Categories: Solar Economics, AB 811/PACE/LACEP Funding, AB 920 Payments, Feed-in Tariff, Solar Rebates, BWP Rebates, GWP Rebates, LADWP Rebates, PWP Rebates, SCE/CSI Rebates, Solar Tax Incentives

03/26/13

  10:57:00 am, by Jim Jenal - Founder & CEO   , 642 words  
Categories: Solar Economics, AB 811/PACE/LACEP Funding, Commercial Solar

Cracking the "Nut" - Financing Small Commercial Solar

Nutcracker ÖAM

You might think that the hardest part of a small commercial solar project (15-50 kW) is the actual installation - after all, installing solar does combine the two greatest occupational hazards to health: falls and electrocution.  But you’d be wrong.  You can guard against those.

No, the hardest part - after all the time and expense of finding your potential client and putting together a winning bid - is helping them figure out how to pay for it.

One Odd-Sized Nut

Small commercial projects are an odd-sized nut to crack when it comes to financing: at a cost of between one and two hundred thousand dollars they tend to be too pricey for an entity to just write a check, but they are too small to support more elaborate financing schemes which usually only apply for projects in excess of $250,000.  So what to do?

PAC’ing for a Solution

We have written a lot about PACE, and while we are excited about it as a concept, it doesn’t seem to be getting a lot of traction. 
For one thing, many non-profits (a niche of ours) don’t qualify since they don’t pay property taxes.  For another, a big part of Southern California has failed to get on the PACE bandwagon at all.  In particular, while Los Angeles County has a program in place, not every city has signed on (we’re talking about you, Irwindale!) and Orange County is a PACE black hole, with no activity there at all.  What is up with that?  (And please, don’t tell me this is a political thing - there is nothing more inherently conservative than putting your money into a near-zero-risk investment wth great returns.)

Don’t Bank on It

Similarly we find it odd that local banks aren’t reaching out to solar companies to work with them on financing these projects with conventional, low-interest loans.  After all, installing solar helps to reduce a company’s operating costs in an area of greatest volatility.  (You did hear that SCE is raising its rates on average by 17.2% over the next three years, right?)  So financing such an improvement means that the local bank is creating a more stable company in their community - which means that they will be more likely to stay in business and remain a customer for longer - which is good for everyone, right?

And what of the national banks?  Why aren’t they reaching out to local companies and not just the giant players?  A year ago we participated in a small business contest sponsored by Chase bank.  We easily collected the required number of online supporters to qualify (thank you!) and while we didn’t really expect to win, we certainly expected to hear from Chase about how they could work with us going forward.  Well we were half right - we didn’t win.  But as for follow-up from Chase?  Zilch, zero, nada.

Lost in the Crowd

A Twitter friend reminded us of Mosaic, the crowd-funding service for financing solar projects so we went to their website to check them out.  This is a curious thing.  For one thing, the website disclaims their service from being crowd funding, saying:

Mosaic’s services do not constitute “crowd funding” as described in Title III of the Jumpstart Our Business Startups Act ("JOBS Act").

We aren’t sure what that means, but it is, at best, counter intuitive.

For another, we couldn’t find anyway on the website to submit information about a potential project that you wanted to get funded.  The best that we could do was find a “support” email address which produced an auto-response but as of now, nothing else.

What We Need

What is needed for small commercial projects is a simple and elegant tool like the one displayed at the start of this post.  Minimal paperwork.  Reasonable cost of capital given the exceptionally low risk.  Quick approval times.  Surely someone can help us crack this nut?

03/20/13

  09:40:00 am, by Jim Jenal - Founder & CEO   , 474 words  
Categories: Solar Economics, Solar News, Ranting

Do We Really Need More Solar Companies to Fail?

Suntech logoOver at the MIT Technology Review they are running a provocative piece that seeks to explain “Why We Need More Solar Companies to Fail."  (H/T Mashable.com)  The premise is intriguing, but the biggest problem is that those who fail may well be the wrong companies.

The article makes the case that:

If Suntech fails and shuts down its factories, that might not be a bad thing. Some industry experts say that hundreds of solar companies need to fail to help bring solar panel supply back in line with demand. That would slow the fall in prices and, as demand recovers, allow companies to justify buying new equipment and introducing the innovations that will ultimately be needed for solar power to compete with fossil fuels.

