David Westsmith                                                                                  ENGR 312

Lesson 8

Considering what I know about renewable energy, what are some of the key things I need to be able to explain to a potential funder of my project?

A Solar Installation Business

The “sell” to the investor is just as critical as the sell to the buyer.  Both has similar concerns however with a few exceptions.  The sell to the investor I would begin with discussions on the market  I would begin by trying to answer what are influences are now and what they are likely to be.  The local market will be highly influenced by the cost of local utilities.  Here in El Dorado County, there is no natural gas.  Two options are available to homeowner’s and both are expensive, propane and electricity provided by PG&E.  Both are disliked and the customer base is constantly complaining.  This is a tool and works in the business’s favor and needs to be disclosed to the financier.  :People are looking for alternatives so doors are open to the customer base.  Moving to labor, there are no more than three personnel needed to install even a large array.  For the sake of this paper, the average array is 5 kilowatts.  One install I participated in was  a 10 kilowatt array in Lodi, California and still there were no more than 3 of us on the job at any time.  Labor typically consists of a higher paid electrician and two laborers and lasts 3 days for a roof mount and a week or more for a ground mount.  For our business, we want to focus on roof mounts if possible as material and labor costs are significantly cheaper.  Discussing materials, it can be said that the cost is rapidly falling. Panels are much cheaper as are inverters, fuse boxes and other components. “The cumulative installed capacity of solar PV grew by around 70% in 2011. Combined with the high learning rate for solar PV and overcapacity in the manufacturing base, this growth has resulted in significant price declines over recent years.” (1) Copper wiring is the only cost that remains expensive.

What finance-based processes would I use to explain our potential for success?

Capital Budgeting and Net Present Value

Net Present Value formulas will show the basic investments made to begin and can give a decent example of future earnings.  As long as material supplies remain consistent with current trends and labor doesn’t increase   In other words, other numbers need to be considered but NPV will show what we need to have in returns with current inflation.  I do not see labor costs increasing out of proportion with the increase in installs.  Meaning that labor in installs can be very flexible.  A project can begin and while waiting for inspections and permits your crew can be moved to another install.  This eliminates labor investments when the business is expanding. Capital Budget is extremely important while in operation.  Fixed assets are trucks, tools and other sturdy, reliable measurement devices that have long term durability.  Fixed assets are unlikely to largely effect your bottom line in the short term. However, fixed costs will be considered in the capital budget.  In spite of that, I don’t see high replacement or maintenance costs effecting the capital budget severely.  Additionally, I believe the profitability index will be above one.  I also need to mention that already possess most of the fixed assets so start up is significantly lower for me.

Works Cited

(1)”Renewable Power Generation Costs in 2012: An Overview.” Www.irena.org. The International Renewable Energy Agency, 2013. Web. 20 Oct. 2014.