Solar as a Strategy

Solar as a Strategy

Solar as a Strategy

How Solar Energy Helps Companies Hire & Retain Top Talent, Reduce Operating Costs, and Stay Ahead of the Competition

In his book On Competition, Michael Porter wrote that, “Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.”

If your company has a strategy, as opposed to what Porter called operational effectiveness, you can build higher barriers to competition by creating a unique position for yourself. This can yield higher profits than operational effectiveness-based approaches.

Solar or solar plus battery energy storage can be a strategic differentiator – and not only because of the energy cost savings. In addition to capitalizing on the hidden opportunity in your operating costs, solar energy can help you stake out a strategic position to attract top employees and win competitive bids.

Attracting Top Talent & Millennial Workers

A 2013 Bain & Company survey discussed in the Harvard Business Review found that two-thirds of workers reported increasing interest in their employers’ commitment to sustainability compared to just a few years before. A majority of respondents said sustainable business was extremely important to them. In fact, employees cared more about the sustainability of actual businesses operations than about a company’s philanthropic activity. Perhaps most importantly, more respondents believed employers should take the lead on sustainability than they did consumers, employees, or even governments.

Sustainability is especially important among Millennial employees, who became the largest generation in the U.S. labor force in 2016. According to Forbes, green technology is among the top four things Millennials seek out from potential employers. Around 90% of Millennials, 84% of Gen Xers, and 77% of Baby Boomers say sustainability is a core value they consider when choosing a job.

We’re really focused on being the employer of choice in the region. This solar array is like a giant billboard that says, ‘Guess what? This is not your old-school manufacturing building.’ It’s not dark, it’s not dingy, it’s not unsafe. It’s technical, it’s looking forward.”

–Lori Schaefer-Weaton, President, Agri-Industrial Plastics Company

This cannot be faked. Employer actions must match the perception of sustainability. Brand credibility on social and environmental initiatives stands at only 19% according to a research study by Weber Shandwick and KRC Research. This likely contributes to the 31% of employees who quit new jobs within the first six months. Employers must walk the talk to not only attract but also retain top talent, especially among younger workers.

Our customer Agri-Industrial Plastics Company (AIP) is using its solar energy and Tesla battery system to attract top hires by staking out a cutting-edge, sustainability-focused position. This is the first solar project in the Midwest to incorporate Tesla Powerpack and the first solar plus battery energy storage system implemented by a large manufacturer in Iowa.

“We’re really focused on being the employer of choice in the region,” said Lori Schaefer-Weaton, president of AIP. “This solar array is like a giant billboard that says, ‘Guess what? This is not your old-school manufacturing building.’ It’s not dark, it’s not dingy, it’s not unsafe. It’s technical, it’s looking forward.”

The solar + storage installation will form the foundation of a comprehensive sustainability policy currently under development at AIP. “I would consider it a strategic investment for our future,” said Schaefer-Weaton.

Above: Agri-Industrial Plastics is using solar as a strategy to attract hires such as Jeff Guttry, Engineering Coordinator.

From Left to Right: Robotics at work on AIP’s manufacturing floor, a student intern gets hands-on experience in the repairshop.

Sustainability Scorecards

Many manufacturers and other suppliers are subject to sustainability evaluations by their customers. Large companies like retailers, tech companies, and OEMs spearheaded these efforts along with environmental NGOs. For example, in 2009 Walmart created a 15 question Sustainability Index and asked nearly 100,000 suppliers to respond. Walmart uses the Sustainability Index to reward high-scoring suppliers.

These sustainability scorecards are spreading throughout industry, including to smaller firms, aided by a growing suite of independent NGO evaluation and certification programs that take the heavy lifting off the buyer. If these evaluations are not yet widespread in your industry, they likely will be soon.

A number of our manufacturing customers are evaluated for their sustainability efforts. Earning top marks on these scorecards is one of the motives behind our customers’ decisions to move forward with renewable energy programs. Sustainability scores usually include some form of carbon reduction or renewable energy component, so solar energy is among the best sustainability interventions a company can make to earn a higher score.

These scorecards can be vitally important in a competitive bidding process or during annual evaluations. Solar energy and other sustainability efforts add points to a supplier’s score, which increases the likelihood of winning – and keeping – valuable contracts. Sustainability scores can be a large component of overall evaluations, along with traditional key performance indicators like price, performance, and quality. In Dell’s supplier evaluation, for example, sustainability performance is weighted at 10 to 15% of the overall score.

Above: Agri-Industrial Plastics Company (AIP) is using solar as part of their sustainability growth strategy to attract hires and clients.

From Left to Right: AIP’s manufacturing process integrates advanced engineering, robotics and skilled labor to create custom blow-mold products.

