Solar energy's share of total US electricity generation was only about 3.9% as of 2023. So it's not powering all that much today. However, the cost of PV modules continue to come down and installed capacity is growing very quickly. Here's an excerpt from a recent post by Brian Potter about solar energy:
By some metrics, solar PV has been deployed faster than any other energy source in history, going from 100 terawatt-hours of generation to 1,000 terawatt-hours in just 8 years, compared to 12 years for wind and nuclear, 28 for natural gas, and 32 for coal. In the US, solar PV projects are by far the largest share of planned new electrical generation capacity.
And here's a chart:
It's also interesting to look at which US states have the highest "capacity factors." The average for the entire US is 23%, which means that, on average, solar panels produce 23% of what they would if the sun were shining 24 hours a day. You might also think that the "sunshine state" would be one of the highest. But in fact, the top states are Utah and Arizona:
I'm highly interested in solar and we want to deploy it as much as we can on our projects going forward. If you're also interested in solar and want to learn more, Brian's post is an excellent place to start.
Images: Construction Physics
I have a very close friend (Peter Vogel) who is in the solar business. He runs business development for a company called Otter Energy. And by volume, I believe they are the largest in Ontario. Since 2009, they have installed over 350,000 panels.
So when Peter and I hang out, I get the benefit of learning about solar. And he is great at reminding me that installing panels on the roof of buildings in Ontario makes a ton of sense from both an environmental and financial standpoint.
Generally speaking, the amount of benefit you will see depends on the building's ratio of roof area to overall building area. Low-rise buildings with a lot of roof area (think industrial assets), are absolute no brainers. But it can also work very well on many other asset classes, including mid-rise multi-family.
Here are some high-level figures that he recently walked me through:
As a rule of thumb, solar in Ontario typically generates between 12-14 kWh's per year per square foot of roof area (usable flat roof).
The average payback period for an install is usually somewhere between 4.5 to 7 years.
However, on income producing properties, the permanent decrease in operating expenses and the corresponding increase in net operating income (NOI) will increase your asset value on day one.
Consider spending $100k on solar panels to increase your NOI -- through lower electricity costs -- by $10k. If you were to then capitalize this increase in NOI by 5%, it would mean your asset value has right away increased by $200k. If the cap rate for this asset is even lower, say 4%, the increase goes up to $250k.
These multiples can get even better with larger installs. Here are some numbers from a real-world 100,000 sf commercial building in Ontario. In this case, the solar system cost about $800k (net) and resulted in annual operating cost savings of about $140k. This means, that at a 5% cap rate, the owner spent $800k to increase the value of their asset by $2.8 million on day one.
Of course, in addition to all of this, you get long-term energy cost certainty. That's worth something too.
The business case is compelling. So I think more building owners should be looking at solar. We are certainly looking at it from a development perspective. If you're interested in learning more, feel free to reach out to my friend. There are a lot of details that help strengthen the case for solar, including depreciation allowances and tax credits.
This is an interesting chart from Bloomberg Green comparing some of today's innovations against innovations of the past. At the top of today's innovations are EV batteries, which from 2010-2020, saw annual deployment growth similar to that of US WWII aircrafts. However, when it comes to reducing costs, both EV batteries and solar PV modules come out on top with annual declines approaching almost 20%.
Of course, these probably aren't perfect comparisons. If you look at EV batteries and solar PV modules from 2020 to 2023, their growth rates jump to 72% and 39%, respectively. So who knows if these are the right time slices to be using in order to accurately capture the "key expansion periods." Regardless, it does provide some historical context and it does say something. These are important innovations.