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

06/07/13

  07:12:00 am, by Jim Jenal - Founder & CEO   , 745 words  
Categories: All About Solar Power, Solar News, LADWP Rebates, LADWP, Commercial Solar, Non-profit solar

LA Non-Profits Bid Solar Goodbye - UPDATE

UPDATE - We just learned that the Board hearing to discuss changes to the Solar Incentive Program has been rescheduled to Wednesday, June 19th at 9:00 a.m.  (Still at DWP HQ on Hope Street in downtown LA.)  We will not be able to attend due to a prior commitment with the USC Solar Decathlon team.  Anyone who does attend, feel free to pass on our thoughts below to the Board.


Solar is a great fit for non-profit organizations - environmental awareness and good stewardship of resources go hand-in-hand with the mission of churches and schools.  But because non-profits are unable to take advantage of tax incentives, their sole sweetener for going solar are utility rebates - and in the City of the Angels, those rebates are about to drop dramatically before they go away entirely.

Schools and churches in LA may soon be shut out of solar

Will Churches and Schools in LA be Shut-Out of Solar Soon?

LADWP’s Solar Incentive Program (SIP) has been divided into two pieces: Residential and Non-Residential, the latter of which was further divided between Commercial (applicable to taxable entities) and Non-Profit/Government (i.e., tax exempt organizations).  The Non-Residential program is being phased out in favor of the Feed-in Tariff program (about which we have written extensively).  The thing is - the price paid for energy under the Feed-in Tariff program is just too small to pencil out for entities that cannot avail themselves of the 30% federal Investment Tax Credit and depreciation - and unlike under the existing SIP which offers higher rebate rates for non-profits, the FiT only provides a single payment level regardless of the tax status of the entity.

Most non-profits are looking for modest-sized solar systems in the 30 to 150kW range.  That is too small to attract lots of financing options and the boards of many non-profits are reluctant to commit to long-term leases for a depreciating asset.

Bottom line - without the help of a generous rebate, many - if not most non-profits - will be left on the sidelines of solar.

Which makes the news coming out of LADWP all the more troubling.  We have learned this week that when DWP goes before its Board on June 18th, it will seek a final re-authorization of the Non-Residential SIP with a requested budget of $15 million and rebate rates of $0.70/Watt for Commercial and just $1.45/Watt for Non-Profits.  As bad as that reduction is, when that $15 million is gone, that is it - no further funding of the SIP is planned.

How big is the shortfall caused by the lowered rebates?  Assume two neighboring entities, one commercial the other non-profit, that want to install a 100 kW solar power system on their respective buildings.  If we assume that the install cost comes in at $4.50/Watt, they are looking at an initial outlay of $450,000.  The commercial entity will get a rebate of $70,000 and a federal ITC of $135,000 leaving an out-of-pocket amount of $245,000 - and that is before figuring in depreciation.  The non-profit qualifies for a larger rebate, $145,000 under the proposed rates, but that’s it - leaving them with an out-of-pocket expense of $305,000 - $60,000 more than their for profit neighbor.

This is curious and troubling since the LADWP website has indicated - at the same time that we were being given this information - that when the SIP program resumed in July it would offer non-profit rebates of $2.25/Watt - a rate which would actually make our hypothetical non-profit come out ahead.  A more modest rate of $2.05/Watt would allow non-profits, at least at this level of project size, to break even.

Rebates are intended to serve a number of purposes but one of those is to help make solar commonplace - to insure that systems are installed where they will be seen and understood to be reliable components of our future.  Given that, where should limited rebate dollars be spent: assisting cash-strapped schools and churches to install solar where congregants and students can learn the lessons of sustainability - or simply to aid some company in lowering its operating costs and boosting its profits?  (Don’t misunderstand - we are all for commercial rebates, but if it comes down to a choice, surely the non-profits are in greater need of the support.)

On June 18th DWP staff will present this proposal to their Board and perhaps these rates can be adjusted to give more help to non-profits.  That would be a welcome outcome, but even more welcome would be an acknowledgement by DWP that as their program plans presently exist, there will soon be no way forward at all for non-profits to adopt solar.

Surely that cannot be the desired outcome.

05/28/13

  07:40:00 am, by Jim Jenal - Founder & CEO   , 649 words  
Categories: GWP Rebates, GWP, Commercial Solar, Feed-in Tariff

Details Begin to Emerge on GWP FiT

“It’s been a long, time coming…” and we are just now starting to get some details about the state-mandated Feed-in Tariff program for Glendale Water & Power (GWP).  While there is more unknown than known, here’s an update on what we have learned so far.

