We have been teasing out bits and pieces of our new book, Commercial Solar: Step-by-Step, all summer as we neared the end of the publication process. Well today we can formally announce that it is available both at the Run on Sun Publishing eStore (where we get a better royalty - hint, hint!) and on Amazon.com!
Commercial Solar is intended for two primary audiences:
As the title suggests, the book provides an overview of the process by which an interested party - say, a facilities manager - can go from knowing next to nothing about commercial solar to identifying appropriate contractors to provide bids, analyzing those bids to make meaningful comparisons, determining financing options that are appropriate and even overseeing the actual installation process.
The book features a Foreword written by Boaz Soifer, VP of Sales at Focused Energy:
The material could be dry (much of the reading on this subject is), but is instead casual but precise, clearly laid out, and made accessible through handy use of a narrative in which the Facilities Manager of a fictional company undertakes a commercial solar project himself…
In his typical style—approachable, honest, quirky, and occasionally scathing—Jim has thoughtfully flattened out the complex world of commercial solar PV into an understandable roadmap that anyone can follow to project success.
Interested? You can download a two-chapter excerpt of the book for free, here. Better yet, you can purchase the book today from either our eStore or Amazon for just $9.95. If you are interested in bulk sales (i.e., ten or more copies), discounts are available. Please contact us at Bulk Sales for more information.
And of course, we welcome your comments either here on the blog or at Amazon. Thanks for your support.
In Part 1 of this series on financing commercial solar power systems we explored the basics - cash purchases and commercial loans. Part 2 examined the pros and cons of solar leasing arrangements and Power Purchase Agreements (PPA’s). Today we conclude the series by looking at a couple of more novel approaches: Commercial PACE and Crowd Funding, as well as some overall financing limitations.
Another option that is starting to appear is PACE financing. PACE – which stands for Property Assessed Clean Energy – operates in cooperation with a local government, typically a city or county, that agrees to finance solar power systems through the sale of municipal bonds. Investors purchase the bonds and the proceeds are used to pay for the installation of the solar power system. The government entity imposes a lien on the property to be paid back over time as an assessment on the annual property tax bills. If the client chooses to sell the property, the obligation “runs with the land” and is assumed by the new owner (who, of course, also derives the benefit from the solar power system).
Under PACE, there is no personal obligation on behalf of the solar client so neither corporate nor personal credit is at issue. In theory, PACE has the potential to greatly increase the number of entities that could qualify for solar financing.
Unfortunately, to date PACE has yet to live up to its potential. Jurisdictions have been slow to adopt PACE programs and even in cities and counties where it has been adopted – such as in Los Angeles County - the pace of PACE-funded projects has been depressingly slow. Part of that is due to the reluctance of some investors to get up to speed on the benefits of PACE as an investment vehicle, and the (perceived, if not real) inability to resell PACE investments in the secondary market.
The latest trend to hit solar financing is that offered by companies like Solar Mosaic which provide an online platform intended to bring together individual investors with selected solar projects. At the Solar Mosaic website, potential investors can review projects and invest however much they choose, in $25 increments. However, investors must be “qualified” per SEC rules based on income and/or net worth (without counting autos or residence). Investors who do not satisfy the qualification criteria have their total investment in any twelve months capped at $2,500.
By the end of May, 2013, Solar Mosaic had reported funding fourteen projects worth a combined investment of $2.1 million. The loans being provided by Solar Mosaic, however, are not covering the full cost of the systems being built. Rather, they appear to be limited to something on the order of 25% of the total project cost.
Solar Mosaic offers an innovative, if limited, model for solar project financing. It will be interesting to see if the crowd funding model succeeds with solar and expands over time as well as whether competitors, like UVest Solar, can build on what Solar Mosaic started.
Regardless of the financing vehicle – other than cash purchases – there are some common limitations as to the applicability of any of these methods. The most common impediment is the size of the project. Because all of these financing methods involve some amount of overhead, typically small projects are harder to fund, with project thresholds of $150,000 or even $250,000 being common. While these limits aren’t a problem for mid-sized commercial projects, they can effectively leave small commercial projects in the 30-60kW range unfunded.
The credit worthiness of the solar client is also a consideration for each of these methods except PACE. Non-profit organizations might find themselves shut-out of all of these funding methods because of concerns for longevity in some cases or simply because they do not pay property tax bills (a deal breaker for PACE programs).
Since non-profits do not qualify for tax benefits, their cash flow improvement is not as great as it is with their for-profit neighbors. Moreover, whereas a small commercial customer might be able to secure a loan by making a personal guarantee (indeed, that may well be required), with a non-profit organization there is likely no one in a position to make such a guarantee.
More creative approaches may therefore be needed for non-profits. For example, some non-profits are fortunate enough to have endowment funds that are restricted in how they can be used, but which might exceed many times over the cost of the proposed system. Diverting some of those funds into a separate, interest-earning account against which the lending institution can attach a lien provides adequate collateral for the lender, with possibly acceptable risk to the endowed funds.
