting someone to explain why it wouldn’t. My idea was based on the flywheel of the single engine Briggs & Stratton where a magnet on the flywheel creates the spark for the ignition on each rotation. My idea was to have magnets that attract the flywheel and a reverse magnet to repel the flywheel once it got past. But I had the problem that the flywheel would get attracted and stuck. So I found something called paramegnetic materials, materials that repel both positive and negative magnetic forces. All I needed, then is to have a thin sheet of paramagnetic material pass between the attracting magnets to let the flywheel move on to the repelling magnet. Perfect, a perpetual motor.
    I finally got to talk with a Physics professor at USF who explained my small, but subtle issue with the perpetuity of my motor. When you use a magnet, you loose a magnet. It took energy to magnetize a magnet, so the process of using it will deplete it!
    For decades, there have been articles about perpetual motors… But generally they have gone the way of “cold fusion”.
    Here is a very cool article/technology on a motor that runs on air. Liquefied Nitrogen, actually. Very cool. Literally, about -210 C (or -340 F). So, if the internal combustion motor works on the temperature differential before the ignition of fuel and after ignition, the liquid nitrogen concept works in the same way: from really really cold, to cold. Not nearly the same as the 1,000 times differential from gasoline, but still an effective motor. Effective only once you overcome the problem of things freezing up in the process.
    So here’s the great Wired article by Nicola Twilley about the inventor Peter Dearman: A One-Time Poultry Farmer Invents the Future of
    Refrigeration: Mechanical cooling revolutionized the global food supply—and
    accelerated global warming. Peter Dearman’s liquid air engine could change all
    that.

    The thing that Dearman had to overcome is to bring the temp of the super cold nitrogen up enough that it didn’t freeze up the works. (Kind of a reverse of the radiator idea to cool the motor down.)
    So the motor works, not especially efficient, but it works.
    However, your favorite internal combustion engine is very inefficient. Your car is only about 15% efficient. Diesel turbine motors for electricity are generally about 40% efficient, at best… Unless… Unless you need the excess heat. So if you can use the heat, like hot water on a campus environment, then the combined heat and power (CHP) can be very efficient, maybe up to about 70%.
    Imagine if you could use the cool from a liquid nitrogen engine? Say, hypothetically, for refrigerated storage or reefer. (No, not a Jimmy Buffet kind of Reefer!:-) A refrigerated reefer truck.
    And, wa la. You have a really great method of efficiently transporting and simultaneously cooling perishable products.
    The cryogenic reefer truck seems to be really gaining traction (sorry about the pun) within several food chains.
    Very cool!
    Dearman says the nitrogen solution will result in a 40% improvement over diesel in terms of greenhouse gases. If is the nitrogen is liquefied (chilled) by renewable energy the improvement compared to diesel moves up to 95%.
    Even Cooler!
    It also helps to overcome the need for Freon or the replacements for Freon. (Fluorocarbons are a wicked greenhouse gas that blow holes in the ozone layer.)
    With 78% of the Earth’s atmosphere, nitrogen (N) is readily abundant.
    Dearman has several patents related to cryogenics and cryogenic motors.
    Interestingly, it would appear that the same Peter (T?) Dearman is also the inventor of respirators and ventilators back in 1990!

