Good point but it comes down to rate design. The folks pushing for net metering did not design the rate structures used by the IOUs - they did (subject to approval by the PUC). But since non-solar customers are subject to the same rates, the utilities are equally impacted by energy efficiency measures which are having a much larger impact on energy usage than residential solar - at least so far.
As usual the truth will be somewhere in the middle: net metering is an excellent push for decentralized energy production, but on the other side, someone needs to pay for the infrastructure. That someone will be the remaining people, exclusively using energy produced elsewhere. Obviously, this only works as long as at least 80% of customers are not producing their own energy....
In The Netherlands, where I live, the net metering obligation for utilities is considered the major subsidy for PV energy.
Actually, @eesmc, the balance may be even better for smaller inverters: since they also have a limited efficiency (up to 97% at full use) that goes DOWN when they're not used up to 100% of their capacity, it may well be that a somewhat smaller inverter delivers more electrons in the end.
No microinvertors here, but I have a similarly limited system: I have a 4370Wp system myself, consisting of panels in 2 different directions, and coupled to a 4kW inverter with 2 followers. I rarely saturate the inverter at all, but it is truly used from sunrise to sunset. This may be better than using a 5kW inverter and all panels in the "optimal" direction.
Quite an informative, albeit disturbing, series of posts, Jim. Good that you trusted your instincts, used your sleuthing skills to explore the situation fully, and uncovered the depths of Pacific Blue Solar's duplicity. Thanks for keeping us alerted- solid work, as always!
It is rare to see such dramatic, truly "graphic" results- definitely shows you are on the right path. Also interesting to read about the vicissitudes of maintaining your blog productivity- probably a challenge faced by all writers when staring at a blank page or computer screen! In spite of the obstacles, you continue to impress, Jim, with your newsworthy contributions and your ability to make staying current in the solar world, not only possible, but interesting. Kudos to you and your consistent efforts- keep climbing upward!
I have to echo the above comments. This is thoroughly researched and clearly communicated. This work will stand as valuable research/historical material as we move forward with Solar in LA, the US and around the World. I came across it not through Run On Sun, which I read often, but through simple google search as I researched the LADWP FiT program. Thanks for your hard work and advocacy Jim and Run on Sun!
Hi Paul --
Yes, it would appear that uplift was a foreign concept - as well as simple common sense.
I do think that as the industry matures, there will be a growing need for consulting work: performance assessment, installation verification, etc. (LADWP's FiT requires bi-annual inspections by a third-party C10.) Sad that it is so needed, but I certainly see the need growing.
Whey I try to explain that the racks hold the panels down at least as much as up I get some funny looks from the uninitiated. Sometimes it helps to tell them how big a sail board sail is and how it can lift me out of the water. I'm guessing the install/inspection team would fall into that funny look category.
This suggests there might be a business opportunity in orphan array inspection and
I would agree with the local part to implement the projects. It is essential because no one in the world, literally, knows how much we as EPC's have been through with LADWP, LA B&S, and LA Fire. Come on people! They wrote the harshest rules that haven't even gotten to most other markets yet. No not MA, MS, NJ, FL, HI, CO, IA, OH, PA, OR. I speak from first hand experience from Design/Build in each of these states. And, I am prepared to make it a "patiently easy process" when the new age of developers are ready to bring these projects back on track with LCOE. Send me an email when you are ready.
Alleluia! I could not be more excited and delighted to hear that the wisdom Run on Sun has acquired through years of experience in the solar industry will soon be available to the public. Cannot think of anyone better suited to provide a clear, concise, and fair rendering of the facts about solar. Way to go, Run on Sun- trailblazing once again!
I've wondered why some utilities don't get more involved in leasing. It you cant beat them join them and I would think with their economies of scale they could give SolarCity et al a run for their money.
The solution for the specific complaint and crux of the article is to charge in a manner similar to coop electric utilities.
If one years electric utility expenses [maintenance, overhead, fuel purchase, etc] are less than the revenue taken in from monthly retail electric bills, the following year customers electric rate per kWh are lowered.
The inverse is true if costs are higher.
National and state electric rates are well documented and could provide a clear standard that all leases will have to follow.
Lease customers don't seem to realize that the cost escalation for an owned PV system is zero while the ROI on a leased system is also zero.
Let the buyer beware...
Cap and trade, nuclear decommissioning and the extremely cyclical economics of natural gas are all going to make the rate payers wish they could lock in a rate escalation of 5% over the next 10 years.
The question is where the money for that sort of long term planning ends up. The federal and state agencies all but gave it away to tax equity investors (read: hedge funds) when residential PACE was hung out to dry.