Operating Cost Opportunities

You want to reduce operating expenses. Every business does. Although this may seem less like a clever strategy than simply good business sense, solar energy can allow you to capitalize on the hidden opportunities in your budget that your competitors may not even be aware. For manufacturers and other large electric users, in particular, demand charges can be a major line item that is difficult to control. Solar installations and solar plus battery energy storage systems can slash demand charges and dramatically reduce utility expenses.

Our customer Steffensmeier Welding & Manufacturing (SWM) knocked over $90,000 per year off of its expense sheet. The 430 kW solar array we built for the company will pay for itself in 4-6 years.

Those savings have allowed Jenny Steffensmeier, president and owner, to invest in her employees, hire new workers, expand production, and give back to the community. The company added coverage for dental, vision, and disability to its benefits package. Several employees are receiving AutoCAD training. SWM added a second shift with new hires. The company plans to purchase additional equipment in the future. Increased community involvement and charitable giving round out the uses for those solar savings. “All of these things potentially could not have happened because the cash flow was not there before,” Steffensmeier said.

Investments in solar energy yield dividends for businesses, communities, and employees that compound year over year. How is your competition answering that?

Above: Steffensmeier Welding & Manufacturing produces 100% of it’s energy needs with solar on a net annual basis, and saves about $92,000 per year in operating costs.

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Sustainability as a Strategy

In their Harvard Business Review essay, Yes, Sustainability Can Be a Strategy, Ioannis Ioannou and George Serafeim reported on their findings from environmental, social, and governance (ESG) ratings of over 3,000 companies. They found that some sustainability measures are becoming best practices that are more of a necessity than a unique position. They also found that more strategic approaches to sustainability – those that went beyond common sustainability practices and differentiated businesses from their competition – were associated with increased market valuation and higher return on capital.

Ioannou and Serafeim concluded that “some companies are creating real strategic advantage by adopting sustainability measures their competitors can’t easily match.”

If you invest in solar energy before your competition does, you’ll have the upper hand. You can take advantage of higher tax credits (which start stepping down after this year), the recruiting and marketing punch that comes with being an early adopter, and extra months or years of compounding savings that can be reinvested in growth. Every day you have these advantages and your competitor does not, you put more distance between your company and your competition.

Get in touch. Solving business problems with solar solutions is what we do.

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Expiring Tax Credits: Why 2019 is the Year to Invest in Solar

Expiring Tax Credits: Why 2019 is the Year to Invest in Solar

Why 2019 is the Year for Strategic Investment in Solar

The difference between a good investment and a great investment is often just a matter of timing – and the timing is perfect to invest in solar energy.

This is the last year businesses and homeowners can claim the full 30% solar Investment Tax Credit (ITC). The ITC will start winding down for projects that begin after 2019. The ITC allows businesses and homeowners to deduct 30% of the cost of installing a solar energy system – including equipment, wiring, labor and even battery energy storage systems like Tesla Powerwall or Powerpack – from federal taxes with no cap on the credit. The ITC is a critical component in many customers’ financial calculations.

The price of solar has declined dramatically over the last 10 years. The nationwide average cost per installed watt of commercial solar plummeted from $5.43 in 2010 to $1.83 in 2018 driven by a competitive photovoltaic (PV) module market, advances in inverter technology, and smart racking and mounting hardware designs that reduced labor costs. However, the steepest price drops are behind us. Data from 2017-2018 show more modest reductions: 4.9% for residential installations and 2.6% for commercial projects. In other words, the price of solar is starting to level off. Thinking about solar? Don’t leave money on the table. 2019 is the year to invest if you want to take full advantage of the tax credits.

Key Points

WHAT IS THE ITC?

The ITC is a federal income tax incentive that allows you to deduct 30% of the cost of installing a solar energy system from federal taxes with no cap. The credit includes equipment, wiring, labor, and even battery energy storage systems. It is a critical component in many customers’ financial calculations.

WHAT’S HAPPENING?

The tax credit phases out over several years, with a smaller credit each year. 2019 is the last year for the full 30% credit:
• 2019 – 30%
• 2020 – 26%
• 2021 – 22%
• 2022 & after – 10% for commercial, 0% for residential

HOW DO BUSINESSES USE THEIR CREDIT?

You can use your tax savings to grow your business, improve price competitiveness, and increase profits. However you choose to reinvest your tax credit, the savings and other advantages compound over time – giving your company an edge over your competition.

What is the Solar Investment Tax Credit?

The ITC is a federal income tax incentive designed to support the growth of solar energy. Since it was enacted in 2006, the ITC has helped the U.S. solar industry grow an average of 54% per year.

The ITC has been so successful that it’s been expanded and extended several times. When the Energy Policy Act of 2005 passed and enacted the ITC starting in 2006, the credit was limited just $2,000 credit was set to expire in 2008. In 2008, the credit was extended another eight years and the cap was removed, allowing for credits of unlimited size. In 2015, the ITC was extended again, with the full credit available through 2019, a step down through 2021, and a permanent 10% credit for commercial projects after that.

