Everyone in the solar industry is focused on soft costs—that is all the extra expenses that are rolled into the cost of installing a solar power system. Since prices for solar modules have dropped to below a dollar/Watt, the percentage of an overall system price consumed by soft costs continues to increase. But soft costs are really hard to reduce and we just had a painful example to help drive that point home.
One of the most pernicious of the soft costs are those associated with getting approvals from the Authorities Having Jurisdiction (AHJs) over the project. That includes both the utility that must approve any rebate application and interconnection agreement, as well as the local building and safety department which must issue the permit and inspect the project. The requirements for approving a solar power system vary considerably from jurisdiction to jurisdiction and that lack of standardization—combined with just plain arbitrariness that runs rampant in some places—means long, pointless delays in moving projects forward.
We are working on a medium-sized residential project in Los Angeles. If we were doing this in Pasadena, it would be installed by now, but as everyone knows, LA isn’t Pasadena. We submitted the requested materials for reserving the rebate on this project on December 3 of last year and then sat back while we waited to hear from them. Weeks went by without a peep—while we reassured our client that we would update them as soon as we heard something.
Then, finally, we did. On February 19th, seventy-eight days after we submitted the application, we got an email telling us that the application was “incomplete” and that:
If you fail to submit the requested documentation by the above date your incentive application will be subject to cancellation without further notice.
(It really was in red type.) How long did they give us to respond? Two weeks. In other words, we get less than one fifth of the time that LADWP took to, in its sole discretion, identify “deficiencies", to cure those deficiencies.
If that wasn’t bad enough, LADWP adds insult to injury by sending a copy of the “deficiency” email to the client! Pity the poor client—they have picked a contractor, signed a bunch of paperwork, and made a down payment, all months ago with nothing to show for it, and then they get an email that suggests for all the world that their contractor has botched things and their project is about to go south! How helpful.
So now the contractor has to spend time reassuring the client that despite the dire tone of the email, everything will be ok. Then you spend more time addressing the “deficiencies” that have caused all the ruckus in the first place.
I won’t bore you with the entire litany of nonsense that we were asked to cure, but my favorite one was this: when you submit information about the system online, you are supposed to show the cost of modules, the cost of the inverter(s) and the balance of system (BoS) costs. You are also required to submit a copy of your contract for the sale. This we did. But they complained that the contract price and the system price entered online did not agree. Now here’s the thing, once you submit the rebate application to LADWP you can no longer see those details, so the contractor has no way to know where this “error” came from. So, with no other options, you tell them that the contract is the controlling document as to the system cost so they should use that.
Instead, they send out yet another email, this time with the scary heading: “FINAL NOTICE” (yes, all in caps) with the following declaration:
The Los Angeles Department of Water and Power (LADWP) has received your Solar Incentive Program application, and it is still incomplete.
And yes, they send a copy of this email to your client as well.
Now if they had actually read the contract they would have understood that the discrepancy is due to the rebate amount itself. Online, the total cost reflects the price before rebate. But because we front the rebate for our client, the contract price is net of the rebate amount. (The contract itself spells that all out, of course, but then LADWP would have to actually read the contract.) We thought about explaining this before coming to our senses and realizing that was a lost cause. Instead, we created a letter requesting that they modify the online data to reduce the BoS amount by the rebate, and uploaded that to their system. Voila, just like that, they reserved the rebate.
By my count, it took eight emails to get this resolved.
Just about everything about this interaction is wrong. The delay in the initial contact is wrong. The tone of the email sent out is wrong. The absurd disparity between the timing LADWP allows itself versus that to the contractor is wrong. And the lack of understanding of what they are reviewing is infuriatingly wrong. It builds in delays and costs to deal with those delays. It is what makes soft costs so damn hard.
It needs to change.
The Feed-in Tariff (FiT) program for LADWP has been up and running for nearly a year with the first two tranches in the books. Which raises the question: how have those proposals that were accepted, performed? Here’s our first take…
LADWP quietly posted some update statistics about its program the week before Christmas and we stumbled upon it while looking for information about the timing for the Third Trache (presumably set for later this month, although the DWP website simply says that launch info is “coming soon").
The FiT data comes in the form of an Excel spreadsheet, without supporting documentation, which leaves it open to interpretation.
