A Solar Case Study: Barbur Storage

September, 2011

Why would a storage owner in rainy, overcast Portland, Oregon install solar panels on his facility? Solar panels offset grid-tied electricity by using the sun's energy to create power on-site, but Portland only receives an average of 68 sunny days per year compared with Phoenix's 211 days. Surely this cannot be a good investment. Yet Chris Bayha, owner of Barbur Storage, is extremely satisfied with his decision to install solar panels on his facility and highly recommends that other storage owners consider investing in solar. Surprisingly, post-installation calculations indicate a return on investment of 13.3% and this does not factor in the 2 to 3 customers per week who specifically say "we rent from you because you are powered by solar electricity."

So is Chris some tree-hugging hippie that wears sandals and worships the moon? On the contrary, he's your typical storage owner who views his facility as his retirement fund and investing in solar was a logical business decision. It was Chris' then 23 year old daughter who first turned him on to the value of solar. She explained to him that kids her age are looking for green alternatives and if you are perceived as environmentally friendly, they will pick your facility over your competitor. So when Chris read an article in the Oregonian newspaper describing how a local solar contractor, REC Solar, installed panels on the roof of a nearby Ben & Jerry's Ice Cream shop, it peaked his interest and he gave them a call.

Pre-Installation

Immediately after the initial call, REC performed a quick analysis of his property via Google Maps and determined the maximum size of the hypothetical solar array given the roof square footage and potential shade barriers, all while staying within Chris' $150,000 spending limit. Before moving forward, Chris did some due diligence and called the Oregon Department of Energy and the Energy Trust of Oregon (the department in charge of distributing solar rebates) to gauge the legitimacy of REC Solar and heard nothing but positive feedback.

Over the next month, the project manager and project engineers from REC Solar came to the facility four times to inspect the roof and electrical setup of the building to sketch a design- all before any contract was signed. After the system was fully designed, REC drafted a contract to install 23.4 kW of solar panels for a pre-rebate cost of $148,356 equating to $6.34 per watt, the metric used to compare relative costs. This is a very good rate as similarly sized installations in Southern California, where there is significantly more competition among solar installers, were in the $7 to $8 per watt range.

Gross vs. Net Cost

The actual net cost to Chris of the $148,356 solar system was a mere $421. That is not a typo. $147,935 of the tab would be picked up by the State and Federal Government. The State of Oregon would cover 50% of the gross cost, to be repaid in the form of five $14,835 tax credit installments over 5 years. The Federal Government would cover 30% of the gross cost in the form of a tax credit as well, projected to be used over a two year period due to the facility's estimated tax liability going forward. Finally, the State of Oregon's Energy Trust would rebate $1.25/watt DC for a total of $29,250 (not to exceed the cost less Federal and State tax credits). So after all Federal and State tax credits were accounted for over the course of 5 years, the net cost to Chris was $421.

Gross Cost $148,356
State Tax Credits (50%) ($74,178)
Federal Tax Credits (30%) ($44,507)
State Rebate ($1.25/watt) ($29,250)
Net Cost to Owner $421

Oregon has arguably the most generous solar incentive program in the nation, but California, New Jersey, and Arizona offer similarly aggressive rebates. In order to fund the initial cost of the installation, Chris had to take out a line of credit from his local bank, but was able to pay back that loan in 12 months with proceeds from the State rebate and offset tax liabilities.

For those thinking about installing solar, be advised that rebate and tax credit programs are very dynamic and highly dependent on State and Federal policy initiatives. Because of this, projects that didn't work in the past may now be financially viable investments. For example, for 2011 the Federal Tax Credit has been converted to a lump-sum grant to be paid in full upon installation, a major benefit to those who do not have a significant tax liability. However, it is likely that for 2012, the program will revert back to a tax credit, which could have a dramatic impact on the economics. Despite the volatility in incentives, once you have applied for state and federal tax credits, your credits are guaranteed. Visit www.dsireusa.org to see state, federal, and utility-specific incentive programs that exist in your area.