The Step Down: Expiring Tax Credits

Now that we’re in 2019, the ITC step down is imminent. in 2020 the ITC drops to 26%, in 2021, 22% and in 2022 it drops to 10% available for businesses permanently. Homeowners won’t be able to claim any tax credit for projects begun in 2022 or later.

Will Congress vote to extend the credit again? It’s possible, but most analysts in the solar industry consider another extension unlikely at this time.

How Our Customers Use Their Solar Tax Credit

The ways our customers use their credits are as varied as our customers’ businesses. Steffensmeier Welding & Manufacturing reinvested in an expanded benefits package for employees, AutoCAD training, and adding a second shift with new hires. Schaus-Vorhies Manufacturing views its credit and utility savings as an alternative to the higher-risk proposition of adding a new product line or service. Agri-Industrial Plastics Company is building a sustainability-focused strategy to become the employer of choice in the region and cement its position as a top supplier for the global brands it counts among its customers.

Above: Agri-Industrial Plastics Company (AIP) is using solar as part of their sustainability growth strategy to attract hires and clients.

From Left to Right:Steffensmeier Welding and Manufacturing is reinvesting energy savings into employee benefits and expansion, Schaus-Vorhies Manufacturing (SVM) saves about $100,000 annually in energy costs with their half-megawatt array, sited on a former brownfield.

However you choose to reinvest your tax credit, the savings and other advantages compound over time – giving your company an edge over your competition. The competition has heard of solar energy and might even be considering it. This year is your opportunity. If you adopt solar now while your competition sits on the sidelines watching the credit step down, you’ll have that much more time to put your utility savings and tax credit to work in your business.

Adopting solar before your competitors doesn’t just give you more time to use the tax credit and utility savings. You can also tell a story your competition can’t.

First. Largest. Cutting edge. These are the kinds of words used to describe our customers’ projects. Our customers have used their solar projects to attract new hires, bring leading politicians to their events, and earn press and award recognition. If you want to be the forward thinking-thinking business in your industry, solar energy is the right investment.

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How the ITC Works

DO I QUALIFY?
Any homeowner or business with tax exposure is eligible to claim the credit. If you pay federal income tax, you’re eligible. Government entities, schools, and non-profit organizations are not eligible. If your organization is tax protected, it can’t claim a tax credit.

WHAT IF I DON’T QUALIFY?
A solar project structured as a power purchasing agreement (PPA) can claim a credit if the project owner pays taxes. Many educational and municipal solar projects are structured this way.

The ITC is a critical piece of the puzzle for the investors backing your PPA solar project. They will want to capture as much tax credit as possible to make their investment in your solar project payback. If a PPA is on the table for your institution, you should encourage your investors to move forward this year.

WHAT IF I DON’T HAVE A TAX APPETITE?
If your business is eligible for the credit, but you don’t have the tax appetite to benefit from the full credit in the first year, you can take advantage of carrybacks and carryforwards. The tax credit can be carried back one year and carried forward 20 years. If your business still hasn’t claimed the full credit after 20 years, you are eligible for a refund equal to half the remaining credit. The rest is lost.

WHAT ABOUT DEPRICIATION?
This is also the last year a depreciation bonus is available. The ITC allows solar installations to be depreciated by 85% of the tax basis over five years. For projects placed in service in 2019, a 30% depreciation bonus can be applied, meaning that 30% of the tax basis in the equipment can be deducted right away. Unused depreciation can be carried back two year and carried forward 20 years.

ARE BATTERY ENERGY STORAGE SYSTEMS CONSIDERED ELIGIBLE EQUIPMENT?

Yes and no. While there’s no credit for battery energy storage systems by themselves, if an energy storage system is paired with a solar installation the IRS considers it to be part of the solar installation and therefore eligible for the credit. This is a big deal for large electric users with expensive demand charges, because energy storage systems are often a key part of solar energy systems designed to reduce demand charges.

HOW DO I MAKE SURE I GET THE CREDIT THIS YEAR?
In 2018 the IRS issued guidance on what exactly is meant by starting construction for the purposes of claiming the tax credit. The Solar Energy Industries Association (SEIA) summarized these methods as follows:

(1) starting physical work of a significant nature (Physical Work Test), or (2) meeting the so-called Five Percent Safe Harbor test (i.e., paying or incurring five percent or more of the total cost of the facility in the year that construction begins).

In either case, once a project begins continuous progress has to be made towards completion. We can help with this. One of our specialties is walking our customers through every step of the solar process – including all permits, inspections, and applications needed to ensure you get your tax credit.

