Thoughts on Solar by Run on Sun's Founder & CEO, Jim Jenal

Glendale’s proposed Feed-in Tariff combines all of the fee expenses associated with its Big Brother in Los Angeles with a payment rate that is just a fraction of what would be paid by LADWP.  What could possibly go wrong?

We have gone through the FiT proposal from GWP and it is as bad as we had feared.  Here are our thoughts and concerns.

Public? What Public?

We have been pressing GWP to provide us with details about their FiT since January.  Emails sent to members of the GWP Commission were ignored.  In March we received this Tweet in response to our continued questioning:

We are currently working on the rates and community meetings will be scheduled for May/June.Info. will be posted on meetings soon.Thank u

Well, meetings were held in June about GWP’s proposed rate increase, but they did not touch on the proposed FiT at all.  To the best of our knowledge, no public meetings of any sort have been held by GWP in preparing its FiT proposal.  Contrast that with the years of joint effort between LADWP and stakeholders to produce a program that managed to be over-subscribed in its first tranche.

Sadly, it appears that GWP is actively seeking to avoid public input into its FiT proposal.  Indeed, even at the City Council meeting scheduled for tonight, this is not noticed for a public hearing, rather it is simply an action item.

Comparable Fees? You Betcha!

There is one place where the design of the GWP FiT rivals that of its sibling - the magnitude of the fees being charged to participants.  For the sake of discussion, we will assume throughout a 100 kW project being proposed in both locales.  (GWP caps system size at 1.4MW compared to 3 MW in LADWP territory.)  Both LADWP and GWP will assess the same types of fees: an application fee, an interconnection study fee (to determine how much the project owner will have to pay to get connected to the grid) and a refundable deposit based on the size of the system and which is paid back when the project goes live.  Here’s the comparison between the two:

Initially the 100 kW project in LADWP will payout roughly twice what it will cost to proceed in GWP territory ($6,250 vs $3,135) but the bulk of that gets refunded when the project is online.  So the true comparison is the non-refundable fees and there the two are nearly identical.

GWP’s published materials provide no guidance on what the actual interconnection costs might be - which adds to the uncertainty of the application process and makes it harder for a project developer to predict what her total costs might be.  This was something that all of the stakeholders demanded of LADWP during the development of its program - but that does not appear to be a lesson GWP chose to learn.

Comparable Prices? Not so Much!

While the fees being charged are comparable, the price to be paid for energy is not.

LADWP came up with a simple and predictable method for pricing its program, starting with a Base Price for Energy (BPE) that would step down with each tranche.  To make sure that the ultimate price paid reflected the value of the energy being purchased, they also adopted Time-of-Delivery multipliers that increased the BPE by as much as 225% or reduced it by as much as 50%.  LADWP’s first tranche BPE was 17¢/kWh - and that sold out in two weeks.  The next tranche, set to open sometime in July, will offer a BPE of 16¢/kWh, and each subsequent tranche reduces by one cent.

The virtue of this approach is transparency and predictability.  A project developer who anticipates submitting an application for a project in the time frame of the third tranche knows exactly what her return will be.

GWP’s method for setting its price is the exact opposite: opaque and entirely unpredictable.  From the Council packet, here is their “formula":

(1) for energy delivered to GWP during the peak [offpeak] period, the avoided peak [ offpeak] period cost of energy that would otherwise be purchased from the spot or short-term market during the upcoming calendar quarter, using the MEAD_ ON [MEAD_OFF] forward curve ($/MWh), as posted by the lntercontinentaiExchange (Mead 230 Day Ahead Clearing Price) for on-peak and off-peak periods, respectively; plus

(2) the value of Portfolio Content Category One (PCC1) Renewable Energy Credits (REGs) based on recent actual transactions by GWP ($/MWh); plus

(3) the avoided greenhouse gas (GHG) compliance costs, which are the product of (a) the default carbon emissions rate expressed in carbon allowances/MWh times (b) the price of carbon allowances from the most recent auction conducted by the California Energy Commission ($/MWh); plus

(4) the value of avoided transmission and distribution losses that would occur if energy were purchased on the spot or short-term market and imported into Glendale (eight percent (8%) multiplied by the avoided peak [offpeak] period cost of energy).

