UPDATE: The folks over at 1 Block Off the Grid have a great infographic that does a fine job of putting the Solyndra situation into perspective. You should go check it out and then come on back here to see what we have to say. Go ahead - check it out - we’ll wait!
Unless you have been hiding in a cave lately, you have undoubtedly encountered the media orgy over the collapse of solar panel manufacturer Solyndra. Yet amidst much media hype - most of it driven for political gain - the fact remains that as to the overall solar industry, Solyndra just doesn’t matter.
Much has been written about the so-called failure of federal solar subsidies in light of Solyndra’s $535 million dollar loan guarantee debacle. Indeed, some would go so far as to demand that all solar subsidies should be abolished. To be sure, there are many, more reasoned voices explaining the error of such thinking, including at the NY Times, Time magazine, and the Washington Post, but the fact of the matter is that for most solar installations, loan guarantees play no role whatsoever.
Here is where federal money does assist solar power installations:
Collectively, these federal tax subsidies save residential clients thousands of dollars, and as much as 50% of the total system cost for commercial clients. As a result, these subsidies play a part in every solar project installed in this country and they have gone a long way toward making solar more affordable, particularly during difficult economic times. The money is distributed to all who qualify for it without favorites - mostly - and in terms of actual dollars, it represents a tiny fraction of the $$$ lavished on other players in the energy marketplace.
Against that backdrop of how most solar projects operate in this country, the top executives at Solyndra just pleaded the Fifth Amendment in refusing to answer questions posed by a decidedly hostile House committee. That is their right - enshrined in the Constitution, no less - and it does not mean that they are guilty of any wrongdoing. (Indeed, the lawyer in me notes that it would constitute malpractice to let your client testify before such a committee while multiple investigations are in the works.)
But the optics are awful.
Add this sad display on top of solar’s pre-existing PR problems and it is clear that, once again, the solar industry is in for some harsh words and tough times.
So what can the rest of us - who aren’t taking the Fifth but are actively promoting solar for our clients because we know that it is a great deal for them - do about this? Plenty. Here are some suggestions:
Solar is an exciting and dynamic industry and as such it has had and will continue to have winners and losers. But Solyndra aside, the future for solar is bright, and for those of us at Run on Sun, there’s nowhere else we would rather be - join us!
Back in July we reported on LADWP’s draft Feed-in Tariff program (FiT) and we noted that there was still a great deal of clarification needed. Today is the follow-on workshop (which we will be attending) and the preliminary presentation materials indicate some movement in the right direction with some issues still to be resolved. This post will highlight the changes that we have noted and we will report later in greater detail following the workshop.
In contrast to the plan that was discussed two months ago, the initial “Demonstration” phase of the program has been expanded from a total of 5 MW to 6 MW with 1MW carved out for so-called “small” systems - those between 30 and 150kW. (Overall the program is capped at systems < 1MW.) This was hinted at before and makes sense since it is not really feasible for the smaller systems to compete on cost - DWP’s primary selection criteria - against systems many times larger.
Beyond the change in the Demonstration program size, DWP’s materials identify four areas where changes have been instituted based on feedback from the July workshop. Specifically:
The timeline remains that DWP intends to seek City Council approval for the Demonstration Program during the 4th quarter of this year with program roll-out to commence in the first quarter of 2012.
If you are interested in attending today’s workshop (from 2-4 p.m. in downtown L.A.) you can read the details in our previous post.
We will keep you updated as the program evolves.
UPDATE x2 11/8 - Solar City’s Jonathan Bass adds his perspective on our reporting about Solar City - see his response in the comments.
UPDATE 9/30 - We just heard from Jonathan Bass at SolarCity. Details at the end.
(Still no word from Galkos!)
Editor’s Note: We have now done an updated analysis showing the same data from 2012. You can read our 2012 Outliers & Oddities here.