WHAT OTHER TAX CREDITS AND INCENTIVES ARE AVAILABLE?
Your state may offer its own tax credit. For example, Iowa offers a solar tax credit equal to half of the federal credit. Through 2019, the credit is 15%, after that it steps down in lockstep with the ITC. The credit is limited to $5,000 for individuals and $20,000 for businesses. The Iowa credit is capped at an aggregate $5 million with a $1 million set aside for residential installs, and is given out on a first come, first served basis.

If you’re considering solar in Iowa or a state with a capped credit, it’s a good idea to move quickly so you can take advantage of the state credit before the available funds are exhausted for the year.

Some utilities may offer rebates or other incentives, as well. Contact us to find out what incentives are available in your area and how they stack with the federal ITC.

Never a Better Time for Solar

Between historic low prices on solar installations and the last year of the full tax credit, there has never been a better time to invest in solar. At Ideal Energy, we are experts at maximizing the return on your solar investment. Get in touch to see how the solar tax credit can help your bottom line.

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French-Reneker Associates switches to solar power

French-Reneker Associates switches to solar power

Iowa engineering firm sets an example for clients with solar

The Ideal Newsroom | 10.25.2018

French-Reneker Associates switches to solar power

FAIRFIELD, Iowa, (October 2nd, 2018) – French-Reneker-Associates, a southeast Iowa civil and environmental engineering company, is installing a solar array behind its office on South Main Street in Fairfield. The 40.8 kilowatt (kW) array will provide around 80% of the building’s electricity and save the company over $9,000 per year. In addition to saving the company an estimated $200,255 over the next 25 years, the array will also prevent 841 metric tons of CO2 from entering the atmosphere during that same period – equivalent to over two million miles of driving in a typical car.

For Steve Hausner, president of French-Reneker-Associates, slashing the company’s high utility costs was a priority. “When I took over as president four years ago I learned about some of the costs of running this business. I was quite surprised to see that our average electric bill was just over $1000 a month,” he said. “I thought, ‘That’s six or eight times more than I pay for my house, which is only 3 times smaller. What’s the deal here?’ So there was room for improvement on that electric bill.”

The company considered solar several years ago, but did not pursue it at the time. “We like to go with technologies that are tried and true, both in our designs and how we run our business. At that time solar was still relatively new in this area and we weren’t ready to jump on that just yet,” Hausner said.

In the years since, the price of solar has dropped and the technology has proven itself throughout the Midwest. Now, French-Reneker-Associates’ engineering staff is confident that solar is a sound decision. “It appears to me we could pay for this in three years, and after that we’re paying 20% of that $1000 monthly bill. That’s a pretty quick payoff,” Hausner said.

We could pay for this in three years, and after that we’re paying 20% of that $1000 monthly bill. That’s a pretty quick payoff.

–Steve Hausner, President, French-Reneker Associates

According to Ideal Energy, which designed and built the array, French-Reneker-Associates’ investment in clean energy has among the fastest payback periods seen so far in solar projects in the area. Aurelien Windenberger, finance and design expert at Ideal Energy, attributed the fast payback period to the falling cost of solar and the high price French-Reneker-Associates pays for electricity.

“French-Reneker is on a high-priced commercial utility tariff, but at 40 kW, the array was large enough to generate economies of scale,” Windenberger said. In addition, the company’s electric usage and utility rates are highest in summer, when solar production is also highest. A good location for a ground-mounted array with very little shade rounded out the factors that made the solar array an excellent investment.

French-Reneker-Associates also upgraded its lighting to LEDs. By switching to more efficient lighting before building the solar array the company was able to increase its savings and install only as much solar as it needed.

“Our solar system is sized with the LED lights,” Hausner said. Ideal Energy performed an energy audit and installed the lighting. “It made it very easy for us,” Hausner explained. “We didn’t have to deal with different contractors.”

The LED lighting has already saved money compared to this time last year. “The conversion from fluorescent to LED lighting represented about a 20% decrease in our electric usage right there,” Hausner said. “I was impressed to see that.”

French-Reneker-Associates, which primarily works with municipalities on projects ranging from roads to sanitary sewage to trail systems like the Fairfield Loop Trail, said that the solar project dovetails with the values of its customers. Fairfield and Bloomfield, two of the company’s larger customers, have significant solar projects of their own. “The solar array identifies that we have similar goals,” Hausner said.

For Hausner and his colleagues the most important consideration was the value they saw in their solar investment. “We’re engineers, we can figure the numbers out,” he said. “The numbers proved themselves.”

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How Iowa Developers Are Using Solar to Boost Returns

How Iowa Developers Are Using Solar to Boost Returns

How Iowa Developers Are Using Solar to Boost Returns

Real estate developers and owners can reap major benefits from solar arrays.

