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

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.

Will Churches and Schools in LA be Shut-Out of Solar Soon?

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.

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.

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.

Owens Valley Proposals

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.

Los Angeles Proposals

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.

Coming to a Zip Code Near You?

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):

Who Are Those Guys?

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.

Lessons So Far

So what can we learn from this?  Three points seem to come out of this data:

• The FiT rate is probably too high for the large and Owens Valley segments.  Both of these subsets of the overall tranche were massively over-subscribed.  (Proving once again that it is more economically feasible to build 3 MW projects in the hinterlands than it is 150 kW projects in the City core.)  Perhaps, as one of our readers has suggested, LADWP should lower the BPE in the next tranche by more than the scheduled 1¢/kWh for large and Owen’s Valley projects.
• The FiT rate for small projects should stay where it is.  There was significant reluctance for small projects to enter the program given the large uncertainty around interconnection costs and the economy of scale disadvantage that small projects face.  Given all of that, the next tranche is too soon to lower the price paid for small projects.  LADWP should roll the savings from scaling down large and Owen’s Valley projects - perhaps by 1.5¢/kWh next tranche - into preserving the price paid for small systems.
• The Guidelines should be revised to provide preferences to local companies.  LADWP is spending local ratepayer’s money on the FiT program - it should not go to enriching out-of-state corporations at the expense of local enterprises that would plow their profits back into the local community.  A lottery may be impartial, but blind luck is a poor substitute for enlightened civic self-interest as a policy choice.

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.

During the debate on LA’s new solar feed-in tariff (FiT) program, we reported on the comments from LA’s so-called Ratepayer Advocate (RPA) who complained that at 17¢/kWh, DWP was paying to much for energy under the FiT.  Instead, the price should be just 11¢ he said - a statement that had us scratching our collective heads.  Well now comes an article from Bloomberg that puts this into a very different perspective, and so we ask: just what is the cost of new energy generation?

The Bloomberg piece, First Solar May Sell Cheapest Solar Power, Less Than Coal, notes that a 50 MW project owned by thin-film solar manufacturer, First Solar, had just signed a power purchase agreement with El Paso Electric Co. for just 5.79¢/kWh, which makes it “’the lowest solar power purchase agreement price we have ever seen,’ [according to] Aaron Chew, an analyst at Maxim Group LLC in New York.” Now that is indeed amazing - but of course while thin-film panels are cheaper than crystalline panels they are also significantly less efficient - meaning that they are generally not suited to constrained footprints (like commercial building rooftops) which are the targets for the FiT.  And, of course, the economies of scale present in a 50MW project are simply not available for a 50kW project - again, the target size for the FiT.

But what really struck us in the article was this, referring to the incredibly low price being paid for the solar energy coming from this new solar plant:

That’s less than half the 12.8 cents per kilowatt-hour average price for new coal plants, according to data compiled by Bloomberg. Thin-film photovoltaic power typically sells for 16.3 cents a kilowatt-hour, according to Bloomberg New Energy Finance.

Wow - according to Bloomberg, new coal-power plants are selling energy for more than the RPA was willing to price energy under the FiT!  Moreover, even the significantly cheaper thin-film plants are averaging just under the price for energy set by DWP staff for the FiT - a rate the RPA ridiculed as a give-away.

As the FiT kicks off today amidst substantial speculation as to its viability, even at the 17¢ figure, this Bloomberg piece is yet another reminder that perhaps we need to look more closely at the pronouncements coming from LA’s newly minted RPA - at least some sources seem to call his numbers into question.