How to Understand and Compare Your Solar Energy Proposals

Are you looking for a better way to buy your electricity?  Are you deciding on whether solar is right for you? If so, don’t let the complexity of solar proposals overwhelm you and your decision to go solar.  Each solar company has their own unique proposal. However, there are several key pieces of information that should be consistent with each proposal you receive.

Here are 10 of those important items that you need to understand when reviewing and comparing your solar proposals.

1. The size and location of the system
2. The components (equipment) of the system
3. The solar system cost and financial incentives
4. The energy offset and environmental impact of the system
5. The warranties and guarantees from the installation company and equipment manufacturers
6. The project scope
7. The project schedule
8. The payment terms
9. The projected inflation of your electric rates
10. The investment analysis

1. The Size and Location of the Solar System

The total size of the system is based on your energy consumption and the number of panels required to meet your energy demands.  In most cases, your solar proposal will include the size of the solar system expressed in kilowatts or kW. Larger commercial/industrial or utility scale systems are sized in megawatts or mW.  For example, an average residential solar system (an electric bill of $160) is approximately 10,000 watts or 10kW. The total size of the system is calculated by multiplying the number of solar panels by the total watts per panel.  For example, 30 solar panels that are 340 watts each would be a 10.2 kW system (30 X 340 watts = 10,200 watts or 10.2 kW).

In addition to the size of the system, the proposal should include an aerial picture of your property with the solar panels overlayed on the picture.  This should give you a good idea of what your property will look like once the proposed solar system is installed.

2. The Components of the Solar System

A list of components should be included in your proposal.  That list should include the quantity, brand, and watts of the solar panels, the quantity, and brand of the inverters, and in some cases, the quantity and brand of the optimizers (if applicable).  Each of these components should come with varying manufacturer warranties. It is important that you understand what each of those warranties includes. Click here for additional information on warranties.

When evaluating the products, it's important to keep a few things in mind to ensure you're starting off with a solid base for your investment:

• Quality: Solar modules, inverters, and racking are expected to work for 10-40 years. They should be top-quality products with a robust warranty.
• Manufacturer Stability: Since the solar industry is volatile, it's important to partner with manufacturers who have a track record of great customer service and financial stability. Additionally, your solar installer should have a long-term relationship with the companies whose products they provide.
• Product Relevance: Products in the solar industry are constantly changing. Be sure your solar installer is offering you a product that is up-to-date. If they're offering you an older product, make sure it is at a discounted rate.

3. The Cost and Financial Incentives of the Solar System

Your proposal should include a cost and incentive summary.  This summary should include the total cost of the system, the amount of the federal tax credit, the amount of tax savings from depreciation (if applicable), and state or local grants, and finally the net cost of the system after incentives.  In addition, to the cost and incentive summary, the proposal should include a long-term cash flow for a more complete analysis. 

It's also important to look critically at the financial assumptions made. For example, it is unlikely that electric rates will increase by 5% every year for the next 30 years. Or that the system will produce the same amount of energy in year 15 as it does in year one. Or that solar will eliminate your peak demand changes (it may not reduce it at all).

4. The Energy Offset and Environmental Impact

An amazing aspect of solar is that it is both a great financial investment and great for the planet.  Your solar proposal should include the energy offset the environmental impact of the solar system.

Solar systems are typically designed to cover as much of your electric consumption as possible.  Unfortunately, 100% offset of your electric consumption is not always possible. You may not have enough roof space or ground space, you may have some shading concerns or other factors that would prevent you from covering 100% of your electric needs.  For example, you may use 10,000-kilowatt hours per year, and the solar system is designed to produce 9,500-kilowatt hours per year. In this case, your energy offset would be 95%. This means that you can expect the solar to cover 95% of your annual electric needs.  In most situations, we try to cover 100% of your electric consumption.

Your solar proposal should also include the environmental impact or equivalency for that size system.  For example, your proposal should include the equivalent offset of tons of CO2 per year, or the equivalent offset of barrels of oil per year, or even the number of trees saved per year.  Most businesses take pride in their green initiatives and display these environment datasets in the waiting areas of their businesses.