Besides cutting utility bills, solar arrays allow property owners to take advantage of federal, state, and utility incentive programs, add value for tenants, and generate annuity-like returns.

Two developers in southeast Iowa show how it’s done.

Converting a School into Apartments

In 2013 Todd Schneider purchased the decommissioned Fort Madison Middle School from the local school district with a plan to redevelop it as high-quality, affordable apartments. “You can’t do a building like this without funding,” Schneider said. “The amount of money you need to put into it for demolition and reconstruction, you just wouldn’t get a return.”

He applied for flood relief funding through the Iowa Economic Development Authority (IEDA). IEDA officials wanted to see sustainability in applicants’ proposals. For his School House Apartments project, Schneider and his solar energy company, Ideal Energy, developed a plan including 300 kilowatts of solar power, Iowa Green Streets-compliant plumbing fixtures, and additional insulation. Up against 66 other applicants, Schneider won $3 million in funding – a quarter of the $12 million available. Schneider believes solar power set his application apart. Solar “could be very responsible,” he said. “I believe it is.”

Above: School House Apartments was the recipient of Solar Builder Magazine’s 2016 Project of the Year Award

From Left to Right: At the State Capitol, Des Moines, Iowa, where the project recieved 2016 Project of the Year from 1000 Friends of Iowa in the Rennovated Residential catagory, Developer Todd Schneider

Schneider and Ideal Energy also had the insight to place each apartment unit on its own meter. This gives Schneider the flexibility to include utilities in the rent or pass on utility payments – and savings – directly to his tenants.

School House Apartments houses 39 unique units ranging in price from $600 to $1300. Within months of opening, the complex was 100% rented and profitable. It won two awards: Solar Builder‘s 2016 Project of the Year Award in the Roof-Mount category and the 1000 Friends of Iowa Best Development Award in the Renovated Residential category.

Solar for Commercial Office Rentals

While participating on a sustainability commission, developer Doug Greenfield learned that solar power was the most effective way for his city, Fairfield, Iowa to reduce its carbon footprint. The commission’s chair, who is the CEO of one of Greenfield’s anchor tenants, requested a solar array for that building. Deeming this first solar project “a complete success,” Greenfield installed arrays on several of his other office buildings in Fairfield. “The value added and the appreciation from the tenants is a real motivating force when you own commercial real estate,” he explained.

Greenfield and his tenants both benefit from solar energy. After the arrays are paid off, he plans to offer his tenants reduced utility bills. “Once the array is paid for I’ll have an annuity coming in for the rest of my life and the tenants in the building will have a benefit of a discounted utility rate…. It’ll be a win-win in the long run.”

Greenfield used several different legal structures for his arrays, including a lease-purchase contract and a power purchasing agreement. He stressed the importance of competent guidance and accurate projections from solar energy companies. He found that with Ideal Energy. “Anyone is really in good hands with Ideal if they want to fully understand the impact of their solar array on their personal finances,” he said.

For Greenfield, solar energy is a stable investment and with a profound environmental impact. “I wish I had more buildings that needed solar,” he said. “I’d better start looking for my next building project so I can put solar on it.”

Above: Developer Doug Greenfield has used solar energy as a stratigic investment on three of his commercial office buildings.

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Powerful Investments for Developers

Both Greenfield and Schneider benefited from federal tax credits, accelerated depreciation, state tax credits, and utility rebates. These programs constitute a powerful incentive package for developers.

Federal tax credits for commercial solar projects are currently 30%. Beginning in 2020 the tax credit will phase down to 10% over the course of three years. Solar equipment can be depreciated to 85% of its tax basis over five years. For projects placed in service by the end of 2017, 50% of that depreciation can be taken in the first year. This depreciation bonus will phase down over the next two years and disappear entirely for projects placed in service after 2019.

Solar arrays are cheaper than they’ve ever been. According to the National Renewable Energy Laboratory, the cost per watt of commercial-scale solar installations has decreased by 59% in the last seven years, from $5.23 to $2.13.

With the powerful incentive programs and the low cost of solar now is the perfect time for developers to consider investing in solar energy.

Seize new business development opportunities and mitigate operational risks with solar energy.

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Iowa Congressman Loebsack visits Ideal Energy Solar

Iowa Congressman Loebsack visits Ideal Energy Solar

Iowa Congressman Loebsack visits Ideal Energy Solar Congressman Dave Loebsack talks solar and economic growth with Troy Van Beek and Mayor Ed Malloy. Let's talk about jobs Congressman Dave Loebsack visited Ideal Energy’s office on Friday, February 23rd. The...