Non-profits that are not so well endowed, but which have a well-established donor base could consider the possibility of creating a free-standing, for-profit corporation to own the solar power system and to provide a PPA back to the system-hosting non-profit. Since the for-profit owning entity can secure tax benefits, it can make the venture financially viable even if conventional funding cannot be found.
The preceding is an excerpt from Jim Jenal’s upcoming book, “Commercial Solar: Step-by-Step,” due out in July.
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.
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?
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.)
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.
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 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?
Year-end is often a time for retrospection, and few things are more popular this time of year then Top 10 Lists (unless it is kissing under the Mistletoe - to which we say, feel free to combine both!). We decided to look back over our dozens of posts this year and highlight the 10 most popular based on our viewership data.
Each of these posts was viewed more than fifteen hundred times - which leaves us both humbled and very thankful indeed.
So here they are, our Top 10 Posts for 2012 (click on a title to read the post in full)…
One of the big stories of the year has been the on-again, off-again, on-again story of SolarCity’s proposed Initial Public Offering. While cleantech IPOs have not been a very pretty site, there was much buzz about the SolarCity IPO as being a potential bellwether for a change in “green” fortunes. SolarCity’s original confidential filing with the SEC coincided with a remarkable repricing of their systems as recorded in the CSI data:
By the time the IPO was publicly revealed in October, it was clear that one of the major risk factors facing potential investors was how the U.S. Treasury would treat the question of how SolarCity had valued its systems for purpose of claiming federal tax dollars. A question, which we would note, still remains to be fully answered but the preliminary indications are not good for SolarCity and its existing investors. For example, SolarCity revealed that for a limited number of systems, Treasury had reduced the allowable price per Watt from $6.87 to $6.00 for California systems and from $6.20 to $5.00 for Arizona - reductions of 12.6% and 19.3% respectively. When applied to the $341 million SolarCity says it has claimed so far, that could be a $43 million haircut.
As of this writing, SolarCity is now saying it will go forward with a revised offering at $8/share - down nearly 43% from the midpoint of its earlier proposed range of $13-15. Stay tuned, this story is far from over.
In an election year it was not surprising that some echoes of that contest found their way into the posts for this blog. One interesting point was the survey data about the popularity of solar among voters. Didn’t really matter what your party affiliation, solar beat out all other forms of energy - heck, solar was more popular than chocolate!
Not that you could guess that based on some of the press coverage of the industry which seemed to have only ever heard of one solar company - Solyndra!
But voters’ belief in solar included putting taxpayer money behind it. A full 64% of all voters - and an even more impressive 67% of the much courted “swing voters” - supported tax subsidies and other financial incentives for solar. (By contrast, only 8% of all voters supported continuing subsidies for the coal industry.)
One of the most written about topics on this blog has been the struggle to bring PACE financing to reality. PACE - an acronym for Property Assessed Clean Energy - is a program that allows a property owner to finance a solar project by annual property tax payments. PACE was all set to go in the residential market when Fanny and Freddy balked in the aftermath of the 2008 mortgage bubble crash.
But there is good news as the program has been revived for commercial property owners in LA County (and some surrounding counties as well). The county launched a website and interested potential clients can learn more about the program there. We are looking forward to doing our first PACE project in 2013.
Most residential and commercial solar systems make use of net metering - that is, the method by which a solar customer gets credit for excess energy produced by their system during peak output versus the amount of energy actually purchased off the grid. Those numbers are “netted out” and the customer pays if they are a net consumer and is given a payment (tiny though it may be) if they are a net producer. Good deal all around, yes?
Well, not so much, apparently, if you are a utility. Utilities in the state, particularly PG&E, have been trying to severely limit the number of solar power systems subject to net metering. But in an important victory for the solar industry, last June the California Public Utilities Commission ruled that PG&E’s proposed way of measuring that cap was incorrect and in so doing, substantially increased the number of systems that California residents and businesses will be able to install.
The utilities did get something in return, however, a study to be performed this coming year to assess the costs and benefits of “various levels of [net metering] implementation." This will be a very important study and it may well have far reaching impacts on the growth of solar in California. Needless to say, the solar industry will need to be heavily involved in monitoring this process as it is certain that the utilities and their lobbyists will be pushing hard to get a result in their favor.
One of the frustrations of running a solar company is that there are potential clients out there for whom their own solar power system simply cannot work. Their roof might be all wrong, or the shading from surrounding trees simply cannot be overcome. Or they might be renters, or a commercial business with a relatively small, weak, roof that doesn’t match their load. Whatever the case, but way more often than we like, we simply have to say no.
Community Solar - the goal of SB 843 - could go a long way toward solving that problem. Under a Community Solar program, a system developer could sell shares in the output of the system to any customer of the utility where the project is located. Those customers could purchase just the amount that they needed, unconstrained by the happenstance of roofs, or landlords, or loads. The system provides its power directly to the grid, and the utility bills the customers based on their share of the energy produced (much like the “green energy” that some utilities now allow their customers to purchase).