Collectively, the data reports on 256 total projects, 136 from the first tranche and 120 from the second. Interestingly, the data only records three different status values for these projects: Cancelled, In-Progress and Waiting - there is no category in the data for “Completed".
From the first tranche, out of that total of 136 projects, 20 have been cancelled (14.7%), 45 are in-progress (33%) and 71 - over 52% - are listed as “waiting", though the data does not identify upon whom or what the projects have stalled. The data is somewhat more encouraging for the second tranche with only 1 project cancelled so far (0.8%), 64 are in-progress (53.3%) and 55 are waiting (45.8%). This trend suggests that as projects age they are more likely to either be cancelled or end up waiting on something.
The data tracks four milestone dates post lottery selection: Technical Screening Completed, Interconnection Study Completed, Customer Executed Contracts Received, and SOPPA Execution Date. Curiously, for the projects with a status of “waiting", not a single one of those dates is indicated. As it is hard to fathom how 110 out of 256 projects haven’t even passed the technical screening stage, we conclude that the “waiting” status is unreliable and needs to be corrected by DWP.
Turning to the cancelled projects, all but 3 of them reflect passing of the technical screening, and 15 of the 21 have completed interconnection studies. Since it is at that stage that you would expect a project to be dropped if the interconnection cost has turned out to be prohibitively expensive, it is not surprising that only seven got to the point of submitting their contracts. However, DWP had not executed any of those contracts according to the data. Which means that seven projects got so far as to submit binding contracts before dropping out.
Which leaves the category of “in-progress” projects. Out of a total of 109 so designated projects, only three have executed contracts from DWP, and all three of those were executed on September 13, 2013. This makes for a pretty dramatic winnowing process:
109 start -> 89 pass screening ->31 complete interconnection study -> 20 submit contracts -> 3 have those contracts executed, nearly a year after the process began (all of those with executed contracts came from last February’s first tranche).
Unfortunately, the data does not reveal why we are looking at such a dismal success rate one year on. Perhaps things would look different if the “waiting” segment were more revealing, but it is not.
Here’s hoping that 2014 will provide both greater success in getting projects over the finish line, as well as greater clarity in the process.
We have reviewed the data coming from LADWP for the results of the second tranche lottery - here is our analysis.
Our first observation is that for some inexplicable reason, LADWP chose to present the data in Adobe pdf format instead of the Excel spreadsheets used previously. This made the process of analyzing the data far more tedious than it should have been. Heads up, DWP, please provide data in a data format. We have nothing against pdf files but that is not the way to publish this type of data.
Second, there was no Owens Valley data here. We cannot tell if there were no projects submitted from Owens Valley (there were in the first tranche) but none of these projects come from outside the Los Angeles Basin.
Third, one of these proposed projects was for biogas and not solar! That proposed project, submitted by MM Lopez Energy LLC, was for a 2.95 MW biogas system in Lake View Terrace. Unfortunately, the tranche was already oversubscribed by 572 kW by the time their lottery number turned up. This is a first for the FiT (which theoretically is technology neutral) - all of the proposed projects in the first tranche were for solar.
Collectively, the data released documents a total of 112 proposed solar projects, 63 in the large category (>150 kW) and 49 in the small category (30-150 kW).
While there were a total of 64 projects in the large category, it only took 19 to fully subscribe the 16 MW capacity cap available to large projects, and the last project to make the cut will have to downsize by 263 kW (from its proposed 800 kW) to stay within the cap. Here are the companies that were successful in the lottery along with the number of successful projects and the total capacity they are authorized to install:
Only three companies ended up with more than one project: OM Solar LLC (3 projects), Oakdale Ventures LLC (2) and SunStarter Solar LLC (2). The largest project appears destined for a warehouse building owned by Forever 21 coming in at just under the program limit of 3 MW.
One non-commercial entity made the list, LA’s Metropolitan Transit District will be installing 350 kW for its Division 13 bus operations center.
Far more numerous, however, were the losing proposals - here they are:
One of the first things that jumps out here is the amount of overlap. Each of the companies with multiple unsuccessful project proposals also had at least one project that made the cut. In particular, OM Solar LLC lost on 9 but was successful on 3, SunStarter Solar LLC lost on 8 but succeeded on 2, Haizenberg Solar LLC lost on 3, succeeded on 1, PLH LLC lost on 2, succeeded on 1, and SunRay Power LLC lost on 2 but succeeded on 1.