2018 solar tariff shakeout: Solar’s still an excellent investment

2018 solar tariff shakeout: Solar’s still an excellent investment

The 2018 solar tariff is unfortunate, but solar is still an excellent investment

By: Eric Johnson, Writer, Ideal Energy

The Trump administration recently announced that a decision has been made in the Suniva and SolarWorld trade case. The U.S. International Trade Commission (ITC) sided with Suniva and SolarWorld in deciding to introduce a tariff on imported solar cells and modules.

Industry analysts believe the tariff will negatively impact the U.S. solar industry and future solar customers. The price of solar installations will likely go up, especially for utility-scale projects. Fewer solar projects will be undertaken. And there will be job losses in the industry.

While we’re disappointed with the ITC’s ruling, we don’t think the consequences will be as dire as many in the industry had feared. Furthermore, we believe the benefits of installing solar now – while the solar tax credit is still fully in effect – outweigh the small increase in cost from the tariff.

What the tariff does

Starting February 7, 2018, a 30% tariff will be imposed on all imported solar photovoltaic cells and modules. The tariff will decline by 5% per year (25% in 2019, 20% in 2020, 15% in 2021) and expire after the fourth year.

 

Each year, 2.5 gigawatts of solar cells – but not modules – will be exempt from the import tariff. (A solar module, also called a solar panel, is made of several solar cells. Exempting cells, but not modules, means final assembly on that 2.5 gigawatts would have to take place in the U.S.)

While previous tariffs targeted specific countries – mainly China – this tariff applies to almost all countries. The only exceptions are certain developing nations whose production only accounts for around 3% of U.S. cell and module imports. Those nations lose their exemption if their share of imports exceeds 9%.

This trade remedy is significantly lower than what Suniva and SolarWorld asked for in their trade complaint. They wanted a $0.24 tariff per watt on imported cells and $0.32 tariff per watt on imported modules – nearly double the 2017 spot prices.

History behind the tariff

SolarWorld, along with several other companies, filed its first ITC complaint in 2011 alleging that China was subsidizing solar cells and modules in violation of international trade agreements. The ITC agreed with SolarWorld that China was ‘dumping’ below-cost cells and modules in the U.S. market, and in 2012 the Obama administration levied tariffs of 30% and up on a number of Chinese companies.

A game of whack-a-mole ensued, with Chinese manufactures moving final assembly to other countries, such as Taiwan, and the Obama administration closing loopholes with additional tariffs.

These earlier tariffs had only short-lived impacts on the prices of cells and modules because Chinese companies moved production to new countries, like Malaysia and Singapore, faster than the U.S. implemented new tariffs.

The most recent phase of this ongoing trade dispute saw Suniva and SolarWorld, two foreign-owned, U.S.-based manufacturers, asking for trade relief in the form of steep tariffs on all imported cells and modules. With the 2018 tariff, they prevailed.

Reactions from the solar industry

Solar industry leaders reacted negatively across the board. The Solar Energy Industry Association (SEIA) issued a statement calling the decision a “loss for America” that “will undoubtedly have negative effects on the industry”.

The reason is simple: higher solar cell and module costs are bad for every part of the solar industry except domestic cell and module manufacturers. Higher costs are also bad for solar customers.

The last time a similar trade remedy was used in the United States was in 2002 in the steel industry. The case was similar. The U.S. imposed 8-30% tariffs on imported steel to protect domestic steel production. The tariffs were lifted the following year, around two years ahead of schedule. In spite of their brief duration, the tariffs had a negative overall effect. Research by the CITAC Foundation found that the tariffs actually caused job losses for over 200,000 American steel and manufacturing workers.

Although China’s illegal subsidizing of solar panels should not be celebrated or rewarded, the fact remains that tariffs do more harm than good. This trade “remedy” seems particularly misplaced when applied in a fast-growing industry that employs over 260,000 Americans.

Impacts of the tariff

PRICE INCREASES

Predictions for the increase in cost of a complete solar project range from around 0% to around 10%, depending on the scale of the project. The bigger the project, the more the tariff will affect it. This is because ‘soft costs’ like labor and overhead account for a larger share of small projects, while ‘hard costs’ like modules and racking account for larger share of big projects.

Here are a few of the projections we’ve seen:

  • Goldman Sachs predicts costs will increase by 3-7% for solar installations.
  • ClearView Energy Partners LLC predicts utility-scale installations will increase in cost by around 10% and residential installation prices will go up by 4%. Commercial scale arrays will see cost increases somewhere in between, probably around 6%.
  • GTM Research’s official forecast is that installations will cost an additional $0.10 per installed watt. MJ Shiao, Head of Americas Research at GTM Research, thinks the increase could be as high as $0.15 per watt during the first year of the tariff.

THE ‘OPTIMISTIC SCENARIO’

Here at Ideal Energy, some of our staff argue that the cost increase is already ‘priced in’ and therefore there won’t be any increase in costs due to the tariff. During the second half of 2017 we saw the cost of solar modules increase in anticipation of the tariff. Wholesalers raised prices and solar installers stockpiled inventory, reducing supply. These price increases were based on a widespread belief that the tariff would be higher than it turned out to be.

