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!

A bit off-topic, but given the wide-spread existence of downed power lines throughout the LA Basin, we thought it would make sense to include this timely advice from LADWP:

LADWP strongly encourages the public to stay away from any downed power lines and poles as well as downed trees and limbs, and protect children home from school today from the same. Beware of traffic signals that may be affected by power outage and proceed with extreme caution. Allow access for uniformed LADWP crews, all of whom carry Department-issued identification cards, so they may service infrastructure in need of repair.

In the event of a power outage:

•Stay calm.

•Have a flashlight and extra batteries nearby. Don’t use candles in a power outage.

•Turn off lights but leave one light turned on so you will know when your service is restored.

•Turn off and unplug appliances and other electrical equipment. Unplug heat-producing items like irons and space heaters. This helps prevent circuit overloading, which could delay restoration of service.

•Call us and report your outage at 1-800-DIAL DWP (1-800-342-5397). If you encounter a downed power line:

•Report any downed power lines immediately by calling the LADWP at 1-800-DIAL-DWP (1-800-342-5397). If you or someone else is in danger, call 911.

•Do not touch a downed or dangling wire or anyone or anything in contact with it. Always assume a downed line is still energized.

•If a power line falls on your car, stay in the car and wait for help. If you must get out, make sure you do not touch the metal parts of the car and the ground at the same time. The safest exit method is to open the door, stand on the door sill and jump free without touching the car.

•Stay away from metal fences, such as chain link fence, as there may be a power line down and touching the fence somewhere beyond your sight.

•If there is damage to the connection from the power pole to your house, you should go to the electrical box and turn off the main switch or shut off the fuse switch. Again, always assume electric lines are live.

•In case of an electrical emergency, stay calm and think before you act. Don’t become a victim while trying to help others. Call 911.

•If someone is shocked or not breathing, apply cardio-pulmonary resuscitation (CPR.) Then cover the victim with a blanket, keep their head low and get medical attention.

The public and members of the media are encouraged to check the Department’s news site at www.ladwpnews.com and Twitter page, @LADWP, for updates.

For folks not served by LADWP, you can report downed power lines by calling:

• Pasadena Water & Power (PWP): (626) 564-0199 or  (626) 564-0299
• Glendale Water & Power (GWP): 818-548-2011
• Southern California Edison (SCE): 911 and report an “electrical emergency” - see their safety tip sheet.

Everyone knows that the Los Angeles Basis is blessed with a near year-round abundance of sunshine. Everyone also knows that LA is a power-hungry region demanding between 4,000 to 5,000 megawatts peak power depending on the season (and anticipated to increase to 6,500 megawatts by 2020). Given that, the marriage of solar power to meet LA’s needs should be a no-brainer. So what’s the hold-up? Why are we so far behind?

A new joint study out from UCLA and USC titled “Empowering LA’s Solar Workforce” places the blame on a failure of policy leadership:

Unless civic leaders ramp up efforts to expand solar programs, the city and region face the prospect of being left behind, as other municipalities and other regions move forward on solar power and clean energy programs. In fact, while a recent study showed that one-quarter of all solar energy jobs in the nation are in California, there is a very real risk of those jobs (and others yet to be created) fleeing to other places. This report is, above all, a wake-up call to policymakers to make certain they are utilizing an important workforce segment – and creating policies that will put qualified people to work. In Los Angeles, the policy mandate is clear: the LA DWP must move forward swiftly on a comprehensive FiT [Feed-in Tariff] program.

By any measure, the region’s utilities are just not getting the job done.  This table shows the status of statewide solar program targets and progress toward completion for the seven utilities in the area:

SCE and our own Pasadena Water & Power lead the way at 20% and 16% of SB1’s targets being achieved, with the rest falling far behind.  But given its enormous size compared to all of the other munis, LADWP’s failure to lead at only 6% achieved is beyond disappointing.