Hi Christof - I always appreciate your comments, thanks for the kind words.
Given that 70% of residential installs in CA are leased systems, I do not believe that anyone can doubt that leases have played a major role in growing solar. I maintain it is the promise of something for nothing that induces customers to go the leasing route - even though, at the end of the day, the piper must be paid. But is there a better solution? Without a doubt - PACE.
Keep in mind that PACE was about to take off at a time when solar leasing barely existed. Had the PACE programs that were ready to roll - like the one here in LA County - been allowed to go forward, leasing would have died aborning, in my view. Instead, using highly questionable logic, Fanny & Freddie killed PACE and leasing filled the void.
But make no mistake - a low-interest PACE program would have grown solar much faster at lower cost to homeowners. Of course, a bunch of well-connected finance types would have had to find a different industry to game...
Great piece Jim! I'm glad someone is finally stating the obvious: The whole question/issue of how solar companies represent ROI is not unique to solar leasing, but is an industry-wide issue.
Seems to me, the anti-solar leasing crowd has used this case, and other similar ones with similar allegations but where no formal action has been taken, to smear solar leasing. This while many of these same folks have been using the same/similar ROI models while trying to sell solar outright.
That's not fair, it's also incorrect. You set the record straight here in sophisticated fashion. Nice job :-)
P.S. -- Would love to see you write a piece in which you address the following:
Would solar adoption in the U.S. be where it is right now without solar leasing (I think the clear answer is no, but that's my personal take)? And, if solar leasing is not the fair/best way to grow solar in the U.S., what is a fair/realistic way to do so, something that actually has a political and economic chance of succeeding?
I still say the primary reason so many go for solar leasing over buying is because they've been conditioned to paying their electric bill on a monthly basis, not paying it forward with a big upfront payment; if you can overcome this consumer conditioning with an alternative model to solar leasing that recognizes this reality -- the monthly-bill mentality, then I'm all for it.
But right now, I see solar leasing as playing a crucial role in growing solar in the U.S., and that, more than anything else, is what I have my eye on.
Thanks for the update Jim. We've definitely still got some catching up (and surpassing) to do. From the original article, it appears Germany still managed to add 7.6 GW last year - more than twice what we added last year in the US. However, our growth was a much greater percentage of existing installed capacity.
Unlike the human species which inhabits this globe, the earth is not a candidate for resuscitation measures. Once we manage to demolish it, no amount of emergency techniques will revive our planet . The mandate to take appropriate action has never been more relevant, and bloggers like Jim keep us focused on the challenge, as well as the prize. Thanks for another great post!
Sounds like Jim, and his Run on Sun team, have been employing their myriad talents this week. If you don't find them "up on the roof" installing a system, you can count on their being in the trenches, getting the word out, and striving to ensure that a complete perspective on any solar related enterprise is revealed. Nice job, folks!
Sorry, Mitch, but no one is anywhere near $2/Watt, even at system sizes above 150 kW. Since 2008, prices have fallen in half - from $8/Watt to $4/Watt (on the simplest installs). That was driven by the price of modules falling through the floor. Meanwhile, little else has dropped - and until this year, permitting costs have increased. When you factor in what it takes to get a permit in the first place - LADWP has a 10-page form for microinverter systems, for crying out loud, and they still run you through plan check - to say nothing of acquisition costs, trust me, $2/Watt systems are nowhere near reality, at least not in the CA market.
I do not agree that installers, generally, are in anything like a "nice position" vis-a-vis the FiT. Very few of those systems are being built by local installation companies who marketed for and won business in this first tranche. (Perhaps only one such company from what I can tell from this data.) That wasn't the point of the exercise. Keep in mind as well that there has been no commercial program in LA since last July so there was substantial pent-up demand for something - and it still took two weeks to subscribe the small program.
Put a meter on the system. The first 225 MWh per year get 16.5 cents/kwh. Everything above that gets 16 cents/kWh. The Budget is set for 30 GWh per offering at an average price that's prorated between the price steps. Put a provision in the rules that allows the customer to move to a NET-FIT payment structure if they desire. In a NET-FiT structure you subtract out production that is simultaneously self-consumed on-site. You want a net-FiT if retail is higher than the FiT rate. This is likely by the end of the FiT contract. There are no taxes on savings which is a bonus for the customer.
If you are aggressive enough with the FiT cuts you'll be close to a Value of Solar Tariff at the end of the process. That will help installers tremendously because the city will likely continue with a modified program once this transition phase is over. If you pussyfoot with the FiT cuts you never get to a competitive position. Once the ITC drops business will stop.
