When deciding to invest in a photovoltaic solar system one of the first questions everyone has is how to finance the cost. While solar continues to be a great long-term investment, with payback periods often in the 4-7 year range, the hefty outlay is more than many homeowners feel comfortable fronting. Hence, the concept of the zero-down solar lease financing model and third-party system ownership (TPO) was born. While SunRun invented the model in 2007, the three behemoth national solar companies - SolarCity, Vivint Solar, and SunRun - rose to the top over the last five years due to the popularity and ease of the model for customers. Until this year, nearly 100% of Vivint Solar’s business was with solar leases and power purchase agreements (PPA’s).
However, as we at Run on Sun point out to all of our potential clients and in various blog posts, solar leases are simply a bad deal. And, what do you know, finally the wider public seems to be coming around to this fact! GTM’s recent report, “US Residential Solar Financing 2016-2021“, showed that for the first time since 2011, direct ownership of residential solar systems will surpass third-party ownership in 2017. The solar lease has been rapidly decreasing in popularity since it peaked in 2014 with 72% of the market. GTM predicts that in 2017 55% of residential solar systems will be bought outright through cash or loans, and the trend will continue with 72% of all systems sold owned directly by 2021.
GTM Research: Residential TPO Penetration and Installations by Ownership Type, 2011-2021
There are several factors at play in this shift. The total cost to go solar has declined rapidly in recent years meaning the upfront cost continues to be less frightening. Today there are more attractive solar loan options available to homeowners as well. One popular option in California is the PACE (Property Assessed Clean Energy) government loan program which is repaid as an assessment on the homeowners property tax bill. Mosaic is another solar loan program available nationally. While loans do have interest rates and dealer fees to be aware of, the benefits of owning a system outright far outweigh the costs of third party ownership - such as financially damning escalator clauses, the inability to take the tax credit or local rebates, and the risk of selling your home to buyers who don’t qualify for (or want) the solar lease.
Overall growth of the solar industry is also beginning to slow this year. After growing at more than 50% annually for the last four years, the residential market is expected to see a slower growth rate of 16% this year. The report shows that growth has slowed among all solar installation companies, but much more so for the top three national companies who previously relied upon the popularity of the solar lease. For the first time since 2013, these three will together install less than half the market’s solar systems as their growth slows to just 12%. By contrast, growth among the remaining solar power installation market will slow to 36% according to GTM. It will be interesting to see how the “big three” handle this shift in the coming years.
One thing to note is that while growth is slowing among the largest companies, solar continues to grow overall. Smaller local companies have always offered, and preferred, to sell systems outright rather than through leases and these companies are becoming more popular as more research shows the true value of ownership vs leasing. As one of those companies, we have always stood by the data and educate all our clients on the realities of financing options as the last thing we want is to be in the business of locking people into a twenty-year-long bad deal! Curious as to the specifics of leasing vs owning? Check out our blog from almost two years ago: Top Five Reasons to Stay Away from that Solar Lease!
At Run on Sun we don’t take partisan stances on politics. We believe everyone, regardless of politics, benefits from harnessing the unlimited resource of sun-powered PV systems. However, the recent election has raised questions about the future of federally-backed support for solar - specifically the federal solar investment tax credit (ITC). The short answer is, we are optimistic the current plan for the ITC to continue for three years at 30% then gradually sunset after five will be unaffected. Here’s why:
The fact is, the ITC is federal law and laws are not easily changed. Even if it did somehow manage to be changed before the 5-year planned sunset, we are confident our state will step up to make sure adequate support continues to make solar an economically viable option for the public. Never fear! Solar is here to stay.
(Thank you to CALSEIA and Executive Director Bernadette del Chiaro for the inspiration for this blog and for their invaluable efforts to advocate on behalf of the solar industry.)
If you work in the solar industry you have likely heard of the annual Solar Jobs Census from the Solar Foundation. It is the most credible annual review of the solar energy workforce, trends, and projected growth in the United States.
The 2015 Census found that the industry continued to exceed growth expectations, adding workers at a rate nearly 12 times faster than the overall economy and accounting for one in every 83 jobs (1.2%) created in the U.S. during the year. Their research over the years found that overall employment in solar grew by 123% over the previous six years. As of November 2015, the solar industry provided 208,859 domestic living-wage jobs to solar workers (24% of which are women), representing a growth rate of 20.2% since November 2014.
