Thoughts on Solar by Run on Sun's Founder & CEO, Jim Jenal

Glendale’s proposed Feed-in Tariff combines all of the fee expenses associated with its Big Brother in Los Angeles with a payment rate that is just a fraction of what would be paid by LADWP.  What could possibly go wrong?

We have gone through the FiT proposal from GWP and it is as bad as we had feared.  Here are our thoughts and concerns.

Public? What Public?

We have been pressing GWP to provide us with details about their FiT since January.  Emails sent to members of the GWP Commission were ignored.  In March we received this Tweet in response to our continued questioning:

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

Well, meetings were held in June about GWP’s proposed rate increase, but they did not touch on the proposed FiT at all.  To the best of our knowledge, no public meetings of any sort have been held by GWP in preparing its FiT proposal.  Contrast that with the years of joint effort between LADWP and stakeholders to produce a program that managed to be over-subscribed in its first tranche.

Sadly, it appears that GWP is actively seeking to avoid public input into its FiT proposal.  Indeed, even at the City Council meeting scheduled for tonight, this is not noticed for a public hearing, rather it is simply an action item.

Comparable Fees? You Betcha!

There is one place where the design of the GWP FiT rivals that of its sibling - the magnitude of the fees being charged to participants.  For the sake of discussion, we will assume throughout a 100 kW project being proposed in both locales.  (GWP caps system size at 1.4MW compared to 3 MW in LADWP territory.)  Both LADWP and GWP will assess the same types of fees: an application fee, an interconnection study fee (to determine how much the project owner will have to pay to get connected to the grid) and a refundable deposit based on the size of the system and which is paid back when the project goes live.  Here’s the comparison between the two:

Initially the 100 kW project in LADWP will payout roughly twice what it will cost to proceed in GWP territory ($6,250 vs $3,135) but the bulk of that gets refunded when the project is online.  So the true comparison is the non-refundable fees and there the two are nearly identical.

GWP’s published materials provide no guidance on what the actual interconnection costs might be - which adds to the uncertainty of the application process and makes it harder for a project developer to predict what her total costs might be.  This was something that all of the stakeholders demanded of LADWP during the development of its program - but that does not appear to be a lesson GWP chose to learn.

Comparable Prices? Not so Much!

While the fees being charged are comparable, the price to be paid for energy is not.

LADWP came up with a simple and predictable method for pricing its program, starting with a Base Price for Energy (BPE) that would step down with each tranche.  To make sure that the ultimate price paid reflected the value of the energy being purchased, they also adopted Time-of-Delivery multipliers that increased the BPE by as much as 225% or reduced it by as much as 50%.  LADWP’s first tranche BPE was 17¢/kWh - and that sold out in two weeks.  The next tranche, set to open sometime in July, will offer a BPE of 16¢/kWh, and each subsequent tranche reduces by one cent.

The virtue of this approach is transparency and predictability.  A project developer who anticipates submitting an application for a project in the time frame of the third tranche knows exactly what her return will be.

GWP’s method for setting its price is the exact opposite: opaque and entirely unpredictable.  From the Council packet, here is their “formula":

(1) for energy delivered to GWP during the peak [offpeak] period, the avoided peak [ offpeak] period cost of energy that would otherwise be purchased from the spot or short-term market during the upcoming calendar quarter, using the MEAD_ ON [MEAD_OFF] forward curve ($/MWh), as posted by the lntercontinentaiExchange (Mead 230 Day Ahead Clearing Price) for on-peak and off-peak periods, respectively; plus

(2) the value of Portfolio Content Category One (PCC1) Renewable Energy Credits (REGs) based on recent actual transactions by GWP ($/MWh); plus

(3) the avoided greenhouse gas (GHG) compliance costs, which are the product of (a) the default carbon emissions rate expressed in carbon allowances/MWh times (b) the price of carbon allowances from the most recent auction conducted by the California Energy Commission ($/MWh); plus

(4) the value of avoided transmission and distribution losses that would occur if energy were purchased on the spot or short-term market and imported into Glendale (eight percent (8%) multiplied by the avoided peak [offpeak] period cost of energy).

The “formula” is to be calculated on a quarterly basis, presumably to provide a new value for FiT contracts entered into that quarter.  So how can our project developer plan against this formula?  She cannot, since every component is subject to market changes. Again, this increases the uncertainty around the program which will only serve to decrease participation.

GWP includes a sample calculation but commits to nothing, saying that the numbers offered are “illustrative only".  Here’s their chart:

This means that if this were the pricing calculation to actually be used, GWP would be paying between 7.251¢/kWh and 9.292¢/kWh - which makes it a way worse deal than simply having a commercial solar system on a net-metering agreement.  Oh wait, GWP isn’t offering commercial net-metering at this time.

The peak-time rate is paid, according to GWP’s materials, Monday through Saturday from six a.m. to 10 p.m., excluding holidays.  However, since solar power systems without storage do not produce energy outside of those hours, the only time off-peak rates will be paid are on Sundays and holidays.

