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

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.

05/08/13

  07:34:00 am, by Jim Jenal - Founder & CEO   , 110 words  
Categories: LADWP, Commercial Solar, Feed-in Tariff

LABC Rolls Out Video on LA FiT

No entity did more to bring about LA’s Feed-in Tariff (FiT) program than the Los Angeles Business Council.  Now they have released a cool video (h/t KB Racking) that highlights the program and speaks eloquently as to it future potential.

Here’s the video:

We are heading toward the opening of the Second Tranche of the FiT program where a total of 20MW of production capacity will be available (4MW set aside for “small” projects between 30 and 150 kW) at a base price for energy of $0.16/kWh.

There is a fairly lengthy application process so folks who are interested in submitting for the Second Tranche are encouraged to contact us now.

05/07/13

  11:04:00 am, by Jim Jenal - Founder & CEO   , 856 words  
Categories: Solar Economics, Solar News, Commercial Solar, Ranting

SolarCity Litigation Update

As SolarCity prepares to release its financial statement for the first quarter of 2013 next Monday, we came across a couple of interesting items - actually one is interesting the other is more sickening - about litigation involving SolarCity.  The first of these was discussed in their last filing - it will be interesting to see how the second is treated in Monday’s.

SunPower v. SolarCity

We wrote back in February 2012 about a lawsuit filed against SolarCity by SunPower.  In that suit SunPower alleged that a number of its former employees were hired by SolarCity and that they took SunPower’s trade secrets to their new employer.  In addition to naming SolarCity as a Defendant, SunPower also sued the former employees, including Tom Leyden.  According to the Complaint:

35. LEYDEN connected at least three personal USB storage devices within days of leaving SUNPOWER. At least one of these devices was a portable external hard drive with 2 terabytes of storage capacity.

36. The forensic evidence indicated that LEYDEN copied at least thousands of files containing SUNPOWER confidential information and non-confidential proprietary information to these devices. These files included hundreds of quotes, proposals, and contracts, as well as files containing market analysis, forecast analysis, and business analysis.

37. LEYDEN also copied highly confidential data from the SUNPOWER database on www.salesforce.com. This data included information about major SUNPOWER customers accounting for over $100 million of sales throughout 201 I. The data also contained the name of the SUNPOWER employee that was responsible for these major sales. SUNPOWER is informed and believes, and thereon alleges, that this information allowed LEYDEN to recruit SunPower employees, including [others].

We wrote at the time that this sounded like pretty damning evidence against the individual defendants, but far less clear the degree to which SolarCity was liable, if at all.

SolarCity’s 10K, filed in March, in the section concerning Legal Proceedings, provides the conclusion to this saga:

On February 13, 2012, SunPower Corporation filed an action in the United States District Court for the Northern District of California (Civil Action No. 12-00694). The complaint asserts 12 causes of action against six defendants: SolarCity, Thomas Leyden, [others], although only the following six causes of action are asserted against SolarCity: trade secret misappropriation; conversion; trespass to chattels; interference with prospective business advantage; unfair competition; and statutory unfair competition.

Each of Messrs. Leyden, [others], or the Individual Defendants, are former SunPower employees, and at the time SunPower filed the complaint, each was a SolarCity employee…

In September 2011, we hired Mr. Leyden as our vice president of commercial sales; subsequently, his title was changed to vice president, project development. Mr. Leyden’s employment with us ceased on March 2, 2012.

The parties reached a confidential agreement to settle the action on December 31, 2012, and the lawsuit was dismissed with prejudice on January 28, 2013. The terms and amount of the settlement are not material to the Company’s financial position or results of operation.

(SolarCity 10K, filed March 27, 2013 at 36-37; emphasis added.)

Interestingly, while it is easy to find a SolarCity press release announcing Mr. Leyden’s hiring in September 2011, his subseqent departure - less than three weeks after the SunPower suit was filed - appears to have gone unreported.  As for the lawsuit itself, it dragged on for nine more months - until shortly after SolarCity’s IPO on December 13, 2012.

SolarCity v. The United States

So much for the interesting update.  The far more troubling story appears in today’s Wall Street Journal under the title: Solar Installer Sues for U.S. Grant Funds. While we had written before about how the U.S. Treasury was investigating SolarCity’s accounting practices - particularly as to how it was valuing its leased systems for purpose of claiming federal tax benefits - this was the first that we had heard that SolarCity had filed a suit of its own, claiming that the grant payments that it had received were not big enough!

Wow!  Proof of the old adage that the best defense is a good offense.  Let it never be said that the folks running SolarCity - and their lawyers - are timid.  Confronted with an existential threat to their business model - a well deserved threat in the eyes of some observers - SolarCity is turning the tables and suing to get even more money from the Treasury.

Curiously, there is no press release regarding this lawsuit to be found on the SolarCity website.  But there can be no dispute that the outcome of this suit - as opposed to the hushed-up settlement with SunPower - is material to the Company’s ongoing operations. As we reported last October, in its IPO filing SolarCity acknowledged as much, saying:

If it [i.e., the U.S. Treasury] were successful in asserting this action [i.e., that SolarCity was overstating the value of its systems], we could then be required to pay damages and penalties for any funds received based on such misrepresentations (which, in turn, could require us to make indemnity payments to certain of our fund investors). Such consequences could have a material adverse effect on our business, liquidity, financial condition and prospects.

This means that Monday’s filing of quarterly financial results will have to comment on this litigation and it will be interesting to see if the subsequent investor conference call extracts more information from management.  Should make for an interesting news day.

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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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