Up against the end of the legislative session and facing still opposition from the utilities and their allies in the legislature, SB 843 died in September.
The good news is that the bill is slated to be reintroduced next year.
We’d be lying if we didn’t admit that our favorite project this year - at least in terms of coverage on this blog - was our install at the Westridge School for Girls here in Pasadena. Seven different articles chronicled that project from our initial selection, to a series of step-by-step construction stories, to reporting on the accolades that the project garnered for both Westridge and Run on Sun.
Micro-inverter manufacturer Enphase Energy featured the project as one of their Projects of the Week, the City of Pasadena cited the project in selecting Westridge for a Green City award, and Pasadena Weekly put the project on the cover of their annual “Green Issue." Some great PR for a great project with a great client. We look forward to doing it again with the folks at Westridge real soon.
LADWP continues its slow march to rolling out a FiT and our #4 post detailed the latest status update from DWP. Alas, we still haven’t seen data from the demonstration project released and as near as we can tell, the “standard” contracts for those approved projects are still being finalized long past the October-November timeline that was announced with this update.
Will this program roll-out in January as scheduled? Seems unlikely, but stay tuned!
Voters in California put their votes where the polls said they would be - supporting Proposition 39 that would greatly increase funding for energy efficiency and green energy projects with 60% of the vote.
Amidst rumors of possible legal challenges, the fight over, and potential implementation of, Prop 39 will be one of the big solar stories in 2013.
Mega-home builder Centex of the Pulte Group has a problem with some of its highly-touted “solar homes” - the homeowners cannot use their solar power systems because of faulty roofing tiles that threaten to catch on fire. The manufacturer has gone out of business and while Centex has said that they will pay for repairs, they are asking homeowners to sign a pernicious release that could leave them exposed if there are problems with the repair down the road.
After we originally wrote about the problem, we were contacted by one of the homeowners asking for our help. We got Centex to admit that they might conceivably waive the release requirement but apparently only if the homeowner is willing/able to push back - hard. Frankly, we think that Centex should just step up and do the right thing - but if they are unwilling to do so, we sure would like to see the authorities provide whatever extra encouragement is needed.
Despite only being published a short time, this story jumped to be our second most popular post of the year and it would make our year to be able to report that this ultimately has a happy ending. We’re still waiting.
Once again, our most popular post for the year was our annual examination of the Outliers and Oddities as determined by analyzing the CSI data for the first half of the year. Since it was published on September 6th, it has racked up more than 4,000 views!
Of all that we reported on in this very lengthy (2795 words - yikes!) post, perhaps the most troubling was what we documented with this graph:
This graph shows how the extraordinary delays in installing systems by industry-giant SolarCity is retarding the progress of the industry in meeting consumer needs and in protecting the environment. Word to the wise, bigger isn’t necessarily better and “free” may not be all that it is cracked up to be!
That’s our recap on the year - our best year ever. We are really excited for 2013 as the economy continues to improve and we finally have the uncertainty of the past twelve months behind us, we are expecting great things from the year ahead. And, of course, you can continue to expect our mostly informed, somewhat irreverent take on all things solar. Thanks for your support and encouragement - especially you, Vick!
Amidst the multitude of measures on next Tuesday’s ballot, Proposition 39 has garnered little media attention. For proponents of renewable energy, however, it might be the second most important vote you can cast on Election Day. Here’s our take.
Prop 39 seeks to close a loophole in existing state tax law that allows multistate corporations to decide for themselves how to calculate their taxable income. Present law provides either of two methods, the “Three-Factor Method” or the “Singles Sales Factor Method” as explained by the independent Legislative Analyst:
Under Prop 39, the first method would be repealed and every multistate business would pay state income taxes based on the proportion of its actual sales in California. Frankly, this only seems fair - if a company is deriving 75% of its revenue from sales in California, why shouldn’t it pay taxes on that 75%? Moreover, the other method allows a multistate company to reduce its California taxes by moving employees or property out of the state - why would we want to provide a financial incentive for them to do that? Indeed, this is such a common sense modification to the tax code that, according to Prop 39 proponents, it has already been adopted by both red and blue states including New York, Michigan and Texas.
Ok, so this makes sense as a measure of tax policy, but why should renewable energy proponents be backing this measure? Simple — Prop 39 splits the money it raises for the first five years between the General Fund (which will boost school funding thanks to Prop 98 and help close California’s budget gap) and a special fund to support energy efficiency and alternative energy projects in the state. (After five years, all of the money raised goes to the General Fund.)
Specifically, Prop 39 would create the Clean Energy Job Creation Fund to provide financial support for projects at schools (including public schools, colleges and universities) and other public buildings as well as support for innovative public-private partnerships like PACE programs. The ballot measure also creates a Citizens Oversight Board to provide for audits of the program and complete documentation of how every dollar of the Fund is spent. (You can read the full text of Prop 39 here.)
Prop 39 has extremely broad support (see a larger list here) including from the following:
Here’s a one-minute video from the measure’s sponsor:
We hope you will join us in supporting this tremendously important - if largely unheralded - ballot measure.