Now those all might be reasonable things to wish for and anyone who has ever attended Solar Power International knows for a fact that there are way too many solar panel companies out there.  But here’s the thing - do we really want Suntech to be one of the companies that fails?  Suntech makes a top-tier panel and has devoted substantial revenue to R&D. Should we really be sanguine over their (potential) demise?

Ironically, the same MIT Technology Review touted Suntech’s R&D spending back in 2010.  Back then they were reporting how Suntech was well positioned to deal with upcoming changes in the market and they quoted Suntech’s Chief Technology Officer Stuart Wenham as saying:

“The industry was getting into a situation two years ago [2008] that was getting to be a little unhealthy,” Wenham says. “The demand was so much higher than the supply that it was possible for people to enter the industry, and enter manufacturing, without even having a decent product. Whatever product they could produce they could sell at a significant profit, even if it was a poor-quality product.”

Now, however, even if the solar market were to double this year and next, the silicon suppliers would have no trouble keeping up, which will help keep prices for solar panels relatively low, Wenham says. In that scenario, only the companies with the best technology will be able to sell their products at prices that are high enough to make a decent profit. “Those that don’t have good technology will probably end up being bought up by companies that do,” he says.

Alas, having a good product is not the ultimate hedge against rapidly declining prices.  But it is simply not a good thing to see cheap beating out quality.  At least not on our installs.

Happily for us, the folks over at LG Electronics do not appear to be having similar problems and their new NeoN panels are set to appear on the CEC’s approved list of solar panels on April 1.

Here’s hoping that for every quality manufacturer like Suntech that falters, a hundred fly-by-night outfits will disappear forever.

03/07/13

  02:44:00 pm, by Jim Jenal - Founder & CEO   , 551 words  
Categories: GWP, Feed-in Tariff

Glendale Feed-in Tariff Update

The City of Glendale is under a legal mandate to offer a Feed-in Tariff (FiT) program to its customers by July 1 of this year - but as yet, no information about a proposed program has been made public.  Given that LADWP literally took years to develop its program that just began in February, Glendale’s silence raised serious questions over whether they would be able to produce a viable program before the deadline.  Today we got a tiny glimpse at the process - here’s our update.

We have been trying to get information from GWP about their mandated FiT program since January.  At that time we were informed that GWP was “conducting a rate design study” but that the study had not been made public “because it still [is a] work in progress."  However, when we pressed for information about when the study would be made public, we received no reply.  (Indeed, as of this writing that study has still not been made public.)

We then tried to contact the City’s Commissioners who oversee GWP, specifically sending emails to Commissioners Yao, Dentler, Chan, Armenian, and Adjemian.  Sadly, the email addresses for Chan, Dentler and Adjemian - which are set forth on the City’s website - bounced and neither of the other two Commissioners provided any reply.

Today we decided to take a different tack and we turned to Twitter to see if that would provide a means of generating a response.  Specifically, we tweeted the following:

@COGWaterPower - when are you going to release info about your mandated Feed-in Tariff program?

Score one for the power of Social Media as we got a direct message in response just 17 minutes later:

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

This was followed shortly thereafter with the following email from Hector Gutierrez:

Mr. Jenal,

As you are now aware per our response to your tweet today, the public meetings to inform our GWP customers of the new proposed electrical  rates will take place during the months of May and June. Our legal department is currently working on the Feed-in Tariff implementation process. All these issues will be presented to the GWP Commission and City Council for their approval, and put in effect on July 1, 2013.

Regards,

Hector Gutierrez

So, we still don’t know anything about the proposal’s specifics, but we do know that public meetings will be held in the two-months before the program is set to go live, which is more than we knew before.  Unfortunately, public meetings in May and June to be followed by votes by the GWP Commission and then the City Council does not really provide much opportunity for changes to the program before a mandated July 1 go-live date. Moreover, it is curious that the public process would be framed as meetings to “inform our GWP customers of the new proposed electrical rates” as if only GWP customers were stakeholders in this process.

For now, we will hold our skepticism in check and await (eagerly!) news of the actual dates for the public meetings.  Once any additional information is made public, we will update you on developments.

Of course, if anyone out there has any additional insight into what is happening in Glendale, we would love to hear from you!

03/02/13

  01:31:00 pm, by Jim Jenal - Founder & CEO   , 380 words  
Categories: Solar Economics, Solar News, Climate Change, Commercial Solar, Residential Solar, Ranting, Energy Storage

The IOU's Dilemma: We're Just Backup!

