Solar energy has grown exponentially in recent years. Since , the solar industry has experienced a 24% annual growth rate on average. The increased adoption of photovoltaic (PV) panel technology is due to an increased interest in clean energy, the availability of tax credits and lower hardware and installation costs.
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PV installations fall into several categories: residential, commercial and industrial, and utility. In a residential system, homeowners install roof-mounted solar panel systems to provide electricity for their houses. Many such systems connect to the grid, drawing power from it at night and feeding excess electricity from the panels back into it during the day.
Many people categorize commercial and industrial (C&I) arrays and utility-scale installations together because they are larger than home systems and often ground-mounted as opposed to roof-mounted. However, these two solar project types differ in their size, design, connections and support systems.
Utility-scale solar energy projects, commonly called solar power plants or solar farms, are large installations of solar panels which are typically ground-mounted. Depending on the design, a utility-scale array may also feature mirrors or automated tracking features to maximize energy production.
Utility-scale solar plants typically produce between one and five megawatts (MW) of electricity, with each MW of capacity requiring about 10 acres of panels to generate. A solar plant connects to the larger electrical grid to supply power to homes and businesses across a wide area.
Cleanpower.org estimates that utility-scale solar contributes 80 GW of electricity to the grid in the United States, which is sufficient to power 18 million homes. While utility providers may construct and operate solar power plants, independent power producers (IPPs), non-profit community groups or local governments can also be owners of utility-scale solar plants. Sometimes, owners depend on third-party contractors to handle the technical aspects of designing, building and operating the array.
As a reliable source of renewable energy, solar farms create many benefits for the companies and the consumers that use their electricity. These advantages include lower electricity costs, enhanced environmental friendliness and the conservation of other resources.
Here&#;s a deeper look at the advantages of solar farms.
One of the reasons behind the growth of solar energy is that these systems have become more affordable in recent years. In , utility-scale solar cost approximately $4.75 per watt to construct. Cheaper hardware, more efficient panels and better design and installation processes reduced that cost to less than $1 per watt by .
Meanwhile, annual operation and maintenance (O&M) costs on average $23 per kilowatt (kW), which is $23,000 per MW. Without the need for additional fuel or resources, solar farms have low ongoing costs compared to other types of energy.
Utility providers can pass on these savings to consumers, who may enjoy cheaper overall energy bills. However, the amount of their savings will depend on local electricity prices and other factors.
Solar panels do not produce carbon dioxide or any other emissions when generating electricity. They do have a carbon footprint that comes from the manufacturing and installation process, but the carbon footprint of solar panels is 20 times less than that of a coal-fired power plant. In addition, operating a solar panel for three years will cancel out the carbon emissions produced during its production and installation.
As a zero-emissions energy source, solar plants contribute to lessening environmental impact on both global and local scales. They do not produce greenhouse gasses that contribute to global warming like fossil fuels do. On the local level, this ensures cleaner air, water and soil in areas surrounding the array. A cleaner environment reduces the risk of health dangers, such as respiratory illnesses, for the local population.
Traditional power plants rely heavily on water. For instance, coal plants use water to wash coal in preparation for use and as a cooling agent for their systems. Also, emissions from the plants, including dust and sludge, can contaminate local water sources, reducing the supply of clean water in the local area.
Natural gas plants use less water, but they still require it for cooling. According to the Energy Information Administration (EIA), each megawatt-hour (MWh) of electricity from natural gas requires the withdrawal of 2,803 gallons of water, while one MWh of coal-based electricity takes 19,185 gallons. This water use can be especially problematic in arid or drought-prone regions where water conservation is already challenging.
Solar energy does not require water for cooling or any other functions, so it has no impact on the water supply and does not cause any contamination. Switching to solar energy will reduce the consumption of water resources by reducing the need for water-intensive energy sources like coal or natural gas.
Commercial solar systems are not designed to provide energy to residential utility customers. Instead, they produce electricity for commercial operations. For instance, a company could install a solar PV system to provide electricity for a factory, warehouse, office building or other commercial property.
Commercial solar systems vary in size, but can be quite large. A small office building, commercial property or retail store might use roof-mounted solar panels like the ones favored by residential customers. Roof systems are less costly and have a smaller land footprint than ground-mounted systems, but can be difficult to expand due to limited space.
Meanwhile, factories or corporate offices could construct ground-mounted arrays to provide power for energy-intensive operations. Ground-mounted solar panel systems can take up acres of land and can be expanded if there is space nearby. Because the arrays are often in open areas like fields, designers and installers have fewer challenges when orienting the panels for optimal energy production.