5. The Warranties and Guarantees

Most solar proposals will include two types of warranties; (1) manufacturer warranties for each of the components listed, and (2) warranties and guarantees from the solar company that is installing your system.  These typically include a workmanship warranty, a production guaranty, and remote monitoring. The most important of these is the production guarantee from your solar installer which guarantees the amount of energy that will be produced by your solar system.  Not all solar installation companies offer this remarkable guarantee which practically makes solar a risk-free investment. A production guarantee from your solar installer is not the same as the manufacturer's linear power warranty on the solar panel. Click here to read more about warranties.

When evaluating warranties on your proposal, there are a few specific things you should look for:

• What are the warranty lengths? This should be obvious on the proposal and data sheets provided by the contractor.
• What does the warranty cover? For 

  example, does the warranty only cover the output of each individual module, or the whole system production (like PES’ 10/10/10)?  If there is a warranty claim, how is the customer reimbursed?

• Who is backing the warranty?  The solar industry is still young and volatile, so it is a good idea to have warranties backed by different companies (for example, the modules backed by one company, the inverters backed by another company, and the workmanship backed by the installer).

  
  
  

6. The Project Scope - What's Included and What's Not

The scope of the solar project should be clearly defined in the proposal.  The proposal should detail what is included and what is not included, and provisions for any unforeseen costs or additions. 

If your solar proposal includes multiple pages of fine print, maybe it is time to consider another contractor.  Good contractors should include terms that are clear and concise, not complex and lawyer-speak. Even though there are cases where a change order is necessary, your contractor should want to partner with you to get the job done, through any challenge or difficulty!

7. The Projected Schedule for the Solar Installation

From the time that you sign your proposal until the time that your solar system is up and running, usually takes several weeks or months depending on the size of the system.  On average it takes approximately 8 to 10 weeks to design, develop, and permit the project, and then anywhere from 2 days to several weeks to complete the installation. A small residential project can be installed in as little as 2 days, whereas a commercial or agricultural system can take several weeks to install.  This projected timeline should be included in your proposal. Click here to read more about the process of going solar. 

8. The Payment Terms

The payment terms should be clearly defined in the proposal so there are no surprises for you or the solar company.  When you sign the proposal, you are agreeing to those payment terms, and you will be expected to meet those obligations to keep the project on schedule. Make sure that you understand when your payments are due, or how your project is being financed.

9. The Projected Inflation of your Electric Rates

Most solar proposals will show you your electric savings.  That is the amount of money you’ll save on your electric bill by going solar.  This is known as your electric savings rate or avoided-cost of electricity. It is very easy to calculate in the current year, as the cost of electricity is taken directly from your utility bill.  The challenge, however, is predicting the cost of electricity (your savings) in the future. Most solar proposals will include an escalator in the cash flow of your electric savings rate. At Paradise Energy, we use historical data from the United States Energy Information Administration. We use state-specific information to give you the most accurate and conservative projections possible.  If your electric inflation rate is artificially inflated, your electric savings be artificially inflated as well.  Make sure the electric inflation rate shown on your proposal is appropriate for your state. In the mid-Atlantic region, we typically show electric inflation rates between 2% and 3%.

10. The Investment Analysis

Any credible solar proposal will include a long-term, cumulative cash flow analysis.  This allows you to analyze the investment both over a short and long-term. Unlike most other investments, a solar investment has a very rapid return in the early years and tailors off towards the end of the payback period making solar an attractive investment.  Having a cumulative cash flow analysis will allow you to see how fast you get most of your investment back in the first few years. The cash flow analysis should include the projected solar production, SRECs, electric savings, grants, depreciation, federal tax credit, maintenance & insurance, taxes, a yearly cash flow, cumulative cash flow, and your return of capital.  In addition, the cash flow analysis should show you the average return on investment (ROI).