A Handbook for Assessing the Market Potential of Off-Grid PV Power Systems in Utility Service Territories

Prepared for the Demonstration of Energy Efficient Developments program of the American Public Power Association

By the Lower Colorado River Authority and Planergy, Inc., Austin, Texas

December, 1997

Acknowledgements

Funding for this project was provided to the Lower Colorado River Authority by the American Public Power Association’s Demonstration of Energy Efficient Developments (DEED) program. The following utilities provided information that was instrumental in developing the methodology contained in this handbook:

• Bluebonnet Electric Cooperative, Inc., Giddings, Texas
• City of Georgetown Community Owned Utilities, Georgetown, Texas
• Fayette Electric Cooperative, Inc., LaGrange, Texas
• Kerrville Public Utility Board, Kerrville, Texas
• McCulloch Electric Cooperative, Inc., Brady, Texas
• New Braunfels Utilities, New Braunfels, Texas

This handbook was written and produced under contract by Planergy of Austin, Texas. Principal author Steven M. Wiese, Senior Associate, (512) 327-6830.

Table of Contents

Table of Contents *

Executive Summary *

Chapter 1. Introduction to Off-Grid Photovoltaic Power Systems *

• What Are Photovoltaics? *
• How PV Systems Create Energy *
• Grid-Independent versus Grid-Connected Systems *
• The Advantages and Disadvantages of PV Power *
• Cost-Effective PV Applications for Utilities and Their Customers *
• Reliability of PV Systems and Components *
• Benefits to the Utility *

Chapter 2. Identifying Key PV Markets in Your Service Territory *

• Section 1. Service Area Density *
• Section 2. Utility Growth Rate *
• Section 3. Line Extension Costs and Policies *
• Section 4. Utility Rates and Billing Information *
• Section 5. Requests for New Services *
• Section 6. Low-Load/Low-Revenue Services *
• Section 7. Average Daily Solar Radiation *
• Scoring the Questionnaire: The Off-Grid PV Market Index *

Chapter 3. Identifying Customers with Cost-Effective Applications *

• Market Segmentation *
• Screening Methods to Identify Off-Grid PV Opportunities *
• Surveys *

Chapter 4. Estimating the Market Value of PV Products and Services *

• Step 1. Forecast Installations per Year for Each Product Offered *
• Step 2. Estimate Costs per Installation *
• Step 3. Determine Prices/Develop Tariffs for Different Products *
• Step 4. Calculate Revenues, Costs and Profits *
• Step 5. Add Indirect Utility Benefits *

Chapter 5. Developing a PV Business Plan *

• The Five Stages in Writing a PV Business Plan *
• Outline for a Successful Utility Off-Grid PV Business Plan *

Chapter 6. Experiences of Other Utilities *

Where to Turn for Assistance *

References *

APPENDIX A: Plumas-Sierra Electric Cooperative PV Tariff Development (Not included in HTML version)

Executive Summary

Off-grid photovoltaic (PV) power systems are becoming a more frequent sight throughout the United States and around the world. In remote areas, PV systems have long provided a source of cost-effective power for metering, monitoring, and communications applications. In rural areas, PV power systems are increasingly being used for agricultural applications such as pumping water, charging electric fences or batteries, and automatically opening and closing gates. Today, PV systems are being successfully deployed even in well-developed urban areas where the electric distribution grid is already well established.

But until very recently, the strong market growth of off-grid PV power systems has not captured the attention of electric utility companies, who often view PV products and services as an interesting but impractical sideline to their core business—providing reliable electricity to customers over traditional transmission and distribution networks. Even among utilities that have successfully adopted PV products and services, few have undertaken any formal analysis of the market potential that exists before initiating their PV venture.

This handbook begins with the observation, already recognized by a growing number of utility companies, that off-grid PV products and services are sometimes the least expensive alternative for supplying electric power in many situations, even when existing distribution lines are nearby. Electric utilities that have experimented with off-grid PV products have generally found the PV market to be complementary to their core business.

This handbook is intended to provide electric utility managers with:

• Helpful information about the market for off-grid PV systems;
• A simple survey for identifying key PV markets in a utility service territory;
• Screening techniques to identify customers with potentially cost-effective PV applications;
• A method for estimating the market value of off-grid PV products and services;
• A framework for developing a PV business plan;
• Examples of other utilities’ experiences with off-grid PV technologies; and,
• A list of PV information resources for utility managers.

This handbook draws on the experiences of utilities that have successfully launched PV products and services to provide a realistic picture of the challenges and opportunities that arise from such ventures. We hope you will find its contents valuable and informative.

Chapter 1.
Introduction to Off-Grid Photovoltaic Power Systems

What Are Photovoltaics?

Photovoltaic (PV) systems convert sunlight into electricity. Although the scientific basis of the photovoltaic effect has been known for nearly 150 years, modern photocells were not developed until 1954. PV technology was first deployed in space only four years later. Some of the early PV systems are still operating in space today, attesting to the durability and reliability of the technology.

Federal agencies began encouraging the use of PV technology for terrestrial applications in the early 1980s. More than 3,100 small systems were installed through the Federal Photovoltaic Utilization Program. This program helped to prove the reliability and competitiveness of PV technology in practical field applications, and many of the systems installed through the program are still operating today.