Has that momentum continued through 2016? NOW is the time of year again when your input can inform the policies that help shape the industry’s growth while improving the public’s awareness of the wider economic benefits of solar. This is the 7th year for the Census and quite possibly the most important year ever as solar can be a unifying issue around job creation and economic growth. When solar advocates go to the Hill or a State Capitol, they can tout first and foremost the number of jobs our industry has created. Getting accurate numbers is crucial so we need to get everyone around the country to participate. Please fill out the 2016 Census and share it with your solar friends! Click the link below to start the 15-minute long voluntary and confidential survey for your company:
Los Angeles doesn’t have a great reputation for being green. Sadly we are better known as a car-centric city frequently afflicted with smoggy skies. In fact, Los Angeles has been ranked the worst air pollution in the nation. Recently our fair city took one step closer to changing that! Last April the Los Angeles City Council voted unanimously to approve a motion asking the LA Department of Water and Power (LADWP) to develop a plan for how the city can move toward 100% renewable sources of electricity. LADWP - the largest municipal utility in the country - currently gets about 20-25% of its energy from renewables (solar, wind, geothermal, biomass and waste). The biggest challenge to going 100% green will be to convert from a grid which relies on coal and natural gas, which can adjust supply to meet demand, to one which can handle the fluxuations of solar and wind. The largest reductions in greenhouse gas emissions - nearly 9 million metric tons - will be through DWP’s existing plan to eliminate coal-fired power plants from their energy mix by 2025. (Side note: Shockingly, Pasadena’s energy mix coming from Pasadena Water and Power, has an extraordinarily high percentage of power coming from coal at 34% compared to CA average of 6% with no plans as of yet to move toward renewables! Hopefully they’ll follow in LA’s footsteps!)
Another 7 million metric tons of greenhouse gas emissions result from the remaining energy sources in LADWP’s mix, largely natural gas. As we move away from coal we need to be careful to not be lured to just switch to cheap natural gas. Last year the Aliso Canyon gas leak disaster - the worst in US history - proved this fossil fuel is a very dangerous source of energy for our communities. 11,000 residents were evacuated and hundreds reported methane-related illnesses from the leak. Aliso released 100,000 tons of methane, which has a warming effect 80 times higher than CO2 over the short-term. Currently there are also natural gas storage facilities in Playa del Rey and Playa Vista. Obviously natural gas is a serious threat to our public health and the environment. If we are going to get to a fully clean power supply a commitment similar to the departure from coal needs to happen with natural gas… and the faster the better.
With a 100-year old grid supplying 4 million Angelinos with power, LADWP is poised to make significant infrastructure investments. This is the perfect opportunity for the city to upgrade the system to accommodate the potential for a fossil-free future. Councilman - and co-author of the City Council motion - Paul Krekorian, emphasized the urgency for Los Angeles to move to clean energy:
“This is an enormous step forward that will help restore our environment and lead us to a sustainable, fossil-free future. For the third year running, Los Angeles was ranked as having the worst air pollution in the country, which is unacceptable and unhealthy for our families and neighborhoods. To reverse this trend we need big thinking and bold, smart action."
While Mayor Eric Garcetti has already set a goal of reaching 50% renewable energy by 2030, this recent legislation is only a starting point to research how to get to 100% but has no set timeline. This is a crucial first step, however, we are really looking forward to hearing the results of DWP’s research. A realistic but ambitious time-bound roadmap to ending our reliance on fossil fuels is crucial to improving our chances of preventing climate change’s most damaging effects.
San Francisco and San Diego are also among eighteen other cities who have committed to 100% clean energy goals recently. Four cities are already proving it is possible with fully renewably powered systems! Los Angeles, as the 2nd most populous city in the country and most polluted, can serve as a particularly powerful role model for cities and jurisdictions across the country. These plans have the potential to both help stop devastating climate change impacts but also to boost economies in the process. Some opponents of a renewable transition worry that it will hurt the economy but the growth of renewable jobs in recent years and a growing local economy has proven that is a false threat. Last year’s solar census reported that 10% of solar jobs - over 21,000 well paid jobs - are in Los Angeles! Going green saves money in the long-term. A report from the New Climate Economy found cities could save $17 trillion by 2050 by pursuing low-carbon solutions such as public transport, building efficiency, waste management and ‘aggressive’ solar implementation.
