How businesses can cut their electric bills

Energy efficiency and renewables can come to the rescue

Sharp increases in electric rates and costs are suddenly showing up on monthly utility bills across New Hampshire. Many businesses are now experiencing jumps of 50 percent or more in their electric and overall energy costs. And the expectation is that rates will continue to rise in 2023.

Businesses that have already reduced their overall energy usage and transitioned to renewable energy by generating their own power or heat from sources such as solar or geothermal have been largely insulated from these price spikes. Those ranks are growing rapidly, as the combination of high energy costs and recently enacted federal tax incentives are leading more and more organizations to recognize that the time has never been better to put themselves on the path to attempting to reduce their energy bills. The state’s largest utility recently reported that requests for solar system interconnections have doubled over this same time last year.

The root cause of the sudden rise in electric rates in New Hampshire is that 46 percent of the New England region’s electricity comes from power plants fueled by natural gas (the national average is 38 percent). Russia’s war on Ukraine has roiled markets for natural gas, prices worldwide have skyrocketed, and a lot of natural gas produced in the United States that could otherwise help to dampen its price in New England is instead being converted to liquefied natural gas and shipped to Europe, which is seeking to rapidly replace Russian natural gas as its principal source of energy.

On top of that, New England is at the terminus of the very few pipelines that bring natural gas into the region from the Marcellus shale fields or points farther west, and it’s not likely that new pipelines will be built here anytime soon. Moreover, state laws give home heating with natural gas priority over the use of natural gas to make electricity, so gas supply for electricity is further constrained on cold winter days when demand for heating is peaking. Together, these factors have led to gas being between three and four times more expensive this year than it was just a few years back.

Ways to cut energy costs

There are two principal ways to cut energy costs: use less energy by making more efficient use of it and generate your own energy using least-cost technologies that don’t have any fuel costs (such as solar, wind or geothermal). A third strategy specific to electricity is to buy less from your utility when demand is the greatest, which is also when prices are the highest, such as really hot summer or cold winter days, and weekdays from roughly 5 to 9 p.m. when the lights, stoves, TVs and other appliances in many homes have all been turned on at the same time.

New Hampshire’s electric and gas utilities encourage energy efficiency through NHSaves, a free service that includes assessments of a facility’s energy usage, efficiency recommendations and grants to offset some or all of the costs of measures such as weatherization, lighting and heating system upgrades or more efficient electric motors.

Making electricity is now something that practically every business can do for itself. This is commonly achieved with solar energy from photovoltaic (PV) panels that can be arrayed on a rooftop or a groundmount and use the sun’s rays to make electricity. Most solar companies will develop a customized plan for meeting a business’s power needs based on its electric usage pattern and the layout of its buildings and property.

A solar system can be sized to cover some or all of a business’s usage, and will usually be interconnected to the electric utility’s grid so the power it generates can be net-metered, which allows the business to sell electricity to the utility if it generates more power than it’s actually using at any particular moment, and to buy power from the utility when it needs more than its array is generating.

It’s an underappreciated fact that the cost of solar energy has dropped precipitously over the last decade, and is now one of the least expensive ways to create electricity in the world.

Financial, contractual considerations

Solar systems can enable a business to reduce its consumption of electricity at full retail cost and, depending on system sizing, can also offer the potential to operate the same hours with less electricity from the grid. Because solar systems tend to have a life span of 20 to 30 years, they can provide a long-term hedge against future electric rate increases and, when combined with battery storage, can also help reduce consumption needs during peak periods, minimizing the demand charges, which can be a substantial part of commercial electric bills and providing backup power.

The capital costs are not insubstantial, but provisions signed into law in August by President Biden entitle solar systems and related interconnections and storage systems to at least a 30 percent tax credit in the year the system is put into operation. Starting in 2023, additional tax credits of 10 percent each will be provided to a system whose components meet domestic content requirements, is built on qualifying contaminated property (a brownfield), or that serves low-income residences.

It gets better: The tax credits can be sold once; entities that don’t pay taxes, such as nonprofit organizations and municipalities, can receive the equivalent amount in a direct payment from the U.S. Treasury; and most of these provisions will be in effect from now through 2032.

Details will be issued in Treasury guidance expected later this year. Some commercial-use solar projects are also eligible for state incentives of up to $10,000. A business that doesn’t want to purchase a system could instead enter into a power purchase agreement with a solar developer that pays for and installs a system for the business and then sells the power it generates to the business owner at an agreed price for a fixed term.

Many New Hampshire businesses are now facing an energy cost emergency. Energy efficiency and clean energy may provide them a rescue plan.

Tom Burack, a member of the Environmental and Energy Law Practice Group at Sheehan Phinney, served as commissioner of the Department of Environmental Services from 2006 through 2016. He currently serves as chair of the board of Clean Energy NH.

Categories: Business Advice