On average, the successful projects were somewhat smaller than the ones that missed the cut. Successful projects averaged 856 kW in size whereas projects that missed the cut were 1,113 kW.
Total proposed capacity was 66.38 MW, or 415% of the available 16 MW. Interestingly, this compares to 44.3 MW that were proposed in the first tranche - despite a lower energy price, the number of proposed projects increased!
Overall, the average proposed system size was 964 kW.
There were fewer participants in the small category, with a total of 49 projects of which 47 came within the 4 MW capacity cutoff (although the last project to make the cut will have to trim down by 3.3 kW from its proposed 38.7 kW). Average system size for a successful small project was right in the middle of the allowed range at 85 kW. The two projects that missed the cut were for 41 and 108 kW.
Here are the winners:
SunStarter Solar LLC was the big winner here with 10 successful proposals. Broadstreet, which finished right behind with 9 selected projects was also the bidder on the two that didn’t make the cut. Interestingly, the average system size for SunStarter was more than twice that from Broadstreet.
As before, the successful projects are scattered about the Basin. Here’s a listing by city:
Not surprisingly, LA itself is the big winner with thirty projects in the city proper reaching nearly 8 MW of installed capacity. Seventeen other neighborhoods are also participating overall, with North Hollywood capturing the second greatest number of projects (8) while Sunland comes in second for amount of capacity to be installed (3 MW).
Breaking the same data down by zip code shows that the top 10 zip codes account for 28 of the 68 projects (41%) but 15.7 MW of total capacity (77%).
Here is the breakdown by top ten zip codes:
Greatest capacity is set to occur in 91040 (Sunland) with three projects totaling exactly 3 MW, whereas 91605 (North Hollywood) has the greatest number of projects at seven worth a total capacity of 1.1 MW.
Once again we turned to the folks at batchgeo.com to give this data some visual perspective. We mapped all of the approved projects by zip code including the size of the project, the project name and the company responsible. The result is the following map where the different color pins represent the size of the projects accumulated in that zip code. (Unfortunately they do not allow you to represent size by a larger dot on the map - but hey, its a free system!)
As with the first tranche, there are a great many specially created entities in the list of company names which makes it harder to know who is actually scheduled to do the work. For example, there are numerous proposed projects from companies with names like 17000 Ventura, LLC or Luxe Apartments, LLC - not a lot of insight provided there. Frankly, since the LADWP FiT requirements call for the experience of the installation team as a basis for possible rejection, the published data should identify the installer and not just the project developer.
Here are the top ten companies by capacity of winning proposals:
Once again, as in the first tranche, OM Solar is the big winner (they had seven projects worth 5.2 MW back then). OM Solar is headquartered in Torrance. SunStarter and Broadstreet Energy were also big players in the first tranche: SunStarter had 6 projects worth 3 MW then and Broadstreet had 4 for 1.3 MW. Broadstreet is headquartered in Stevenson Ranch. SunStarter Solar has a residential installation group in LA, but the company behind these projects is Solar Provider Group, headquartered in Toronto. PLH LLC appears to be a property management company out of Oregon. Oakdale Ventures LLC is listed as a foreign (i.e., out-of-state) entity with offices in Chatsworth. Lazben Investments is headquartered in Van Nuys. Heizenberg Solar LLC filed as a business in California on June 7 and appears to be a Delaware corporation headquartered in Denver. No information could be found about Central Plaza. SunRay Power LLC appears linked to something called Lakewood Six Solar LLC in New York City.
A few take-aways from this second tranche:
We said after the first tranche data was released that it appeared that the program was off to a good start and the results for this second tranche appear to confirm that assessment. Now we need to see the success rate of these projects actually being developed.
The second 20 MW tranche of LADWP’s Feed-in Tariff (FiT) program went up for grabs on July 8 and all applications received by July 12 were included in the auction that took place on July 19. The lottery results were posted on Friday (annoyingly as a pdf file - thanks a bunch!) and we will be analyzing them for a detailed post soon.
But here’s the key take-away: it is, once again, over subscribed!
We will tell you who won big and who got shut out as well as where this is all going to go in our upcoming analysis. Stay tuned!
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.