By the 1990s, the global PV industry began to mature as cost-effective applications for photovoltaic systems were identified in the U.S. and abroad (Figure 1.1). Between 1987 and 1996, shipments of PV cells and modules from U.S. manufacturers increased at an annual rate of 17 percent. In the U.S., demand increased for specialized PV systems for rural applications such as water pumping, urban applications such as street lighting, and other applications in telecommunications, transportation, and utilities. Overseas, the developing world experienced an increase in demand for small PV systems to provide power for cooking, lighting, water pumping and other uses in areas without any electric service. In many developing countries, electric utility companies took the lead in offering grid-independent PV systems to rural residents. PV systems provided a means for these utilities to expand the reach of their service territory and their customer base while supplying electricity in the most cost-effective way possible.

Today, U.S. electric utility companies facing stiffening competition are beginning to realize the potential value of offering PV systems to their customers as a service alternative to line extensions. Electric utilities are now the driving force behind an increase in demand for prepackaged, fully integrated PV systems (consisting of PV panels, batteries, inverters, and electronic charge control equipment) designed to serve a variety of needs. Electric utilities are interested in prepackaged systems so that they may offer standardized residential, water pumping, or lighting packages to their customers with consistent pricing and reliable service.

Figure 1.1
World PV Cell and Module Production, 1985-1995

How PV Systems Create Energy

Photovoltaics is a descriptive name for a technology in which radiant energy from the sun is converted to direct current (DC) electrical energy. The heart of a photovoltaic system is an array of solid-state devices called solar cells.

Solar cells are made of semi-conducting materials, typically silicon, doped with special additives—the same materials used to make microchips for the computer industry. When sunlight hits the surface of the cells, a flow of electricity is generated. Desired power, voltage and current can be obtained by connecting individual solar cells in series and in parallel, in much the same fashion as flashlight batteries. Today, groups of solar cells are encased in standard modules designed to provide useful output voltages and currents and to protect the electrical circuitry from the environment. The modules are connected together to form a unit called an array (Figure 1.2).

Figure 1.2
PV Cells, Modules, and Arrays

PV modules tap solar energy by converting it into electricity to power loads such as lights or electric motors. Because electrical energy is often needed even when the sun does not shine, storage is often required. Batteries are the most common form of energy storage. If the load requires alternating current (AC), an inverter is used to convert the DC power to AC.

PV systems are composed of several different components including arrays, inverters, controls and batteries. By assembling differing sizes of these components together, systems can be built with varied power outputs. The modular nature of PV systems permits them to be expanded easily, ensures minimal maintenance, and allows simple repair or replacement of the system’s components (Figure 1.3).

Figure 1.3
Block Diagram of a Modular PV System

Source: U.S. Department of Energy, Sandia National Laboratories; Photovoltaic Systems for Utilities (Albuquerque, New Mexico: 1990), p. 6.

Grid-Independent versus Grid-Connected Systems

Modern PV systems can operate as stand-alone, grid-independent units or as distributed power resources interconnected with the electric distribution system. The most basic grid-independent (also called "stand-alone" or "off-grid") systems consist of one or more PV modules and an electric load, such as a light, a fan, or a pump. In this case, the electric load directly receives DC output from the PV modules, which varies depending on time of day, shading, and other factors. This basic system only operates when the sun is shining. More advanced stand-alone systems include battery storage and/or inverters. The addition of a battery and charge controller allows the system to charge the battery during daylight hours and to discharge at any time, day or night. The addition of an inverter allows the system to power AC loads.

The chief value of grid-independent PV systems lies in their ability to provide a cost-effective alternative to expensive distribution line extensions. Grid-independent PV systems are therefore most likely to be cost-effective when they serve small or intermittent loads that would be costly to serve with a line extension. Although the length of a line extension is important, it is not the only factor involved in assessing the cost of a line extension. Also important is the cost of the transformer, the type of terrain to be crossed, and the need for trenching. For example, a 100-foot underground line extension that requires trenching under an existing road may be more expensive than a one-mile overhead line extension through flat rural farmland. Chapter 4 compares the economics of grid-independent PV systems to line extensions in more detail. Environmental considerations are another reason PV systems are deployed in some areas. Since PV systems operate silently and are pollution-free, they are often used in parks and preserves where other types of power systems, such as diesel generators, would be disruptive.

The economics of grid-connected PV systems are very different. Since these systems are connected to the distribution network, their chief value lies in their use as a distributed generation resource. When evaluating the cost-effectiveness of grid-connected PV systems, it is important to compare capacity costs against the benefits of mobility, modularity, and potential power quality improvements; unlike with grid-independent systems, the alternative cost of a line extension is not relevant. Because the capacity cost of PV systems is high relative to other power generation options, grid-connected PV systems are still less likely to be cost-effective than grid-independent systems in most circumstances. This handbook focuses on analyzing the market value of grid-independent PV systems for this reason.

