The $1.2 million PV system that powers National Electric Supply's headquarters is a test case for the future the company sees in the renewable energy market.
It's not a particularly easy climb up the steps of what National Electric Supply's employees like to call their “stairway to heaven” to the rooftop phtotovoltaic (PV) installation that powers their headquarters.
Maybe it's Albuquerque's mile-high altitude, or the after-effects of the climb. But when you get to the roof and see the 1,136 PV panels in neat rows pointing toward the Sandia Mountains that stretch along Albuquerque's eastern shoulder, it's hard to not get philosophical about the future of solar power in the electrical market. Even the solar cynics may rethink their opinions when they realize these PV panels provide 85 percent of the power needs of National Electric Supply's 95,000-square-foot building — and that the system will pay for itself in approximately 5.5 years.
Rocky Lawrence, the company's president, is counting on photovoltaics to not only power his building but to provide a whole new source of growth in National Electric Supply's new Energy Solutions Group. To show customers that his company means business in the renewable market and to learn renewables by going through the same experiences customers have to endure during an installation, he invested $1.2 million in a 250 kV DC PV system, which at the time of its commissioning late last year was the largest commercial PV system in New Mexico. With the help of the federal government's 30 percent tax credit for PV installations, a New Mexico state financial incentive of approximately $9,000 and a Renewable Energy Credit (REC) from Public Service Company of New Mexico (PNM) that provides 15 cents for every kilowatt the PV system generates for the next 20 years, he and Michael Loeppke, National Electric Supply's CFO, say the system will pay for itself in 5.5 years (see sidebar on page 26 for more detailed information on the system's financial payback).
Loeppke was always intrigued by solar energy, but until he ran the financial calculations on the PV system National Electric Supply was considering, he was uncertain about the business case for a commercial system. He said, “I looked at all of the incentives and I realized, ‘This is viable and a really good investment for National Electric.’ We knew this would be a good market for the distribution business, and we wanted to put our money where our mouth is. This project allowed us to learn about the renewable market ourselves. In addition, this installation has been a great case study and marketing tool for us. There's nothing like being able to see it and touch it when you're showing others how they can save using this technology.”
To help customers visualize just how much energy the system is producing, National Electric Supply has a large full-color, flat-screen monitor mounted in its counter area that monitors the PV system in real time. Lawrence says commercial building owners like to see how much power a PV system can produce, but that they are even more interested in a five-year payback for their investment. National Electric Supply is starting to bid commercial PV installations that offer better than a five-year payback. The payback on residential PV systems in his market is currently running approximately seven years.
Serving Distributors' Needs for PV Products
Lawrence, Loeppke and the rest of the company's management team believe their PV system is an integral element of their plan to fully develop the Energy Solutions Group inside National Electric Supply and provide customers with a package of PV products. Lawrence, Lyle McDaniels, the company's executive vice president, and Mark Delaney, vice president, believe the timing is right for their initiative into the renewable market. Albuquerque's sunny climate and pro-solar local utility are two big factors in their favor. But they say the evolving channels of distribution in the solar market and the political climate in Washington, D.C., figured into their calculations, too.
Says Lawrence, “We felt the renewable energy market is going to grow, and that with the current Administration in Washington there is enough push behind renewables. Energy costs are rising, the electrical grid system is old, and there needs to be major reinvestment, which will result in higher energy costs.”
McDaniels says another important factor is that PV systems are going to be purchased by electrical contractors and that they are going to pull the permits and install the systems. “Ultimately, our customers will want to buy the components from electrical distributors,” he says. “Our goal is to grab ahold of the channel, which is pretty much like the Wild West right now. We want to help bring value to our customers with training and education so they can install the systems.”
Managing much of the new renewable initiative is David Durbin, a 14-year company veteran who is now the company's renewable energy specialist. Durbin will work one-on-one with customers at each step in the system design and pricing process; assist with on-site surveys to help determine the best solutions for each energy system; and provide information and package pricing on products that meet each project's unique requirements. With the recent addition of its renewable energy division, National Electric now offers design, system layout, estimating and technical support to help provide renewable energy solutions for its customers and their clients.