  • Solar 2020 and Sustainability: Looking for the Silver Lining

    Kelly Pickerel, Editor in Chief of Solar Power World
    magazine was cautiously optimistic in January when discussing the impact of US
    Import tariffs on the Solar industry and still solar installations were up 14%
    during 2019. She hoped that an even year, 2020, would bode well for solar.
    She concluded her opening letter by the editor in the January
    2020 Trends in Solar
    edition of SPW: “Superstitious or not, I’m crossing my
    fingers for a calm, prosperous year in solar. Knock on wood.”
    Wow! Nobody could have envisioned the coronavirus pandemic
    and its impact on all industries including solar. But, the environment is
    taking a breather: Environment
    Wins with Reduced Human Activity
    .
    During the Great Recession, Hall (2010) argued that a
    massive opportunity was lost by not by not focusing on sustainability related
    projects and human capital (education). He argued for spending more on specific
    infrastructure: especially energy efficiency and renewables. He liked projects
    that would pay back for decades while reducing our collective human footprint. Federal
    bailout funding should target, long-term, sustainable projects. The destructive
    innovation associated with recessions should allow industries (and companies)
    to fail if they are not sustainable.
    Make no doubt about it, the COVID Recession will be unlike
    anything we have ever seen before. It’s like putting parts of the economy in a
    self-induced coma, while waiting out the passage of the virus. However, waking
    up exactly where we left off is probably not going to happen. So, what’s the
    best way to move forward, and why not try to leverage this sudden break in the
    world’s business-as-usual routine into more permanent action on becoming more
    sustainable.
    Look for SustainZine blogs and articles on video meetings,
    teleschool, online university and telecommuting. We suddenly have reduced our
    carbon footprint worldwide by what, 20%. Not the way we would have liked to
    launch such a massive initiative, but let’s work with the deflection we are
    given.
    People are now at home more than ever, let’s get them to
    start monitoring their carbon footprint. How much are they saving by working,
    schooling and entertaining at home. Imagine someone reducing their carbon
    footprint by 35% in one week? for several weeks? Wouldn’t it be nice measure
    that savings and celebrate the win!? Wouldn’t it be nice to keep measuring the
    reduction in carbon footprint and continue to make incremental moves?
    The savings associated with remote work are huge. Once
    workers who can work remotely get the chance to do so, the genie will be out of
    the bottle. The savings are massive: employer, employee and environment. The
    reduction in carbon footprint immense. Measuring and monitoring the savings
    will justify the future workforce to frequently work remotely.
    For the homeowner, first would be energy efficiency, like
    insulation. Start with an energy audit.
    Then, with the reduced power usage, most homes should move
    to renewable energy (solar).
    Once we see and visualize the gains, it could become habit
    forming. Let’s keep our collective fingers crossed.
    See upcoming articles by Hall about the crazy profitable
    proposition for businesses to go solar, and for homeowners to feel good and
    save money by going solar.
    Mother Earth is our one and only habitable planet. It’s time
    we started taking better care of her. Maybe the coronavirus pandemic will be a
    wake-up call about how serious we all need to be about the health of our planet?
    References
    Hall, E. (2010). Lessons of
    recessions: Sustainability education and jobs may be the answer. Journal of Sustainability and Green
    Management
    . Jacksonville, FL: Academic and Business Research Institute.
    Retrieved from: http://www.aabri.com/manuscripts/10659.pdf

  • Pandemic Scenario in Trump Transition Team, Days before Office

    Okay!. So the Obama administration left the incoming Trump administration several scenarios for them to think about. No evidence as to what happened to the final report. But apparently, it showed everything that we have seen since November in China, and the first outbreaks outside of China. The result was a world-wide pandemic. Overwhelming the US with supply shortages and patent overflows. What happened to the final report? The early warning signposts? The disaster (recovery) plans?

    We did a blog post about the military planning scenarios that would have realized a pandemic as an act of war… Or, even if it wasn’t caused by an act of war, the resulting story line would be similar. And, of course, if the pandemic started elsewhere, there would signals and signposts, in the jargon of Shell related to early warning signs in scenario planning.

    A major country should be doing military scenario planning for several topics. None is quite as huge and integrated as climate change. Look at this report produced by The National Security, Military, And Intelligence Panel on Climate Change (NSMIP, February 2020), A Security Threat Assessment of Global Climate Change: How Likely Warming Scenarios Indicate a Catastrophic Security Future. It doesn’t seem possible that the US would not have a plan like this for a pandemic? It also doesn’t seem possible that the US would not have multiple plans for economic recession, no matter the cause. Since we missed the boat on the pandemic, hopefully we didn’t miss planning for a recession… However, this recession is like none we have ever had before. Kind of like turning the switch off on most of the economy for a while. (How long is a “while” is a $4T question?)

    Kiaser Health News did a composite of highlights from several articles about the Trump transition team and how badly they apparently failed in the Pandemic exercise: How A Crisis Simulation Run Before Trump’s Inauguration By Obama’s Team Eerily Mirrors Current Outbreak!

    November in China. By December, the military and health official had to know that expansion into a global pandemic was was not only possible, but likely. In Florida, when we see a Hurricane coming, we dust off all of our contingency plans for the businesses and start buying toilet paper and canned goods. We make sure that we have lots of jugs to fill with water if needed (no need to buy water, by the way).

    Did the military and health officials simply forget to mention these things up the chain of command, or — apparently more likely — did the higher-up-the-chain-of-command not listen? What the hell happened to the results of the simulation? Did it take the path of anything and everything that Obama did/mentioned/signed/said, flushed down the toilet?