What You Need to Know About Commercial Solar Power in Three Easy Lessons — Part 1: Understanding Your Bill

While many com­pa­nies sit on the side­lines with accu­mu­lated cap­i­tal, we have argued before that spend­ing some of that cap­i­tal on a com­mer­cial solar power sys­tem makes great eco­nomic sense.  But for some com­pa­nies (and their facil­ity man­agers and accoun­tants and Board Mem­bers, and so on), com­mer­cial solar is still a mys­te­ri­ous con­cept, filled with con­fus­ing jar­gon and com­pet­ing claims.  Can a com­mer­cial solar power sys­tem really be as eco­nom­i­cally ben­e­fi­cial as the pro­po­nents (like this blog) claim?

Rather than answer that ques­tion directly (well, ok, the answer is YES but please read on), we thought it would be use­ful to actu­ally lay­out the case for com­mer­cial solar power in some detail.  Although no blog post (or series of blog posts) can take the place of a face-to-face con­ver­sa­tion that takes into con­sid­er­a­tion all of the rel­e­vant  ele­ments of a spe­cific company’s sit­u­a­tion, there are enough com­mon ele­ments that can and should be explained to demys­tify the over­all process.  That is the task of this series — to teach you, the business/building owner every­thing you need to know in prepa­ra­tion for installing a com­mer­cial solar power sys­tem on your building.

First things first — before you ever even call a solar power com­pany — and we will explain how to find the good ones in Part 3 — you need to start with some­thing more mun­dane: your elec­tric bill.  When was the last time that you really looked at your elec­tric bill?  For many busi­ness or build­ing own­ers the answer is never.  Oh sure, you cer­tainly know how much you are pay­ing — but do you know why you are pay­ing so much?  What hor­rors are hid­ing in your bills?

The Shock­ing Facts Hid­ing in Your Elec­tric Bill

The Basics — Usage & Demand

There is prob­a­bly a very good rea­son why nei­ther you, nor any­one else at your com­pany has ever looked closely at your elec­tric bill — it is ter­ri­bly con­fus­ing.  Let’s start with some basics.  Almost every com­mer­cial user pays for at least two major com­po­nents on their elec­tric bill: usage and demand.

Usage is the more famil­iar com­po­nent as it is the basis for your res­i­den­tial elec­tric bill.  It is based on the total amount of energy that you used over the course of the billing cycle (usu­ally one month for com­mer­cial cus­tomers).  Usage is mea­sured in total kilo­watt hours (kWh). Usage charges are based on some spe­cific cost per kWh which is defined in the rate sched­ule that applies to your util­ity account (more on rate sched­ules in a minute).

Demand is a bit more com­pli­cated — it is usu­ally defined as the great­est amount of power that the util­ity has to pro­vide to you over a mea­sured period of time dur­ing the billing cycle.  For SCE cus­tomers, demand is the peak power required dur­ing any 15 minute period over the month.  That means that if your build­ing has mul­ti­ple HVAC units and they all come online dur­ing the same 15-minute win­dow, your demand will spike much higher than it would if those units came on in a stag­gered fash­ion (since the power demand of an HVAC unit is high­est when the com­pres­sors are run­ning as they will be when the unit is first started.)  Demand charges are billed per kilo­watt (kW) of power.

Rate Sched­ules

Every util­ity has a vari­ety of rate sched­ules that might apply to a com­mer­cial build­ing and you could pay vastly dif­fer­ent amounts — that is to say you could save a lot of money — by switch­ing to the most eco­nom­i­cal rate sched­ule for which you qualify.

SCE’s GS-2 Rate Sched­ule Model (click for larger)

Case in point — SCE has two rate struc­tures that com­monly apply to small to medium size com­mer­cial build­ings: GS-1 and GS-2.  (For those ready to get into the details, here is a link to the GS-1 rate sched­ule and here is a link to the GS-2 rate sched­ule.)  The beauty of the GS-1 rate sched­ule is that it has no demand com­po­nent.  But here’s the catch — your peak demand must not exceed 20 kW in any three of the past twelve months.

We had one poten­tial cus­tomer who was pay­ing under GS-2.  When we ana­lyzed their bills — the first step in prepar­ing a pro­posal for installing a com­mer­cial solar power sys­tem — it was appar­ent to us that based on their bills, they were enti­tled to actu­ally be billed under GS-1.  When we met with their facil­i­ties man­ager to dis­cuss our pro­posal, we pointed out that they could have saved over $2,000 the past year if they had been on the right rate sched­ule and we encour­aged them to con­tact SCE about get­ting switched to GS-1.  (No, SCE had not sug­gested that to them.)  Strangely, none of the other solar com­pa­nies that they had talked to had explained that to them, yet once they called SCE, they were switched over imme­di­ately.  (Oh, and they hired us to han­dle their com­mer­cial solar installation!)

Here’s another exam­ple.  PWP gen­er­ally has low rates, but their mid-level com­mer­cial rate sched­ule (M-1)  has one of the most sig­nif­i­cant “gotchas” we have seen any­where — and we are yet to speak to a sin­gle cus­tomer who was aware of this before we pointed it out.  The M-1 rate struc­ture includes a demand com­po­nent (labeled “dis­tri­b­u­tion”), but unlike SCE’s demand com­po­nent described above, PWP charges you for the peak demand in any 15-minute win­dow for the past 12 months! That means that if on one unlucky day, every­thing in your build­ing comes online all at once dur­ing the same 15 min­utes, not only will you pay for that peak demand that month, you will pay for that peak demand for every month for the next year (unless a higher demand comes along to take its place)!  For one of our cus­tomers, they had a peak demand one month that spiked at 82 kW, yet their aver­age for the next 12 months was only 36 kW.  Under the M-1 rate sched­ule, they paid $5,300 more than they would have if they only paid for their monthly peak demand.

Mod­els Matter

At Run on Sun we have devoted a lot of time to mas­ter­ing the intri­ca­cies of the var­i­ous rate sched­ules used by the util­i­ties in our ser­vice area.  We have turned that under­stand­ing into a series of rate sched­ule mod­els that allow us to accu­rately model your prior util­i­ties bills and then make accu­rate pre­dic­tions regard­ing your poten­tial sav­ings from a host of mea­sures — chang­ing rate sched­ules, reduc­ing your usage or peak demand, or installing a solar power sys­tem. Some com­pa­nies sim­ply assign a fixed amount of sav­ings per kWh that their pro­posed solar power sys­tem will pro­duce and call that your poten­tial sav­ings.  Such an approach ignores the com­plex­i­ties of how your elec­tric bill is actu­ally cal­cu­lated and can mask other steps that you could take to save money.

We firmly believe that energy effi­ciency is way more cost effec­tive than energy gen­er­a­tion and we will share with you our ideas and obser­va­tions on how you can save money long before you throw the switch of (or even sign the con­tract for) your com­mer­cial solar power sys­tem.  So before you pick up the phone, pick up your elec­tric bills and check out what is hid­ing there — it is the first step in get­ting the great­est value from your com­mer­cial solar power system.

Up Next: Part 2 of Our Series — Under­stand­ing Solar Rebates and Tax Incen­tives as they apply to a Com­mer­cial Solar Power System.