In the first two installments in this series (Part 1 and Part 2) we looked at the most recent data from the California Solar Initiative (CSI) covering the first half of 2011 in SCE’s service area. Using that data we identified trends in cost, equipment and system efficiency. Along the way, we stumbled upon some Outliers and Oddities in the data that left us puzzled and disturbed. In this post we name names, specifically Galkos Construction (aka GCI Energy) and SolarCity.
Before we explain to you why they are featured in this post, we would remind our readers of the Solar Bill of Rights created by the Solar Energy Industry Association (SEIA) in the Fall of 2009. We wrote at some length about the Bill of Rights when it was introduced, but we want to highlight now what then we termed to be, “the most important right of all:”
8. Americans have the right, and should expect, the highest ethical treatment from the solar industry.
Beyond a shadow of a doubt, this is the most important Solar Right of all if we are to build an industry that is respected and trusted by consumers throughout this country. This should almost go without saying - and yet, saying it, and living it, is extremely important.
In our view, if we become aware of situations that don’t live up to that Right, we have an obligation to point them out so that our potential clients can make the most informed decisions possible.
In honor of that principle we present today’s post.
In looking at the data, from time-to-time a data point would jump right off the screen. For example, examining all of the residential projects in our data - both “completed” and “pending” but excluding “delisted” - we find that the average installation cost in CSI Rating AC Watts is $8.43/Watt (in DC or nameplate Watts that average becomes $6.99). As we noted in Part 1, that number has decreased over time and also decreases as system size increases. Still, given that the residential sector (as designated in the CSI data) only consists of systems between 1 and 10 kW, you wouldn’t really expect significant price variation between installers over a six month period.
But you would be wrong.
Here is a chart of the Cost per Watt for the largest installation companies in the SCE service area (you can click on the chart to see it full size):
First, let us give credit where it is due. The low end outlier is HelioPower, Inc., at $6.56/Watt, and they did it with an efficiency factor of 87% - second best of anyone on that chart. Nice.
But who is that way off in left field? Coming in at a staggering $13.32/Watt - a full $1.40 higher than their nearest competitor and more than twice what HelioPower is charging - is Galkos Construction, Inc., also known as GCI Energy, out of Huntington Beach. For that money, they must surely be offering only the most efficient and sophisticated technology, right? Not so much. To the contrary, the average installation efficiency for Galkos is only 84.9% - the second worst on the chart and well below the average of 86.11%. In fact, 99% of the time Galkos appears to use Sharp panels - not exactly an exotic solar panel brand - and in particular the Sharp ND-224UC1 panel (66.5%). A quick Google search reveals that the Sharp ND-224UC1 can be purchased, at retail, for $2.65/Watt or less. Given that Galkos handled 400 projects in this data set, it is hard to believe that their price for all of their equipment, particularly the Sharp panels, would not be heavily discounted.
Quality, of course, is important, and the data does not reveal - though the Internet hints at - the quality of installations from Galkos. Here is how the company describes its own product offerings (from the “Services” page of their website):
Solar by GCI [Galkos Construction, Inc.] Energy
GCI Energy is the largest solar company in Southern California with over 30,000 customers. So you get the most knowledgeable professionals, excellent customer service and a better price.
GCI Energy solar offers the highest efficiency solar panels on the market - those manufactured by Sharp. With Sharp Solar Panels, GCI Energy can tailor a solar panel installation to your specific needs and lifestyle, so you get maximum performance without a maximum investment.
Does Galkos actually have 30,000 solar customers? Certainly not (nobody does). Are they providing “a better price"? It is not clear what their standard of comparison might be - but their price is not better than any of their major competitors in that chart. And of course, the statement does not define what they mean by “the highest efficiency solar panels on the market,” but it seems unlikely that Sharp would make that claim. Here’s one chart that concludes that they couldn’t (note the efficiency of the SunPower and Sanyo panels first, then search for Sharp).
All we can say in response is, caveat emptor.
