Cost Analysis of Small Businesses Utilizing Solar Energy

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Sustainable energy has been striving to reduce the impacts of carbon dioxide emission for many years. Solar technology has improved by leaps and bounds in recent years and is becoming more affordable by the day. This paper evaluates the feasibility of different sizes of small businesses to convert fully to solar energy, and how that would impact the environment. The findings indicate that it may be too expensive with today’s technology, as it would be a very significant investment upfront and the number of panels required for a full conversion would not be practical for a small business to manage. The upfront investment, while large, would be repaid in time given the savings in electric cost; this longer time frame, near 20 years, may be too large for the average small business to consider. As solar technology improves, investments such as this will become easier and less expensive, making clean energy a more feasible option for many companies in America.

Small businesses are an extremely important part of any local economy. Business owners and employees are able to make a living for themselves, and those in the community are able to purchase goods or services that they need or desire. According to the U.S. Small Business Administration, 58.9 million people in the United States are employed by small businesses, accounting for 47.5% of the American workforce [1]. As such an important part of American business, any changes towards sustainability in small businesses could see positive effects throughout the whole country, causing less harm to our environment. This report will evaluate the cost involved in the conversion of small businesses to solar power, and the long-standing effect that would have on the environment.

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In this report, we will evaluate two sizes of businesses, classified into micro-businesses and small businesses. These classifications come from the number of employees that each business uses during a main shift: if there are less than 5 employees during a main shift the business is classified as a micro-business, while a small business is considered a business between 20 and 49 employees during a main shift.

This table includes the classification for each business type, as well as the average total energy per year and the average electricity cost per year. This information was gathered from the Energy Information Administration [2]; it should be noted that the data is from a 2012 study of small businesses; there was information collected in 2018 as well, but it has not been included yet on the website. Additionally, there were 2.57 million buildings which were studied for micro-businesses, and 0.5 million buildings studied for small businesses. This is still a very large study, but the differences between sample sizes should be noted; the average for micro-businesses is likely more accurate as the sample size was five times as large as the other group.

For this study, three types of solar panels were considered. These types are monocrystalline panels, polycrystalline panels, and thin film solar panels. The advantage of monocrystalline panels are that they have the highest efficiency of the three (15-20%), they are space efficient, and they tend to last for a long time; however, they are the most expensive, and are the most affected by varying conditions of shade and weather. Polycrystalline solar panels use less waste silicone in the production process (making them more sustainable to produce), and have similar heat tolerances to monocrystalline panels; they do come with a lower efficiency (at 13-16%) and are larger in size, meaning that they will require more roof space to install for the same level of energy output. Lastly, thin film solar panels are widely available, they can be made to be flexible (not requiring a flat layout) and are generally more aesthetically pleasing than their counterparts; however, they have an increased cost of supporting equipment, a higher yearly degradation rate, and similar to polycrystalline panels they require a lot of space to install [3]. Because of these considerations, the team elected to choose the monocrystalline solar panel type for the purposes of this study.

This panel is a uniform black color, which is unobtrusive and would be more appealing to the small business owner. It is a newer model with a low degradation rate, which the team saw as desirable traits as it would allow the panels to have a longer life span and less upgrade costs would be involved.

Capacity factor was assumed to be 18% for a panel that is tilted on a 20 degrees, for a Wichita business in the 67220 area code. These calculations led to the value of 99 solar panels necessary for 100% solar power for the average micro-business. With the cost of panels ($498 per panel) and the installation cost (roughly half the total cost of the panels) [5], the installation cost for a small business becomes $73,900.

Using the same method described above, the number of solar panels necessary to cover the energy use of a small business was found. To 100% cover the 428,850 kwh for the average small business, 812 solar panels are needed. This leads to a panel cost of $404,000 and an installation cost of $202,000; the total investment cost becomes $606,500 total upfront. These values, for both micro-businesses and small businesses, can be found below.

The initial investment for switching to solar full-time is quite high, when you consider the smaller revenue these businesses would be making with their smaller companies. However, the burden is made smaller by government tax credits and subsidies. The IRS has been promoting clean energy with an incentive that gives a federal tax credit worth a portion of the solar panel and installation cost for the system [6]. The current credit value is 26%; this means that 26% of the total system cost would be reduced from the purchaser’s federal taxes that year, effectively giving a 26% discount on the overall cost of the system. This federal tax credit has been in effect in recent years to entice households and businesses to choose sustainable sources of energy. However, every year this credit has been going down. In 2019, the credit was 30% on the solar panel system regardless of size, but in 2020 the credit is going down to 26%, and the year after it will be 22%.

One of the challenges that can be faced when investing on solar panels is the degradation of the system. On a year-to-year basis, degradation is relatively small (just 0.6% for the panel we chose). However, the degradation adds up over the lifetime of the panels. Therefore, the initial investment made will vary over 25 years since the energy needed for the business is fixed over this period time and the panels will not be producing as much energy as they did when they were new. The following graph shows the degradation rate of the solar panel over 25 years.

As it can be seen, the degradation will cause the capacity to reduce by 14%; this will cause a problem in order to get the same amount of energy every year.

