What Does On-site Commercial Solar Really Cost? Portland Oregon Case Study

What’s the cost of installing a solar power system - on or adjacent to a commercial building - and how much energy will you save? 

As always, location is a key factor.  Below are the numbers for a small 2,800 SF office building in Portland, Oregon.

Basic Cost & Payback

In Oregon, a combination of State, Federal, and local subsidies, cash incentives, and electric savings will pay back the cost of a system in less than two years.  By the Q4 of the second year of operation, a good design will generate electrical savings free and clear. [1]

With an initial cash investment of about $250,000, a 35 kW (dc) solar power system could be installed, using 180 solar panels rated at 200 watts each.  In the first year of operation, the US Department of Energy, Oregon Department of Energy, The Oregon Energy Trust, and net metering offsets can re-pay up to 90% of the initial $250k.  Simple payback period is less the two years.

Subsidies, Incentives, & Cash Grants

Though the Oregon Department of Energy advises that installed costs are between $8.00 and $9.00 per installed watt, local contractors confide that recent 30-40% declines in solar panel pricing (module pricing) has dropped costs to “around $7.00/watt”.  I’ve checked that figure against a detailed construction estimate and it makes sense.

Oregon may have the best incentive program in the US.  Energy Trust, a rate-payer- funded non-profit, will “buy-down” initial costs of solar power systems with a rebate of up to $230,000 to Portland General Electric customers, and up to $180,000 to Pacific Power customers. 

Oregon tax code grants a 50% state tax credit.  For those who do not need tax credit, Oregon Department of Energy (ODOE) administers a “pass-through” program wherein individuals exchange their tax credit for a discounted cash payment equal to about 33.5% of the initial cost of the system.

6-year Cash Flows

By adding the new 30% Federal cash grant, Oregonians purchasing on-site solar power can recover as much as 78% of capital costs near the end of year 1 of operation.  Simple payback period can be as short as two years.

Those Oregonians who can use another Federal tax subsidy called MACRS (accelerated depreciation) can recover 90% of initial capital costs.  That’s not a typo.

Here’s another way to look at it.  For every dollar invested, a system owner recovers $1.14 through incentives and tax breaks alone.  By including power generation revenues (and assuming a 4% rate increase per year), every dollar returns $1.25

 Energy Savings

The above system can generate 41,285 kilowatt hours (ac) per year.  A 35.25 kW (dc) system could zero-out all electric use in a 2,800 SF office.  Based on analysis of utility bills for one of our customers, savings could be $4,100 during the first year of operation.  If utility rates double over the next 10 years, as they are predicted to do, savings could grow to $8,000+.  That’s roughly $41,000 to $55,000 savings over 10 years depending on how fast utility costs increase.

 Complex But Workable

Certainly, dealing with five agencies and five programs can be complex; there is a lot of paperwork.  But over 1,000 Oregon individuals, businesses and partnerships have successfully navigated a path to clean renewable energy.  We always advise consultation with a CPA or tax attorney familiar with renewable energy. [4] We also recommend a site-specific feasibility study and financial analysis by a qualified solar consultant, to ensure that your building meets all the requirements for optimal returns.

 [1] Chart 1 is based on one of several strategies for combining state, Federal, and local programs.  There are several alternatives in the way the programs can be used. Note also that a single column of costs and expenses does not reflect the time value of money.

[2] Chart 2 is based on a case study of an office building with about x panels at a 30° tilt and a clear view of the sun’s daily path.

[3] Using US DOE data, PGE Schedule 32, and assuming natural gas heating and electric AC.