Solar 101: From Net Metering To Power Purchase Agreements, We Explain The What’s What Of The Solar Industry

Solar is once again on the table for investors.

The price of solar is steadily dropping. By 2021, solar will be cheaper than coal in China, India, Mexico, the UK, and Brazil, according to Bloomberg New Energy Finance.

However, solar energy continues to face regulatory headwinds. In the US, for example, President Trump recently enacted tariffs on imported solar panels, which could lead to an industry slowdown.

For now, though, the increasingly attractive economics of solar energy seem to be outweighing the uncertainties.

To provide a better understanding of the industry, we’ve put together this explainer.

The solar industry is capital intensive, technical, and encompasses everything from utility energy agreements to installing large-scale solar projects. Below we define some of the most common — and often confusing — aspects of the industry.

• The solar value chain
• Financing and metering
• Solar thermal vs. solar photovoltaics 
• Types of systems
• General solar terminology

The solar value chain

Upstream solar: Upstream solar describes the segment of the industry that manufactures solar products. This includes the research and development arms of major companies as well as their distribution arms. In 2016, end-to-end solar company First Solar reportedly passed $1B in R&D spending on its manufacturing arm.

Historically, upstream solar has been capital intensive because of  high manufacturing and installation costs. However, thanks to price wars across the globe, manufacturing costs for solar have gone down drastically. In turn, upstream companies have become cheaper to run.

Downstream solar: Downstream solar includes companies that install solar technologies, finance them, and distribute the product to consumers. This includes solar financing companies, solar monitoring companies, and those that maintain solar technologies at utilities. This part of solar is largely service-oriented and often less high-tech than the upstream segment.

As the price war for solar technology continues, many upstream companies have struggled to remain profitable. On the other hand, downstream solar companies have thrived off the increasing affordability of solar technologies.

FINANCING AND METERING

Net metering: Net metering allows homeowners with solar panels to send extra energy they’ve produced to a grid where it can be stored. They can then pull energy from it when needed, or sell the energy to others in their community who are also connected to the grid.

Utility companies pay the solar producer retail price for returning this energy to customers, which is often priced significantly higher than if these companies were to purchase this energy independently. Known as a Feed-in Tariff (FiT), they’re required to pay back customers for any electricity that’s been fed back to the grid but has gone unused. These policies are aimed at encouraging solar uptake.

However, in order to keep service reliable and consistent, non-solar customers also end up shouldering parts of the cost. These rates also include the cost of planning, building, and maintaining the electrical grid. This financing model has created controversy — many complain that despite not using solar energy, they’re still required to opt into the system. It’s also put pressure on utility companies. If a significant amount of solar energy is produced, utility companies must juggle between paying high rates to buy back electricity and increasing prices for all of their customers.

As of 2017, 43 American states, including Washington D.C., have policies for net metering. Among the states that have no net metering policies in place are Texas and Alabama. The issue remains contentious in many states. As of November 15, 2017, the Rocky Mountain Power territory in the state of Utah stopped allowing retail-rate net metering.

Gross metering: Unlike net metering, which only sends a certain portion of energy to the grid, gross metering sends all of the solar energy produced in a home directly to a shared grid. From there, residents pay for the energy that they take back from the grid, usually at a price that’s lower than what they’ve sold it for.

While solar Feed-in Tariff rates for gross metering were once very high in order to encourage the usage of solar energy, these numbers have since dropped. Net metering’s setup, where utility companies buy back electricity at high prices, has ended up being more profitable for individuals. In net metering, each solar energy-producing home theoretically acts as its own self-sufficient, independent electricity company, creating, using, and selling its own power.

Power purchase agreement (PPA): In a PPA, a solar company pays to install and maintain a solar system at a residence or business. Instead of paying a utility, customers pay the company that develops, designs, and permits the solar energy system. These companies generally charge lower prices than a local utility’s retail rate.

Front of the meter: “Front of the meter” refers to energy storage technology that is installed to work with utilities and electric grid operators to meet supply and demand for the grid as well as maintain voltages.

Behind the meter: “Behind the meter” systems produce energy that’s intended to be used in the home, office, or some other commercial facility. These are often net-metered.

Solar thermal vs. solar Photovoltaics

There are two main types of technologies associated with solar energy — solar thermal and solar photovoltaics.

Solar thermal collects sunlight, converts it into heat, and stores it. When needed, this energy is converted into electricity.

Two types of solar thermal systems are passive and active solar systems.

Passive solar systems: Passive solar systems use solar thermal energy to control a building’s temperature without the use of specific solar technology such as solar panels.

One method used by passive systems is direct gain, which refers to the direct sunlight that enters a building via windows and is then stored in floors or walls. Thermal energy stored in floors or walls is known as a building’s thermal mass. It is the material that captures sunlight throughout the day and releases it through the night. Examples of this material include adobe, brick, concrete, and stone. Materials with higher density can store more heat.