The Advantages and Disadvantages of PV Power

It is important for utilities and potential PV customers to understand both the advantages and disadvantages of PV systems. The main advantage of PV systems is that they produce clean, renewable energy with no fuel costs and no noise, air, or water pollution. PV systems are also reliable, durable, and modular. The chief disadvantages of PV systems are their high initial cost, and the lack of familiarity with PV power systems among potential customers. These advantages and disadvantages are presented in more detail in Figure 1.4. It should be noted, however, that utilities may overcome, or at least mitigate, these disadvantages by offering innovative services such as equipment financing and customer education as a part of their PV program.

Cost-Effective PV Applications for Utilities and Their Customers

Grid-independent PV systems serving a variety of applications are currently in use by utilities, municipalities, businesses, railroads, government agencies, homeowners, farmers/ranchers and others throughout the U.S. These systems provide power for water pumping, cooking and refrigeration, lighting, monitoring and metering, signaling, battery charging, telecommunications, and many other applications.

Figure 1.4
Advantages and Disadvantages of PV Systems

Figure 1.5 presents a comprehensive list of cost-effective applications that have been identified for grid-independent PV systems. In general, these applications demand low but continuous levels of electric power (i.e., metering or cathodic protection), intermittent power (i.e., school warning lights or emergency signals), or are located such that they would be difficult or expensive to serve with traditional utility power (i.e., transmission tower beacons or rural water pumps). New applications for PV power systems are being discovered all the time.

Reliability of PV Systems and Components

Historically, many utility managers have been reluctant to offer PV systems as a service option because they lack experience with the equipment. However, recent advances in PV systems have resulted in highly reliable systems. The PV modules have always been the most reliable component of a system. Module manufacturers today offer 20-25 year warranties on PV modules. PV system integrators are offering 3 to 5 year warranties on entire PV systems, and inverters (typically the weakest part of a PV system) can be purchased with extended warranties of up to 10 years. Modern PV systems meet IEEE utility standards, the National Electric Code, and most are UL approved.

Benefits to the Utility

Over 40 electric utilities nationwide are currently offering grid-independent PV systems to their customers. These systems are typically designed to serve remote residences, rural water pumps, and a variety of lighting needs, including street lighting, residential lighting, sign lighting, and highway or railway warning signal lighting. The utilities are discovering that their PV programs provide the utility with a variety of benefits, including:

• An additional source of utility revenue
• Improved customer service
• Higher customer retention
• Technical experience with renewable energy technologies
• A reputation for community participation, environmental responsibility, and technical know-how
• A natural entry into branded energy products such as green pricing programs

Figure 1.5
Potentially Cost-Effective Grid-Independent PV Applications

Source: Utility PhotoVoltaic Group (UPVG); Significant and Diverse Markets Exist for PV Systems: Report of the UPVG’s Phase 1 Efforts (Washington, D.C.: June 1994), p. 22.

Chapter 2.
Identifying Key PV Markets in Your Service Territory

The initial assessment of PV opportunities begins with gathering accurate information about your utility’s service territory, customers, and energy and line extension pricing policies. The following questionnaire will help you get a feel for identifying the key PV markets in your utility’s service territory. In addition, completing the questionnaire will provide you with a succinct summary of PV market data customized to your utility.

Although this questionnaire is designed to yield a single, interpretable score upon completion—the Off-Grid PV Market Index Score—the full value of the questionnaire derives as much from the process of collecting and qualitatively interpreting the data required. This is because the markets for PV systems are diverse, and the market potential of one type of off-grid PV application (e.g., water pumping) may be lucrative in one area but nonexistent in another, while the market for another type of system (e.g., bus shelter lighting) may follow exactly the opposite pattern. Rather, each section of the questionnaire should be interpreted qualitatively by the reader, independent of the results of other sections. The quantitative Off-Grid PV Market Index Score calculated at the end of the questionnaire should be used to complement these qualitative analyses.

The questionnaire is designed so that the first few questions begin with easily-obtained data and provide general information about the PV market. Any utility manager should be able to get started and complete these questions in short order. More detailed, and possibly less-readily available, data is required later in the questionnaire to identify more specific PV market characteristics in your utility’s service area. You may have to do some digging through utility records to find the data you need, but the results can prove to be very useful. At the very least, this questionnaire can give you an idea of the kinds of information that can be helpful in analyzing the PV market and how best to interpret it.

Section 1. Service Area Density

How densely populated is your utility’s service territory? Gather the following information about your utility:

• 1.a. Number of meters served customers
• 1.b. Miles of distribution line miles
• 1.c. Area (square miles) of service territory square miles

Calculate:

• 1.d. Meters per mile of distribution line (1.a./1.b.)

Check one and circle score:

• Low (<5 meters per mile of distribution line) 1 point
• Medium (5-20 meters per mile of distribution line) 2/3 point
• High (>20 meters per mile of distribution line) 1/3 point

Calculate:

• 1.e. Meters per square mile (1.a./1.c.)

Check one and circle score:

• Low (<25 meters per square mile) 1 point
• Medium (25-100 meters per square mile) 2/3 point
• High (>100 meters per square mile) 1/3 point

Calculate:

• 1.f. Miles of distribution line per square mile (1.b./1.c.)