Solar array from GWP website

Will GWP’s FiT Actually Support PV Like This?

As we have reported previously, GWP is under a state-law mandate to offer a solar Feed-in Tariff (FiT) program by July 1, 2013 - some 33 days from today. Keeping in mind that it took LADWP the better part of three years to design and approve its FiT does not fill one with confidence that GWP can go from having nothing in writing to distribute to the public to a successful program start in just 33 days.  (Of course, the law only requires that a program be “offered” - it says nothing about whether that program is designed in a way that gives it any chance of being successful.)

Despite having been told that public workshops would be held during May and June, it is clear that at least the May dates have gone by the board.  With the clock ticking, and nothing new on the GWP website about its FiT, we started combing the Glendale website for possible hints in the posted agendas for either the Water & Power Commission or the City Council - no luck.  So we decided to call the City Clerk’s office, because in any city, the City Clerk is the one person guaranteed to know what is going on.

Bingo!

We spoke with Michael Dunn who gave his title as Secretary to the City Clerk.  He informed us that indeed the FiT is scheduled to be considered by the City Council for the first time on June 18, with the second reading (and presumed adoption) one week later on June 25.  He also informed us that the Agenda, complete with downloadable materials, should be available to the public on June 13.  (You can access the Agendas for the Glendale City Council here.)  Of course, a first disclosure of a program as complicated as a FiT just 17 days before its state-mandated go-live date does not suggest that Glendale or GWP actually wants any input from the public.  Rather, this is a schedule that suggests that any public comment is entirely pro forma and whatever is put forward by GWP is what the Council will adopt.  (No doubt citing the state-mandated deadline as justification for taking the proposal “as-is."  Classic.)

Unfortunately, Mr. Dunn knew nothing more about the FiT himself, but he offered to send me to someone at GWP who might be able to answer more of my questions.  He transferred me to Victor Pacheco who gave his title as Senior Electric Service Planner.  Mr. Pacheco  told us that the program would be offered for projects between 30 kW and 1.4 MW capacity and that the program was limited to 4.5 MW total.  He was unable to tell us anything more about the remaining details of the program, such as the base price for energy to be offered, or whether time of delivery factors would be applied, or whether there would be any carve-out from the 4.5 MW total for smaller sized systems (as there is in Los Angeles).

He was able to tell us that a FiT Manager was going to be selected (apparently from existing staff) but no such appointment was yet in place.  Well, not like there’s any urgency here - after all, you still have 30+ days to figure this out - what could possibly go wrong?

As for public meetings to discuss the FiT, he was unaware of any and the only public meetings alluded to on GWP’s website concern their five-year, 24% proposed rate increase.  While the FiT is apparently bundled into that rate ordinance, it just doesn’t make sense to try and combine the two into the same public meeting.

As always, we will update this post as we learn more information.

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05/27/13

  02:37:00 pm, by Jim Jenal - Founder & CEO   , 284 words  
Categories: GWP Rebates, GWP, Commercial Solar, Residential Solar, Ranting

Glendale Braces for Five-Year, 24% Rate Increase!

We have just learned that Glendale Water and Power (GWP) is proposing some significant rate increases over the next five years with a Council vote tentatively set for August.

Glendale Water and Power

GWP’s proposed rate increase breaks down as follows:

  • 8% in fiscal year 2014;
  • 7% FY15;
  • 5% FY16;
  • 2% FY17 and
  • 2% FY18

Put that all together and you are looking at a 24% rate increase over the next five years, or 4.8% per year.  (By way of comparison, we generally assume a 4.5%/year rate increase for municipal utilities and 5.7%/year for SCE when we do our Return on Investment modeling.)

GWP is proposing to hold a series of public meetings during June to discuss these new rates.  From the GWP website, here is the presently scheduled set of meeting dates:

  1. Wednesday, June 5, 2013, 7:00 p.m. – 8:30 p.m.
    Dunsmore Park Community Room - 4700 Dunsmore Ave., La Crescenta, 91214
  2. Thursday, June 6, 2013, 7:00 p.m. – 8:30 p.m.
    Sparr Heights Community Center - 1613 Glencoe Way, Glendale, 91208
  3. Wednesday, June 12, 2013, 7:00 p.m. – 8:30 p.m.
    Police Community Room, 131 N. Isabel St. 91206
  4. Thursday, June 13, 2013, 7:00 p.m. – 8:30 p.m.
    Boy Scouts of America - 1325 Grandview Ave. Glendale, CA 91201
  5. Wednesday, June 26, 2013, 7:00 p.m. – 8:30 p.m.
    Glendale Youth Center - 211 W. Chestnut St., Suite 302, Glendale, 91204
  6. Thursday, June 27, 2013, 7:00 p.m. – 8:30 p.m.
    Pacific Edison Community Center - 501 S. Pacific Ave. Glendale, 91204

Unfortunately, at present the GWP solar program for both residential and commercial customers is “not available,” with the website advising interested residential customers to “check back again after July 2013,” but simply telling commercial customers that the “program is currently not available.”