The most obvious approach would be adding more solar panels every couple of years, to compensate for the lost efficiency. This will control the problem of lost efficiency, and as technology improves the new panels will take up less space (with the increase in efficiency). Another approach to the problem would be to purchase more solar panels up front, taking into account the degradation in the beginning. This approach would not be cheaper, however, as solar panels decrease in price every year and the footprint of the space used will also be greater using this approach. Also, the initial cost of buying the panels is high enough without having to buy extras to account for efficiency losses.

For the micro-business, after tax credits the initial cost of the solar panel arrangement costs $54,500. Each year, the micro-business would save more than $3,000 on their electric bill compared to what they would owe for a traditional electricity source. Accounting for this money saved, the initial investment cost would be paid back by savings after 19 years in service. This information can be seen in the table below.

For a very small business such as this, the payback period may be too long to consider full solar power a feasible option. 19 years is a long time for a business of that size. Businesses can seek loans to help offset the cost though, and if it is a very profitable business perhaps $50,000 wouldn’t be too hard to save up for.

For small businesses, the same calculation method was used to produce the savings on electric bills each year. The average small business would pay roughly $41,500 in electric bills for a traditional setup, while they would only need to pay $17,900 a year by being 100% solar powered. This leads to a savings of $23,400 per year in electric costs. With these savings, the initial cost would be paid off in 21 years. This can be seen in the table below.

It should also be noted the number of solar panels needed for each kind of business. For the micro-business analysis, 99 solar panels are needed to be 100% solar powered. With solar panels of 18.5 square feet, as are the LG NeON 2 panels that we selected for this product, that means that the company would need to have more than 1800 square feet of roof space/ ground space to house that many solar panels (not accounting for servicing paths between panels). That would be nearly impossible for the typical micro-business to support. Another consideration that must be made is that most business owners rent their space from landlords; not all landlords would allow solar panels to be installed on the roof or nearby, so that might not be an option for that reason as well. To consider the small business category, with 812 solar panels necessary for 100% solar power, that is frankly not an option for most small businesses. With current technology, it’s unlikely that businesses of this size would be able to support 100% solar power.

Luckily, solar technology is improving rapidly and efficiency of solar panels has been improving steadily over the last decade. Multiple studies are underway regarding solar power improvements, such as doping different semiconductors and using perovskite coating on silicon solar cells [7]. The theoretical efficiency of solar panels is 95%, and current solar panels are in the 20% efficiency range. There is so much room for improvement in solar panel efficiency that the hope is panel technology will continue to develop rapidly and solar panels will eventually become more feasible and convenient for the public. Installation costs for solar power systems have dropped more than 70% over the last decade, and are becoming more affordable by the day [8]. Solar power has the potential to become the main source of renewable energy as technology advances and prices decrease.

When it becomes easier for businesses and homes to switch to 100% solar power, it will be great for the environment. Carbon dioxide equivalent is “a measure used to compare the emissions from various greenhouse gasses based upon their global warming potential” [9] . Burning natural gas produces 2 lbs of CO2 equivalent per kWh; coal produces 3.6 lb of CO2 equivalent per kWh; and solar energy produces 0.2 lb of CO2 equivalent per kWh [10]. It is clear to see that solar power is superior to both more traditional forms of energy production; solar power produces 10x less CO2 equivalent than natural gas! The table below shows the yearly CO2 equivalent produced for the different kinds of businesses.

It is clear to see that solar power produces much less Carbon equivalent than its counterparts. Even though it is likely not feasible for many smaller businesses to convert to 100% solar power, that doesn’t mean that they can't incorporate any solar power. Businesses should incorporate whatever solar power they can into their business model; if businesses everywhere make small changes, those small changes all add up to a very significant positive impact on the environment. Not to mention - they will save money on their electric bill! Though it may not be possible, yet, for 100% solar, businesses should do what they can to reduce their Carbon footprint and take care of the environment. It is a moral obligation as much as it is a smart business choice.

Many younger people care a lot about the state of the environment, and want their choices as consumers to have a positive impact on the environment. This means that as businesses make greener choices, such as converting partially or fully to solar power, their establishment could see more business as a result of those choices. According to Forbes, 73% of Millenials (24-39 year olds as of 2020) are willing to pay more for sustainable goods and products. In the same attitude, 62% of Generation Z (8-23 year olds as of 2020) 62% of Generation Z members choose sustainable brands over other options [11]. This means that more customers will be attracted to businesses that utilize solar panels and other sustainable practices. As these two generations, in particular, grow older and begin to make and spend more money, this will mean significant changes to the way business is done in America.

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Cost Analysis of Small Businesses Utilizing Solar Energy. (2022, November 25). Edubirdie. Retrieved June 22, 2024, from https://edubirdie.com/examples/cost-analysis-of-small-businesses-utilizing-solar-energy/
“Cost Analysis of Small Businesses Utilizing Solar Energy.” Edubirdie, 25 Nov. 2022, edubirdie.com/examples/cost-analysis-of-small-businesses-utilizing-solar-energy/
Cost Analysis of Small Businesses Utilizing Solar Energy. [online]. Available at: <https://edubirdie.com/examples/cost-analysis-of-small-businesses-utilizing-solar-energy/> [Accessed 22 Jun. 2024].
Cost Analysis of Small Businesses Utilizing Solar Energy [Internet]. Edubirdie. 2022 Nov 25 [cited 2024 Jun 22]. Available from: https://edubirdie.com/examples/cost-analysis-of-small-businesses-utilizing-solar-energy/
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