Now that the tariff is here and not as large as feared, it may be that the price won’t go up at all. If that’s the case, we may see stable prices this year and declining prices once the tariff starts going down by 5% per year.

JOB LOSSES

SEIA predicts the tariffs will cost 23,000 American solar workers their jobs. Many of those workers are in economically depressed areas that need more jobs, not fewer. Although it could have been much worse – SEIA originally predicted 88,000 job losses based on the higher tariff Suniva and SolarWorld asked for – 23,000 is still far too high.

DEPLOYED SOLAR

GTM Research thinks the tariff will cause a reduction in U.S. solar installations of 11% during the next five years. Their model projects 61.3 gigawatts of solar will be installed during that timeframe with the tariff and 68.9 gigawatts would have been installed without the tariff. Overall, that’s 7.6 gigawatts less solar in America.

 

Get specific answers about how panel prices can impact your solar project.

 

Why the tariff is NOT a disaster

Despite the bad news, the tariff is not a disaster and solar energy remains a great investment. Here’s why:

THE TARIFF IS ALREADY SOMEWHAT PRICED IN.

Even if the ‘optimistic scenario’ outlined above turns out to be a little too optimistic, the increase in module price over the last several months indicates that the tariff is already at least partially baked in. Wholesalers already increased their prices. As stockpiled inventory gets freed up and moves through the industry, supply will go up pushing prices down. Where the price stabilizes this year depends on how much stockpiling took place.

THE TARIFF ISN’T ALL THAT HIGH.

The tariff is not nearly as large as many in the industry feared. It’s far lower than what Suniva and SolarWorld asked for. Even at the high end of price increase predictions, the overall cost of a solar installation doesn’t increase very much. Solar will continue to be viable for most potential customers.

MODULES ARE JUST ONE COST AMONG MANY.

Solar panels are just one part of a solar installation. Racking and mounting hardware, inverters, taxes, overhead, profit, and labor – especially labor – make up the rest. The National Renewable Energy Laboratory (NREL) data indicate that modules make up only 1/3 of the cost of a typical solar installation in the U.S.

Top: Iowa consignment retail chain Stuff Quality Consignment has installed solar on two of it’s seven retail locations.

 

Last year the NREL estimated the nationwide average cost for a commercial-scale (200 kW) solar project at $1.85 per installed watt. That estimate is based on the spot price for solar photovoltaic modules – around $0.35 per watt in early 2017. The actual price a solar installation company pays is always higher – from $0.65 to $0.73 in early 2017, according to the NREL.

In the Midwest, we typically see an install price per watt a bit lower than NREL’s national average.

Image Source: National Renewable Energy Labs

Let’s take a 200 kW example project – about the size array you would expect to see on a big box store – and see how the tariff might affect it. On a simple ballasted roof-mount system in the Midwest, we’ve seen an average price per watt of $1.55 over the past year. This project would cost around $312,000.

HIGH
With ClearView Energy Partners’ prediction of a 6% increase for commercial projects, we’d see an increase of $18,720.

PROJECT COST: $330,720

PAYBACK: 5-6 years

INTERNAL RATE OF RETURN (IRR): 21.5%

25 YEAR UTILITY SAVINGS: $541,605

LOW

With our internal ‘optimistic scenario’ – that the cost increase of the tariff has already been priced in – we would see no increase this year.

PROJECT COST: $312,000

PAYBACK: 4-5 years

INTERNAL RATE OF RETURN (IRR): 23.04%

25 YEAR UTILITY SAVINGS: $548,712

On the highest side of tariff increase possibilities, using ClearView Energy Partners’ prediction of a 6% increase for commercial projects, we’d see an increase of $18,720 – for a total of $330,720. This system would pay for itself in 5-6 years, have a 21.5% IRR, and save $541,605 in electrical costs over 25 years. Using our internal ‘optimistic scenario’ – that the cost increase of the tariff has already been priced in – we would see no increase this year. The example project would still cost $312,000, pay for itself in 4-5 years, have a 23.04% IRR, and save $548,712 in electrical costs over 25 years.

In both scenarios, the business is benefiting from $540,000+ in utility cost savings over 25 years and earning a rate of return that’s nearly impossible to replicate in today’s markets.

Why now is the right time to invest in solar

Yes, the tariff may increase the cost of a solar installation in the short term. However, as noted above, the predicted impact on residential and commercial projects is low – in the 0% to 6% range. In the next year or two, module prices will likely begin to decline again.