The “formula” is to be calculated on a quarterly basis, presumably to provide a new value for FiT contracts entered into that quarter.  So how can our project developer plan against this formula?  She cannot, since every component is subject to market changes. Again, this increases the uncertainty around the program which will only serve to decrease participation.

GWP includes a sample calculation but commits to nothing, saying that the numbers offered are “illustrative only".  Here’s their chart:

This means that if this were the pricing calculation to actually be used, GWP would be paying between 7.251¢/kWh and 9.292¢/kWh - which makes it a way worse deal than simply having a commercial solar system on a net-metering agreement.  Oh wait, GWP isn’t offering commercial net-metering at this time.

The peak-time rate is paid, according to GWP’s materials, Monday through Saturday from six a.m. to 10 p.m., excluding holidays.  However, since solar power systems without storage do not produce energy outside of those hours, the only time off-peak rates will be paid are on Sundays and holidays.

This rate is way lower than even LADWP’s Ratepayer Advocate urged - which was a BPE of 11-12¢/kWh - based on his study of 30 MW projects.  And that BPE was still subject to adjustments of as much as 225% based on time of delivery.  LADWP’s General Manager warned his Board that a FiT set at that level would not be subscribed - again, a lesson that GWP has apparently not learned.

So why the difference?  The staff report notes that LADWP is higher (although it frames it in a way to make that as unclear as possible) but insists that “A simple comparison of GWP’s proposed FIT rates and those of other publicly-owned utilities is not possible, because these other utilities have adopted significantly different approaches."  Really?  Why is that, if they all must comply with the same state mandate?  As always, the staff report remains obtuse: “There are multiple reasons for these differences, both in methodology and assumptions about avoided costs."  But there is no discussion whatsoever about those differences or the justification for the radically different approach that GWP is proposing.

How does this compare in terms of actual amounts paid?

We previously calculated the earnings for a 100 kW system in Year 1 under LADWP’s FiT.  For a BPE of 16¢/kWh - the price to be paid in the second tranche - the project owner would earn roughly $25,200 in Year 1, or roughly $463,000 over the twenty year lifetime of the project (allowing for system degradation of 0.9%/year).

To calculate the corresponding payment under GWP’s proposal, we would need to take the total kilowatt hours produced by the system and determine what percentage of those fall on holidays or Sundays.  Looking at 2014, there are 10 federal holidays, none of which occur on Sunday.  There are 365 days in 2014 (i.e., it is not a leap year) and so the total number of off-peak days would be 62, 52 Sundays plus 10 holidays.  Our 100 kW system oriented at 180 degrees with a 10 degree pitch will produce roughly 152,000 kWhs in Year 1.  Thus, the payment calculation is as follows:

For the exact same energy, our project developer is only going to earn 54% of what they would have made building the system in LADWP territory.  Over the course of 20 years, that is more than $213,000 less revenue to the hapless project developer who chooses to build her project in Glendale.

How do these systems compare in terms of Return on Investment?  Assume that our project developer can have her 100 kW system built for $4.00/Watt, making the install price $400,000.  Factoring in an Operations & Maintenance expense of 0.5% of cost/year and tax rates of 39% federal and 10% state (applied solely for calculating the benefit of depreciation), yields an Internal Rate of Return of 11.1% with Payback in Year 6.  Net earnings after 20 years (not adjusted for inflation) are $300,000.

But what of that same investment in Glendale?  Now the IRR drops to just 4.1% with Payback taking twice as long, occurring in Year 12.  Net earnings after 20 years?  Just $87,000.  So what project developer would choose to devote her energies - sorry, pun intended - into building her system in Glendale?

Of course, perhaps this is intended for folks playing at the upper limit of what is allowed - a 1.4 MW project - of which there could be exactly three in GWP territory at which point the entire FiT would be subscribed.  Assuming a conservative economy of scale and imagine that such a project developer could build his system for $3/Watt.  For such a developer the financials improve significantly with the IRR moving up to 7.1% and Payback in Year 8.  Net earnings after 20 years? $1.8M.

So… if you are a high roller developer your investment of $1.4M earns you 43% after 20 years but the little guy earns half of that.  The message seems clear: little guys need not apply.

What’s the Point?