Commercial solar is something of an enigma. Falling between the better-known residential and utility-scale solar industry sectors, commercial solar &#; or C&I solar as it&#;s often called, referring to commercial and industrial scale &#; encompasses a wide variety of customer types, solar designs, and project sizes. It also differs from residential solar in some key ways.
As Ian Clover, Manager of Corporate Communications for Hanwha Q Cells explains, &#;In the jargon-heavy world of solar-speak, C&I handily condenses Commercial and Industrial into a snackable sub-section of the PV industry. But as subsections go, the C&I space has perhaps the greatest scope for flexibility, offering a raft of possibilities from ground-mount through to ingenious use of rooftop space.&#;
What This Article Covers
For a variety of reasons we&#;ll touch upon in this article, commercial solar has been slow to take off, but there are signs that this sector is poised for significant growth. And, for those who learn to navigate the complexity of these projects, the rewards can be big.
This article is part of a series, in which we delve into a variety of aspects of commercial solar to help solar professionals understand the dynamics of this unique sector.
In today&#;s article, we offer a brief intro on what commercial solar is, the scale of this sector, and some of the factors that have constrained its expansion, as well as forecasts for future growth.
In other articles, we discuss the different players involved in commercial solar projects, how to sell a commercial solar project, and what financing for these projects may look like.
Commercial solar may seem straightforward &#; solar for businesses as opposed to residential solar for homes. However, commercial solar encompasses a variety of different types of customers and projects. In addition to businesses of different sizes, from large corporations to local small businesses, &#;commercial&#; solar customers can also include governments, schools and universities, and even nonprofits.
Commercial solar projects may take the form of rooftop arrays on buildings or ground mounts, and can range widely in size from kilowatts to megawatts. According to Joe Naroditsky, Director, Solar & Operations at the Community Purchasing Alliance (CPA), an organization that connects nonprofits with solar bids, the C&I solar projects his organization facilitates can range in size from 50 kilowatts (kW) for small churches and synagogues to 300-400 kW for large schools.
And that&#;s just the tip of the iceberg.
Commercial Solar Opportunity
With the help of Aurora solar software, researchers at UC Davis have examined the real-world solar potential of some of the largest commercial buildings in the United States.
Their review of the largest commercial building in the U.S., a Texas-based aerospace company with 770,000 square meters of rooftop, found that it could generate 88 million kilowatt hours (kWh) of clean energy! As explained in the Washington Post, &#;That&#;s enough to power nearly 5,200 homes for a year, offset 47,800 metric tons of CO2, and spare up to 388 acres of land.&#;
Obviously, this is the extreme end of the spectrum, where building rooftops rival the scale of utility-scale projects, and this site has not been developed with solar. However, it serves to illustrate the variation in potential project sizes in a sector where the buildings and customers differ widely.
Constraints on the Commercial Solar Market
As you begin to read up on the commercial solar sector, one of the common refrains you&#;ll see is that this market has not grown nearly as rapidly as residential or utility-scale solar. As noted in PV Magazine, &#;The commercial and industrial (C&I) solar markets have been a relative challenge for solar developers to exploit.&#;
Cost of Commercial Electricity vs Residential
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There are a number of factors that have contributed to C&I lagging behind residential solar. For one, commercial electricity prices are historically lower, which can make the economics of solar a little trickier.
As Mark Berger explains in PV Magazine: &#;The C&I sector has trouble competing against an average 15% or more lower price per kilowatt-hour rate than residential electricity prices, according to the U.S. Energy Information Agency. &#;
According to the U.S. Energy Information Administration, in February of the average cost of electricity for U.S. residential customers was 13.3 cents per kilowatt hour (kWh), while the cost for commercial customers was 11.9 cents per kWh.
Convincing building owners to purchase
Another barrier relates to the fact that in many commercial buildings the occupant is not the building owner. This &#;split incentive&#; means that the building owners who would make the decision to install solar are often not the ones paying the utility bills, making solar energy savings less of an incentive for them.
Complex commercial financing
Financing is also more complex in the C&I solar space, and according to some contractors we&#;ve spoken with, less accessible. That is beginning to change, however, as financing mechanisms for this space become better understood by financial actors and there are more successful projects for financiers to look at to assess risk.
Financial viability is the first major hurdle in solar sales, as any solar installer knows. Commercial solar systems can therefore be a trickier sell.