Check one and circle score:

• Low (<25 miles of line per square mile) 1 point
• Medium (25-100 miles of line per square mile) 2/3 point
• High (>100 miles of line per square mile) 1/3 point

Because off-grid PV power systems typically compete with distribution line extensions, PV systems will compete better in areas where densities are low and long line extensions are more common. As a general rule, rural stand-alone PV systems (for water pumping or small residential cabin power) are not likely to be cost-effective when the required line extension is shorter than a tenth of a mile. However, low-power rural applications (such as automatic gate openers, electric fence chargers or irrigation flow meters) may be cost effective at even shorter distances. The critical factor is not the length of the required line extension, but the cost of the line extension (although line extension length is often used as a proxy for cost). Thus, services requiring short but expensive line extensions—those requiring trenching under pavement, for example—are frequently good candidates for PV power systems.

Because of this fact, low-density utilities do not necessarily have larger PV markets than high-density utilities. Rather, the types of applications are likely to be different for high-density utilities. High-density utilities may have markets for off-grid PV systems in situations where short line extensions are expensive. For example, the City of Houston, Texas, one the ten largest cities in the country, recently discovered that PV-powered school zone warning signals were as reliable, easier to install and less expensive on a lifetime basis than grid-connected signals. The city recently completed installation of over 1,200 signals—one of the largest off-grid PV projects anywhere.

Section 2. Utility Growth Rate

How fast is your utility growing in terms of customers and energy? A high growth rate could indicate opportunities for off-grid PV systems even in built-out urban areas. For example, rapidly growing cities are more likely to annex areas that need to be retrofitted for city services such as street lights, traffic lights, roadside emergency telephones, or school zone warning signals. For low-energy urban applications like these, grid-independent PV systems are frequently more cost-effective than even short line extensions involving pavement cuts or other expensive roadwork. A review of your utility’s growth rate could reveal existence of a market for specialized PV products and services.

2.a. Customer growth rate % per year

Check one and circle score:

• High (>10% per year) 1 1/2 points
• Medium (5-10% per year) 1 point
• Low (<5% per year) 1/2 point

2.b. Energy (kWh) growth rate % per year

Check one and circle score:

• High (>10% per year) 1 1/2 points
• Medium (5-10% per year) 1 point
• Low (<5% per year) 1/2 point

Utilities with high growth rates may have significant markets for off-grid PV systems. Unfortunately, these utilities are sometimes the least likely to devote time and attention to capturing the PV opportunity because they are highly focused on keeping up with the growing demand. Utilities with a high degree of dedication to customer service and satisfaction are often the quickest to embrace new business opportunities like PV products and services that can actually reduce costs, improve customer service and free up labor for other important functions in a high-growth environment.

Section 3. Line Extension Costs and Policies

By now you should be getting an idea of the types of applications that are suitable for off-grid PV systems and of the likely customers for such systems. Now we will focus on internal utility operating factors that affect the economic evaluation of a PV system versus a line extension. The most important of these factors are the utility’s line extension costs, prices and policies.

Most utilities have calculated their average cost per mile or "per span"—the distance between two distribution line poles—for line extensions. However, not all utilities calculate this cost in exactly the same way, and not all utilities charge their customers the actual cost of a required line extension. Among utilities we surveyed in developing this handbook, we found self-reported line extension costs to vary widely—from $7,776 per mile at one utility to $90,000 per mile at another. These differences were as much the result of different accounting methods employed by the utilities as of measurable differences in materials and labor costs. For example, one utility included only materials costs—poles, transformers, wires, etc.—in its line extension estimates, while another also included labor costs and an allocated portion of employee benefits and general utility management costs.

Be sure that your utility’s calculated line extension expenses include all appropriate materials, labor, and overhead. Obtain the following information using utility operating and financial data averaged over the past three years:

• 3.a. New distribution lines installed per year miles
• 3.b. Total expenses on line extensions per year $
• 3.c. Line extension expenses recovered from customers per year $

Calculate:

• 3.d. Average utility line extension cost $/mile (3.b./3.a.)

Check one and circle score:

• High (>$20,000 per mile) 1 1/2 points
• Medium ($10,000-$20,000 per mile) 1 point
• Low (<$10,000 per mile) 1/2 point

Calculate:

• 3.e. Average customer line extension charge per mile $/mile (3.c./3.a.)
• 3.f. Average utility line extension profit (loss) per mile $/mile (3.e.-3.d.)

In most cases, utilities want the answer to 3.f. to be equal to or very near zero. If you determine that your utility is subsidizing line extensions or profiting from them, you should more carefully examine the reasons this is so.

Line extension profits or subsidies are important to an evaluation of the PV market opportunity because they distort the true economic comparison of off-grid PV systems versus line extensions. This can result in power supply decisions that are economically detrimental both to the utility and its customers.