Amidst the continuing sturm und drang between the solar industry and the Investor-Owned Utilities (IOUs), we came across this interesting piece over at REWorld documenting some revealing observations by Duke Energy’s CEO, Jim Rogers. Duke - the nation’s largest utility owner, sees the writing on the wall and is not sanguine about what it portends:

“It is obviously a potential threat to us over the long term and an opportunity in the short term… If the cost of solar panels keeps coming down, installation costs come down and if they combine solar with battery technology and a power management system, then we have someone just using us for backup,” Rogers said.

Rogers’ observation comes at a time when the conventional energy industry is facing “anemic” growth in power demand - due to increased efforts at energy efficiency and the growing impact of consumer-owned generation.  Since IOUs make a guaranteed return on investment in building, mostly, added power generation capacity, if there is no need for additional capacity, there is no basis for future returns.  Not a promising prognosis for an industry that has grown accustomed to those sweet, sweet guaranteed returns.

And that, in a nutshell, is the IOUs’ dilemma - as renewables become ever more cost-effective, and particularly once intelligent storage solutions become a part of standard solar offerings, the justification for the guaranteed existence of IOUs becomes weaker and weaker.  Contrast this with the municipal utility model which is owned by the city in which it is based and which exists for the benefit of its residents.  If their preference is for distributed generation, then the muni’s goal should be to facilitate the adoption of such systems.  Since its customers are also its owners, the interests are aligned.

But not so with IOUs who exist to make a profit for their shareholders and those interests are not necessarily aligned with those of the monopoly-provided customers they “serve".  Not surprisingly, it is the IOUs leading the charge against net metering and questioning the “fairness” of local solar power.

Which raises the question: Can we as a society afford to have IOUs anymore?  In an era of carbon-driven climate change, are IOUs a dinosaur determined to fight their extinction to the bitter end, even if they take th rest of us with them?

02/27/13

  08:58:00 am, by Jim Jenal - Founder & CEO   , 1328 words  
Categories: Solar Economics, Solar News, Ranting

Sunrun Gets Sued - But is a Bad Deal Deceptive? UPDATED x2

Sunrun logo

SECOND UPDATE - Over at PVTech, Felicity Carus has written about the Sunrun lawsuit and quoted Run on Sun Founder & CEO, Jim Jenal at length.  Here’s a link to her article: Solar lease companies face criticism over calclulating energy savings.

UPDATE - The lawsuit against Sunrun was covered in the March 1, 2013 issue of California Energy Markets (an independent news service from Energy Newsdata) and Run on Sun Founder & CEO, Jim Jenal, is quoted at length.  The article, titled Lawsuit Charges Sunrun with Deceptive Marketing, begins on page 8 of the attached pdf and Jenal’s remarks begin on page 9.


Solar leasing giant Sunrun now finds itself the target of a statewide, class-action lawsuit, alleging that its business practices in marketing residential solar leases are false and deceptive. But just because a lease is a bad deal for the consumer doesn’t make Sunrun’s marketing actionable or a lawsuit justified.  Here’s our take.

Readers of this blog will know that we are far from fans of residential solar leases.  In our view, those leases are a boon to finance companies but not such a great deal for homeowners.  By luring potential customers with the enticing prospect of getting something for nothing, residential solar leases have become the driving force in the residential market - even though the customer would be far better off financially if they purchased the system and collected the rebate and tax credit for themselves.

But the lawsuit against Sunrun does not allege that the Plaintiff, Shawn Reed, got a bad deal from the company.  Instead, the Complaint claims that:

The central premise of SunRun’s [sic - misspelled throughout the Complaint] uniform marketing campaign is that increases in electricity prices will result in cost savings by installing the SunRun Solar system.  But SunRun deceptively states with certainty something that is inherently unknowable.  Those whose electricity prices are not as high as estimated by SunRun are already experiencing the cost disadvantage of the SunRun system.  Others whose electricity prices will not rise as high as estimated by SunRun will experience the cost disadvantage in the future.  But whether the cost disadvantage is experienced or not, the promise of a system sure to result in cost advantage was false when made and likely to deceive consumers into leasing a system they otherwise would not have.

Complaint, ¶ 3 (emphasis added).

To be sure, there are other allegations in the Complaint, including the claim that Sunrun acted as a contractor without a contractor’s license and that Sunrun’s contracts are less than clear about whether a customer can terminate their contract when they move without penalty.  However, for our purposes we are only going to focus on the allegations about Sunrun’s “central premise” in their “uniform marketing campaign.”