Now is the time to kick our transition to clean energy into high gear at local and state levels! We look forward to being part of the solution!
A client of ours noted that Pasadena Water and Power (PWP) offers, in addition to its regular, Residential tiered rate structure, the option to switch to a Time-of-Use rate structure, and he asked if he would derive additional savings from making that switch. Turns out that is not an easy question to answer, and there certainly isn’t a “one size fits all” result. We decided to take a closer look into these rates both for PWP and for the folks in Southern California Edison (SCE) territory.
SPOILER ALERT - The following is pretty much down in the weeds. You have been warned!
Let’s start by defining our terms. Most residential electric customers, of both PWP and SCE, are on a tiered rate structure. That means that there are two or more cost steps - called tiers - for the energy that you use. Tiered rates assume that there is some minimally expensive charge for the first allocation of energy per billing cycle, and that as you use more energy your cost for energy increases. For example, SCE’s Domestic rate has three tiers and in the first tier the charge is 8.8¢/kWh, in the second tier the charge is 16¢/kWh, but the final tier is 22.4¢/kWh! (There is also a non-tiered component that adds another 6.9¢/kWh to the customer’s bill.)
PWP, on the other hand, has a somewhat perverse tier structure in that the lowest tier is very cheap, 1.7¢/kWh, the second tier is significantly higher, 13.5¢/kWh, but the final tier actually goes down to just 9.9¢/kWh! Since the whole point of tiered rates is to provide an incentive for heavy users to reduce their usage, PWP is actually rewarding those who consume more than 25 kWh per day with lower rates! Very odd.
Time-of-use rates, on the other hand, are generally not tiered. Instead, the day is broken up into segments and the cost of energy varies depending on the segment in which it is consumed. PWP refers to these segments as “On-Peak” (from 3-8 p.m.) and “Off-Peak” (all other hours). But PWP’s TOU rate retains the tiered element as well, making it a truly odd hybrid rate structure.
SCE’s approach is more involved, dividing the day into three, more complicated segments: “On-Peak” (2-8 p.m. weekdays - holidays excluded), “Super Off-Peak” (10 p.m. to 8 a.m. everyday), and “Off-Peak” (all other hours).
For both PWP and SCE there is a seasonal overlay on these rates, with energy costs increasing in the summer months (defined as June 1 through September 30).
(It is important to note that both PWP’s and SCE’s TOU rates put the most expensive energy in the late afternoon to evening time period - pricing energy to offset against the “head of the duck.” Ultimately, these rates will create the energy storage market in California, but that is a post for another day.
Assuming that one can create a spreadsheet to model these different rates (not a small task in and of itself!) there is one more hangup - data. Both PWP and SCE report total monthly usage to customers on their tiered rate plans - but in order to analyze your potential bill under a TOU rate, you must have hourly usage data for every day of the year! (Because there are 8,760 hours in a [non-leap] year, such a usage data collection is typically referred to as an 8760 file.)
The standard meters that PWP has installed simply do not record that data, so the average PWP customer has no way to know whether they would save money by making the switch.
On the other hand, most SCE customers do have access to that data and they can download it from SCE’s website.
After you create an account, login to it and go the “My Account” page. On the left-hand-side you will see some options - click on “My Green Button Data” (the too cute by half name for the interval data you are seeking), select the data range for the past twelve months, set the download format to “csv” and check the account from which to download. Then press the “download” button and cross your fingers - in our experience, the SCE website fails about as often as it actually produces the data that you are seeking!
Given that PWP doesn’t have data available, is there any way to estimate what the results might be? The answer is, sort of. We took an 8760 data set from an SCE customer and used that as our test data for both PWP and SCE. (The data file does not identify the customer.) Since the data file has an entry for every hour of every day, we can segment the usage against the On-Peak and Off-Peak hours, and using a pivot table - probably the most powerful took in Excel - we can summarize those values over the course of the year, as you see in Figure 1.