Now we turn to the Oddities section of this post. Unlike the outliers, which were always of interest to us, we were not looking for the oddity we report here - it literally just jumped out at us.
Question: What is the difference in reported cost between systems sold directly to the end customer and those that are leased (i.e., have a third-party owner in CSI parlance)?
The initial difference that we stumbled upon was so startling that we knew we needed to narrow our focus and control for as many variables as possible to isolate that one factor. To achieve that end we restricted the data to those residential systems (i.e., between 1 and 10 kW) that were “pending” in the CSI/SCE data (thus, the newest proposed systems in the data which, based on our Part 1 analysis should mean the lowest cost systems). That way our project sample would be as homogenous as possible, eliminating cost variations based on system size and timing.
Given those restrictions, the top 5 installation companies in which the system is owned by a third party are: Verengo (482 systems), SolarCity (468), American Solar Direct (124), Sungevity (99), and HelioPower (63). Of those five, only two also have direct sales projects pending: Verengo (7) and SolarCity (9). Let’s see how they compare:
What is going on here? For Verengo, as the number of systems increases - which it does in going from sold systems to leased systems - their cost per Watt decreases - which is what we would expect. But not so for SolarCity - even though they are leasing 50 times as many systems as they are selling, their cost for the leased systems went up - way up - as in up by $3.12/Watt!
(One possible explanation for this discrepancy would be that SolarCity uses much more expensive equipment in their leased systems than they do in the ones that are sold. But they don’t. On their sold systems, SolarCity always selected a Fronius inverter and their panel choices were split among Yingli (56%), Kyocera (33%) and Sharp (11%). On their leased systems, SolarCity selected Fronius inverters 98% of the time and again split their panel choices among Yingli (68%), Kyocera (28%), and BP (3%) with the remaining 1% scattered among Suntech, Sharp and Sanyo. In other words, there is no significant difference in SolarCity’s equipment choices between sold and leased systems.)
Why does this significant cost differential matter, you might ask? After all, customers aren’t paying that price - they are paying on a lease so the “cost” of the system doesn’t matter to them, all they care about are their lease payments. True enough - unlike the case with our Outlier above, the end customer is not the victim here.
Recall, however, that for systems that are leased, the third-party owner - presumably SolarCity and its investors in this case - receives both the rebates and the tax benefits associated with the installation. While the rebates are independent of the system cost (they are paid based on CSI Watts), not so for the tax benefits. Commercial operators (even though these are residential installations they are treated as commercial projects for tax purposes) are entitled to both a 30% tax credit as well as accelerated depreciation based on the cost of the system.
For the 468 systems that SolarCity is leasing, their total cost is $24,261,735 to install 2,412 kW. If those installations were billed out at the $6.94/Watt they are charging for their sold systems, the installed cost would be $16,739,280 - a difference of $7,524,037. At 30% for the federal tax credit, taxpayers are giving SolarCity an extra $2,257,211 - just from six months worth of installs in only the SCE service area.
In the words of the 70’s pop song, How long has this been going on?
We decided to find out.
Although all of our analyses up until now in this series have been restricted to the first half of 2011, the actual data set contains entries from the inception of the CSI program. Thus we can look at all of SolarCity’s installs going back to 2007 and compare them as we did for the 1H2011 pending installs above. We will use the First Completed date to group these by year and analyze only “installed” - and not “pending” applications. Here’s the data:
The answer would appear to be, almost from the beginning! Back in 2007, Solar city sold ten times as many systems as it leased. By 2008 the ratio was down to 4-1 and ever since then leasing has been SolarCity’s predominant business strategy with the ratio of leased to sold now standing at nearly 16-1 in 2011.
What, then, is the cumulative impact to SolarCity’s bottom line from this trend throughout California? We aren’t in a position to calculate the depreciation benefits (since that is a function of the system owner’s tax bracket) but we can readily calculate the added value derived from the 30% federal tax credit due to this increased cost per Watt.
