Retrofit projects aren’t only about improving a facility’s lighting and energy consumption. They’re also about future-proofing facilities and using energy efficiently and intelligently.
Instead of being a one-and-done service, retrofitters with a long-term view work hard to establish themselves as energy consultants. That respect and authority gives them a golden opportunity to offer customers additional energy cost-saving solutions under their brand—and solar is a natural and profitable fit.
The lighting business is ever-changing, bringing forth tighter margins on retrofit projects and increasing competition in the market. As a higher priced offering, solar can present the prospect of higher margin projects, especially if retrofitters partner with a solar developer. Operating as a back office for lighting contractors, certified solar professionals have the solid track record and “behind the meter” experience to help retrofitters expand their core offering without the steep learning curve.
The benefits? Solar offers retrofitters another way to deepen their relationship (and revenue) with their established clients, or even new ones. For customers, signing on to solar is a great one-two punch. First, they dramatically reduce lighting costs. Then, they gain the advantage of generating their own power at a cheaper rate than what is provided through the utility.
Here are some things you should know about adding solar energy to your offerings.
Lights First, Then Solar
It’s important to reduce the total energy demand of a facility first, before you engineer and build out a solar system. Here’s why: Utilities only allow net metering credits for up to 100%—and no more—of your total usage.
If you were to build a one megawatt solar system for a client based on a million kilowatt lighting load … but after a lighting retrofit, that load drops to 700,000 kilowatts, the client would be over-producing and wouldn't get credit for that overage from the utility.
Tap Solar Rebates and Incentives While You Can
In most cases, retrofit projects and solar projects are made fiscally possible for customers by the availability of rebates or incentives at the federal, state and utility level. In the state of Illinois, incentives like Illinois Solar Renewable Energy Credits (SRECs) and the Modified Accelerated Depreciation (MACRS) can easily add up, bringing out-of-pocket costs down to surprisingly reasonable levels.
Right now, there is an urgency to help customers lock in these incentives because the federal investment tax credits are changing. In 2019, it was 30% for commercial businesses. This year, to capture a 26% incentive you will need to execute your contract and put a down payment for the panels within the calendar year. In 2021 the tax credits drop to 22% and in 2022 they’re slated to go to 10% of the total project costs. So, the clock is ticking.
Is This Retrofit Project Suitable for Solar?
Not every retrofit project will be the right fit for pairing with solar. For instance, the customer needs to have adequate roof space. If a manufacturer loads up its entire 40,000 square foot roof, it might only be offsetting 20% to 25% of its total energy load. The age of the roof is also a consideration. If the customer is expecting to replace the roof in the next 15 years, it doesn’t make sense to install panels now because it would be literally double the labor to remove and reinstall.
If a roof install isn’t an option, or not large enough to provide the needed offset, doing a ground mount system in adjacent property may be an alternative, unless there is a plan for future building expansion into that space. All these elements need to be weighed before proposing a combined project to a customer.
With Solar, Credit is King
For large multinational businesses, it's easier to get institutional credit for the upfront costs required for solar. For smaller businesses however, the ability to finance the upfront cost will depend on a banking relationship.
The nonprofit education sector is not able to monetize the tax credits, so for them, renewable energy and purchase power agreements are a great way to go. In that case, an investor would pay for the project and would enter into a long-term agreement where the investor upfronts the installation cost and guarantees at least a 10% savings to the institution. That 10% savings can make a huge impact for large educational users and the savings over that level a tidy profit for the investor.
A game-changing aspect in financing is that loans for solar projects come with fixed interest rates and a fixed monthly payment that will never change through the entire life of the loan. Consider that the Department of Energy estimates a typical annual inflation rate on energy is 2.6% nationwide, with variations depending on the utility. As the inflation compounds over the life of the loan, that's a tremendous amount of savings. Twenty years down the road, you’ll still be paying 2020 rates for energy produced in 2040.
A Welcome Addition
Retrofitters looking to improve margins, expand their offering, and build customer relationships should explore the opportunities in partnering with a solar developer. The good news: Pairing up with a solar developer is a natural fit with major opportunities for both parties. And it’s a popular pairing on both sides of the board table. For example, a bank in Ohio really wanted to go solar but the board balked at a 12-year return on investment for the proposed solar system. However, the proposed lighting system had a 1.4-year ROI. By combining the two, the total project ROI dropped to about 6.2 years, which was well under the bank’s 10-year threshold. This had a dramatic impact on being able to close the deal and created a win-win situation all around.
Both lighting retrofits and solar power offer the benefits of going green and removing carbon from the atmosphere, or the equivalent. For businesses, municipalities, and educational institutions, being able to show your employees and the community that you are taking action to reduce energy consumption and protect the environment boosts overall appreciation for the project and their organization.
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