Monday, 14 May 2018

A sample template for setting up a solar co-operative or non-profit

A lot of individuals and community groups are interested in creating community-owned or shareholder owned solar arrays.

With recent changes looming to BC Hydro's net metering program, there are both challenges and opportunities to make this happen.

We like to think of the opportunity side on this and are willing and able to work with groups to make their solar dreams a reality. Sweet Spot Solar will design your array using the most advanced software and imagery technology, and provide you with equipment at a deeply discounted rate if you're a legally constituted non-profit, charity, co-op, or similar entity.

There are lots of ways to go about doing this. Below is just one simplified example. Before we start, it's important to recognize a few key issues with respect to the financial returns to your group.

First, standard accounting and financial analyses do not work well with solar and other longer term investments in renewable energy - especially at the small scale. In our opinion, it's inappropriate to include factors like discount rate (or inflation) in calculations for solar projects. People who invest in community or cooperative solar often do so for ideological and other personal reasons, and including a discount rate in your calculation makes little sense unless the project is being financed.

Second, cooperatives and non-profits can usually get no fee bank accounts at credit unions and some charter banks. There is no reason to include banking fees and other kinds of fees. Initial legal fees may be required to setup contracts and this is likely less than $1000.00. Members should be able to do their own bookkeeping, taxes, etc. Such administrative fees are unnecessary, and even simple maintenance like cleaning of the solar arrays can often be taken care of by members themselves, or by the property owner as part of the contract. We also recommend that the array be insured as part of the property owner's policy.

For this example, we'll start with a relatively small array of 14.4 kW DC. This would be composed of 48 300W modules and our preference is for micro-inverters made by Enphase. They have the longest warranty of 25 years and are a proven global company with millions of inverters out there. They are also likely to last the test of time. Many solar suppliers are pushing two-in-one micro-inverters. We have significant reservations about the quality and long-term reliability of this technology given issues of thermal management. Electronics do not like heat!

If we base this example on an installed cost of $3.00/Watt, the cost of this array is $43,200, and 20 investors would need to provide $2160 each to make this happen. You may wish to round this up to $2500 to cover legal costs, and other incidentals that may arise in the beginning.

We recommend finding a landowner with a sizeable electricity bill. In this example, we have designed a fictional array on this farm near Monte Creek, BC. You'll note that there are other roofs on the property that could accommodate expansion of the co-op over time. Assume that the property owner uses 36,000 kWh/year. This array would be acceptable under BC Hydro's new proposed tariff since it won't generate more annually than the customer uses.

Here's what it could look like.

Below is the power production of the array. We have factored in a 0.3% degradation factor/year into our modelling for the solar modules themselves.

In this case, 52% of the annual consumption is covered by solar. This is important since it means that the solar generation will completely go toward the Step 2 pricing side of the balance sheet. For residential clients, a premium (called Step 2) is charged by BC Hydro for any consumption exceeding 1350 kWh over an average two month billing period. When your solar array is directed primarily at reducing purchased Step 2 electricity, the financial returns are 50% larger.

The first year savings with solar will be $2720, and this amount will increase with rate increases. We have modelled our scenario here on a 5% annual rate increase although in reality the increase has been 7.14%/year over the past decade when compounding and other factors are included. See another blog entry from us here.

Below are some more financial indicators on this sample project.

The payback for the project is just over 12 years, the Internal Rate of Return (IRR) is 9.12%, and the levellized cost of energy is 8.9 cents/kWh (already below current BC Hydro rates).

In order to make this attractive to property owners, we recommend that the property owner pays directly the co-op or non-profit for the energy costs avoided, and that this ends after Year 20. In other words, the co-op ceases at that time and the property owner is "given" the array. They will get another 10+ years of useful life from it - all without paying for it. With more current versions of Enphase's Envoy S monitoring system, and the use of production and consumption metering, this is quite easy and verifiable.

Here's how the dividends might look. Over 30 years, the avoided cost of energy is $171,292.34. However, since the co-op would cease to exist after Year 20, the avoided cost of energy in that time period is $91,096.75.

After the first year of operation, each of the 20 shareholders would receive $136 on their $2500.00 investment. If one were to place the money in a bank account yielding 1% (typical nowadays), they would receive $25. After Year 5 the dividend would be $163, Year 10 is $205, Year 15 is $258, and in Year 20 it would be $327. Over 20 years, shareholders can expect total dividends of $4554.84.

Shares could be giftable, transferrable and sold. We recommend that the non-profit or co-op have a proviso requiring that any shares on the market revert to them for future dispensation.

If Enphase micro-inverters are used in the project, and high quality monocrystalline modules, the non-profit or co-op would not likely have any additional capital costs in the first 20 years given the quality of this equipment and warranties. It may be prudent to holdback 10% of dividends annually to place in a contingency fund.

There is a golden opportunity to develop community and small scale solar through this approach. Let us know if we can help you by contacting our CEO Dr. Michael Mehta at

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