How much did our 305 kW solar plant cost, and was it worth it?

This is the fifth post in a series documenting the installation and first year of operation of Pololu’s 305 kW solar array. Here are the previous posts:

• Part 1: Background starting in late 2022 and how we committed to the $650,000 project by the beginning of January 2023, with a target completion date of May 31, 2023.
• Part 2: Installation from January 2023 through first day of operation on October 5, 2023.
• Part 3: System failures and production results during the first year of operation.
• Part 4: Analysis of electrical costs before and after our system was installed.

In this final post in the series, I will go over the costs and benefits of our solar system, some lessons learned, and my thoughts on whether this has all been worth it.

Here is our system summary again, from the proposal and contract with the installer of our solar system:

And as I covered previously, apart from the inverter failures, the generation part came out close enough to the estimate, and even with the production issues we still probably saved about $60k on electricity in the first year. As I also mentioned in the earlier posts, I do not agree with this cost summary:

In particular, that last bonus depreciation line refers to the possibility of claiming most of the full system cost as an expense the first year. I did not consider that valid because it does not have a corresponding offset for our future increased taxes due to not having as much electricity expense to deduct. (There’s also the detail that the bonus depreciation they have listed there is too high, likely factoring in state taxes such as California’s extremely high nearly 9% corporate income tax. Nevada does not have a corporate income tax (though there are others), and the federal corporate tax is 21%—and 21% of the full $650k system price is only $136,500.)

So I was always treating the system as costing roughly $455k, which is 70% of the $650k cost, based on the federal 30% credit. But, even if that federal credit is real and valid, it can be misleading and risky to count on it.

The reason we cannot just treat the system as costing $455k is right in the incentive name: it’s a tax credit. So, we had to pay the full $650k system cost up front, and the idea is that later we would pay $195k less in taxes. But that reduced payment comes a lot later, and it assumes there was enough tax due in the first place. Furthermore, the tax credits can only cover 75% of our actual income tax liability. So if, hypothetically, we made a million dollars in profit and owed 21% = $210k in federal taxes, we still could not get all of that $195k tax credit because we would have to pay the 25% of the $210k, or $52.5k no matter what tax credits we might have available. In this hypothetical scenario, the maximum tax credit would be $210,000−$52,500 = $157,500.

And, unfortunately, 2023 turned out worse for us financially than the hypothetical scenario. Sales abruptly weakened after the first quarter, and they have been down ever since. We were still profitable for 2023, but we were only able to use about $61k of the $195k available tax credit, which means that so far, the system effectively cost us about $600k. We can carry over the $134k of tax credit we were not able to use to this year, but this year has been very bad for us, to the point that we are barely breaking even and possibly looking at net losses for the year. We can keep carrying over the tax credit to future years, but we need to accumulate $850k in net profit to be able to fully use up the remaining $134k of credits.

I’m obviously an optimist (you couldn’t start a business like Pololu otherwise, right?) and expect to make that $850k in profit eventually, but in the meantime and especially when things are bad financially, it would be nice to have that $134k now, or even the roughly $530k net we are out now for the solar system ($650k up front cost minus $60k electricity savings and $60k tax savings).

Now, a $60k return on a system that cost $600k might seem ok, but that is in an environment where US government bonds yielded around 6% and the stock market in general rose over 30%. And not surprisingly, the solar industry has been hurting, with massive companies like SunPower filing for bankruptcy and inverter manufacturers like SolarEdge tanking on the stock market over the past year:

SolareEdge stock performance over the year ending November 21, 2024.

I started my first post in the series with a Google Maps view of the Mandalay Bay Convention Center’s solar panels, which I had been looking at for years. I had also been paying attention to the buildings closer to me, and those notably did not have any solar panels on them. I checked again now on the Clark County property records map, which has frequently updated aerial pictures, and based on the most recent October 17, 2024 flight results, there are only three commercial or industrial buildings in our vicinity besides Pololu with solar panels on them:

Nearby buildings with solar panels as of October 17, 2024 (Pololu is roughly in the center).

