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

The latest newsletter from the California Solar Initiative (CSI) highlights some of the precedent shattering developments in solar this past year.  Here’s our summary of the most notable developments this year:

• In October, California reached a major milestone:
  1,000 Megawatts - 1 Gigawatt - of solar power has now been installed throughout the state in more than 100,000 installations.  More than 60% of those installations are a result of the CSI program, with the remainder due to municipal utility programs.


• In just 2011 alone (with the year not quite complete!) more than 20,000 PV systems were installed with a capacity of 241 MW.  CSI paid out some $283 million in rebates.


• Of those 20,000 systems installed so far this year, more than 19,000 were residential systems, accounting for 94 MW installed capacity at an average system size of just under 5 kW.  Residential system owners received a total of $67 million in rebates.


• The remaining non-residential systems accounted for 149 MW of capacity for an average system size of 172 kW.  Those systems qualified for an anticipated $267 million in performance-based incentive payments over the next five years.


• SCE alone authorized nearly 9,000 projects to go online so far this year - a 40% increase over the 2010 total.

We will be writing more about the details of all of this growth in the New Year.  What oddities and outliers will we discover then?  Stay tuned!

We have previously noted some pretty outlandish outliers in the cost of installing solar power systems in California, but now that is going to change. Under SB 585 (Kehoe D-39) that was just signed into law, the Public Utilities Commission (PUC) has 90 days to establish and impose cost caps on residential and non-residential solar installations for the California Solar Initiative (CSI). From our perspective that cannot come a moment too soon.

Senator Kehoe’s bill started out as an urgency measure to refund the CSI program which had exhausted its available funding for projects in PG&E and SDG&E territories.  The bill still does that, directing an additional $200 million into the program and that is a very good thing.  But what we like every bit as much is the amendment that was added in the State Assembly which provides for the following:

Within 90 days of the enactment of this act, the Public Utilities Commission shall establish and impose project cost caps for residential and nonresidential projects under the California Solar Initiative, based on national and state installed cost data.

We believe that this is an important, and long overdue consumer protection feature for CSI and we hope that other rebating entities such as LADWP and PWP will also adopt such caps.

Why is this so important?  Well, take a look again at this chart that we prepared from the CSI data for the first half of this year showing the reported installed costs for the largest solar installers in the CSI program:

The range here is striking, even shocking.  At the low end you see an installed cost of $6.56/Watt, ranging all the way up to an outlandish $13.32/Watt!  And that price is an average over hundreds of installations by Galkos Construction.  If the PUC were to establish a hard cap for residential installations of, say, $10/Watt and if that cap had been in place during the first half of the year, the customers of Galkos Construction would have saved $2.97 million - or on average, $7,618 each!

Wow!

The cap, of course, should be lower than $10/Watt.  We sincerely hope that the PUC will look closely at the abuses evident in the CSI data and put some teeth into this new law.  Only then will potential solar clients be protected from the predatory actions of the few outliers that needlessly inflate costs to pad their pockets.

The California Solar Initiative (CSI) is responsible for overseeing solar rebates for California’s three Investor Owned Utilities (IOUs): PG&E, SCE and SDG&E, and in that role the CSI program collects some very interesting data.  As we have in the past, we decided to dip into the data from the first half of this year to gain some insights into the State of Solar in California.  Over the next several days we will be reporting on what we have learned - and there are some very surprising things in here to be sure!

Overview & Methodology

A word first about how we processed the CSI data.  We downloaded the most recent active data set as of this writing (the August 24, 2011 data set to be precise) and parsed it into Excel.  Since we were only concerned about systems in our service area, we excerpted out just the data from SCE.  To narrow our focus more, we wanted to only look at applications that had significant status during the first half of this year.  The CSI data has a host of date fields - we took the latest of the fields ranging from First Reservation Date to First Completed Date as our Status Date and excerpted those that fell between 1/1/2011 and 6/30/2011 - a total of 6,306 data points.

