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(Los Angeles, 1/11/2013) The LADWP’s Board of Commissioners today unanimously approved a 100 MW Feed-in Tariff program (FiT) to begin this quarter. The program will initially pay 17¢/kWh for twenty years on projects ranging in size from 30 kW to 3 MW. We attended and spoke at the two-hour hearing; here is our report.
The DWP’s FiT is some three years in the making and is the largest program of its kind in the country. Unlike more conventional net-metering arrangements where a system owner offsets their own load first by the output of their solar power system and then sells any excess to the grid, in a FiT program like the one just approved, the system is tied directly to the grid and does not offset the owner’s usage. Instead, the system owner is paid for every kilowatt-hour of energy that the system produces over the lifetime of the agreement (in this case, twenty years). Also unlike most solar programs in the U.S., the utility does not pay a rebate to the system owner. Thus the economic viability of a FiT program is tied entirely to the price being offered for the energy being sold.
Determining what that price should be is key. Set it too low, and no one participates in the program. Set it too high, and the program is immediately fully subscribed and the utility’s rate payers end up stuck with an unjustified bill. To solve that problem, DWP Staff set up a demonstration program to provide “price discovery." It was not a resounding success.
Anxious that it could not reliably pick a defensible price point that would thread the needle of getting subscribers without gouging rate payers, DWP set up a 10 MW demo program last spring. However, since DWP was using it for price discovery, each proposed project had to set its own price and then DWP picked the successful bids based on lowest cost. Or at least that was the plan. Unfortunately, the program was far from fully subscribed: only 26 projects were initially proposed accounting for only 7.2 MW of the intended 10. Out of those 26, only 17 passed DWP’s screeners (worth just 4.6 MW) and as of today, 14 projects (from the original 26) are awaiting contract signing (despite the published “deadline” for contract execution by the end of November), amounting to only 3.7 MW at an average price of 17.5¢/kWh.
So… the demo program “discovered” that at 17.5¢/kWh it could only successfully subscribe 37% of the desired target - but the 100 MW program is going to start below that price and it hopes to be successful? Yet the primary point of discussion during the hearing was whether that starting price was too high. So much for learning from the demo program. Unfortunately, that is all the public has been allowed to learn from the demo program as none of the data collected from the various bidders - including the bidders who were rejected at the outset - has been made public. It would be very helpful for FiT program participants to see what caused these other projects to be rejected so that we could avoid repeating those mistakes. It remains to be seen whether that information ever sees the light of day.
The proposal from Staff is simple enough: DWP will allocate a total of 100 MW of capacity in five, 20 MW tranches, the first of which is to be initiated sometime this quarter with the remaining four to follow every six months thereafter. The goal of staging the program in tranches was to control the administrative burden on DWP staff (which is hiring 30 more people, mostly in the interconnection area, to allow them to operate this program).
Given the well-publicized problems that DWP has had with backlogs on its solar program in the past, the staged approach probably makes sense.
The first tranche (originally scheduled for January 1st) is now set to roll out sometime this Quarter (potentially as soon as February 1) with the following four tranches to follow in six month increments. The original proposal as documented called for splitting the first tranche with only the first 10 MW being allocated at 17¢/kWh. However, during the hearing, Staff urged making it uniform and the Board amended the proposal to allocate the program as shown above. (More on this below.)
The price in the table above is actually what is known as the “base price for energy” (BPE) because the actual price paid is subject to these Time-of-Delivery modifiers:
As a result, to determine the amount that will be actually paid, the developer must perform a month-by-month, hourly-output analysis of the energy to be produced by the proposed system. (Indeed, such an output analysis is a required part of the application process.) Our analysis suggests that the ToD multipliers increase the overall price paid by anywhere from 5.5% to as much as 9.8%, depending on the azimuth of the installed system. (While not all sites are amenable to such modifications, system orientation can play a significant role in the profitability of the site and the designer would be well rewarded for doing sufficient analysis to determine the optimal azimuth and pitch given existing site constraints.)
While projects from 30 kW to 3 MW are allowed under the program, each tranche is scheduled to have 20% (4 MW) set aside for small projects (30 -150 kW), meaning that such projects have a much greater chance of being included in any one tranche. In addition, small projects pay half of the fees charged to projects over 150 kW. (Thereby creating two “sweet spots” - one right at 150 kW and the other at the maximum system size of 3 MW.)
Only one project can be sited per Assessor’s parcel ID and all must be in territory served by LADWP. (Significantly, the project Applicant does not need to be an LA resident so out-of-town or even out-of-state landlords could convert underutilized land into a twenty-year revenue stream.) Projects need to go live within 18 months of signing their contract with LADWP, with a possible extension of another six months. Eligible projects must not have received rebates or incentives under any other LADWP program and are expressly not allowed to participate in net metering.