This rate is way lower than even LADWP’s Ratepayer Advocate urged - which was a BPE of 11-12¢/kWh - based on his study of 30 MW projects.  And that BPE was still subject to adjustments of as much as 225% based on time of delivery.  LADWP’s General Manager warned his Board that a FiT set at that level would not be subscribed - again, a lesson that GWP has apparently not learned.

So why the difference?  The staff report notes that LADWP is higher (although it frames it in a way to make that as unclear as possible) but insists that “A simple comparison of GWP’s proposed FIT rates and those of other publicly-owned utilities is not possible, because these other utilities have adopted significantly different approaches."  Really?  Why is that, if they all must comply with the same state mandate?  As always, the staff report remains obtuse: “There are multiple reasons for these differences, both in methodology and assumptions about avoided costs."  But there is no discussion whatsoever about those differences or the justification for the radically different approach that GWP is proposing.

How does this compare in terms of actual amounts paid?

We previously calculated the earnings for a 100 kW system in Year 1 under LADWP’s FiT.  For a BPE of 16¢/kWh - the price to be paid in the second tranche - the project owner would earn roughly $25,200 in Year 1, or roughly $463,000 over the twenty year lifetime of the project (allowing for system degradation of 0.9%/year).

To calculate the corresponding payment under GWP’s proposal, we would need to take the total kilowatt hours produced by the system and determine what percentage of those fall on holidays or Sundays.  Looking at 2014, there are 10 federal holidays, none of which occur on Sunday.  There are 365 days in 2014 (i.e., it is not a leap year) and so the total number of off-peak days would be 62, 52 Sundays plus 10 holidays.  Our 100 kW system oriented at 180 degrees with a 10 degree pitch will produce roughly 152,000 kWhs in Year 1.  Thus, the payment calculation is as follows:

For the exact same energy, our project developer is only going to earn 54% of what they would have made building the system in LADWP territory.  Over the course of 20 years, that is more than $213,000 less revenue to the hapless project developer who chooses to build her project in Glendale.

How do these systems compare in terms of Return on Investment?  Assume that our project developer can have her 100 kW system built for $4.00/Watt, making the install price $400,000.  Factoring in an Operations & Maintenance expense of 0.5% of cost/year and tax rates of 39% federal and 10% state (applied solely for calculating the benefit of depreciation), yields an Internal Rate of Return of 11.1% with Payback in Year 6.  Net earnings after 20 years (not adjusted for inflation) are $300,000.

But what of that same investment in Glendale?  Now the IRR drops to just 4.1% with Payback taking twice as long, occurring in Year 12.  Net earnings after 20 years?  Just $87,000.  So what project developer would choose to devote her energies - sorry, pun intended - into building her system in Glendale?

Of course, perhaps this is intended for folks playing at the upper limit of what is allowed - a 1.4 MW project - of which there could be exactly three in GWP territory at which point the entire FiT would be subscribed.  Assuming a conservative economy of scale and imagine that such a project developer could build his system for $3/Watt.  For such a developer the financials improve significantly with the IRR moving up to 7.1% and Payback in Year 8.  Net earnings after 20 years? $1.8M.

So… if you are a high roller developer your investment of $1.4M earns you 43% after 20 years but the little guy earns half of that.  The message seems clear: little guys need not apply.

What’s the Point?

Part of the point of the statute that demanded that GWP provide a Feed-in Tariff was to incentivize solar at all sizes.  Why?  Because small projects provide benefits that larger project do not, such as small business development and local jobs.  LADWP recognized that - and created a carve-out in their proposal to insure that small projects would be built throughout the City of the Angels.  Yet another lesson that Glendale failed to learn.

Having eschewed public input into the process of developing its FiT, GWP has sent the unmistakeable message that it simply does not care what the public thinks.  The program that it has proposed will empower just a handful of large-scale developers - if even they elect to participate.  But having waited until the last minute, GWP has put the City Council in an awkward position - it is unlikely that any Councilmember understands the nuances of this proposal well enough to push back and even if they did, how are they going to demand meaningful changes when staff has effectively managed to run out the clock?

It is unfortunate that in a city about to face a significant rate increase from their city-owned electric utility, this is the only game in town.  There is no commercial rebate program in Glendale, even though such programs thrive just down the road in Pasadena.  At best, this is an unfortunate missed opportunity. At worst, it is way worse.  It will be interesting to see who submits FiT applications when this program finally goes live.

We have just learned that Glendale Water & Power has released the details of its proposed Feed-in Tariff program - one day before the City Council is expected to vote on it!  We will post our thoughts tomorrow, but in the meantime, here are some links for interested readers:

• City Council Agenda for tomorrow’s meeting to be held in Council Chambers at 6:00 p.m.
  
• Staff report to the Council containing their description of the proposed FiT.

From what we can suss out quickly, it appears that the FiT will pay a maximum (peak periods) of 9.292¢/kWh and a low of just 7.251¢/kWh - well below the base price of energy of 17¢/kWh offered by DWP in its initial tranche.

More thoughts when we have had a chance to review these materials.

“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.

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.

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:

Citing 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.

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.