Here is our plot of the cumulative effect of those year-by-year increases:
After a slow start in 2007-08, SolarCity’s “model” really took off and has garnered the company an extra $3,000,000+ each year since 2009 (and, of course, 2011 is not yet over) for a total excess accumulation of $10,619,000. Depending on the investors’ tax bracket, the depreciation could be worth nearly as much as the tax credit.
We just heard from Jonathan Bass, Director of Communications at SolarCity who took exception with our report, although he did concede that he could see how we could have reached the conclusions we published in light of the CSI data. We encouraged him to please send us a written response in as much detail as he chose and we would publish it in its entirety. While he agreed that SolarCity would be publishing its response, he did not commit to publishing the information here.
In any event, when we hear more we will update this post again.
No doubt there is more that we could do with these revelations - but wouldn’t it be better for those with actual oversight obligations to examine this data as closely as we have and to take appropriate action?
As always, we welcome your comments - and if we hear from any of the folks named in this series we will be sure to update the appropriate post.
While we weren’t watching, the folks at Burbank Water & Power (BWP) pulled the plug on their solar rebate program, continuing the trend of on-again/off-again solar rebate programs at Southern California municipal utilities which has also included LADWP and Glendale Water & Power in the past year. Of the local munis, only Pasadena Water & Power has managed their program without interruption.
Here is the announcement from BWP’s website:
Due to the overwhelming success of the BWP Solar Support Rebate program and budgetary restrictions, effective April 21st 2011 the program has been suspended. Only those rebate applications in the on-line software PowerClerk with a status of “Confirmed Reservation” will be paid. These payments will be made when all remaining documentation is provided, but no sooner than July 1, 2011. All other solar rebate applications will be canceled and paperwork mailed back to the installer. Please check back to this web site in the spring of 2012 for a possible update. Solar Installers with customers that wish to proceed without a solar rebate should contact the program manager at email@example.com for details about the Solar Interconnection Agreement and other requirements.
Pardon us for a contrarian view, but when you have to suspend your program mid-year, it isn’t an “overwhelming success” — it is mismanaged.
Potential solar clients and solar companies alike need predictability - not programs that can simply disappear without prior notice.
Which brings us to another curious thing about this website announcement - it says that the effective date for the program suspension was April 21, 2011 but the earliest public disclosure that we can find about the change is this article in the local newspaper, the Burbank Leader, titled “Burbank Officials Suspend Solar Rebate Program,” dated August 30! Now it is true that we do not monitor the BWP website on a daily basis, but it stands to reason that if this suspension had been announced earlier, we would be able to find some notice of it online before August 30 - four months after the suspension date! (Interestingly, the last press release displayed on the BWP website is from April 22 but it says nothing about the suspension.)
If that timing is accurate, it means that solar companies could have been devoting time and resources in a tight economy to developing business in Burbank for a third of a year, only to have that expenditure rendered largely useless at the caprice of another muni utility that cannot manage its budget.
In our last post in this series we promised to “name names” in Part 3. Fear not - we are going to do exactly that but we have decided to push the publication date back to Tuesday, September 6 - the day after Labor Day and, as it turns out, our Fifth Anniversary! Why are we doing that? Well, we want to take the extra time to make sure we get this absolutely right. And besides, who releases a big story on the Friday before a 3-day weekend?
Still, we don’t want you to go away entirely empty handed, so here’s a bit of a preview of what is to come in Part 3 - Outliers & Oddities:
On Tuesday we will tell you who is associated with which of those bars - which range from an installed cost of $6.56 all the way up to an astonishing $13.32/Watt! Outlier indeed! (Full disclosure - our installed costs are lower than any of these!)
We will also be telling you about an oddity that we have discovered in the data about one particular solar company that we think will leave you scratching your head just as it has left us scratching ours!
So enjoy the last holiday weekend of the Summer and be sure to check back here on Tuesday!