Would You Pay 30¢/month to bring
100 MW of Solar to LA?
Just when you thought solar was going to move forward in the City of the Angels, a snag arises in the form of a motion (sponsored by Jan Perry and seconded by both Bernard Parks and Mitchell Englander) to override the action of the LADWP Board and send the just-approved Feed-in Tariff back to committee.
Here is our Open Letter to the LA City Council explaining why we believe that the FiT program needs to go forward now, as approved by the Board.
Dear Members of the Los Angeles City Council:
As the owner of a small solar business located just up the road in Pasadena, I have followed with great interest the circuitous course that the City and its Department of Water & Power (DWP) took to arrive at a viable proposal for a Feed-in Tariff (FiT) program as required by State law. Indeed, I spoke before this Council in November 2011 urging the program’s prompt adoption. I attended numerous public workshops, providing extensive written feedback to staff and the public via my blog, and I testified before DWP’s Board of Commissioners regarding the FiT, most recently at the hearing when it was adopted on January 11, 2013.
All of us involved with this proposal - DWP staff, Commissioners, and interested members of the public - have been engaged on this issue for a very long time.
When the Board approved the program on the 11th, I wrote a series of articles about the FiT’s details and immediately saw a response from the public. In just the one week since the program was approved, I was contacted by three different potential FiT clients. In contrast, how much interest had I seen in non-residential solar in the City of Los Angeles in the six months prior? NONE.
As the Board had hoped in approving the program, the FiT has captured the attention of potential solar customers who until now have been sitting on the sidelines. We are finally poised to move forward in a dramatic way with commercial-scale solar in Los Angeles. Finally.
Yet now there is a Motion to send this program back to Committee - why? Apparently because the Ratepayer Advocate has claimed that the program is too expensive, but is that really the case? Please consider the following:
- Unlike your present rebate process for similar sized projects (i.e., between 30 kW and 3 MW), the FiT proposal requires no up-front, lump-sum payment to system owners when the project is commissioned. Rather, they only get paid for the actual energy that their systems produce and they only get paid that on a monthly basis. DWP and the City face zero risk here (unlike with your present rebate program) because if a system stops working, DWP doesn’t have to pay another dime. All of the risk is carried by the system owner who get reimbursed for the investment not right away, but slowly over the next twenty years. Properly structured that can be an attractive proposition, but it is anything but “easy money” or a “give away” of ratepayer dollars to solar system owners.
- Assuming for the sake of argument that the Ratepayer Advocate is correct in asserting that this program imposes an extra $100 million on ratepayers over the life of the program - what does that really mean? Since the program runs for 20 years, that equates to an annual cost of $5 million per year. According to the DWP website, the utility has 1.46 million electric customers which means that on an annual basis, each customer is paying just $3.42 to cover this program. Or put another way, that cost comes to just 28.5¢/month - less than the cost of the postage stamp a customer uses to mail in their payment. That doesn’t seem like such an exorbitant price to pay.
- Where does that $100 million go? It is true that the equipment that will comprise these systems is not built in Los Angeles, more’s the pity. But the workers who will assemble those systems and put them on roofs, or parking lots or fields will be from in and around LA. Same for the folks who will maintain the systems after they are installed. (If you gave preference to local companies from Southern California you could guarantee that even more of that money stayed local.) The profit from installing these systems also largely goes to business and building owners in the local area - all of which translates into more purchases of other goods and services in the local economy - and more tax revenue for the City.
- Way back at that November 2011 meeting, you approved DWP’s plan to conduct a “demonstration program” to “discover” the proper price to pay for the “true” FiT program which DWP would institute later (i.e., this one). So having paid for that demonstration, what did you “discover"? At least a couple of things, specifically:
- Adding uncertainty to a program seriously undermines participation in that program; and
- At a “discovered” price of 17.5¢/kWh - half a cent more than the present proposal - you managed to subscribe just 37% of the 10 MW target program capacity.
Now you want to subscribe twice as much, 20 MW in the first tranche, at a lower price than what you “discovered” and the complaint you have with the DWP’s proposal is that the rate is too high?
So why exactly are you ignoring the lessons that you paid to learn - and we all waited 9 months for you to discover - during the demonstration program? Apparently because a couple of anonymous sources told the Ratepayer Advocate that they could install 30 MW systems for 11¢/kWh!
There are two problems with relying on those hearsay assertions:
- First - they are hearsay and like all hearsay, provide a dubious basis for adjudicating the merits of a proposition;
- Second - the FiT simply doesn’t apply to systems larger than 3 MW and most of the systems will be significantly smaller than that. Of the three potential clients that have contacted Run on Sun about possible FiT projects, the largest was 300 kW - 100 times smaller than the 30 MW systems about which the Ratepayer Advocate spoke at the Board hearing - and the smallest was 75 kW. Projects of that size - which help grow local small businesses like mine - simply do not have the economy of scale to allow an investor to make an adequate return at a Base Price for Energy below that which is being proposed.