However, as explained in Solar Power World, &#;Commercial solar and now community solar are advancing beyond bureaucratic budgetary boundaries by systemizing structures for the private sector, consumers and third parties to partner and invest in energy infrastructure assets.&#;
One of the major things easing financing is the introduction of power purchase agreements (or PPAs). PPAs have allowed investors to take on the pressure of large upfront commercial solar costs, with the consumers paying off the system a little bit at a time.
Other barriers
Other barriers include, &#;contracting challenges, the mismatch in building lease and PV financing terms, and high transaction costs relative to project sizes,&#; according to a National Renewable Energy Laboratory (NREL) report.
Solutions to Commercial Solar Barriers
Many of the challenges in this sector are already being surmounted. A white paper by the Solar Energy Industries Association (SEIA) and SolarKal highlights the fact that commercial solar projects can be structured in a variety of ways that split the costs and benefits across building owners and tenants to meet different criteria. They also emphasize the variety of financing structures available to fit the needs of the parties involved, and the fact that solar is cost-competitive with utility energy.
As discussed above, commercial PPAs are a great option for small businesses and nonprofits that want the benefits of solar but are unable to cover the upfront costs &#; despite the fact that the upfront cost is often almost negligible considering the offset of reduced energy bills.
Schedule a demo to learn more about Aurora&#;s commercial solar capabilities.
Commercial Solar&#;s Current Scale
According to a Solar Energy Industries Association report, 1,286 megawatts (MW) of commercial solar were deployed in , with two-thirds of all corporate capacity installed just since . The report now tracks more than 8,300 megawatts (MW) of commercial solar projects in the U.S. &#; over 38,00 projects across 43 states &#; representing approximately 70% of all installed commercial capacity.
Put another way, there is enough installed commercial solar to power 1.6 million homes.
Still, commercial trails behind the residential market, despite larger project sizes, and is even far behind the utility-scale market. As of , NREL reported that non-residential solar (another term often used for this market) comprised 24% of the total installed capacity in the U.S.
In March , SEIA reported that the pandemic affected commercial more than residential solar installs, with the numbers coming in at 4% less than in .
Despite this relatively slow start, there are a number of indications that this market is poised to take off.
Potential for Growth in Commercial Solar
Given the scale of many of the buildings in this sector, you can imagine that as barriers are knocked down, the potential for installed commercial capacity is significant.
In a report, NREL examined the potential size of the C&I solar sector if certain challenges were overcome. They concluded that, at the U.S Department of Energy&#;s &#;SunShot targets,&#; the &#;techno-economic&#; potential for offices was 54 GW, for hotels 16 GW, and for warehouses 34 GW for a combined potential across these building types of 104 GW in the U.S.!1
For context, at the end of , the DOE reported that the combined capacity of all installed solar PV and wind power in the country was 144 GW.
Commercial Solar Benefits
Commercial solar can offer many benefits &#; to building owners, commercial tenants, financiers, installers, and the environment.
For building owners, benefits include increased operating income and cash flow and longer lease terms, as the SEIA/SolarKal white paper notes.
For tenants, reduced operating costs through utility bill savings are an obvious, and very real, benefit.
Of course, there are also benefits for solar contractors that successfully navigate this sector. Commercial solar projects are often a tough sell, but they can have a great impact on overall numbers for solar companies.
The economies of scale at play in these larger projects can make them more lucrative, and that&#;s on top of the significantly larger total project price tags compared to residential projects.
Be sure to check out the other articles in this series to learn more about the ins and outs of the C&I space. Whether you&#;re already actively involved in commercial solar, interested in transitioning into this space, or just want to increase your understanding of the industry, our goal with this series is to provide helpful perspectives on how the commercial solar sector works.
In our other posts, we delve into the various players involved in commercial projects, how to sell C&I solar projects, and some of the financing structures for commercial solar projects.
We&#;re excited for the potential of C&I solar as another key pillar in the growth of solar energy more broadly and hope you are too!
1 &#; For context, DOE&#;s Sunshot Initiative was established with the goal of driving down the cost of solar energy. Its solar cost targets for were: &#;$0.10 per kilowatt hour for residential solar, $0.08 per kilowatt hour for commercial solar, and $0.06 per kilowatt hour for utility-scale solar.&#; Sunshot&#;s target for utility-scale was reached in . A Q1 analysis by NREL reported that commercial solar cost per kWh in the U.S. had fallen to 91% of the target, so the conditions upon which these estimates are based are not far from reality.
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