Part of the point of the statute that demanded that GWP provide a Feed-in Tariff was to incentivize solar at all sizes.  Why?  Because small projects provide benefits that larger project do not, such as small business development and local jobs.  LADWP recognized that - and created a carve-out in their proposal to insure that small projects would be built throughout the City of the Angels.  Yet another lesson that Glendale failed to learn.

Having eschewed public input into the process of developing its FiT, GWP has sent the unmistakeable message that it simply does not care what the public thinks.  The program that it has proposed will empower just a handful of large-scale developers - if even they elect to participate.  But having waited until the last minute, GWP has put the City Council in an awkward position - it is unlikely that any Councilmember understands the nuances of this proposal well enough to push back and even if they did, how are they going to demand meaningful changes when staff has effectively managed to run out the clock?

It is unfortunate that in a city about to face a significant rate increase from their city-owned electric utility, this is the only game in town.  There is no commercial rebate program in Glendale, even though such programs thrive just down the road in Pasadena.  At best, this is an unfortunate missed opportunity. At worst, it is way worse.  It will be interesting to see who submits FiT applications when this program finally goes live.

ExxonMobil CEO, Rex Tillerson - whose name and position inevitably conjures images of dying dinosaurs - emceed the company’s annual shareholder meeting this past week and he had some blunt words for those who were advocating for a resolution on reducing greenhouse gas emissions - forget about it, we can’t get there.

Mr. Tillerson responded to questions from proponents of the resolution - which Management had recommended be voted down - during the open comment period before the vote.  When asked about the problem of exceeding 350 parts per million CO2 - the limit widely acknowledged as the threshold for preventing significant climate change - he replied:

Well, I can not conclude there is something magical about 350 because that suggests these models are very competent and our examination of the models, are that they’re not that competent…

We do not see a viable pathway with any known technology today to achieve the 350 outcome that is not devastating to economies, societies, and people’s health and well being around the world. You cannot get there.

When he speaks of steps that might be “devastating to economies” he is deathly serious:

We do not have a readily available replacement for the energy that provides the means of living that the world has today, not our standard of living but equally, if not more importantly, a standard of living that more than 2 billion people on the planet are below anything any of us would find acceptable from a poverty, hunger, education standpoint.

How do you want to deal with that great social challenge?  To what good is it to save the planet if humanity suffers in the process of those efforts when you don’t know exactly what your impacts are going to be?

(Rough transcript here - edited for accuracy based on audio, starting 1:39 in.)

The irony here is pretty intense - Mr. Tillerson is only focused on the risks associated with reducing the use of his company’s products - but he glosses over the impact that climate change is having now, and will have in the future.  It is insulting to suggest that he, or ExxonMobil, is actually concerned with raising the standard of living of the billions to which he refers and yet they are exactly the people who will suffer the most from fossil fuel-ed climate change.

Instead, Mr. Tillerson expounds on his “faith” that technology will allow us - or at least the First-Worlder’s amongst us - to adopt a “mitigation and adaptation” approach to dealing with climate change.  That might work in Dallas - where the meeting was held - but it is a death sentence for say, the Maldives.

Taking comfort in his words, the shareholders dutifully voted down the resolution 73 to 27%.

We had our best month ever in May for traffic to our website, setting records for visits, unique visitors and page views.  The chart below documents the comparison between the best month of 2013 (ytd), 2012 and 2011 for those stats as well as blog posts and posts to the Run on Sun Facebook page.

We averaged over 132 visits per day during May, over the quarterly average of 122 which exceeds the first quarter average of 107.  And we did this without any paid advertising at all - sorry, Adwords.

Rather, this is the result of closing in on our goal of five blog posts per week - we averaged 4.74 posts per week during May, up from the quarterly average of 4.4 which is up from last quarter's average of 3.7.

Of course, we could write five times per day and it wouldn't matter without YOU, the folks who come and read these posts.  So thank you for taking the time to visit and read - and comment!  (Yes, like all bloggers, we love comments!)

Let's see what June has in store!

Nothing like a piece in the New York Times questioning the reliability of some solar modules to get tongues wagging and some pointing fingers at "Chinese dumping" while others tell us that solar technology is just not ready for prime time.  To us it raises a different question - does quality sell?

