Leveraging solar energy's potential might set you apart from your competition

In brief:

• Many consumers are demanding that products be manufactured in a sustainable and eco-friendly manner.
• A variety of industries have tapped solar energy as a means to achieving their sustainability goals
• Financing, policy, rebates, and the local cost of energy should all be considered before moving forward with solar.

For chemical plant managers, the ability to cut costs, even marginally, presents an opportunity to differentiate their products. But chemical plant managers have already squeezed costs out of nearly every step of their operations, so how can they find a new edge?

It used to be that making eco-friendly chemical products was seen as an expensive and burdensome obligation that raised the cost of the product for the consumer. Now however, many chemical manufacturers are realizing that a commitment to a sustainability policy not only increases the marketability of a product, but also may lower the cost of production. This commitment to sustainability can include many components: reducing waste, using less toxic alternatives, reducing energy use, and developing an end-of-life strategy for products can each achieve the increased marketability and lower cost of goods.

Many consumers are demanding that products be manufactured in a sustainable and eco-friendly manner. When given the choice among equally effective products, some consumers will purchase the product that has bona-fide environmentally friendly credentials. Certain consumers will even purchase products that are either more expensive or less effective than their non-environmentally aware competitors. This requirement has been extended upstream to non-consumer-facing suppliers, as well. A majority of the large producers of consumer brands are now requiring that their suppliers, including raw material manufacturers, complete sustainability scorecards before bringing on a new supplier or renewing a supply contract.

Companies with a specific sustainability strategy are often best positioned to attract new customers and reduce operating costs below their competitors.

A variety of industries have tapped solar energy as a means to achieving their sustainability goals. Solar makes sense for chemical facility managers for a variety of reasons. Energy usage generally constitutes one of the highest operating expenses for a facility’s books, and solar can help to reduce those costs. Furthermore, these facilities demand energy use in the middle of the day, which is not only when solar energy production is high, but also when energy costs are the highest. Chemical facilities often have large, flat rooftop space, adjacent land, and parking lots, all of which are ideal for solar. Finally, solar projects can put a high-profile face on a company’s sustainability initiatives in a way that other initiatives, such as changing to a less toxic solvent, simply cannot achieve.

Despite these benefits, not every project is low-hanging fruit. Financing, policy, rebates, and the local cost of energy should all be considered before moving forward with solar.

Financing — Own vs. lease

Generous local, state, and federal incentives and tax credits make it so that purchasing a system outright may be the best option for facility managers with some cash on hand. Paybacks can be completed within as few as four years, with 20% internal rate of return over the lifetime of the system, which can last 30 years or more.

Those without access to capital should consider a power purchase agreement (PPA). A PPA is a program by which a third-party company actually pays for the installation of the solar system and then sells the power back to the plant manager at a predetermined cost. Not only does the third party take on all the tax incentives and pay the savings forward to the facility in the form of a lower rate, it also allows plant managers to go solar with zero upfront costs. This represents a way to enjoy the benefits of renewable energy without the burden of the large upfront capital costs.

An alternative: Rent your roof

Going beyond owning or leasing is the option some facility owners have of “renting” their roofs to developers. In California, for example, there are currently a number of new energy procurement programs administered by the big three California investor-owned utilities: Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E). These programs give utilities an incentive to purchase energy from wholesales distributed generation (WDG) projects, which are small, wholesale generators that sell energy directly to the utility, instead of delivering energy to the user to credit a specific utility bill, which is the more typical solar structure.

WDG projects are located near a point of interconnection to the grid, such as on top of or near an existing building tied to the utility grid. Plant managers that own their properties are in unique positions; commercial and industrial facilities with large, flat, and unshaded rooftops are some of the most cost-effective locations for siting solar. Through a WDG contract, the property owner can lease out available roof space or adjacent land space to a solar project owner, or “tenant,” who installs the solar system. WDG mechanisms align the interests of the tenant with those of the building owner: the tenant obtains a contract to sell the energy to the local utility through one of the aforementioned programs and then installs the system, generates revenue from selling energy to the utility and pays rent to the building owner for use of the space. The arrangement has no impact on operations.

Incentives

In addition to everything else, it’s important to understand which federal, state, and local incentives are available to you. At the federal level, all solar projects qualify for a 30% tax credit that can either be carried back to the previous tax year or be used against the company’s current tax obligation. In addition, the federal government is allowing 50% bonus depreciation for solar projects completed before the end of 2013. Some states offer upfront cash rebates based on the size of the system to be installed, while others spread rebates out over a five-year period based on the system’s actual energy production. In California, local utilities are required to pay solar owners a rebate for every kWh generated by their systems for the first five years after commission of the system.

Conclusion

Solar has already helped chemical facility managers achieve the goals of their sustainability policies, differentiate their products, reduce costs, and tap into resources that many facility managers don’t realize they have. With the right analysis of the opportunities and hurdles associated, solar can help many others.