The LADWP’s FiT program will be the largest in the nation and cities across the country will watch to see if Los Angeles can take the lead and make this program work. Staff has worked long and hard to bring forward a viable program - with plenty of accountability back to their Board.
When this program is implemented, DWP will meet its State mandated FiT requirement while bolstering its RPS credits and reducing its dependence on polluting fossil fuels, the City will see increases in employment and tax revenues, and all of this will be accomplished for the price of a postage stamp.
Deals this good are few and far between; this one has been a long time coming. I urge you to Vote No on the Motion and let the FiT go forward as approved by DWP’s Board.
Jim Jenal, Founder & CEO, Run on Sun
The City Council will consider the Motion during their next regular Meeting (here’s the agenda) on Tuesday, January 22, starting at 10:00 a.m. The meeting will be held in the Council Chambers, Room 340 at City Hall, which is located at 200 N Spring Street in downtown LA. I will be attending and speaking (very quickly) and will report back on the meeting.
Frankly, we desperately need your support. If you believe that this program is worth the cost, then please make your voice heard. Here is the contact information for the Councilmembers who are behind this Motion (all phone #’s are area code 213):
And here is the complete contact info for every member of the LA City Council - please reach out to these folks and urge them to move the FiT program forward, now!
Perhaps it is obvious, but not every site is a good fit for the new Feed-in Tariff that was just adopted by LADWP. So who are the big winners here? And for that matter, who does the FiT leave on the outside looking in?
Here’s our take…
Let’s start with the winners. The biggest winner would be owners of land that was zoned in such a way that significant development was not possible - but for whom a ground-mounted array was viable, and the bigger the better.
Put that array on a dual-axis tracker and now you’ve really got something! There’s only one hitch - there is not a lot of land in LADWP territory that meets that description.
So who else wins? Well, the most likely winners are owners of large commercial properties with multiple tenants on “triple-net” leases. Since the building owner doesn’t pay the electric bill, historically such buildings were poor choices for a net metering arrangement.
The FiT changes that: now that dormant roof space - or perhaps that vast parking lot full of mandated parking spaces - can be turned into a revenue source for the next twenty years! Property owners and building managers should jump on this - some good money to be made by these winners, but they will have to act quickly.
The regular, net-metered, rebate program for non-residential customers is going away and people who were dependent on that as a means of making solar pencil out are the biggest losers here. Most specifically, that means non-profits who cannot take advantage of the tax incentives that help to make the FiT attractive. With the pool for all non-residential rebates limited to just $10 million (according to the Board discussion last week) in the period commencing July 1, those rebates will be sold out very, very quickly. Folks that miss the July 1 filing date will likely be the biggest losers of all.
(Los Angeles, 1/11/2013) The LADWP’s Board of Commissioners today unanimously approved a 100 MW Feed-in Tariff program (FiT) to begin this quarter. The program will initially pay 17¢/kWh for twenty years on projects ranging in size from 30 kW to 3 MW. We attended and spoke at the two-hour hearing; here is our report.
The DWP’s FiT is some three years in the making and is the largest program of its kind in the country. Unlike more conventional net-metering arrangements where a system owner offsets their own load first by the output of their solar power system and then sells any excess to the grid, in a FiT program like the one just approved, the system is tied directly to the grid and does not offset the owner’s usage. Instead, the system owner is paid for every kilowatt-hour of energy that the system produces over the lifetime of the agreement (in this case, twenty years). Also unlike most solar programs in the U.S., the utility does not pay a rebate to the system owner. Thus the economic viability of a FiT program is tied entirely to the price being offered for the energy being sold.
Determining what that price should be is key. Set it too low, and no one participates in the program. Set it too high, and the program is immediately fully subscribed and the utility’s rate payers end up stuck with an unjustified bill. To solve that problem, DWP Staff set up a demonstration program to provide “price discovery." It was not a resounding success.
Anxious that it could not reliably pick a defensible price point that would thread the needle of getting subscribers without gouging rate payers, DWP set up a 10 MW demo program last spring. However, since DWP was using it for price discovery, each proposed project had to set its own price and then DWP picked the successful bids based on lowest cost. Or at least that was the plan. Unfortunately, the program was far from fully subscribed: only 26 projects were initially proposed accounting for only 7.2 MW of the intended 10. Out of those 26, only 17 passed DWP’s screeners (worth just 4.6 MW) and as of today, 14 projects (from the original 26) are awaiting contract signing (despite the published “deadline” for contract execution by the end of November), amounting to only 3.7 MW at an average price of 17.5¢/kWh.