The article, titled Solar Industry Anxious Over Defective Panels, points to installations as close as the Inland Empire, having shockingly high failure rates after just two years of being installed. "Coatings that protect the panels disintegrated while other defects caused two fires that took the system offline for two years, costing hundreds of thousands of dollars in lost revenues." Wow - that is shocking.  So who made those defective panels?  The reporter doesn't say.

Nor are any of the problem panels alluded to in this story ever named, citing, in some cases, confidentiality agreements.

Which raises a serious problem with the article: if you cannot identify any of the solar module manufacturers that are having these problems you leave the impression that all solar modules are suspect. (Our analysis on who the guilty party might be is below...)

A quick perusal of the comments to the article reveals the predictable factions: those who echo the Fox News line that solar is a failed technology that only exists because of the Obama Administration's foolish indulgence in Green Tech; claims that all problems in the solar industry are a result of "Chinese dumping" and the associated China bashing; countered partially by a handful of comments from people who actually know something about the industry.

We find the Chinese bashing particularly problematic - after all, the Chinese are not putting a gun to any project developer's head and forcing them to use third-tier panels.

Greed is what is causing that.

We have been in business since 2006 and there have always been high quality solar panels available from reputable manufacturers - and they have always cost more than many of the panels offered to us for use in our projects.  Scanning the CSI data (see below) reveals that many projects - including many of the largest projects - were built using those "bargain basement" panels.  Why?  Because it maximized the project developer's profit.

This is not a new problem, despite it getting a major splash in the "Paper of Record."  Indeed, we wrote in the Spring of 2012 about how the decision by project developers to focus on the lowest cost per Watt "will continue to put undue pressure on quality manufacturers around the globe - whether in the US or China.  Consumer demand for quality is the ultimate way to improve this situation - and that means educating consumers as to what quality means in this market."  A year plus has gone by, but where has that educational effort been?  The need is as great - or greater than ever, but sadly, the NY Times piece fails on that score.  (If you want to read an earlier, and far more comprehensive article on this subject, check out this piece by the great Felicity Carus: Quality Issues Threaten to Give Solar a Black Eye.)

What's Up in the Inland Empire?

It's a Friday morning so we decided to indulge in one of our favorite pastimes and go diving into the CSI data to see if we could identify the guilty party alluded to in the NY Times piece.  Here is all they gave us to go on - the project has been in place for roughly four or more years (failed after 2 years, offline for 2 years), located in the "Inland Empire" and its downtime resulted in a loss of "hundreds of thousands of dollars" in revenue.  From that we concluded that we needed to look at systems from 2010 or earlier, in the Inland Empire - which we took to mean anywhere in the counties of Riverside or San Bernardino - and of at least 200 kW.  Those criteria provide us with 28 potential systems, built with solar panels from just seven manufacturers.  Here are our results:

What can we say about these manufacturers?  Well, certainly BP Solar, SunPower, Kyocera and Sanyo would all be considered top-tier manufacturers of solar panels - although BP is exiting the solar industry and Sanyo is now owned by Panasonic.

As for the others, Evergreen Solar was a US manufacturer that filed for bankruptcy in August 2011.  Solar Integrated Technologies was a subsidiary of Michigan-based Energy Conversion Devices which itself filed for bankruptcy in February 2012.  Solar Semiconductor is a vertically integrated systems provider with manufacturing facilities in India.

So who is the guilty party?  No way to know for sure, but a little online searching reveals other problems for one of these companies.  A September 14, 2012 article on the San Diego Union Tribune website documents problems with "Flawed Solar Panels" that were manufactured by Solar Integrated Technologies.  According to the article, the panels manufactured by the company, "had a manufacturing defect that allowed water to seep into crevices of the panels, which in some cases created corrosion and in the worst-case scenario could cause a short that could start rooftop fires" - which sounds a great deal like the problem cited in the New York Times piece.

Amidst the news that EV maker Tesla Motors had completely repaid its DOE loan (with interest, thank you!), the folks at Media Matters put together the video montage below showcasing how Fox News has treated the car maker over the years.  (H/T ClimateCrocks.)

Oh, and just a “head’s up” for the folks at Fox - people really, really do want to drive electric cars, particularly a Tesla!  If you are lucky enough to have one - or any EV for that matter - give us a shout and let us help you to fuel that sweet ride with clean, green power from the Sun!