Says Mark Delaney, “David's function and role is to put together a complete solar package that meets a project's specifications. A commercial building's PV system is designed by an electrical engineer. If it's a private job and is not designed by an engineer, depending on the size of the job he will determine if it has to be engineered or not. We are here to help the contractor on bid day to make sure the products he's quoting can be combined together to produce the power he wants.
“We are usually looking at plans and specifications several weeks in advance, so we can help the contractor ask for clarification when needed. It's a new technology and although the electrical engineers are good guys, they have to catch up with the technology, too.”
Green Going Way Back
The green market isn't unfamiliar territory to National Electric Supply. Over the years, the company has moved with the market from electromagnetic to electronic ballasts and from T12 fluorescents to T8 and T5 fluorescents, and has sold motion sensors, variable-frequency drives, lighting control systems and other energy-efficient electrical products. National Electric Supply plans to sell customers a portfolio of renewable and energy efficiency products including solar PV modules, wind turbines and related electrical components.
McDaniels says a big part of the challenge for electrical distributors just starting out in the renewable energy market is figuring out which manufacturers have capacity and will make good business partners providing access to complete product lines. Lawrence says another advantage in National Electric Supply's move into the renewable market is the fact that many of their mainstream electrical manufacturers already produce what's called “balance of system” (BOS) components such as disconnect switches and distribution equipment, fuses, connectors and wire and cable. McDaniels estimates that the complete system components account for 70 percent of the typical PV project installation; National Electric Supply's solar products include PV panels, inverters and racking systems and complete the package.
As the solar market grows, Lawrence wants PV installers to buy products from full-line electrical distributors, and he is getting this message out to distributors nationwide through his increased involvement with the National Association of Electrical Distributors (NAED), St. Louis. He is NAED's incoming Western Region vice president this year, and in June National Electric Supply hosted attendees of NAED's Survival of the Leanest and Greenest 2010 Women in Industry Forum, in Santa Fe, N.M. The group toured National Electric Supply's facilities during its Renewable Energy Extravaganza, June 15-17. The event also included a ribbon-cutting ceremony attended by Albuquerque Mayor Richard Berry, a trade show attended by more than 400 electrical contractors and end users, and a 2.5-day training class for electrical contractors by James Dunlop, author of the textbook Photovoltaic Systems and a nationally renowned speaker and trainer in the solar industry.
Lawrence says a nice additional benefit with the renewable market is that National Electric Supply is starting to get a much larger piece of the overall construction spend. For instance, the company is now working on a wastewater treatment facility in Taos, N.M., where the renewable system is actually the biggest piece of the job, with approximately $300,000 for the renewable contract and $100,000 for the rest of the construction work on the facility.
Lyle McDaniels expects more companies to take an active interest in the renewable market. “I think everyone in our country is going to have to get more involved with green technologies and renewable energy because of the political environment in our country encouraging investments in renewable energy and future green building code initiatives such as LEED certification. Renewable energy in the form of grid-tied photovoltaics is a great solution given the fact that the United States has five percent of the world's population but consumes 25 percent of the energy,” he says.
Lawrence says the renewable market is a natural business extension for electrical distributors because electrical contractors will be installing many of the systems. If distributors take a pass on it, he says, they will lose a great business opportunity to new competition from outside the electrical market. “Either the electrical distributor will take hold of this channel or you will see specialty companies doing it,” he says.
Getting Started in Renewables
Lyle McDaniels, National Electric Supply's executive vice president, and Mark Delaney, vice president, offer the following tips to other electrical distributors who want to get started in the renewable market:
Establish a line card for renewable energy products.
Establish an in-house specialist and quotations person to support the markets.
Provide training for employees and customers so they can learn how to install and maintain the products.
Be active in the renewable energy industry and invest in the technology by installing it on your facility.
Learn the financing and incentives associated with each renewable technology in every state where you operate.
Provide technical resources to the customers for support in using the products.