So… the demo program “discovered” that at 17.5¢/kWh it could only successfully subscribe 37% of the desired target - but the 100 MW program is going to start below that price and it hopes to be successful? Yet the primary point of discussion during the hearing was whether that starting price was too high. So much for learning from the demo program. Unfortunately, that is all the public has been allowed to learn from the demo program as none of the data collected from the various bidders - including the bidders who were rejected at the outset - has been made public. It would be very helpful for FiT program participants to see what caused these other projects to be rejected so that we could avoid repeating those mistakes. It remains to be seen whether that information ever sees the light of day.
The proposal from Staff is simple enough: DWP will allocate a total of 100 MW of capacity in five, 20 MW tranches, the first of which is to be initiated sometime this quarter with the remaining four to follow every six months thereafter. The goal of staging the program in tranches was to control the administrative burden on DWP staff (which is hiring 30 more people, mostly in the interconnection area, to allow them to operate this program).
Given the well-publicized problems that DWP has had with backlogs on its solar program in the past, the staged approach probably makes sense.
The first tranche (originally scheduled for January 1st) is now set to roll out sometime this Quarter (potentially as soon as February 1) with the following four tranches to follow in six month increments. The original proposal as documented called for splitting the first tranche with only the first 10 MW being allocated at 17¢/kWh. However, during the hearing, Staff urged making it uniform and the Board amended the proposal to allocate the program as shown above. (More on this below.)
The price in the table above is actually what is known as the “base price for energy” (BPE) because the actual price paid is subject to these Time-of-Delivery modifiers:
As a result, to determine the amount that will be actually paid, the developer must perform a month-by-month, hourly-output analysis of the energy to be produced by the proposed system. (Indeed, such an output analysis is a required part of the application process.) Our analysis suggests that the ToD multipliers increase the overall price paid by anywhere from 5.5% to as much as 9.8%, depending on the azimuth of the installed system. (While not all sites are amenable to such modifications, system orientation can play a significant role in the profitability of the site and the designer would be well rewarded for doing sufficient analysis to determine the optimal azimuth and pitch given existing site constraints.)
While projects from 30 kW to 3 MW are allowed under the program, each tranche is scheduled to have 20% (4 MW) set aside for small projects (30 -150 kW), meaning that such projects have a much greater chance of being included in any one tranche. In addition, small projects pay half of the fees charged to projects over 150 kW. (Thereby creating two “sweet spots” - one right at 150 kW and the other at the maximum system size of 3 MW.)
Only one project can be sited per Assessor’s parcel ID and all must be in territory served by LADWP. (Significantly, the project Applicant does not need to be an LA resident so out-of-town or even out-of-state landlords could convert underutilized land into a twenty-year revenue stream.) Projects need to go live within 18 months of signing their contract with LADWP, with a possible extension of another six months. Eligible projects must not have received rebates or incentives under any other LADWP program and are expressly not allowed to participate in net metering.
A number of people spoke on the proposal, all but one supporting the program. Run on Sun was chosen to speak first, and we voiced support for the program while urging Staff to clear up a number of ambiguities, release the demo program data and make clear what would happen with the commercial net-metering program. Most importantly, we learned that DWP is planning to fund the commercial net-metering program in July with roughly $10 million at a rebate rate to be disclosed “soon". We anticipate that the commercial net-metering program will sell out immediately as of July 1, and that non-profit organizations should really focus on using that program (assuming that they receive a rebate premium as they have in the past).
Other speakers - from groups like the Sierra Club and the CLEAN LA Coalition - supported the program and praised DWP Staff while encouraging additional flexibility in the program. The sole opponent was a ratepayer who complained that the cost was too high.
In that, the speaker’s comments were echoed by Fred Pickel, Ph.D., Office of the Ratepayer Advocate. Dr. Pickel, who earns a salary of $237,000/year in his City post, complained that the BPE of 17¢/kWh was simply too high, citing unnamed “developers” who had come to him and told him that they could profitably build solar projects in the City for 11 to 12¢/kWh. Dr. Pickel declined an invitation to name those developers but he did indicate that they were associated with projects in the 30 MW scale. (He did not identify any of those projects; nor was it clear, though unlikely, whether any of them were built in the City of Los Angeles.) As a result of the unduly high BPE being offered, he claimed, LA ratepayers were being saddled with an additional $100 million over the lifetime of the FiT program.
Fortunately, the Board did not rely on Dr. Pickel’s “analysis” and turned instead to DWP General Manager, Ron Nichols to “put things in perspective." Nichols was nothing short of terrific, speaking with passion about the need for the FiT Program and pointing out that a program offered at 11-12¢/kWh would simply fail to be subscribed and DWP would fail to meet its Renewable Portfolio Standards (RPS) obligations. Moreover, the actual cost to ratepayers in the City was negligible - amounting to just 15¢/month for the average residential customer - a cost so low as to be exceeded by the cost of postage for mailing the payment. Moreover, by moving this program forward, residents of LA would finally “see what they are paying for” as solar installations blossomed throughout the City. It was a great response and it clearly moved the Board.
