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.
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.
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 $3,135) but the bulk of that gets refunded when the project is online. So the true comparison is the non-refundable fees and there the two are nearly identical.
GWP’s published materials provide no guidance on what the actual interconnection costs might be - which adds to the uncertainty of the application process and makes it harder for a project developer to predict what her total costs might be. This was something that all of the stakeholders demanded of LADWP during the development of its program - but that does not appear to be a lesson GWP chose to learn.
While the fees being charged are comparable, the price to be paid for energy is not.
LADWP came up with a simple and predictable method for pricing its program, starting with a Base Price for Energy (BPE) that would step down with each tranche. To make sure that the ultimate price paid reflected the value of the energy being purchased, they also adopted Time-of-Delivery multipliers that increased the BPE by as much as 225% or reduced it by as much as 50%. LADWP’s first tranche BPE was 17¢/kWh - and that sold out in two weeks. The next tranche, set to open sometime in July, will offer a BPE of 16¢/kWh, and each subsequent tranche reduces by one cent.
The virtue of this approach is transparency and predictability. A project developer who anticipates submitting an application for a project in the time frame of the third tranche knows exactly what her return will be.
GWP’s method for setting its price is the exact opposite: opaque and entirely unpredictable. From the Council packet, here is their “formula":
(1) for energy delivered to GWP during the peak [offpeak] period, the avoided peak [ offpeak] period cost of energy that would otherwise be purchased from the spot or short-term market during the upcoming calendar quarter, using the MEAD_ ON [MEAD_OFF] forward curve ($/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.
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:
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.
UPDATE - We just learned that the Board hearing to discuss changes to the Solar Incentive Program has been rescheduled to Wednesday, June 19th at 9:00 a.m. (Still at DWP HQ on Hope Street in downtown LA.) We will not be able to attend due to a prior commitment with the USC Solar Decathlon team. Anyone who does attend, feel free to pass on our thoughts below to the Board.
Solar is a great fit for non-profit organizations - environmental awareness and good stewardship of resources go hand-in-hand with the mission of churches and schools. But because non-profits are unable to take advantage of tax incentives, their sole sweetener for going solar are utility rebates - and in the City of the Angels, those rebates are about to drop dramatically before they go away entirely.
LADWP’s Solar Incentive Program (SIP) has been divided into two pieces: Residential and Non-Residential, the latter of which was further divided between Commercial (applicable to taxable entities) and Non-Profit/Government (i.e., tax exempt organizations). The Non-Residential program is being phased out in favor of the Feed-in Tariff program (about which we have written extensively). The thing is - the price paid for energy under the Feed-in Tariff program is just too small to pencil out for entities that cannot avail themselves of the 30% federal Investment Tax Credit and depreciation - and unlike under the existing SIP which offers higher rebate rates for non-profits, the FiT only provides a single payment level regardless of the tax status of the entity.
Most non-profits are looking for modest-sized solar systems in the 30 to 150kW range. That is too small to attract lots of financing options and the boards of many non-profits are reluctant to commit to long-term leases for a depreciating asset.
Bottom line - without the help of a generous rebate, many - if not most non-profits - will be left on the sidelines of solar.
Which makes the news coming out of LADWP all the more troubling. We have learned this week that when DWP goes before its Board on June 18th, it will seek a final re-authorization of the Non-Residential SIP with a requested budget of $15 million and rebate rates of $0.70/Watt for Commercial and just $1.45/Watt for Non-Profits. As bad as that reduction is, when that $15 million is gone, that is it - no further funding of the SIP is planned.
How big is the shortfall caused by the lowered rebates? Assume two neighboring entities, one commercial the other non-profit, that want to install a 100 kW solar power system on their respective buildings. If we assume that the install cost comes in at $4.50/Watt, they are looking at an initial outlay of $450,000. The commercial entity will get a rebate of $70,000 and a federal ITC of $135,000 leaving an out-of-pocket amount of $245,000 - and that is before figuring in depreciation. The non-profit qualifies for a larger rebate, $145,000 under the proposed rates, but that’s it - leaving them with an out-of-pocket expense of $305,000 - $60,000 more than their for profit neighbor.
This is curious and troubling since the LADWP website has indicated - at the same time that we were being given this information - that when the SIP program resumed in July it would offer non-profit rebates of $2.25/Watt - a rate which would actually make our hypothetical non-profit come out ahead. A more modest rate of $2.05/Watt would allow non-profits, at least at this level of project size, to break even.
Rebates are intended to serve a number of purposes but one of those is to help make solar commonplace - to insure that systems are installed where they will be seen and understood to be reliable components of our future. Given that, where should limited rebate dollars be spent: assisting cash-strapped schools and churches to install solar where congregants and students can learn the lessons of sustainability - or simply to aid some company in lowering its operating costs and boosting its profits? (Don’t misunderstand - we are all for commercial rebates, but if it comes down to a choice, surely the non-profits are in greater need of the support.)