Clearly the failing here is not for a lack of available human resources.  The report correctly notes that Los Angeles has a substantial population of workers who have been trained - thanks to innovative programs from organizations like Homeboy Industries, LA IBEW11/NECA and community colleges - but not fully employed in the solar industry due to a lack of proper policies to spur the growth of local solar installations.  While LADWP has focused on utility scale installations in remote areas, it has lagged behind on installations that could be done right now in communities all across the city.  A greatly expanded FiT would allow solar developers to match up high solar potential project areas with high employment need areas.

Here’s another way to gauge progress - how much solar power per customer has each utility installed?  Again, LADWP is lagging far behind:

Again, SCE leads the way with 119 Watts per customer installed.  PWP is in the middle of the pack at 36.8 whereas LADWP has less than half that much (and not even a sixth of SCE’s total) at a measly 18.25 Watts per customer.

Faced with such dismal statistics, this is no time for short-sighted measures, but the timid, 6 MW demonstration program being presently contemplated by LADWP is far too meager to make a dent in this need.  To the contrary, the report argues that a 600 MW FiT program should be implemented over the next ten years.  According to the report, such a FiT must: “1) have a fixed price; 2) offer the program to participants on a first come, first serve basis; 3) have a simple application process; and 4) incur minimal administrative costs."  Such a program would create good-paying local jobs and help the region meet its energy needs while protecting the environment.

We couldn’t agree more.

UPDATE: The final tallies are in and our hometown team placed sixth overall and tied for the lead in two categories: Energy Balance and Hot Water efficiency.  Congratulations to all who participated in this competition - you make us proud!

The Solar Decathlon is a tremendously cool event that allows collegiate teams from around the world to show just what innovative, energy-efficient design looks like - and boy can these kids think outside the box!

Here in Pasadena we admit to being a bit partial to our hometown heroes over at Caltech (as in, the California Institute of Technology, in case you didn’t know).  Teaming up with architecture students from SCI-Arc (as in the Southern California Institute of Architecture, in case you didn’t know), the combined team’s entry - called CHIP,  for Compact, Hyper-Insulated Prototype - features insulation on the outside of the building and some other very clever design features, including - of course - solar panels.

Check out this video “walkthrough":

The Decathlon starts September 23 and runs through October 2 on the National Mall in Washington, D.C.  We can only hope that the folks who work in Washington and have a hand in setting national energy policy will take the time to become educated about the possibilities created by innovative thinking regarding our long-term energy needs.

We will be following the status of the SCI-Arc/Caltech team and will post updates as they become available.  Go team, GO!

UPDATE x2 11/8 - Solar City’s Jonathan Bass adds his perspective on our reporting about Solar City - see his response in the comments.

UPDATE  9/30 - We just heard from Jonathan Bass at SolarCity.  Details at the end.
(Still no word from Galkos!)

In the first two installments in this series (Part 1 and Part 2) we looked at the most recent data from the California Solar Initiative (CSI) covering the first half of 2011 in SCE’s service area. Using that data we identified trends in cost, equipment and system efficiency.  Along the way, we stumbled upon some Outliers and Oddities in the data that left us puzzled and disturbed.  In this post we name names, specifically Galkos Construction (aka GCI Energy) and SolarCity.

Before we explain to you why they are featured in this post, we would remind our readers of the Solar Bill of Rights created by the Solar Energy Industry Association (SEIA) in the Fall of 2009.  We wrote at some length about the Bill of Rights when it was introduced, but we want to highlight now what then we termed to be, “the most important right of all:”

8. Americans have the right, and should expect, the highest ethical treatment from the solar industry.

Beyond a shadow of a doubt, this is the most important Solar Right of all if we are to build an industry that is respected and trusted by consumers throughout this country. This should almost go without saying - and yet, saying it, and living it, is extremely important.

In our view, if we become aware of situations that don’t live up to that Right, we have an obligation to point them out so that our potential clients can make the most informed decisions possible. 
In honor of that principle we present today’s post.