Another utility policy that can distort the economic comparison between line extensions and off-grid PV systems is offering customers a line extension at no charge up to a certain length—typically defined by the utility in terms of feet, miles, or spans. Customers requesting longer line extensions are sometimes granted the first length at no charge, but are required to pay for the remainder of the line extension. Off-grid PV systems are more likely to be cost effective in the service territories of utilities with shorter distances before line extension charges begin. If your utility has such a policy, make note of it here:

• 3.g. Distance before line extension charges begin miles

Check one and circle score:

• Short (<1/10^th mile) 1 1/2 points
• Medium (1/10^th–1/4^th mile) 1 point
• Long (>1/4^th mile) 1/2 point

Section 4. Utility Rates and Billing Information

After the line extension cost, the next most important economic factor in evaluating the PV option is the price of energy. Since the cost of energy provided by PV systems is always zero, off-grid PV systems are more likely to be cost-effective to the customer when utility energy prices are high. High electric rates therefore are a positive indicator of a potential market for PV systems. What is your utility’s average rate per kWh?

• 4.a. Average per kWh rate $/kWh

Check one and circle score:

• High (>10� per kWh) 3 points
• Medium (5-10� per kWh) 2 points
• Low (<5� per kWh) 1 point

Section 5. Requests for New Services

The difference between the number of requests for new electric service received by a utility in a given year and the number actually provided with electric service is an indicator of how well the utility is able to meet potential customers’ needs. The difference represents the number of potential utility customers that first inquire about obtaining electrical service from the utility, but then decide not to. This number easily can be converted into a percentage, or a "potential customer loss rate," as in 5.c., below.

Customers may have a number of reasons for not ultimately taking service from the utility—for example, their building plans may have changed, or the cost of obtaining service may have been too high. If the potential customer loss rate is high, it indicates that a significant portion of the utility’s potential customer base may have significant unmet power needs. If traditional utility service via distribution lines does not meet these customers’ needs, it is possible that another type of service such as off-grid PV systems will meet their needs. Obtain the following information on customer requests for new services averaged over the past three years:

• 5.a. Number of new services actually installed per year installations
• 5.b. Number of requests for new service per year requests

Calculate:

• 5.c. Potential customer loss rate % (1 – [5.a./5.b].)

Check one and circle score:

• High potential customer loss rate (>10%) 3 points
• Medium potential customer loss rate (5-10%) 2 points
• Low potential customer loss rate (<5%) 1 point

Section 6. Low-Load/Low-Revenue Services

For a variety of reasons, many utilities lose money every day by providing electric service to applications that generate insufficient revenues to cover the full cost of service. Generally, these services are characterized by their high maintenance costs and low revenue potential, and often serve low-load applications with long distribution lines. These services are not necessarily residences or other facilities requiring a connection to the distribution grid. Often, they are water pumps, lighted highway signs or billboards, warning signals, or other applications with low power needs. Because the power requirements of these services are small or intermittent, they may be candidates for service with off-grid PV systems. A high percentage of low-load services in a utility’s customer base indicates a potential market for both new off-grid PV systems and for retrofitting existing but uneconomical services with more cost-effective PV systems.

• 6.a. Percent of existing services with average monthly energy use of 100 kWh or less %

Check one and circle score:

• Many low-load customers (>10%) 3 points
• Moderate low-load customers (5-10%) 2 points
• Few low-load customers (<5%) 1 point

Section 7. Average Daily Solar Radiation

The map below shows the average daily solar radiation throughout the United States in December from data collected between 1961 and 1990. Values on the map are average insolation in units of kWh/m²/day for a surface at latitude tilt for the month of December. This measurement reflects solar energy potential and should not be interpreted as the amount of electric energy one could expect a one square meter PV panel to produce in a day. Actual energy production from PV panels is limited by the PV cell efficiency, panel orientation, and other factors, and will be lower than the amounts shown on this map. These values typically represent the worst case solar resource month. Seek other data if December does not represent the worst design case.

Figure 2.1
Average Daily Solar Radiation

Identify your utility’s service territory on the map and record the following information:

• 7.a. Average daily solar radiation in service territory kWh/m²/day

Check one and circle score:

• High (>4 kWh/m²/day) 3 points
• Medium (2-4 kWh/m²/day) 2 points
• Low (<2 kWh/m²/day) 1 point

Scoring the Questionnaire: The Off-Grid PV Market Index

You are now ready to score the questionnaire. Write down and total the scores for each section of the questionnaire in the table below:

Table 2.1
Off-Grid PV Market Index Score Worksheet

• Section Score
• Section 1. Service area density points
• Section 2. Utility growth rate points
• Section 3. Line extension costs and policies points
• Section 4. Utility rates and billing information points
• Section 5. Requests for new services points
• Section 6. Low-load/low-revenue customers points
• Section 7. Average daily solar radiation points
• Total Score (Your utility’s Off-Grid PV Market Index) points

Your Off-Grid PV Market Index Score can be interpreted as follows:

17-21 points High Off-Grid PV Market Potential—If your utility is not already in the business of offering off-grid PV products and services to customers, you should begin giving the idea serious consideration. The following chapters in this handbook will help you refine your market data, assemble a financial analysis of a proposed PV venture, and prepare a utility-oriented PV business plan to communicate the goals and potential rewards of a proposed PV venture to both the utility and its customers.

12-16 points Moderate Off-Grid PV Market Potential—Chances are that in filling out the questionnaire you have already identified one or more promising markets for off-grid PV products and services in your service territory. A PV venture by your utility could be successful, but careful planning and attention to detail in all financial calculations are warranted. The chapters that follow can help you refine your understanding of which PV products and services are most likely to be successful and of how to begin formulating a plan to capture selected markets. Also, you should keep an eye on developments in the PV industry and on changes in your service territory and customer base, as these changes may bring new market opportunities that would make entering the off-grid PV business a more attractive prospect in the future.