That’s a fair amount of data but it necessarily omits any data at all from the municipal utilities such as Pasadena Water & Power (where we do much of our work) or LADWP.  Unfortunately, none of the munis make their program data generally available - which is particularly odd given that the local residents actually own those utilities (and thus, their data) - but that is a topic for another day.

Finally, for the purpose of these posts, all system sizes are reported in CSI Rating AC Watts (to account for differences in equipment choice and system design) as opposed to DC (or nameplate) Watts.

What can we say about those 6,306 projects?  Collectively they account for 164.7 MW of new solar power at a total installed cost of just over $1 billion - with incentive amounts totaling $219 million - roughly 21% of the installed cost.  Unfortunately, not all of those are built - or even ever will be.  Fully 11% (698) of those projects have the status ‘Delisted’ - meaning that they have been cancelled for one reason or another.  Those delisted projects account for 37.8 MW of potential solar power that presumably will never see the sun.  (Do some installation companies have a significantly higher rate of “delisted” systems?  We will answer that question in a subsequent post - stay tuned!)

The remaining 5,608 are split between “Installed” and “Pending” with 55.8% (3,131) installed and 44.2% (2,477) pending.  Breaking that down a little more, the installed projects account for  33.8 MW worth $240.1 million with incentive amounts totaling $57.1 million.  In contrast, the pending projects account for almost three times as much capacity at 93 MW worth $575.8 million with incentive amounts totaling $120.6 million.  (That is, nearly three times the to-be-installed solar cpacity for roughly twice the rebate dollars.)  On average, installed projects cost $7.09/Watt whereas pending projects cost $6.19/Watt - a positive trend for consumers since it shows the cost of solar power systems declining over time.

Does Bigger = Lower Cost?

Finally, for today, let’s examine whether the data supports the notion of solar economy of scale - that is, as system size increases does the installed cost/Watt decline?  To get a handle on that, we took two different cuts through our data set - “small” installed or pending systems <10 kW, and “large” systems ranging between 10 kW and 1MW.

First, here’s the graph for the “small” systems (consisting of 4,992 installed or pending systems - click on the graph to view full size).  As the trend line makes clear, larger systems really do drive down costs - decreasing from over $10/Watt at the small end of the range to just above $6/Watt for systems around 10 kW.

Another interesting observation from this graph are the outliers - with some data points below $3.00/Watt (mostly from self-installed system) all the way up to nearly $18/Watt!!! (We will have way more to say about those data points - and who is responsible for them - later in this series.)

If we now look at larger systems - those between 10 kW and 1MW - our data set has 587 such systems and again, the trend line shows the decline in system costs as system size increases.  (Note, because there is such a huge range in system sizes on this graph, we plotted the system size on a log scale.)  Some of these outliers are also pretty curious - a 200 kW system coming in at over $14/Watt?

Of course, this data is showing what happens when an individual project gets larger and there the trend is clear.  One might well ask, does the same trend apply to larger installation companies?  In other words, as a company has more and more installs, does that economy of scale translate into lower costs for the end consumer?  That’s a very interesting question and the answer - coming in our next post - just might surprise, or maybe even disturb you.

If there are some other cuts of this data that you would like to see, just let us know in the comments.  Trust me, we are just getting started!

(Editor’s Note: Part 1 of this series - Understanding Your Bill can be found here.)

Commercial solar power systems are economical now - and in the first part of our series we explained how understanding your bill is the key to understanding what is currently driving your costs and how much you will be able to save.

Now we turn to the next step in preparing to install a commercial solar power system - understanding the applicable rebates and tax incentives.  We have written at great length before about these topics, including a blog post summarizing the year-end state of all solar power rebates in the Run on Sun service area and our solar tax incentives page provides great detail into this topic for all types of system owners - commercial, residential and non-profit.  In this post we will analyze just those rebates and incentives that are applicable to commercial solar power installations.