However, the solar investment tax credit will also begin to decline soon. Next year – 2019 – is the last year to take full advantage of the credit. Through the end of 2019 a full 30% of the cost of a solar installation can be deducted. In 2020, the credit drops to 26%. In 2021 it drops to 22%. From 2022 onwards the credit is limited to 10% for commercial projects and falls to 0% for residential projects.

In our opinion, the benefits of the tax credit significantly outweigh the small added cost due to the tariff.

Final thoughts

We hope this article helped you understand the tariff and it’s impact. However, the information here is far from the last word on the tariff. It will take some time to see where the module price stabilizes this year. We may also see appeals to the ITC or the World Trade Organization. An early reversal, as with the 2002 steel tariff, is also a possibility.

In any case, with or without the tariff, we think solar continues to be among the best investments a homeowner or business owner could make.

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Iowa Congressman Loebsack visits Ideal Energy Solar

Iowa Congressman Loebsack visits Ideal Energy Solar

Iowa Congressman Loebsack visits Ideal Energy Solar Congressman Dave Loebsack talks solar and economic growth with Troy Van Beek and Mayor Ed Malloy. Let's talk about jobs Congressman Dave Loebsack visited Ideal Energy’s office on Friday, February 23rd. The...

How one small business gets ahead with solar

How one small business gets ahead with solar

How one small business gets ahead with solar


Investment into solar reduces average $9,000 monthly utility bills to $13.48

Solar power has been a boon for Jenny Steffensmeier’s business and her employees. Last year Steffensmeier Welding & Manufacturing completed a 430 kW solar array which saves the company $8000 to $9000 per month. “Our first bill after getting off the demand charge was $13.48,” Jenny said.

Those savings have allowed Jenny, president and owner, to invest in her employees, hire new workers, expand production, and give back to the community. “All of these things potentially could not have happened because the cash flow was not there before,” she said.

JOURNEY TO SOLAR

Jenny assembled a leadership team to study the pros and cons of solar power. The team’s research showed solar was well worth pursuing. Ideal Energy of Fairfield, Iowa, was chosen to design and build the array. The two companies developed an ambitious ‘net-zero’ design, meaning the array provides 100% of Steffensmeier’s energy needs.

The energy intensive nature of Steffensmeier’s laser cutting, welding, and CNC work made solar a daunting proposition. Ideal Energy faced several additional challenges, as well. The company’s buildings didn’t provide enough roof space for an array large enough to achieve net-zero. Shading from the buildings was also a problem.

Ideal Energy’s solution was to design a key-shaped ground-mounted array to maximize exposure to the sun. The mounting racks were installed using a hydraulic ram, a method pioneered in Germany’s solar industry.

The result is a 430.66 kW solar array that will pay for itself in 4-6 years with annual savings of over $90,000. Steffensmeier Welding & Manufacturing is the largest manufacturing and welding business in Iowa with a net-zero solar installation.

USING SOLAR SAVINGS TO STAGE GROWTH

Jenny has already put her solar savings to work by investing in her employees with increased benefits and additional training. The new benefits package adds coverage for dental, vision, and long-term and short-term disability. “Those are additional benefits – brand new,’ she said. In addition to the benefits package, Steffensmeier is paying for four employees to receive AutoCAD training at the local community college.

The company is also adding a second shift. As this goes to press, Jenny is in the process of hiring the first new worker for the second shift. More hires will follow. Governor Terry Branstad, who visited Steffensmeier Welding & Manufacturing for the solar array’s ground breaking ceremony, said, “It’s important to remember that 80% of the new jobs in our state come from existing businesses.” Jenny’s company shows how solar power provides that economic multiplier effect, with utility savings directly contributing to job growth.

Further business expansion is on the horizon with the possible purchase of additional equipment that will bring new opportunities to the business. Jenny emphasized that strong cash flow is essential to big ticket equipment purchases.

Jenny is also excited by her newfound ability to increase her company’s community involvement. “It’s important to me that I give back to the community,” she said. “I’m absolutely able to do more than I would have as far as giving to community events.”

US Secretary of Agriculture Chuck Grassley visits the Steffensmeier solar field and gives a public address about the importance of distributed clean energy systems for Iowa’s farms and industries.

AN AWARD WINNING SOLAR PROJECT

The solar array has also provided intangible benefits. Extensive press coverage, a visit from Governor Branstad, a visit from US Secretary of Agriculture Tom Vilsack and a 1000 Friends of Iowa Best Development Award in the Renewable Energy category have all contributed. “The coverage has been nothing but positive,” Jenny said. “It has catapulted us into view.”

The coverage has been nothing but positive.

It has catapulted us into view.

Jenny Steffensmeier

Owner, Steffensmeier Welding & Manufacturing

Jenny said the keys to her successful solar installation were research, due diligence, and the expertise of her solar design and construction provider, Ideal Energy. “They did a tremendous job from beginning to end,” she said. “And they continue to.”

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