In today’s ultra-competitive business environment, many U.S. corporations are placing an increased emphasis on strategic energy procurement activities. Well-managed corporate energy procurement practices can reduce costs and mitigate future energy rate volatility, while also providing improved visibility for financial forecasting purposes. It is in this context that commercial solar photovoltaic (PV) projects can provide significant and unique benefits.
Prudent energy procurement managers incorporate a portfolio approach, much like sophisticated financial portfolio managers, with an eye toward managing both short and long-term pricing dynamics while minimizing risk. In most U.S. electricity markets, buyers are limited to relatively short fixed price purchase contracts, with maximum terms of 2-3 years.
By contrast, distributed (i.e. onsite) solar PV projects can provide corporate energy buyers with fixed 20+ year electricity pricing certainty at highly attractive rates. In the case of third party owned PV systems where the “host” company simply agrees to purchase the solar generated electricity – typically through a Power Purchase Agreement (PPA) – initial power prices are often at a discount to current rates and include fixed annual escalation provisions that provide future cost certainty. For corporate-owned systems, the cost to “self-generate” electricity is minimal; solar systems are entirely passive (no moving parts) and have no fuel costs (sunshine is free). Once the system’s capital cost is paid back, the system’s long term cost of electricity is inconsequential.
In many parts of the U.S., dramatic reductions in the cost of natural gas have driven electricity pricing down, but have also resulted in increased pricing volatility as the percentage of electricity generation from natural gas has grown markedly. In 2012, natural gas provided 52% of New England’s electricity, and that share is expected to continue to grow as older coal and nuclear generators are taken offline. In late January 2013, electricity prices in New England spiked up to eight times higher than normal as a result of a surge in gas demand for heating – highlighting the increased electricity pricing volatility that U.S. corporations are likely to face in the future.
The two major benefits that solar PV projects can deliver – attractive power prices and 20+ year pricing certainty – are unique to solar, and in our opinion, should be a key ingredient in any sophisticated corporate energy procurement plan. Please contact EnterSolar to learn more about how solar photovoltaic systems can benefit your business.