Las Vegas seems close to ideal for solar installations, with lots of our energy use coming from summer air conditioning that is highly correlated with sunshine (and with heat pumps getting better and better, most of the winter heating can also get covered by solar electricity). So why do so few of our commercial and industrial neighbors have solar? Did they analyze things better than I did (or more pessimistically), and does it really not make sense?

I suspect (hope?) that the empirical results around us are skewed significantly by most of the buildings having a separation between occupants and owners. It doesn’t make sense for a tenant, even with a five year lease, to spend their own money on a solar installation that is not theirs and that will take longer than their lease to pay for itself, and there is little incentive for a building owner to invest in the solar system since they’re not the ones paying for the building’s energy use. With something like the parking lot LED lights, which paid for themselves in under two years, it was an easy call to go for it even when the building wasn’t ours. For the indoor fluorescent light replacements, which might take 5 years to pay for themselves, we did not do that until after we owned the building.

It’s definitely nice when the system is working, and combined with the air conditioners and other improvements we’ve made to the energy efficiency of our building, it makes the summer much nicer. And it’s magical that in the middle of a hot day, with dozens of air conditioners running, our facility can turn the sunshine into the electricity powering our laser cutters and nitrogen generator and ovens and pick and place machines and everything else in the building, and still send power out to the grid for our neighbors to use.

Laser cutting with solar power.

That kind of do-it-ourselves aspect aligns with how we do things at Pololu, where many processes we do in-house might be more efficient to contract out to other companies. Some of that can be strategic, but we are very aware that we are still completely dependent on all of the companies we work with, so it’s more a philosophical preference, that we like doing everything from designing products to manufacturing them to interacting with our customers using the products.

So has the system been worth it objectively, or is it mostly a luxury that helps us feel better about what we do? I wish it were an easy, unequivocal “yes” that it was worth it. But, it’s obviously not that. If we had left the $650k spent on the solar system in some mix of US Treasury bonds and stock market index funds like the rest of our reserves, we would have gained more than 10%, and more importantly, we would have had that principal in a liquid form that would definitely be nice to have now after going through over six quarters of slow sales. So if I could go back and tell myself from two years ago how everything would go, including what would happen with our revenue and that the stock market would go on a record run, I would say don’t do it.

But does that mean it wasn’t worth it? I am not sure, and I am still optimistic that it will turn out well for us in the long run. There are so many factors that can affect things, and several have broken against us. Things could continue to be worse than expected, but they might also change back in favor of generating our own power. Here are just some of the things that went worse than expected and ways in which it could have been even worse:

Setbacks relative to original expectations:

Catastrophic inverter failure close-up.

• Three Saturdays of having to cut power to the building instead of one. Each of these days was quite disruptive and required extra coordination and IT and facility staff on site to shut down and power up the building.
• Installation delays led to system startup in October 2023 instead of June 2023. This means we missed out on four prime months of solar generation, plus there were four more months of distractions and some Pololu employees’ time and energy going into the ongoing project.
• Multiple inverter failures and associated reduced production during the first year.
• Lower-than-expected Pololu profitability led to tax credits not being usable, effectively making the system cost higher than initially expected.
• Electricity pricing structure changed such that base or facility demand costs increased relative to cost per kWh.
• Electricity cost went down. (That’s generally great; just from the perspective of generating your own power, it makes less sense if electricity is cheaper.)
• Trump’s election win could push back tax increases. Again, this could be fine in general, but specifically for our situation of having unused tax credits, lower taxes mean it will take longer for us to get the value of those tax credits back.

Things that went well or could have been worse:

• The $650k cost for the system installation did not change (i.e. the solar installation company covered their internal costs of the various delays and equipment failures).
• The system has been working flawlessly for almost six months now, including throughout the record heat wave in summer 2024. So it definitely can work.
• When it was working, the system generated at least as much power as expected and demonstrated it can cover 100% of our facility’s energy consumption over the course of a year.
• The company we worked with seems to be doing well (as opposed to some solar companies that have been struggling lately).

Going forward, obviously all kinds of things could go badly, but things could also change to make the solar generation system more valuable.