Throughout the hearing it was clear that the Board was concerned about the cost of the program, and the comments of the Ratepayer Advocate would have given them plenty of cover to reduce the BPE to a level that would have guaranteed the failure of the program. It was also clear that having spent this much time developing the program, both the Staff and the Board wanted to move forward with a program that would not only succeed, but send a message that the City of Los Angeles was serious about its Feed-in Tariff program.
As a result, the Board rejected (politely but firmly) the importunings of Dr. Pickel. More than that, they adopted the Staff suggestion that the entire first tranche of 20 MW be offered at 17¢/kWh (on a motion by Commissioner Parfrey and subject to a “friendly amendment” from Commissioner Moss requiring Staff to report on the program 30 days prior to the release of each tranche).
The ultimate vote was unanimous and now we are simply awaiting the actual “go-live” date to be announced.
It was a long and difficult process to bring this program into being. We at Run on Sun participated in five meetings over the past two years; others, like the indefatigable Michelle Garakian of the CLEAN LA Coalition, participated in many more. Thanks to their hard work, and that of DWP Staff, this program is about to finally see the light of day.
But will it succeed? We predict a cautious yes. After all, this is still LA - the most difficult local jurisdiction in which to do solar and nothing in the FiT will make that easier. (Indeed, if anything, there are now substantially more hurdles to surmount than with a net-metered system.)
One thing is clear - the overarching policy mandate of the Renewable Portfolio Standard made a difference in getting this done as it gave the Board the cover that they needed to reject the Ratepayer Advocate’s call for a meaningless program, and allowed them to insist - correctly in our view - that the proposed pricing regime was necessary to meet their mandated RPS targets.
Along those lines the recently passed SB 1332 - which requires that all public utilities with more than 75,000 customers must have a FiT in place by July 1 of this year - also helped to make the case for action that much more compelling. (Hey Glendale - this means YOU! When will you roll out your program?)
Finally, it was the commitment of the Staff - starting with Ron Nichols but also including Senior Assistant GM Aram Benyamin and FiT Program Manager Anh Wood - that ultimately made the difference. It is easy to be critical of utility staff in this business, often with complete justification. But without the dedicated efforts of these folks (and many, many more behind the scenes) this important development would still be on the drawing board.
Now it is up to us - solar developers and installers - to make this program a success. We at Run on Sun are ready to go - if this program is intriguing to you, give us a call (626-793-6025) or fill out our form and let’s get started!
We have just learned that LADWP will be bringing their long-awaited Feed-in Tariff (FiT) program to their Board this Friday, January 11, 2013. The meeting will be held at LADWP Headquarters in Room 1555-H, beginning at 9:00 a.m. and it is open to the public. (You can see the meeting Agenda here - this is Item # 20.)
We will have much more to say about the proposal (and the process of developing it) after the Board meeting on Friday which we are planning to attend. If you have thoughts or questions about the proposal, please try to attend - or just let us know your thoughts in the comments.
We noted the other day the sizable purchase made by a Warren Buffett-related company in two solar power plants being built by SunPower. Good deal all around. But then we saw the news that lots and lots of folks proceeded to invest in solar module makers - as if that was what Buffett had done. (He hadn’t.) Was that smart? Some would certainly say, No! To which we respond, with solar as with anything else, investigate before you invest.
My dear sister has tried to get me hooked on Downton Abbey and as I watched the first episode of Season Three the other night, it seems that the Patriarch of the clan has managed to lose most of the family’s money by investing everything in one company that is now going bankrupt. Which brings me back to this cautionary tale about investing in solar module makers, such as Trina Solar. In a really scary story about what might not always be obvious to the casual investor (the “momentum investor” in the language of this piece), Richard Pearson over at Seeking Alpha writes about Trina Solar: As Debts Come Due, $14 Billion in Off-Balance Sheet Liabilities.
Seems that Trina is locked into some long-term supply agreements for polysilicon (the primary raw material for its solar modules) which are resulting in the company having negative margins on its products. In other words, they are losing money on every solar panel that they sell. Talk about not sustainable. Yet Trina’s stock price rose on news of the “Buffett” purchase and continues to rise. Have those investors seen this information?
There are lots and lots of reasons to be strong on solar as a technology, as a job creator, and as the way of the future. But if you are going to invest in solar companies - any solar company - you would be wise to make sure you really know what is going on. Or you might just lose your abbey.
(Disclosure: I have no position whatsoever in any solar company - other than Run on Sun!)
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