7-11 points Low Off-Grid PV Market Potential—Although your utility’s service area and customer base may be lacking in many of the factors that indicate a high market potential for off-grid PV products and services, you may be able to identify a few specialized PV applications that could be marketed to key customers. It is unlikely, however, that entering the off-grid PV business will yield substantial revenues for your utility.

Chapter 3.
Identifying Customers with Cost-Effective Applications

An important part of understanding the PV market in your service territory is knowing your customers’ motivations for desiring and purchasing PV systems. Sometimes, PV systems are preferred over conventional power sources for reasons other than pure economics. For example, a wildlife refuge may need a reliable source of power for a permanent residence or an interpretive display but does not want the noise and pollution associated with diesel generators, or does not want overhead distribution lines to interfere with a panoramic view. A residential customer may want to show support for renewable energy by making his house or garage completely off-grid. Or a customer might end up being served with conventional power at a higher lifetime cost simply because the customer was unable to come up with the up-front capital a PV system would have required.

There are several ways to identify customers in your utility’s service area with potentially cost-effective off-grid PV applications. These include indirect methods like market segmentation and direct methods like screening customers and administering surveys. This chapter describes how and when to use these techniques successfully.

Market Segmentation

Segmentation by Type of Customer

What types of customers are served by your utility? There may be opportunities for the utility to provide PV power for unique applications in parks, recreation or natural areas, or in conjunction with new construction of roads, buildings, or parking facilities. Alternatively, the public works or highway department may be planning to install school zone or roadside flood warning signals, emergency roadside telephones, metering equipment, or other applications suitable for use with PV power supplies.

Different types of customers will likely demand different types of PV systems to meet their needs. What types of PV systems would your utility be most likely to sell to each of these customer groups? Fill in the table below:

Table 3.1
Utility Customers

Residential customers will likely be interested in consumer applications of PV power, including:

• Water pumping
• Residential systems
• Gate openers
• Outdoor lighting
• Battery chargers, and
• Electric fence chargers.

Commercial customers may be more interested in applications such as:

• Billboard lighting
• Parking lot lighting
• Cathodic protection of underground pipes and storage tanks
• Water pumping, and
• Remote metering and telemetry.

Governmental customers such as highway departments and public works agencies may provide markets for:

• Park facility power
• Bus shelter lighting
• Street lighting
• Electric vehicle charging stations
• Traffic warning signs/signals, and
• Remote metering and telemetry.

Finally, industrial customers may have an interest in:

• Area lighting
• Cathodic protection of underground pipes and storage tanks
• Billboard lighting, and
• Remote metering and telemetry.

Segmentation by Service Territory Land Use

The land uses in your utility’s services territory can tell you as much about the PV products and services that are likely to be successful as can the types of customers you have. Fill in the table below about land uses in you service territory:

Table 3.2
Service Territory Land Use

A high percentage of land used for ranching or farming could indicate markets for PV systems for water pumping, irrigation flow control, or automatic gate openers. In many areas, undeveloped land might be undeveloped because of a lack of electric distribution lines in the area. PV systems may be able to support limited development in these areas. Parks and other land set aside for recreational purposes (forests, nature preserves, public reservoirs, etc.) may have a need for PV systems to provide quiet but reliable power for remote residences, information kiosks, flood warning signals, lighting, or other applications. Finally, urban areas can use off-grid PV systems to provide lighting, traffic signals, and other applications discussed previously.

Compile a List of Key PV Customers

The best sources of market information will likely be your customers themselves. Compiling a list of contacts will not only make the process of gathering market information easier, it will also give you direct contact with likely future customers. Create a list of key contacts in your utility’s service territory, including:

• Parks and recreation agencies
• Agricultural extension services
• Water agencies/irrigation districts
• Street/highway maintenance agencies
• Ranching/farming cooperatives
• Water well drilling and pump supply companies
• Owners/operators of remote recreational/hunting/fishing cabins
• Nature preserves

Screening Methods to Identify Off-Grid PV Opportunities

Screening Incoming Requests for New Electric Service

One of the most important steps a utility can take in beginning a PV program is to implement a screening procedure to identify candidates for off-grid PV systems among incoming requests for new electric service. The Texas Photovoltaic Coalition, a group of utilities interested in offering off-grid PV services to customers, has developed a simple screening method. Upon each request for new electric service, the utility’s service representative asks the customer a series of questions to determine whether to consider an off-grid PV system versus a line extension. The procedure is outlined in Figure 3.1.

Screening for PV Opportunities Among Existing Services

Often, a utility’s best candidates for off-grid PV services are customers or applications that already are connected to the utility’s distribution network. These include services where the annual cost of providing service is higher than the annual revenues associated with the service. Typically, these are metered low-load, low-revenue applications or unmetered loads.

