The big idea: If a company like Wells Fargo installs solar panels on even a fraction of its 6,000 retail stores coast to coast, it could become one of the largest and most sustainable U.S. solar energy producers. But does it “make cents?”
The scenario: In February 2010, Wells Fargo installed solar photovoltaic systems at 10 stores in metro Denver. While the company experimented with solar-generated power in the 1970s, this was its first major solar energy project, with 1,177 panels generating more than 220 kilowatts of clean energy.
The Denver solar initiative now supplies about 30 percent of the electricity required to run these stores, however the stores faced tough criteria to get into this pilot project. Size and pitch of roofs, electrical accessibility and openness to direct sunlight were only a few factors for consideration.
In early 2011, Sheri Lucas, vice president and strategic finance manager at Wells Fargo, seized on a similar opportunity in Los Angeles. She established a methodology based on the Denver project that included more comprehensive structural analysis of buildings, roof age and the engagement of utility companies to coordinate power use and installation. Lucas learned the utility companies — Southern California Edison and the Los Angeles Department of Water and Power — offered different incentive programs, which affected the overall financial analysis of the project.
By August 2011, Lucas completed her analysis. Taking all factors into account, including start-up costs for panels, inverters and installation; maintenance; projected energy savings; tax considerations; accelerated depreciation and utility incentive, the project revealed a low internal cost of capital.
Also, the panels would return the capital investments within five years — early into their estimated 30-year life.
But things unexpectedly changed when one of the power utilities closed the registration window for its incentive program, forcing Lucas to table the project. The window later reopened, and she had to quickly consider whether to buy and install the solar systems.
The resolution: Lucas used a decision tree and communicated the need to move as quickly as possible. In late 2012, the solar panel systems were installed at three stores in low-income communities in Los Angeles.
The lessons: Although a large company, each Wells Fargo installation project was comparatively small in size with unique attributes; thus Lucas’s experience was similar to that of a small-building owner. Cash flow for smaller projects looks slightly worse than larger ones, and such projects are more affected by the uncertainties in the market. Building owners, such as retailers and small businesses, are less likely to proceed with solar installations when market conditions are uncertain. At the same time, while solar power is nearing grid parity in some places, this is largely not the case for business owners in areas with low energy costs or for those who buy power in the wholesale market.
Increasingly, businesses consider solar installations to diversify and “green” their energy sources, governments contemplate legislation for renewable energy targets and communities continue to push for more clean energy.
Successful renewable energy projects require a champion like Lucas with passion for sustainability and the ability to perform sound economic analysis.
Ovchinnikov is assistant professor of business administration at the University of Virginia Darden School of Business.