PBI vs EPBB Rebates for Commercial Solar Power Systems

Rebates for commercial solar power systems come in two flavors - Performance Based Incentives (PBI) and Expected Performance-Based Buydown (EPBB) - but PBI rebates are by far the more common for commercial systems above 30 kW.  EPBB rebates are lump-sum payments made based on the expected performance of the system.  The rebate rate is denoted in dollars per Watt based on the calculated AC Watts for the system.  EPBB rebates are nice for the consumer as the money is paid as soon as the system is approved, but for larger systems, they represent too much upfront risk for the utility.  Since there is usually no requirement to monitor the performance of the system, the utility ends up putting out its money with little guarantee of reaping the expected benefit.

PBI rebates, on the other hand, are paid out over five years based on the actual performance of the solar power system as verified by monitoring devices attached to the system inverter(s).  PBI rebates are denoted in cents per kilowatt hour generated.  Since the utility only pays for power actually provided, rebate dollars are guaranteed of providing the bargained for benefit. However, because of the need to provide the utility with verified performance data, PBI rebates increase the Operations & Maintenance expense of a commercial solar power system - at least for the five years of the rebate.  On the other hand, if your system is well maintained and conservatively designed, you may actually receive more in rebate payments than originally projected.

Each utility will have a threshold system size beyond which the system owner must take a PBI rebate.

Regional Rebate Amounts for Commercial Solar Power Systems

Of late there has been a great deal of turmoil among the local municipal utilities regarding their rebates.  This has lead to uncertainty and delays.  As of this writing, here is the landscape for commercial solar rebates in the Run on Sun service area:

This means that as of this writing, only SCE and PWP are paying rebates on commercial solar power systems greater than 30 kW. While LADWP is expected to come back online this summer, in what form remains to be seen.

We believe that these suspensions have come about because the lobby for commercial solar rebates is small and too often silent.  Of course, when no public discussion occurs before the decision is made to suspend rebates - as happened in both Glendale and Burbank - it is pretty hard to organize solar supporters.  Indeed, in Los Angeles, where the plans to severely limit solar rebates were publicly debated, the solar community came out in numbers to argue for those rebates - which resulted in LADWP only suspending their program for a comparatively short time.

The conclusion in inescapable - until there is a statewide feed-in tariff at a reasonable rate that offers predictability along with economic viability, the market for commercial solar in this state will continue to be subject to the caprice of unaccountable bureaucrats.

Tax Incentives for Commercial Solar Power Systems

While the news regarding rebates remains murky, the news on the tax front is - at least for this year - very good.

One caveat before we begin - while we believe this information to be accurate as of the date that it is written, you must always consult with your tax professional as to the applicability of these incentives to your tax situation.  Accountants shouldn’t design solar power systems and we don’t give tax advice.

Commercial solar power systems qualify for a federal Investment Tax Credit of a full 30% on the direct cost of the system.  (By “direct cost” we mean those costs directly associated with installing the solar power system.  The applicability of the Credit to indirect costs - such as deciding to re-roof your building before adding solar - must be decided on a case-by-case basis - see why that tax pro gets paid the big bucks?)  That Credit can be taken over two years and is a substantial incentive if you have the tax liability to offset.  Fortunately for systems that are put in service in 2011, commercial solar power system owners can elect to receive a Grant directly from the Treasury for the full 30%, regardless of their tax appetite.  Moreover, that Grant is paid out typically within 60 days of project completion, as opposed to being credited in the next tax payment cycle.  This provision in the tax code is subject to expiration at the end of this year, and there is no telling whether a more conservative Congress will renew it.  (The tax Credit, however, continues through 2016.)

Commercial solar power systems also qualify for accelerated depreciation.  For the past several years, that was a five year period with 50% in Year 1 and the remaining 50% divided evenly over the next four years.  (California offers a similar depreciation schedule.)  However, once again 2011 is special.  This year alone, that depreciation is 100% in Year 1, meaning that system owners may realize more of their savings sooner.