Outliers: Galkos Construction

In looking at the data, from time-to-time a data point would jump right off the screen.  For example, examining all of the residential projects in our data - both “completed” and “pending” but excluding “delisted” - we find that the average installation cost in CSI Rating AC Watts is $8.43/Watt (in DC or nameplate Watts that average becomes $6.99).  As we noted in Part 1, that number has decreased over time and also decreases as system size increases.  Still, given that the residential sector (as designated in the CSI data) only consists of systems between 1 and 10 kW, you wouldn’t really expect significant price variation between installers over a six month period.

But you would be wrong.

Who Charges What?

Here is a chart of the Cost per Watt for the largest installation companies in the SCE service area (you can click on the chart to see it full size):

First, let us give credit where it is due.  The low end outlier is HelioPower, Inc., at $6.56/Watt, and they did it with an efficiency factor of 87% - second best of anyone on that chart. Nice.

But who is that way off in left field?  Coming in at a staggering $13.32/Watt - a full $1.40 higher than their nearest competitor and more than twice what HelioPower is charging - is Galkos Construction, Inc., also known as GCI Energy, out of Huntington Beach.  For that money, they must surely be offering only the most efficient and sophisticated technology, right?  Not so much.  To the contrary, the average installation efficiency for Galkos is only 84.9% - the second worst on the chart and well below the average of 86.11%.  In fact, 99% of the time Galkos appears to use Sharp panels - not exactly an exotic solar panel brand - and in particular the Sharp ND-224UC1 panel (66.5%). A quick Google search reveals that the Sharp ND-224UC1 can be purchased, at retail, for $2.65/Watt or less.  Given that Galkos handled 400 projects in this data set, it is hard to believe that their price for all of their equipment, particularly the Sharp panels, would not be heavily discounted.

Quality Counts

Quality, of course, is important, and the data does not reveal - though the Internet hints at - the quality of installations from Galkos.  Here is how the company describes its own product offerings (from the “Services” page of their website):

Solar by GCI [Galkos Construction, Inc.] Energy
GCI Energy is the largest solar company in Southern California with over 30,000 customers. So you get the most knowledgeable professionals, excellent customer service and a better price.

GCI Energy solar offers the highest efficiency solar panels on the market - those manufactured by Sharp. With Sharp Solar Panels, GCI Energy can tailor a solar panel installation to your specific needs and lifestyle, so you get maximum performance without a maximum investment.
(Emphasis added.)

Does Galkos actually have 30,000 solar customers?  Certainly not (nobody does).  Are they providing “a better price"?  It is not clear what their standard of comparison might be - but their price is not better than any of their major competitors in that chart.  And of course, the statement does not define what they mean by “the highest efficiency solar panels on the market,” but it seems unlikely that Sharp would make that claim.  Here’s one chart that concludes that they couldn’t (note the efficiency of the SunPower and Sanyo panels first, then search for Sharp).

All we can say in response is, caveat emptor.

Oddities - SolarCity

Now we turn to the Oddities section of this post.  Unlike the outliers, which were always of interest to us, we were not looking for the oddity we report here - it literally just jumped out at us.

Sold versus Leased

Question: What is the difference in reported cost between systems sold directly to the end customer and those that are leased (i.e., have a third-party owner in CSI parlance)?

The initial difference that we stumbled upon was so startling that we knew we needed to narrow our focus and control for as many variables as possible to isolate that one factor.  To achieve that end we restricted the data to those residential systems (i.e., between 1 and 10 kW) that were “pending” in the CSI/SCE data (thus, the newest proposed systems in the data which, based on our Part 1 analysis should mean the lowest cost systems). That way our project sample would be as homogenous as possible, eliminating cost variations based on system size and timing.

Given those restrictions, the top 5 installation companies in which the system is owned by a third party are: Verengo (482 systems), SolarCity (468), American Solar Direct (124), Sungevity (99), and HelioPower (63).  Of those five, only two also have direct sales projects pending: Verengo (7) and SolarCity (9).  Let’s see how they compare:

What is going on here?  For Verengo, as the number of systems increases - which it does in going from sold systems to leased systems - their cost per Watt decreases - which is what we would expect.  But not so for SolarCity - even though they are leasing 50 times as many systems as they are selling, their cost for the leased systems went up - way up - as in up by $3.12/Watt!