Knowing the Unknowable

The gist of Reed’s claim is that Sunrun told him that his system would save him money - “tens of thousands of dollars” according to the Complaint - based on a prediction as to what future energy prices would do, namely rise.  Sunrun claims, according to the Complaint, that “Nationwide, electricity rates have been increasing 6% per year over the last thirty years,” but this, according to the Complaint, is itself deceptive, citing data from the California Public Utilities Commission showing the increase from 1982 to 2010 was only “3.25% annually.”

Leaving aside the nit of California data (cited by Plaintiff) versus national (allegedly cited by Sunrun), the larger question arises: what is a fair basis for predicting future costs of electricity?  After all, this is an issue that affects far more than solar leasing companies.  Every seller that markets a good or service designed to reduce your usage of grid energy - whether by generation or efficiency - makes assumptions about future energy costs as a basis for predicting your return on investment.  There simply is no other way to do the calculation. Are all of these folks engaged in “deceptive” marketing tactics?  As long as the assumptions are disclosed - and without seeing the contract at issue we cannot say whether they were or not - it is hard to see how even an erroneous prediction could be deceptive.

Moreover, anyone who has looked at a graph of the cost of energy in California over the past fifteen years knows that it more closely resembles a roller-coaster ride than anything consistent - what with a trader-generated energy “crisis” followed by the greatest recession in living memory.  With that much noise in the system, what is a “fair” prediction?

We know for a fact that SCE just secured a three-year, 17.2% rate increase from the CPUC.  That works out to 5.7% per year - pretty close to the allegedly “deceptive” prediction of 6% cited in the Complaint.  As California’s cap-and-trade law begins to be felt, it is expected that there will be more upward pressure on energy prices, yielding even greater cost increases in the future.  Add-in an economy recovering from recession and suddenly a prediction of 6% annual increases doesn’t seem to be particularly unlikely, let alone deceptive.

A Better Approach

Of course, asking a potentially unsophisticated consumer - no offense intended to Mr. Reed - to push back on the assumptions made in any ROI calculation may be asking too much.  But is a lawsuit really the best way to address this problem?  Litigation is a painful process which rarely provides societal benefits, and class-action lawsuits are often the worst of the worst with no one really benefiting - except, of course, the lawyers.

A better approach would be to see some appropriate legislation passed that would standardize the disclosures provided to potential clients by all solar companies.

There are plenty of examples that could serve as a model.  Think of shopping for a major appliance - when you go to compare two different refrigerators, you will see a prominent label that reveals how much energy each one will consume in a year and how that usage compares relative to other, similar units.  You will also see an estimated cost to run that unit for a year - with all of the assumptions set out on the label so that a GE product uses the same assumptions as one made by LG.

The time is ripe to devise a system by which any seller of solar power systems in California would have to provide standardized, regulated disclosures.

You could make it more palatable to solar companies by providing a “safe harbor” against deceptive business practice lawsuits like the one facing Sunrun - as long as the solar company provides the necessary information in a standardized manner, they would be deemed to have satisfied their disclosure requirements to the potential client.  (They could always add more information as long as it didn’t obscure the meaning of the required disclosures.)

This would also be a boon to consumers since a properly designed set of disclosures would allow competing proposals to be judged as apples against apples - something that is almost impossible to do now.

So what should those disclosures include?  Here is our (non-exhaustive) list:

  • Disclosure of all major system components (modules, inverters(s) and racking) including manufacturer, model, country of origin, price and warranty.
  • Disclosure of total system cost, including the total added cost of any financing being provided.
  • Disclosure of all assumptions included in any cost-savings projections.  For the controversial energy cost increase factor, the CPUC should provide annually updated figures based on historical data and any approved rate increases scheduled to go into effect.
  • Disclosure of the actual cost of energy produced based on total lifetime cost (including component replacements not covered under warranty and other required maintenance) divided by total energy to be produced (accounting for a system performance decline factor based on the module manufacturer’s performance warranty) over the projected 25-year system lifetime.

Such a law would work no hardship on reputable solar companies as we are already providing that information to our clients.  But putting it in a standardized format would move the solar industry forward and help avoid pointless litigation like that now facing Sunrun.  As responsible members of the solar industry, it is up to us to make this happen.

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Jim Jenal is the Founder & CEO of Run on Sun, Pasadena's premier installer and integrator of top-of-the-line solar power installations.
Laurel Hamilton is Run on Sun's Projects Coordinator, and together they author this blog.
Run on Sun also offers solar consulting services, working with consumers, utilities, and municipalities to help them make solar power affordable and reliable.

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