Working the Numbers: Why Solar Makes Sense for National Electric Supply
To prove to customers that PV power can produce a decent return on investment, Rocky Lawrence decided to use National Electric Supply as a case study. “About a year ago, we saw we had some interest in supplying this market from our customer base,” he says. “We decided the best way to learn was to really ‘vet out’ the systems, technology and the process to make sure it made sense economically.
“We concluded the right decision was to have a system installed for ourselves, so we went to the market, obtained bids and learned a lot about the technology and cost. Once we evaluated the financial equation, we saw that it was a good financial payback based on the current incentives and the local utility REC program.”
When National Electric Supply first began working with a solar integrator on the plans, they had to provide historical data on the facility's electrical usage so the PV system could be sized appropriately. Their monthly electrical usage averaged out to 42 kW, with summer months sometimes topping 50 kW because of air conditioning, and winter months occasionally as low as 30 kW.
Explains Michael Loeppke, the company's CFO, “They take that number and divide it by the number of days to come up with your annual kilowatt-hours per day. The integrator looks at how much energy is generated from the sun, which varies by geographic region of the United States, and calculates how much electricity a PV system could generate per hour in your location.”
While the PV system could have provided all of the building's electrical power, the local utility caps independent power providers with a 100 percent limit of peak power usage because of a state regulation that doesn't allow independent power producers to produce more power than the facilities use. The system also had to be derated to account for power loss from the inverter that converts the DC power produced by the PV panels to the AC power the building's electrical system needs. In addition, PV systems are derated because of losses along the length of the conductors that carry the power, standard temperature considerations inside the conduit and the orientation of the panels toward the sun's rays.
The system was sized at about 250kW DC. Loeppke says the generating capacity is an important number, because solar integrators price their systems on a per-Watt basis. National Electric Supply received bids of various ranges — some as high as $10 per watt — but Nations Roof Renewable Division, Lithia Springs, Ga., a national roofing and solar integration company, won the job with a bid of $4.85 per watt.
When they started running feasibility calculations on the financial payback of the system, Loeppke realized the current federal tax credit for 30 percent of the cost of a PV system would be a huge factor and an additional $9,000 credit from the state of New Mexico would sweeten the payback calculation. In addition, as part of its net-metering program, Public Service Company of New Mexico (PNM) pays National Electric Supply four cents per kilowatt in the months that its PV system generates more power than the company uses. However, National Electric Supply's primary goal was to generate enough power to cover its electrical needs with the system.
One of the big financial motivators was PNM's Renewable Energy Credit (REC), which pays National Electric Supply 15 cents per kilowatt for everything it generates for the next 20 years. “Between that and the Federal energy tax credit those were two huge incentives for us,” says Loeppke. “In addition, the federal tax laws allowed the company to depreciate 50 percent of the cost of the system if it was completed in 2009. That was the driving force to get the system interconnected in 2009. The system is depreciated over five years. To write a system off over five years when it will last 20 to 25 years was another huge financial incentive.”
The system cost National Electric Supply $1.2 million, but with $363,854 in tax incentives from the federal government and $9,000 in tax incentives from the state of New Mexico, the cost of the system came down to $839,993. In looking at one of the company's monthly electrical bills, Loeppke points out that National Electric Supply is saving $5,100 each month on its utility bill and is not affected by the two rate increases the utility has already had this year. He says the company also receives a monthly REC payment from the utility of $5,900. “That saves us about $11,000 per month,” he says. “Instead of paying out, we have money coming in.”
Two other factors they had to consider in their analysis was an average electric rate escalation, calculated conservatively at five percent along with a 0.5 percent annual reduction in the amount of electricity the PV panels produce. After all of the depreciation and tax credits, National Electric Supply's PV system cost the company less than a half-million dollars, instead of $1.2 million — and the company gets to a positive cash flow for the whole system in about 5.5 years.
Lawrence says other building owners have to go through the same financial calculations to see if installing a system makes sense for them. That's why anyone selling a PV system must be able to document its payback to the customer's CFO or accountant. “You don't sell a system like this to the facilities maintenance guy,” says Lawrence. “You sell it to an executive like Mike Loeppke.”