Faced with a substantial rate increase - with 63% of that increase coming in the next two years - GWP customers should have the option to Go Solar NOW! Hopefully the process that implements these new rates will also provide some assistance for GWP customers who wish to do just that - we will keep you posted.

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05/24/13

  08:36:00 am, by Jim Jenal - Founder & CEO   , 1142 words  
Categories: Solar Economics, Solar Rebates, Solar Tax Incentives, Climate Change

Comparing Solar Bids - Part 4: ROI & LCOE

Our Four-Part Series on Comparing Commercial Solar Bids concludes today with Part 4: Comparing Return on Investment (ROI) and Levelized Cost of Energy (LCOE). (You can read our earlier installments here: Part One: Comparing Solar Modules; Part Two: Comparing Solar Inverters; and Part Three: Your Utility Savings Analysis.)


ROI

We learned in Part Three what should be contained in a Utility Savings Analysis - power and energy production over the system lifetime, savings in Year 1, and savings over the subsequent years as a function of guesstimated utility cost increases over time.  Given the energy saving starting in Year 1, the cost of the system, any Operations & Maintenance costs, the anticipated rebate from the utility, and the tax benefits anticipated for the system, your prospective solar contractor should map out for you the cash flows associated with your system.

The O&M piece is worth pausing on for a moment as the system design will play a major role in estimating what your annual O&M costs will be.  It is true that for the most part, solar power systems require little or no maintenance.  Indeed, the solar modules will most likely still be producing plenty of power long after everyone associated with the project is long gone!  (NREL has solar modules that have been producing power for forty years with no sign of stopping and the modules being manufactured today - at least from the top tier manufacturers - are of much higher quality than what was available in the 1970’s.)

The inverter(s), however, are another story.  There is a reason that central inverters and string inverters come with relatively short warranties - typically five years standard for central inverters and ten years for string inverters - and that reason is heat.  Since large inverters process very large amounts of power they also generate a lot of heat and that ultimately takes its toll on the electronics.  If you add in adverse environmental conditions - high humidity, dust, the occasional rodent, etc., and sooner or later that inverter will fail.  A proper ROI analysis will factor in the cost of inverter replacement over the lifetime of the project.  If the included warranty is ten years, then inverter costs should appear every ten years.  If the warranty is five, then replacement costs should be included every five.

Conversely, one of the main selling features of microinverters in the commercial marketplace is the length of the warranty provided.  At a full twenty-five years, that means that inverter replacement is covered over the modeled lifetime of the system.  (Of course, offering a warranty and being able to honor that warranty are two different things and there are few inverter companies that have been around for twenty-five years.)  If you can reduce or eliminate inverter replacement costs, that will have a significant impact on O&M costs over the lifetime of the system.

Other O&M items include system monitoring (if not included in the purchase price), security (if conditions warrant), and cleaning (a very nominal expense).

For commercial systems the O&M expense is often modeled as a percentage of the purchase price per year, rather than discrete payments representing replacement events.  In this way the O&M expenditure is actually more like a set-aside for a maintenance fund to be used as needed over time.  It should accumulate to at least the value of inverter replacement within the inverter warranty period.

The other wildcard element in this analysis involves calculating the cash value of any received tax benefits.  While we don’t provide tax advice (and accountants shouldn’t be designing solar power systems, either!), we can say that aspects of tax benefits to be considered are: the 30% federal investment tax credit, plus state and federal depreciation, the latter elements being a function of the tax rate of the system owner who will try to utilize the benefits.  Of course, if the client is a non-profit, there will be no tax benefits to consider - the primary reason why the payback on solar for non-profits is so much longer.

The final piece - the rebate from the utility - should be factored in either as a lump-sum payment if the rebate is an EPBB rebate, or in annual payments over time (typically five years worth) if it is a PBI rebate.  In California, these will be based on the output from the CSI rebate calculator, and those calculations should be made available.

Put all of that together over time and you have a series of cash flows, positive and negative, from which an Internal Rate of Return can be calculated and, more importantly, the payback period determined.  Keep in mind, however, that this calculation is dependent in part upon assumptions about utility rate changes which, while possibly quite accurate in the short term, become increasingly speculative over time.  Still, if the calculation is done in a manner where the assumptions are properly identified, the ROI calculation should provide a reasonable means of comparing competing bids as to relative value.