A number of people spoke on the proposal, all but one supporting the program. Run on Sun was chosen to speak first, and we voiced support for the program while urging Staff to clear up a number of ambiguities, release the demo program data and make clear what would happen with the commercial net-metering program. Most importantly, we learned that DWP is planning to fund the commercial net-metering program in July with roughly $10 million at a rebate rate to be disclosed “soon". We anticipate that the commercial net-metering program will sell out immediately as of July 1, and that non-profit organizations should really focus on using that program (assuming that they receive a rebate premium as they have in the past).
Other speakers - from groups like the Sierra Club and the CLEAN LA Coalition - supported the program and praised DWP Staff while encouraging additional flexibility in the program. The sole opponent was a ratepayer who complained that the cost was too high.
In that, the speaker’s comments were echoed by Fred Pickel, Ph.D., Office of the Ratepayer Advocate. Dr. Pickel, who earns a salary of $237,000/year in his City post, complained that the BPE of 17¢/kWh was simply too high, citing unnamed “developers” who had come to him and told him that they could profitably build solar projects in the City for 11 to 12¢/kWh. Dr. Pickel declined an invitation to name those developers but he did indicate that they were associated with projects in the 30 MW scale. (He did not identify any of those projects; nor was it clear, though unlikely, whether any of them were built in the City of Los Angeles.) As a result of the unduly high BPE being offered, he claimed, LA ratepayers were being saddled with an additional $100 million over the lifetime of the FiT program.
Fortunately, the Board did not rely on Dr. Pickel’s “analysis” and turned instead to DWP General Manager, Ron Nichols to “put things in perspective." Nichols was nothing short of terrific, speaking with passion about the need for the FiT Program and pointing out that a program offered at 11-12¢/kWh would simply fail to be subscribed and DWP would fail to meet its Renewable Portfolio Standards (RPS) obligations. Moreover, the actual cost to ratepayers in the City was negligible - amounting to just 15¢/month for the average residential customer - a cost so low as to be exceeded by the cost of postage for mailing the payment. Moreover, by moving this program forward, residents of LA would finally “see what they are paying for” as solar installations blossomed throughout the City. It was a great response and it clearly moved the Board.
Throughout the hearing it was clear that the Board was concerned about the cost of the program, and the comments of the Ratepayer Advocate would have given them plenty of cover to reduce the BPE to a level that would have guaranteed the failure of the program. It was also clear that having spent this much time developing the program, both the Staff and the Board wanted to move forward with a program that would not only succeed, but send a message that the City of Los Angeles was serious about its Feed-in Tariff program.
As a result, the Board rejected (politely but firmly) the importunings of Dr. Pickel. More than that, they adopted the Staff suggestion that the entire first tranche of 20 MW be offered at 17¢/kWh (on a motion by Commissioner Parfrey and subject to a “friendly amendment” from Commissioner Moss requiring Staff to report on the program 30 days prior to the release of each tranche).
The ultimate vote was unanimous and now we are simply awaiting the actual “go-live” date to be announced.
It was a long and difficult process to bring this program into being. We at Run on Sun participated in five meetings over the past two years; others, like the indefatigable Michelle Garakian of the CLEAN LA Coalition, participated in many more. Thanks to their hard work, and that of DWP Staff, this program is about to finally see the light of day.
But will it succeed? We predict a cautious yes. After all, this is still LA - the most difficult local jurisdiction in which to do solar and nothing in the FiT will make that easier. (Indeed, if anything, there are now substantially more hurdles to surmount than with a net-metered system.)
One thing is clear - the overarching policy mandate of the Renewable Portfolio Standard made a difference in getting this done as it gave the Board the cover that they needed to reject the Ratepayer Advocate’s call for a meaningless program, and allowed them to insist - correctly in our view - that the proposed pricing regime was necessary to meet their mandated RPS targets.
Along those lines the recently passed SB 1332 - which requires that all public utilities with more than 75,000 customers must have a FiT in place by July 1 of this year - also helped to make the case for action that much more compelling. (Hey Glendale - this means YOU! When will you roll out your program?)
Finally, it was the commitment of the Staff - starting with Ron Nichols but also including Senior Assistant GM Aram Benyamin and FiT Program Manager Anh Wood - that ultimately made the difference. It is easy to be critical of utility staff in this business, often with complete justification. But without the dedicated efforts of these folks (and many, many more behind the scenes) this important development would still be on the drawing board.
Now it is up to us - solar developers and installers - to make this program a success. We at Run on Sun are ready to go - if this program is intriguing to you, give us a call (626-793-6025) or fill out our form and let’s get started!