(One possible explanation for this discrepancy would be that SolarCity uses much more expensive equipment in their leased systems than they do in the ones that are sold.  But they don’t.  On their sold systems, SolarCity always selected a Fronius inverter and their panel choices were split among Yingli (56%), Kyocera (33%) and Sharp (11%).  On their leased systems, SolarCity selected Fronius inverters 98% of the time and again split their panel choices among Yingli (68%), Kyocera (28%), and BP (3%)  with the remaining 1% scattered among Suntech, Sharp and Sanyo.  In other words, there is no significant difference in SolarCity’s equipment choices between sold and leased systems.)

Why Does this Matter?

Why does this significant cost differential matter, you might ask?  After all, customers aren’t paying that price - they are paying on a lease so the “cost” of the system doesn’t matter to them, all they care about are their lease payments.  True enough - unlike the case with our Outlier above, the end customer is not the victim here.

Recall, however, that for systems that are leased, the third-party owner - presumably SolarCity and its investors in this case - receives both the rebates and the tax benefits associated with the installation.  While the rebates are independent of the system cost (they are paid based on CSI Watts), not so for the tax benefits.  Commercial operators   (even though these are residential installations they are treated as commercial projects for tax purposes) are entitled to both a 30% tax credit as well as accelerated depreciation based on the cost of the system.

For the 468 systems that SolarCity is leasing, their total cost is $24,261,735 to install 2,412 kW.  If those installations were billed out at the $6.94/Watt they are charging for their sold systems, the installed cost would be $16,739,280 - a difference of $7,524,037.  At 30% for the federal tax credit, taxpayers are giving SolarCity an extra $2,257,211 - just from six months worth of installs in only the SCE service area.

Wow!

In the words of the 70’s pop song, How long has this been going on?

How Long Indeed

We decided to find out.

Although all of our analyses up until now in this series have been restricted to the first half of 2011, the actual data set contains entries from the inception of the CSI program.  Thus we can look at all of SolarCity’s installs going back to 2007 and compare them as we did for the 1H2011 pending installs above.  We will use the First Completed date to group these by year and analyze only “installed” - and not “pending” applications.  Here’s the data:

The answer would appear to be, almost from the beginning!  Back in 2007, Solar city sold ten times as many systems as it leased.  By 2008 the ratio was down to 4-1 and ever since then leasing has been SolarCity’s predominant business strategy with the ratio of leased to sold now standing at nearly 16-1 in 2011.

Bottom Line

What, then, is the cumulative impact to SolarCity’s bottom line from this trend throughout California?  We aren’t in a position to calculate the depreciation benefits (since that is a function of the system owner’s tax bracket) but we can readily calculate the added value derived from the 30% federal tax credit due to this increased cost per Watt.

Here is our plot of the cumulative effect of those year-by-year increases:

After a slow start in 2007-08, SolarCity’s “model” really took off and has garnered the company an extra $3,000,000+ each year since 2009 (and, of course, 2011 is not yet over) for a total excess accumulation of $10,619,000.  Depending on the investors’ tax bracket, the depreciation could be worth nearly as much as the tax credit.

Double Wow!

UPDATE 9/30 - We have now heard from SolarCity

We just heard from Jonathan Bass, Director of Communications at SolarCity who took exception with our report, although he did concede that he could see how we could have reached the conclusions we published in light of the CSI data.  We encouraged him to please send us a written response in as much detail as he chose and we would publish it in its entirety.  While he agreed that SolarCity would be publishing its response, he did not commit to publishing the information here.

In any event, when we hear more we will update this post again.

What’s Next?

No doubt there is more that we could do with these revelations - but wouldn’t it be better for those with actual oversight obligations to examine this data as closely as we have and to take appropriate action?

As always, we welcome your comments - and if we hear from any of the folks named in this series we will be sure to update the appropriate post.