Things that could go wrong in the future:

• Some kind of failure of the system. This is always the case for any system, but here it’s especially relevant that we need it to last for a long time for it to pay off, and all the problems the first year make it scarier. On the other hand, the problems were all with the inverters breaking, and none of the Synergy sub-inverter modules with the newer input protection schemes have failed.
• The company that did our installation or SolarEdge going out of business. We have an extended 20-year warranty on the inverters. However, the warranty is only as good as the entity behind it, and in this case we have a combination of entities we’re working with. I don’t think our relatively small local installation company can do much if SolarEdge goes out of business. On the flip side, if just the local company goes out of business, I hope we would have some more options, but it’s still a little uncomfortable having them as our only conduit to SolarEdge.
• Changes in net metering and billing structures in general. We already saw NV Energy make some changes to the billing structure, and utilities in various regions are grappling with how to deal with increasing numbers of customers with solar generation.
• Electricity costs could keep going down. Again, that would be a good thing overall, and I don’t especially expect it to happen, but one way of looking at a solar installation is prepayment for our future electricity use, so future reductions in prices would make past investments in solar less valuable. This scenario is especially interesting to me because I thought it was improbable, yet it happened.
• This is a subset of the previous point, but there could be some solar power breakthrough (or wind or whatever other alternative) where our equivalent system in a few years becomes substantially cheaper. I don’t especially expect this to happen, but it is a possibility that would push us toward a conclusion of our solar project not having been worth doing.

Things that could make the solar project more worthwhile over time:

Our nitrogen generation system can double as a 100 kWh energy storage system.

• Electricity prices could go back up again.
• Energy storage options could improve. This could take several forms, including the most direct possibility of battery-type products getting cheaper and better and giving us some alternatives if the effectively free battery of the net metering model went away. But we might also have reason to store energy in other forms, including compressed gasses we need anyway. We have a nitrogen generation system that at the moment is underutilized, so we usually run it during the day over the weekend when we are definitely generating surplus energy, and then use the compressed nitrogen over the week. It’s roughly 100 kWh, which is just under 7% of our average daily production of about 1500 kWh, so it’s not that much relative to our generation and consumption, but it’s the equivalent of 7 or 8 Tesla Powerwalls, so it’s not nothing. And the bigger point is we get it as a byproduct of a process we need anyway, and there might be more opportunities like that in the future.
• We could grow and need more power, therefore using more of what we generate directly and without relying on net metering. The 525 MWh we used over the past year was with our facility still substantially underutilized. If we have more people here for more hours and more machines running on more shifts, we could easily use everything we generate.

As long as I am in this bullet-list summarizing mode, I should also point out that the other energy-saving things we did were more cost-effective than the solar panels, so for anyone considering a similar project, I would recommend doing those first.

• Changing to LED lights. This is especially a no-brainer when switching from metal halide lights that are on a lot (e.g. parking lot lights) and relatively easy to change. They could pay for themselves in a year, and you get better light. In offices that already have fluorescent lights, it can be harder since there is less to gain and the installation cost can be relatively high. But I think this is still much easier of a call than the solar installation, plus there is the added benefit of the light being better and options for dimming and so on.
• Foam insulation in the windows. This looks really ugly and some people hate it, but if you have lots of single-pane windows, and especially in unused offices, it’s really effective. I think I remember calculating that one panel of the foam blocked out more energy than a solar panel generated, which would mean the $30 foam board gets us as much as roughly $1,000 of solar installation.
• Solar film on windows. This was about ten times the cost per square foot as the foam (almost $50k to do our east-, south-, and west-facing windows), but it is still more cost-effective than adding solar panels. There is also a side effect of decreasing visibility from the inside and questions about how long it will last. (We looked a bit into replacing the windows with more efficient ones, and that was much more expensive per kWh than the solar panels!)

I hope this series of posts will be useful for others considering going for such a project. Looking back over our experience, my main general advice would be to visit with past customers of candidate contractors (this was complicated by the pandemic in our case, and I was personally knocked out by covid for a few weeks right when we were doing some of these evaluations) and to make sure you really have good cash reserves before spending a lot on big projects that are not crucial to the core operations of the company. I am happy to talk about this more, so feel free to ask or come visit if you are contemplating or have done a similar project!