Collectively, rebates and tax incentives can reduce the cost of a commercial solar power system by 50% or more.  When combined with the savings from the energy generated, it is easy to see why a commercial solar power system is one of the best investments a building or business owner can make.

Up Next - Part 3 of Our Series: Understanding Your Bid for a Commercial Solar Power System

UPDATE - We heard from Heritage Solar about their aggressive actions to address this issue.  Please check out the details below…

A couple of days ago, one of our SCE customers forwarded to us a Notice that they had just received from SCE regarding the Xantrex inverter recall that we blogged about nearly one month ago. Now we understand that it takes a large organization like SCE a while to respond to an issue like this Xantrex recall, but we don’t really understand why SCE wasn’t more targeted in their approach to the problem.  After all, SCE has data on every installation in their territory which includes the manufacturer and model number of every inverter that has been installed since 2007 when the CSI program began.  So why send my customer - who has an SMA “Sunny Boy” inverter - a letter that states in part, “Our California Solar Initiative program records indicate that you have a PV system which may incorporate this type of solar inverter.“  NO!  She doesn’t and SCE clearly knows this - so why send such a potentially troubling letter?

We decided to look into this a bit more.  All of the CSI program data is available for download, so that is where we started.  (The current working data set when unzipped is a CSV file that is nearly 30 MB in size.  For the data geeks amongst us, you can download that data here.)  We extracted just the data from SCE and looked for completed projects only. As of this writing, that query returns just over 11,000 completed projects.  How many of those projects used a Xantrex inverter (of any model)?  576 - or ~5% of the installed total.  Which means that for every SCE customer who actually owns a potentially targeted for recall Xantrex inverter, 19 more received useless notices from SCE.

We then decided to see which solar companies had installed the greatest number of these inverters and what were they telling their customers about the recall on their websites.  While there are nearly 100 differently named companies in the data that have installed these Xantrex inverters, we were able to clean the data up a bit (controlling for some obvious name changes) and here are the top 15 solar companies that have installed Xantrex inverters:

SolarCity is, of course, the largest player by far - and they have a very sophisticated website to promote their services.  Yet a search of their website reveals absolutely nothing about this recall that potentially involves more than two hundred of their customers.

SolarCity was not alone, however, in remaining mum about this recall.  In fact, of the 15 companies in the list above, none of them featured any information about the recall that we could find.  (Indeed, two of the companies - Sharpe Solar Energy Systems, Inc. and Solar Engineering Industries, Inc. - appear to have gone out of business based on the “squatter” websites that are sitting on their domain names.)

We think this is a violation of the Solar Bill of Rights - specifically Right Number 8: Americans have the right, and should expect, the highest ethical treatment from the solar industry. As we wrote last year, we believe that this Right means that solar companies have an absolute duty of candor to their customers and to the public at large.  Certainly the Xantrex recall is not a black mark on any of the companies listed above - but their failure to be candid about the problem and to make useful information clearly and readily available to the public, is.  Some of the largest and most sophisticated solar companies in the world are on that list - the public has a right to expect better from them, and so do we.

As noted in the update, we heard from Heritage Solar who has been very involved with addressing the needs of their customers regarding the Xantrex recall. Here is what they told us:

We have, to date, contacted all of our customers by email, phone or direct mail concerning the status of the recall and have proactively ordered kits from Xantrex and expect them within the next few days. Many customers moved or changed email addresses so we sent direct mail to those addresses that had new homeowners or whose phone or email addresses had changed.
We have also been designated by Xantrex to install retrofit kits in the Orange County and San Diego County area for customers whose original solar companies are no longer in business.  To date, we have a total of 119 customers affected by the recall and a total of 212 inverters to retrofit.  This retrofit will take some time as many inverters are located in garages or in back yards with dogs and appointments will need to be scheduled individually.

Here is a link to their website where they have added public information about their actions to address the recall: http://www.heritagesolar.com/xantrex-recall

Kudos to Heritage Solar for getting out in front of this issue - now how about the rest of you?