Installation

The contract was signed January 15 and construction commenced April 5. The two and a half months gave REC Solar time to order the solar panels, roof mounting and bracketing components and the appropriate inverters for the project, while the actual installation process took only three weeks. The fact that the solar system was being installed on a self storage facility actually made the process easier for the installer. Inverters, used to convert power from DC to AC must be installed as part of the system. Oftentimes these are placed outside of the facility, but they have a longer lifespan when installed inside. Barbur Storage already had a storage unit on each floor dedicated as an electrical room. The installer was able to place the sizable inverters in the electrical room on all three floors, making installation easier and protecting the inverters from the elements.

After installation was complete, it took another week for the local utility company, Portland General Electric, to come and install the net meter (the meter used to calculate how much energy is distributed back to the grid). Finally, the city inspector had to examine the project before Chris could flick the switch and start producing electricity.

Chris described his interaction with REC Solar as "completely seamless" and could not think of a single hiccup in the process. REC handled all the Federal and State rebate and incentive paperwork, a daunting task by any standard. Chris' only responsibilities were to ensure access to the facility and to sign the completed documentation. It was the definition of a turnkey operation leaving Chris "amazed at how little work I had to do given the size and scope of the project."

Net Metering

Because solar electricity is produced in a bell curve fashion throughout the day, with peak production in the early afternoon, there are periods when the panels produce more electricity than is consumed within the facility. At this point, the electrons produced are put back into the grid to be consumed by a neighboring property. The meter records how much energy was put back onto the grid and this amount is netted off your monthly electricity bill, therefore offsetting your bill at retail prices as opposed to being purchased by the utility at some discounted price. Net metering programs are generally mandated by state Public Utility Commissions as utilities would rather not have to pay for excess solar electricity production if given the choice. Unfortunately, there are still seven states that do not have mandatory net metering in place: Texas, Alabama, Mississippi, Tennessee, South Carolina, South Dakota, and Idaho. Without net metering, installing solar panels is oftentimes not a financially viable investment.

Cash Flow

The measurable cash flow is the offset electricity costs. As a 462 unit facility with 100 climate controlled units, the monthly electricity bill was sizeable- generally in the $750 to $850 range. Despite being the second wettest spring in Portland in the past 117 years, Chris was able to offset his electricity bill by over $3,700 in the first 12 months after installation, surpassing the REC Solar estimate of $2,350. As electricity prices continue to rise, so too will the value of his offset electricity. National electricity prices are expected to rise 2% annually for the next 10 years.

The installation is guaranteed to produce at 80% of estimated production for 20 years, so if the panels are not performing as expected or there are any electrical malfunctions, REC Solar will cover the cost of repair. There are minor expenses with maintaining the solar panels. The panels need to be cleaned annually with either a power washer or with a bucket of soap and water and some elbow grease. Also, the life of the inverters is estimated at 10 years with a replacement cost around $6,000, but will likely be less as technology improves.

Because solar panels are relatively new, no one is exactly sure how long they function. Their efficiency degrades over time, estimated at 0.5% per year. The majority of less technologically advanced panels installed in the 1970s are still operating today, however at a less efficient rate than when installed. So it is certainly the case that a solar installation should be thought of as a long term investment.

From the Owner

The office at Barbur Storage has a TV showing the real-time production from the solar panels and this becomes a talking point for many customers. Chris estimates that 2 to 3 customers per week mention the panels as the main reason why they chose Barbur Storage, even if it meant it was not the closest or the cheapest facility. The facility has also benefited from increased press as it recently received the City of Portland's "BEST Practices for Sustainability Award" in the Very Small Business category.

For those thinking about installing solar on their self storage facility, Chris recommends that you find a good contractor. Do your due diligence, check references, and make sure they have experience. Try to find an installer that specializes in commercial installations, as many residential installers do not have the capacity to install larger commercial systems. Finally, Chris strongly suggests that self storage owners investigate solar power. There are many misconceptions about the economics of solar and it pays to run a return on investment analysis to determine if solar works for your facility. Whether motivated by financial, environmental, or geopolitical reasons, solar is oftentimes a win-win for everyone involved.

Mini-Storage Messenger September 2011

This article has been reprinted with permission from Mini-Storage Messenger.

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