The direct sunlight hitting the building is controlled by angling and designing windows, walls, and floors to better collect thermal energy. Depending on how much heat a building wants to store, increasing or decreasing the area that windows occupy in a building is one method of controlling this direct sunlight, another is how a window is positioned.

These systems only start operating once a certain amount of energy has been built up. While they may help reduce the size of an energy bill, these systems aren’t full overhauls into solar power.

Historically, passive solar systems have been popular, with houses built out of stone and clay in order to retain heat and stay warm after dark.

Active solar systems: Active solar systems are solar thermal systems made up of equipment that can adjust efficiency, store energy, and run sensors and pumps. They convert the sun’s irradiance, or the sun’s rays, into electricity that then moves air or a liquid through a solar collector. Then, they distribute heat through a building. These systems use comparatively small amounts of energy to harvest a lot of heat.

Solar photovoltaics (PV), unlike solar thermal systems, use photovoltaic technology to capture sun rays and immediately convert sunlight into electricity. This is the technology associated with solar panels.

The difference between the two types of energy is that solar thermal uses sunlight either directly or as a source of heat. On the other hand, photovoltaics convert sunlight into electricity. Without added options like storage or other power generation mechanisms, solar photovoltaics only work when the sun is shining, which is why these systems of solar panels are increasingly paired with other power storage technology.

At its essence, photovoltaic energy is made up of photovoltaic cells, which absorb light to create an electrical charge.

Photovoltaic cells: Photovoltaic cells are the building blocks of panel-based solar systems. The cells are made up of thin layers of semi-conducting material, usually silicon. Light that is absorbed by this semiconducting material creates an electrical charge. By using metal contacts, this charge is then conducted away as a direct current.

Solar module: When several photovoltaic (PV) cells are put together into a package, they form a module.

Solar panel: A solar panel is an arrangement of solar modules.

Array: Stacked modules are then arranged as arrays. Arrays are placed on roofs and can power everything from houses to entire grids that support utilities. According to the National Renewable Energy Laboratory, the average home requires between 10-20 solar panels to provide enough electricity to power itself.

Monocrystalline solar cells: Monocrystalline solar cells are a type of cell used in a solar panel. They are made by rotating a single silicon crystal as it is slowly removed from liquid molten silicon.

Monocrystalline-based cells have high efficiency rates and take up less space than other solar products, which makes them popular among consumers with limited space.

However, they are also the most expensive type of solar panel and are easily affected by dirt, snow, and temperature shifts.

Polycrystalline solar cells: Also known as multicrystalline, polycrystalline cells are made of multiple crystals instead of just 1.

Polycrystalline cells are cheaper, easier, and less wasteful to produce than monocrystalline cells. However, because these cells are structurally inconsistent in the places where cells meet, they are less efficient at harnessing solar energy. They’re ideal for solar installations with no constraints on space, and for those looking to save on upfront installation costs.

Thin film (amorphous) PV cells: Thin film cells make up panels that are thinner and cheaper to buy than conventional solar panels. They have solar cells with light absorbing layers that are nearly 350 times smaller than that of a regular silicon panel. They’re the lightest PV cell on the market that manage to retain durability. However, they are not very efficient.

Solar thermophotovoltaic (TPV) cells: Solar TPV cells directly convert heat energy to electricity with the use of photons, the elementary particles that hold light. They contain multiple layers, one of which is a carbon nanotube absorber that can take in a large portion of the sun’s spectrum and then convert it into heat.

While PVs can only convert a small portion of sunlight’s energy spectrum into electricity, TPVs have access to a much wider part of it, making them highly efficient.

Multi-junction solar cells: These cells achieve some of the highest levels of efficiency among solar cells, with one reaching a 44.5% conversion rate of the energy that hits it. They do this by stacking multiple layers of solar hardware into a solar cell. Each of these layers absorbs a different portion of the solar spectrum, opening up more capacity.

Maximum Power Point Tracking (MPPT) controller: An MPPT converts higher voltage direct current (DC) outputs from solar panels into the lower voltage DC that’s used for charging batteries. By comparing the output of the panels to the voltage of the battery, the system figures out the ideal amount of power that a panel can put out to charge the battery. Grid-tie systems (described below), which are grid-connected solar electric systems that create their own electricity and save what’s left over into the utility grid, generally have built-in MPPT controllers.

Parallel connections: Parallel connections, or circuits, occur when the positive terminals of all the solar panels are connected and the negative terminals of all the solar panels are connected. The panel’s wires are then  connected to a centralized wire that leads from the roof. These types of circuits are usually used in small, basic systems.

Series connections: Series connections, or circuits, are created when the positive terminal of the first solar panel is connected to the negative terminal of the next one. Each panel is connected to the next in what’s known as a “string.” All of the distinct voltages of the panels are added together, but the amps that measure electrical current remain the same.

Most grid-connected homes use series connections for their panels. Because the current remains the same in series connections, they require less wires, which can bring down the cost and effort of installation. Series connections are often used in smaller systems along with an MPPT controller.

Since MPPT controllers can convert high voltage solar panel outputs into lower voltage DC needed to charge batteries, they can connect to a system with high outputs and continue to charge batteries.