Levelized Cost of Energy

While it is common in the solar industry to express the cost of the system in dollars/Watt, that is a misleading statistic at best since it masks variables affecting real world performance.  A far better metric - and one that your installer should be able to provide you - is the cost per kWh for the energy that will be produced by the system over its anticipated lifetime.

The calculation is actually quite simple - determine the total out-of-pocket costs for the system owner over the system’s lifetime (including purchase price less rebate and tax credits, plus all O&M costs) and divide it by the total amount of energy to be produced (allowing for the system’s performance degradation over time).

We prefer this number because it reflects the real world performance and it allows for direct comparisons against the client’s previous costs for energy. Indeed, we typically find costs per kWh in the 8-10¢ range compared to utility costs of 15-25¢ starting in Year 1. But because the energy cost for the solar power system is fixed over its entire lifetime versus the cost of energy from the utility which is constantly rising (even if we don’t know how fast), the comparison is quite compelling.

LCOE illustration

LCOE: Comparing System to Utility Cost

Note that by applying an agreed upon (or at least disclosed) rate for utility increases, a graphical comparison over time can be produced – but the underlying LCOE is not at all dependent upon future utility rate changes.  This gives the client the ability to compare multiple proposal against a true value proposition – how much will the energy from the proposed system cost?  From a financial perspective, this is the best comparison point that we have been able to identify.  A potential solar contractor who balks at providing this should, you guessed it, be scratched from your list!


The preceding is an excerpt from Jim Jenal’s upcoming book, “Commercial Solar Step-by-Step,” due out in July.

05/17/13

  08:31:00 am, by Jim Jenal - Founder & CEO   , 488 words  
Categories: Solar News, LADWP Rebates, LADWP, Commercial Solar, Feed-in Tariff, Residential Solar, Non-profit solar

Tapping LA's Solar Potential

Drive the freeways, ride the train from San Diego to Union Station, or fly into LAX and you cannot miss the obvious - Los Angeles has tremendous, untapped potential for solar growth.  Now a new report from Michelle Kinman at the Environment California Research & Policy Center, seeks to layout the case for Solar in the Southland: The Benefits of Achieving 20 Percent Local Solar Power in Los Angeles by 2020.  Here’s our take.

Potential as Far as the Eye can See

It is beyond dispute that there is a huge gap between the amount of solar that could be supported in the Southland versus the amount that is actually, presently installed. As Ms.Kinman’s report makes clear, even in the City of Los Angeles alone, that gap is enormous, as illustrated by this graph:

LA's untapped solar potential is hugeCiting a study by UCLA’s Luskin Center for Innovation, Kinman reports that the rooftops just in LA alone could support some 5,500 MW of solar power - of which a paltry 68 MW is installed today.  That is a lot of potential. But Kinman’s report doesn’t focus on adding all of that - rather she has documented dramatic benefits that would follow from just reaching the goal of 1,200 MW by 2020.

In addition to supporting some 32,000 job-years of employment (thank you!), Kinman shows that installing that much solar would also have these benefits:

  • Reduce local air pollution and cut down on greenhouse gas emissions
    • This would be the pollution-reducing equivalent of taking 230,000 cars off the roads
    • 730,000 pounds of smog-forming pollutants would be eliminated
    • 1.1 million pounds of greenhouse gases would be eliminated
  • Reduce the demand for water - already in tight supply in LA - by displacing the need for energy from local gas-fired power plants, LA would save 435 million gallons of water per year.

Kinman insists that this is an achievable goal, but one that would take “clear, strong and consistent direction and support” from the Mayor and the City Council to LADWP.  Some specific policy prescriptions include:

  • Maintaining and expanding the existing Feed-inTariff program from the 150MW (targeted for 2016) to 600 MW by 2020
  • Expand net-metering and rebates under the residential Solar Incentive Program to reach 280 MW of capacity
  • Create specific policies to assist non-profits in adding solar since they cannot take advantage of tax benefits

Who Pays?

If we have one criticism of the report it is that it fails to identify funding sources - other than anticipated savings - to spur this growth.  For example, providing additional incentives for residential solar or expanding the FiT will come with a price tag.  Who is going to put up that money?  At a time when solar is under attack from investor-owned utilities for unduly shifting costs onto non-solar customers, the report misses an opportunity by failing to outline a mechanism to pay for its important goals.

Still, the report provides valuable documentation of the as yet unrealized benefits of tapping into LA’s solar potential; and in that it makes an important contribution to the ongoing policy debate.

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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.
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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