Figure 3.1
Texas Photovoltaic Coalition Screen (for Texas applications)

1. Check the type of service being requested:

If customer is listed under A above it is probably not a good candidate for stand-alone PV. Skip the next sections. It may be possible to explore other renewable options such as wind, grid-connected PV, or biomass.

2. Estimate the load for possible candidates

2.a. Estimate the load size in watts ________ watts

2.b. Estimate the daily load usage ________ hours/day

Estimate the costs of the line extension

3.a. Estimate the length of the line ________ feet

3.b. Estimated cost per unit ________ $/foot

3.c. Line extension cost = ________ feet x ________ $/foot = $ ________

Estimate the cost of the solar electric system

4.a. Calculate the daily energy requirements (2.a. x 2.b. from above)

________ watts x ________ hours/day = ________ wh/day

4.b. Calculate the cost of the PV system (4.a. x cost factor)

________ wh/day x 10 = $________ for PV system

Compare cost of PV to cost of line extension

5.a. Divide results of 4.b. by 3.c.

$________ / $________ = ________

Result—If 5.a. is less than 1.0, the customer is a possible candidate for off-grid PV. Consider sizing a system and getting vendor quotes.

Note—Stock water pumping applications should be examined based on depth of well and daily water requirements in more detail than the above screening process.

Evaluate Low-Load, Low-Revenue Services

An easy initial step for identifying potential customer service opportunities is to search for low energy consumers in the utility’s billing system records. One utility that conducted this type of search identified nearly 900 grid-connected livestock wells in its service territory, many of which consumed less than 1,000 kWh per year. The utility conducted a cost of service study for these consumers and determined that the existing rate would have to increase over five times (from $10/month to $55/month service charge) in order for the services to pay for themselves.

The utility then conducted a detailed system survey to provide utility management with more specific information about these grid-connected loads. The location of each application was identified, and the installation was surveyed to assess distribution feeder characteristics and pumping system requirements (i.e., customer provided well depth and water requirements). In this way, utility personnel could determine whether the grid-connected pumping system was a candidate for replacement by a PV-powered system. This survey identified over 110 replacement sites that would eliminate over 72 miles of line and save the utility over $500,000 in line reconstruction costs.

Often, the annual costs of tree trimming and other activities associated with maintaining distribution lines outweigh the annual revenues obtained from the customers or applications they serve. Even if low-load services are marginally profitable under ordinary operating conditions, they may quickly become unprofitable if unpredicted repairs are required. For example, if a storm knocks down the distribution feeder lines of a marginal service, the cost of repairing or replacing the line, poles, and other components may be high. In these situations, considering replacement with a PV system is warranted.

Evaluate Unmetered Loads

Unmetered applications are another possible candidate for conversion to off-grid PV power. These are often remote or low-load applications where the cost or inconvenience of reading the meter outweigh the expected revenues that will be generated. Some unmetered loads, such as traffic signals or lighting applications, could be more cost-effectively served with off-grid PV systems.

Surveys

Customer Surveys

Another way to screen customers for possible PV applications is by surveying them directly. Customer surveys can be conducted over the phone, mailed directly to customers, or can appear in bill stuffers or monthly newsletters. Some utilities have written press releases for local newspapers announcing the utility’s consideration of offering PV services and then interviewed people who called the utility to find out more information about their energy needs. Whatever survey method you use, the most important information to collect is that which will help you calculate the cost of the required PV system and the cost of a line extension.

The customer surveys for PV water pumping systems presented in Figures 3.2 and 3.3 were developed for utility use by the Texas Photovoltaic Coalition in 1996, and can easily be adapted for use with other potential PV applications.

Surveying Existing PV Applications in Your Service Territory

A final method for identifying cost-effective PV applications in your service territory is to inventory PV systems already in use by customers. It is not difficult to identify where PV modules are attached to signs, rooftops, water pumps, fences, gates, lighting systems, and other applications. When possible, interview the customers who own these systems to find out where they purchased them and whether they are satisfied with the systems’ performance. In this way, the utility can determine who its competitors are likely to be, what markets for PV products are already successful, and what unmet needs the utility can meet by offering its own off-grid PV products and services.

Figure 3.2
Water Pumping Customer Survey (short version)

[Utility] is searching for up to [#] qualifying water wells for the installation of cost-effective solar-electric water pumping systems. Solar-electric systems are clean, quiet, reliable, and easy to maintain, and are often the most economical solution for rural water pumping needs. Solar water pumping systems tend to be cost-effective when a long utility line extension (greater than � mile) would otherwise be required to deliver electricity to the pump. [Utility] would provide financing and maintenance for the water pumping systems.

Do you have any wells that you would be interested in serving with a solar-electric pumping system? ____

If so, please answer the following for each well:

Figure 3.3
Water Pumping Customer Survey (long version)

[Utility] is searching for qualifying water wells for the installation of cost-effective solar-electric water pumping systems. Solar-electric systems are clean, quiet, reliable, and easy to maintain, and are often the most economical solution for rural water pumping needs. Solar water pumping systems tend to be cost-effective when a long utility line extension (greater than � mile) would otherwise be required to deliver electricity to the pump. [Utility] would provide financing and maintenance of the solar power systems.

If you are interested in this service or have a well that might qualify for a solar water pump, please complete the questionnaire below and return it to us.