One downside of series connections is that if a single panel goes out or is shaded from sunlight, it can decrease overall production significantly.

Series-parallel connections: These use a combination of the two and are often used for larger systems in order to remain within amperage and voltage parameters.

Types of systems

Grid connected: Also known as a grid-tied system, a grid-connected solar electric system creates its own electricity and saves what’s left over into the utility grid.

Off-grid system: An off-grid system, also known as a stand-alone system, creates energy and then stores it in batteries for later usage. Off-grid systems are not connected to the utility grid.

Hybrid system: Hybrid systems combine solar energy with other energy sources.

Peaking power plants: Also known as peakers, these power plants only run when there is high, or peak, demand for electricity. They are usually gas turbines that burn natural gas. These peak times can be at night, or even during a natural disaster. Since energy is only taken occasionally from peakers, it’s charged at a much higher rate.

Sometimes these plants are paired with solar plants in order to allow customers to receive access to energy even after dark at a competitive price.

Concentrator photovoltaics (CPV): CPV systems use carefully angled mirrors and lenses to direct sunlight into a single beam that is then reflected onto the small surface area of a solar cell. This allows for usage of small high-performance solar cells.

These cells can also be moved throughout the day to angles that expose them to the greatest amount of sunlight. CPVs can only convert direct sunlight into energy, meaning that they’re inefficient with the significant portion of sunlight that shines through clouds or the atmosphere.

CPVs work best in areas that have high amounts of direct normal irradiance, including the United States’ Sun Belt region and Southern Europe’s Golden Banana.

Concentrating solar power (CSP): Similarly to CPVs, CSP systems use mirrors and lenses to concentrate large swaths of sunlight onto small areas. However, when the concentrated sunlight is converted into heat, it’s used to power a heat engine, like a steam turbine, that is connected to a power generator.

Unlike CPVs, these plants are made up of two parts: one that turns solar energy into heat and another that turns that heat into electricity. CSPs can produce large amounts of solar energy, which makes them useful for utility-scale projects.

In September 2017, Dubai Electricity and Water Authority (DEWA) awarded China’s Shanghai Electric and Saudi Arabia’s ACWA Power with the world’s largest single-site CSP project. The project is the fourth phase of the Mohammed bin Rashid Al Maktoum Solar Park, which is located about 50 kilometers south of Dubai. The park anticipates producing 1,000MW by 2020 and 5,000MW by 2030.

general SOLAR TERMINOLOGY

Watt: A watt (W) is the rate of energy transfer under the electrical pressure of one volt. Solar energy is generally measured in kilowatts (kW).

1 W = 1V X A

Watt-hours or kilowatt-hours: Watt-hours (Wh), or as they’re generally known in cases with larger amounts of energy, kilowatt-hours (kWh) are used to measure the total amount of energy consumed or produced over time.

Capacity: Capacity typically refers to the optimal output of a solar system. This is measured in Watts (W) or kilowatts (kW). It can also refer to the size of a system.

Load: This is the amount of energy that an electrical device or unit uses at a given time.

Meter: This device can record the production of photovoltaic (PV) energy at any time.

Solar irradiance: Solar irradiance is the rate at which solar energy falls onto a surface. It’s measured by both power and unit area and quoted as w/m^{2  (}watts per square meter).

Grid parity: This is the moment at which the cost of solar becomes lower than that of a conventional energy form, like coal.

Conversion efficiency: Conversion efficiency is the amount of available sun that can be converted into electricity through photovoltaics.

Direct current (DC): The DC is a current that has a single directional flow of energy, starting in one place and ending in another. It’s the current that powers a flashlight, for example. It’s also the type of current that is generated by a solar panel.

Alternating current (AC): The AC switches direction periodically and is the form of electric power that is used by residences and offices. It’s the current that’s released when you plug something into the outlet in your home, for example.

Rectifier: Rectifiers connect AC power to DC power. There are a few use cases for rectifiers, including channeling AC power into devices that use DC, like sensors or computers that control power generation.

Since DC is a more efficient movement of energy, rectifiers can be used to transfer solar energy from one geography to another. The solar energy is converted back into AC on the other end when it’s delivered to customers. 

Inverter: Used in grid-connected solar power systems, the inverter converts direct current (DC) into alternating current (AC).

Micro-inverter: These are smaller inverters attached to individual solar panels, optimizing energy production for each solar panel.

Incident light: Incident light is the light that shines onto a solar panel.

Angle of incidence: This is the angle between an object’s surface and the direction of sunshine. The maximum amount of energy is produced when the surface of a solar panel is exactly perpendicular to the direction of the sunlight.

Some technologies help adjust the position of panels to match with the angle of the sun in the sky; however, studies have shown that this not always the most efficient method of capturing solar energy, and that it’s smarter to simply build out more solar panels.

Energy payback time: The amount of time required for an energy-producing system or device to produce the same amount of energy that was required to manufacture it. Most solar electric panels take 16-20 months to achieve this.

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