As we noted in a previous blog post, U.S. colleges and universities are going solar at an accelerating rate. Energy cost savings, sustainability, carbon footprint reduction, and educational and research benefits all accrue to make solar photovoltaics (PV) an attractive option. In the end, however, solar’s persuasive economics usually represents the greatest determining factor in the decision-making process.
It’s no secret that colleges and universities consume large amounts of energy. Serving more than 20 million students—approximately 6% of the U.S. population—the higher education sector doles out about $14 billion annually on energy and utility costs. A large institution can easily spend millions of dollars in operating costs each year to keep the lights on, the labs and data centers powered, and the HVAC systems humming.
Solar energy offers an attractive, long-term solution to those large—and increasing—energy costs. The financing mechanism of choice for approximately two-thirds of colleges and universities that have deployed solar PV is the power purchase agreement (PPA). We briefly mentioned the benefits of PPAs in the earlier blog post:
The school benefits from little or no upfront costs and pays a third-party developer or system owner (who also gets tax equity incentives) for the power generated. By locking into a set price over the length of the PPA—usually between 15 and 25 years—the college can accurately scope its energy costs and move away from the unpredictability of utility rate charges. As the PPA contract matures, the amount of energy savings increases over time. PPAs also free the university from operations and maintenance costs and other budgetary outlays.
Sounds good, right? The agreement allows the “offtaker” (in this case, the university) to garner many of the benefits of solar power without actually owning the system. And the fixed-rate provision calms the institutional anxiety of ever-rising utility costs; as the years go on, the cost of the solar energy produced undercuts the utility’s escalating rate structure.
Now let’s take a deeper dive into a hypothetical case study of a midsize Midwestern university that has signed a 25-year PPA with the developer for the power generated by an on-campus, ground-mounted 5 MW solar installation.
Let’s say a midsize university near Indianapolis wants a 5 MW built in an optimal unshaded location. The theoretical 16.8%-efficient PV system would cost roughly $8 million and would feature a kilowatt-hour price in the 8 cents/kWh range over the lifetime of the agreement. With an energy production of ~ 4,131 megawatt-hours (AC) per year, the system would generate an average of $454,514 in energy savings annually. The installation would also offset 7,605 lbs of CO2 pollution per year.
The savings represent a sizeable chunk of a university’s yearly energy bill, probably in the 7-15% range for a midsize Midwestern campus. Not only that, but the annual energy savings essentially represent a de facto revenue stream to the school. As solar PV system costs continue to decline, and system efficiencies rise toward 20% and higher, the conservative example presented above makes way for even more compelling economics.
Finally, there’s a cool tool that sustainability and facility directors can employ to run a simulation of how a solar PV system might perform on their campuses. I recommend checking out the handy PVWatts calculator provided by the National Renewable Energy Laboratory.
By Tim Powers, strategic research administrator, Inovateus Solar