Figure 1 - Usage Profile for PWP
Summer months are highlighted in orange. For this specific energy usage profile, Off-Peak usage is more than twice that of the On-Peak usage (9,806 to 4,009 kWh respectively). So how does that work out when we apply the two different rate structures? The table in Figure 2 shows the details of the two rates:
Figure 2 - PWP Rates - Standard Residential and TOU
Under both rate plans, the distribution is tiered (with the perverse reverse incentive for usage above 750 kWh). Added to that is either the seasonally adjusted flat rate for energy, or the seasonally adjusted TOU energy charge.
Applying those rates to the Usage Profile in Figure 1 allows us to see what the energy and distribution components would be under both approaches. Given the hybrid nature of these rates, you might expect them to be similar and you would be correct. The distribution charge - which applies to both - comes to $1,180 for the year. The flat rate energy charge comes to $893, whereas the TOU charge is $985. Meaning that someone electing to use the TOU rate would have a yearly total of $2,165, whereas the flat rate user would have a total bill of $2,074, making the TOU rate - for this specific energy profile - 4% higher.
Beyond that, PWP has a number of other charges - such as a public benefit charge, an underground surtax, and a transmission charge - that are only tied to total usage, so the ultimate difference between these two rates is even smaller.
SCE rate structures are significantly more complicated that PWP’s. For example, the tier 1 (aka baseline) allocation varies by location. Since SCE covers such a huge and diverse area from cool coastal regions to absolute deserts, customers are allocated more energy per day in their baseline depending upon where they live. In the area around Pasadena that is covered by SCE, a typical daily baseline allowance would be 13.3 kWh in the summer and 10.8 kWh in the non-summer months. The baseline then is that number times the number of days in the billing cycle. Tier 2 applies to every kWh above baseline, but below 200% of baseline. Tier 3 applies to everything beyond that. As with PWP, the tiered rate only applies to “delivery” charges. The energy generation charges are the same all year. Here’s what that rate structure looks like:
Figure 3 - SCE’s Tiered Domestic Rate
The first thing that you notice when you look at this rate is how much higher it is than the rates from PWP, and the end calculation bears that out - the same usage that resulted in an annual bill of $2,074 in Pasadena becomes $3,227 once you cross the border into Altadena, South Pasadena, San Marino, or Sierra Madre - an increase of 56%! (There’s a reason why a growing percentage of our clients are coming from those surrounding, SCE-territory communities!)
So what would happen if this beleaguered client were to shift to a TOU rate? First, we need to re-parse the usage data according to SCE’s more complicated segmentation scheme, which gives us Figure 4:
Figure 4 - SCE’s Segmented Usage Data
Once again, the On-Peak usage is the smallest category of the three, amounting to just 23% of total usage, compared to 42% in Off-Peak, and 35% in Super Off-Peak.
Of course, SCE can’t do anything in a simple fashion, so they have not one but two basic approaches to their TOU rates, Option A and Option B. Option A rates run from a low of 13¢/kWh (in summer Super Off-Peak), to 29¢/kWh (during summer Off-Peak) to an eye-popping 44¢/kWh (during summer On-Peak). However, Option A includes a credit of 9.9¢/kWh on the first baseline worth of energy which reduces the monthly bill by roughly $30.
Option B deletes that baseline credit and replaces it with a “meter charge” (even though it is the same meter!) of 53.8¢/kWh/day, or roughly $17/month. In return, the On-Peak charges are significantly reduced from 44¢/kWh to just 32¢/kWh.
So how does this shake out? The results are quite surprising, as shown in Figure 5.
Figure 5 - SCE Rate Structure Comparison
The two left columns show the month-by-month calculations for both delivery (the tiered component) and generation (the flat component). The two right columns show the month-by-month calculations for the two different TOU rates.
The bottom line is striking: under TOU-A there is a savings of 5% over the tiered rate, whereas the savings jump to 19% by going to TOU-B! That is a savings of $600/year just by changing rate plans - a switch that any SCE customer can make.
MAYOR CAVEAT: YOUR MILEAGE WILL VARY!
The results displayed here are entirely dependent on your actual energy usage and no two usage profiles are alike. It is possible, even likely, that some usage profiles will see an increase in bills under either TOU option.
The good news is, that for a nominal fee, this is an analysis that we could do for any SCE residential customer - we would just need access to your usage data.
So that completes our pre-solar analysis. In our next post, we will look at how these results change when you add a solar power system into the mix.
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