Part 1

How many water wells do you have on your property? ____
How many of these are used regularly? ____
How many water pumps do you use in these wells? ____
Do you regularly transport pumps for use in more than one well? ____

Part 2

For each well currently in use, answer the following:

Part 3

For each well not currently in use, answer the following:

Chapter 4.
Estimating the Market Value of PV Products and Services

The most difficult task by far in proposing a new off-grid PV venture is converting the market data, survey results, and utility information you have collected into a reasonable forecast of the potential market value of off-grid PV products and services. Although other utilities have successfully initiated PV ventures without first estimating the market value, deriving a good estimate of the PV market potential is a valuable exercise in many respects. First, and most importantly, it provides a direct linkage between the market data you have gathered and the revenues you plan to collect. Second, it demonstrates to others inside and outside the utility that your projections are well-founded. Finally, it provides an opportunity for you to look at the proposed PV venture in a new way—enabling you to ensure that the venture makes sense financially before proceeding too quickly toward a launch. There are six steps in estimating the market value of PV products and services.

Step 1. Forecast Installations per Year for Each Product Offered

From the market data you assembled in the last two chapters, you should have a good idea of the types of PV products that will most likely be successful in your service territory, and of the numbers of each type of system you will be able to sell. The most important data you will use in these forecasts is that gathered through customer surveys and customer screening processes. Select the products you expect will have the highest demand. Summarize the expected installations of each type of system in a table, as shown below.

Table 4.1
Forecast of Off-Grid PV System Installations

Step 2. Estimate Costs per Installation

For each type of PV system you plan to offer to customers, you will need to estimate the cost to the utility of the equipment, installation, and annual maintenance. The surest and most accurate way to estimate equipment costs is by contacting a vendor of PV supplies and obtaining a price quote. Short of that, we have presented summary pricing information on PV water pumping, area lighting, and residential systems from the 1997 Texas Photovoltaic Coalition catalog in Tables 4.1 through 4.3. In addition, Figure 4.1 presents a method developed by Sandia National Laboratories for estimating the equipment cost of any off-grid PV system.

Table 4.2
PV Water Pumping System Equipment Costs

To use this table, estimate the number of peak sun hours available on an average day in the season the pump will be used (for pumps that will be used year-round, estimate the peak sun hours for the worst season of year). Follow this column down until you reach the approximate water output in gallons per day that will be required of the pump. From this point, follow the row to the right until you reach the column corresponding to the pumping head for the well. The resulting cell gives an estimate of the cost of the pumping system. As an example, a PV water pumping system for a 200 foot well capable of pumping 2,880 gallons per day in location with 6 peak hours of sunlight per day will cost approximately $11,000. Source: U.S. Department of Energy, Sandia National Laboratories; Photovoltaic Power as a Utility Service: Guidelines for Livestock Water Pumping (Albuquerque, New Mexico: 1993), p. 40.

Table 4.3
PV Lighting System Equipment Costs

Source: Texas Photovoltaic Coalition; PV Systems 1997 Catalog (Austin, Texas: 1997). Prices for systems with the same nominal capacity vary widely depending on the cell technology used, the size of the battery bank, the system integrator’s margins, and other factors. The only way to obtain a precise cost estimate is to work with a qualified PV engineer to design a system and obtain price quotes from vendors.

Table 4.4
Residential PV System Equipment Costs

Source: Texas Photovoltaic Coalition; PV Systems 1997 Catalog (Austin, Texas: 1997). Prices for systems with the same nominal capacity vary widely depending on the cell technology used, the size of the battery bank, the system integrator’s margins, and other factors. The only way to obtain a precise cost estimate is to work with a qualified PV engineer to design a system and obtain price quotes from vendors.

Figure 4.1
Estimating the Capital Cost of PV Systems

Determine the load, available sunlight, array size, and batteries.

A.1. Determine the energy the load requires in watt-hours per day (WH). Multiply the number of watts the load will consume by the hours per day the load will operate. Multiply this figure by 1.5 to account for system losses.

Total WH per day required _____ Ex. 300 Wh

A.2. Estimate the average number of hours of sunlight per day available at the site. This will depend on site-specific factors such as shading and local weather conditions as well as latitude. This data can be obtained by calling the Sandia National Laboratories’ Photovoltaic Design Assistance Center at (505) 844-6111.

Total available sunlight _____ Ex. 6 hours

A.3. Determine the size of the array that will be needed. Divide the energy needed (A.1) by the number of available sun hours available (A.2.). Consider worst case conditions. Divide the results by module size in watts and round up. A typical module power rating is 50 watts at 12 volts DC.

Total array size required: _____ Ex. 300 Wh / 6 h = 50 W

A.4. Determine the size of the battery bank, if one is required. Multiply the load (A.1.) by 5 (result is watt-hours). Divide by the battery voltage (for example, 12 volts) to get amp-hour rating of battery bank.

Total battery bank required: _____ Ex. 300 Wh x 5 / 12 V = 125 amp-hours

Calculate the cost of the PV system needed for this application

B.1. Multiply the size of the array required (A.3.) by $6 per watt. For example, a 50 watt PV panel costs approximately $300.

PV array cost