On June 18th DWP staff will present this proposal to their Board and perhaps these rates can be adjusted to give more help to non-profits. That would be a welcome outcome, but even more welcome would be an acknowledgement by DWP that as their program plans presently exist, there will soon be no way forward at all for non-profits to adopt solar.
Surely that cannot be the desired outcome.
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.
Two weeks into the reservation period, the latest data from LADWP’s Feed-in Tariff program reveals that the first 20 MW tranche has been fully subscribed. Indeed, the “large” system category (150 kW to 3 MW) was fully subscribed in the first few projects drawn from the lottery whereas the “small” category (30-150 kW) took the full two weeks to be subscribed. Here’s our analysis of what we can glean so far.
Under the FiT Guidelines, projects sited in the remote Owens Valley (oddly enough, part of LADWP’s service area) were capped at an aggregate 4 MW. Given that land is relatively cheap out there, at least compared to real estate prices within the City proper, it was expected that only larger projects would be proposed. Moreover, the Base Price for Energy to be paid was set at 3¢/kWh less than that to be paid for all other projects to account for the transmission losses in getting Owens Valley energy to the City.
Despite all of that, Owens Valley was very popular, with a total of 29 projects proposed to date totaling 65.7 MW, substantially more capacity than that designated for LA. No fewer than 18 of the proposed 29 projects were for the maximum size allowed under the program, 3 MW. (Somewhat surprisingly, there were three projects submitted at the limit of the small range in the Owens Valley. Apart from those, the smallest project proposed was 1.014 MW - which, curiously, was proposed twice.)
One company dominated the proposals, Ecos Energy, LLC, with 14 projects proposed for 31.95 MW. They got lucky in the lottery, drawing the first two lottery numbers for Owens Valley projects. with a combined total of 6 MW.
In the City proper, the numbers look quite different. A total of 57 projects were proposed in the large category for a total of 44.3 MW, but in contrast with the Owens Valley, only one project was proposed at the maximum possible size of 3 MW. Instead, the majority of large projects in the City were much smaller - averaging 778 kW with 500 kW being the most popular size (4 such projects proposed).
In the small project category, 38 projects were proposed to reach the 4 MW limit. The average system size proposed was 106 kW; however the most common size was the maximum for the category, 150 kW which was proposed 5 times.
So where are these systems going? The data does not provide street addresses, but it does provide zip codes for the proposed projects. Here are the top ten zip codes by number of proposed projects:
Nine of the top ten zip codes are in the northern end of the City, with only one zip code, 90502, in the City core (Carson).
And here is a map of the zip codes with two or more potential projects (click image to access interactive map):
Part of the goal of the FiT was to provide economic opportunity for local companies and local workers. However, there were no carve-outs or preferences for local companies in the FiT Guidelines. So how did the “locals” do?
Let’s focus on companies proposing projects in the City proper (thereby ignoring the dominant player in the Owens Valley - Minnesota-based Ecos Energy, LLC.)
Eleven companies proposed two or more projects in the large category for a total of 34 out of the 57: SEC ESSD Solar One, LLC (5 proposals / 3.5 MW), Sun Energy Partners III, LLC (4 / 1.86 MW), SunStarter Solar XC LLC (4 / 2.7 MW), CA Solar One LLC (3 / 1.4 MW), SunStarter Solar XXII LLC (3 / 1.12 MW), CEGALLIANCE (3 / 3.5 MW), Fallbrook Center Solar, LLC (3 / 1 MW), MRB Solar, LLC (3 / 2.165 MW), Extra Space Management Inc. (2 / 501 kW), Century Quality Management (2 / 570 kW), and OM Solar LLC (2 / 4.5 MW).
Eight companies proposed two or more projects in the small category for a total of 25 out of the 38: Extra Space Management Inc. (6 / 824 kW), OM Solar LLC (5 / 674 kW), SEC ESSD Solar One, LLC (3 / 400 kW), Broadstreet Energy Corp. (3 / 112 kW), The Ryzmn Family Trust Dated 8/20/89 (2 / 151 kW), SunStarter Solar XXII LLC (2 / 250 kW), SunStarter Solar XC LLC (2 / 300 kW), and OYA Energy Partners LLC (2 / 100 kW).
Collectively, here are the top ten companies proposing projects in the City:
Three of the top ten companies are LLC’s whose headquarters cannot be readily identified, although one of them, SunStarter XC LLC is most likely related to SunStarter XXII LLC out of Fort Lauderdale, Florida.
The other two - MRB Solar and CA Solar One come up empty in both Google searches and with the California Secretary of State’s office - raising the likelihood that they are actually out-of-state corporations. Of the seven that can be identified with some confidence, three are from California but four are not.
Of course, the company that is the applicant is by not necessarily the company that will be the installer so there is still a decent chance that these projects will boost local employment. But it appears that for as many as 70% of the top applicants, we have no such assurances.
So what can we learn from this? Three points seem to come out of this data:
Overall, the program seems to be off to a promising start. With some minor adjustments - and assuming that the proposed projects can actually be built - LA could really have a program that could serve as a model for the rest of the nation.