If the Germans can make do with a 16 cent/kWh FiT in a 900 kWh/kWp solarity regime we should be able to make a 16 cent/kWh FiT work in a 1500 kWh/kwp solarity regime. Two weeks and 4 MWs of subscriptions tells me installers are in a nice position. I misquoted Jigar by the way. He said he sees $2/Watt systems before subsidies - not after subsidied! Size range is 150 kW and up. He characterized these systems $2/Watt systems as ideal but stated they weren't rare. I know I've heard you say this price isn't possible in CA. That's what they said in Germany a few years back. It's possible.
I like the idea of paying based on output rather than size but it may make it harder for them to explain how it will work and how much it will cost the their decision makers. Presently there is a cap of 15% above the "predicted" output - but that invites a certain amount of gaming itself.
I am all for experimenting with the system so as to produce a program that provides a sustainable solar market while preventing the "gaming" you are concerned about. But from an installer's perspective, it is more important to have a stable market to which you can advertise a potential investment.
You have to push the envelope with the small projects - if you don't you're standing still. These are specifically the projects that should become most cost effective as the FiT falls thanks to the self-consumption offsets that start to play in once the FiT passes the retail rate.
With the smaller projects I'd raise the Carve out by a MW and lower the FiT rate by .5 cent/kWh rather than the full 1 cent/kWh... See how that works. If it works raise the carve out again and again. If it's not fully subscribed give the carve out to the bigger projects at the end of the submission period.
You need to play with the program. You can't put rules in place that can be gamed. I've watched FiTs being gamed for years. I think there are relatively easy ways to stop this. We have to try.
Also... Here's an idea. Once you differentiate the rates you don't need to set up the rates based on size... You set them up based on production. Assume the 150 kW tranche will export up to 225 MWh per year. Make the FiT rules so that the first 225 MWh of annual production gets the first rate and all remaining production gets the second rate. This sort of rule allows roofs that could accommodate 200 kW to go ahead and install the full 200 kW and not get punished with the lower FiT for all of their production. The rule meets the spirit of rule we currently have. It also prevents, to some degree, gaming on the installer side of the biz.
It is the generation side that is changing the most - as fossil fuels get phased out and distributed generation becomes an ever bigger part, their business model becomes less and less sustainable. (Of course grid management is closely tied to this - our present grid control structure is just not up to the task of providing in the 21st century - whether to handle distributed generation or the threats of cyber-attacks - our utilities are just not prepared.)
That also means that rate structures need to change. Presently, utilities get a guaranteed return on their infrastructure investment - though failed nuclear reactors mess up that calculus. But that only works when you are regularly building more infrastructure. So you see the death-rattle in comments like Ms. Burt's - she is trying to hold back the tide by complaining that it isn't fair to the poor. As if that was a major point of concern of any for-profit entity these days.
Not sure how this will shake out, but I'm pretty confident that the solar industry is on the side of the future.
Thanks for the great article Jim. Could you suggest links to other posts of yours, or outside resources, that give newcomers greater insight into the traditional business model of utilities and how distributed generation fits into the picture? I found it especially interesting that you referred to PG&E as being part of a dying industry... so which aspect exactly is dying/changing the most?
I wouldn't be the least bit surprised to see just such a "jiggering" going forward. However, I would leave the small system rate where it is. The small systems have averaged 104 kw - just over the mid-way point in the allowable range and it took a full two weeks to subscribe. The large systems are more than seven times as large, averaging 778 kW. (Except in the Owens Valley where system sizes were 2.266 MW). They sold out immediately.
I will be publishing a more detailed analysis later.
Thanks for your insightful comments on this topic.
The 4 MW small system carve out is now fully subscribed. If I were the LADWP I'd consider revising the FiT degression on the larger tranche from 1 cent to 1.5 cents. This would save the city a couple of million dollars over the life of the FiT.
We often see FiTs set up initially with undifferentiated rates. You do this because you don't know better. Now that we see how one tranche is more attractive than the other you can rejigger the rates to better match the market.
Warmac - Not sure you can "totally agree w/Burt" when you advance a proposal she never made.
Any reader of this blog would know that I support a properly designed FiT. But it isn't true that you cannot measure kWh offset under a net-metering scheme, even if it isn't commonly done. Nor do I know how much contact you have with folks who have installed solar, but I can tell you that the majority of our clients become very focused on how much energy they are using and become extremely focused on reducing waste.
In any event, the long term solution has to include changes to the utility's rate structure and, ultimately, business model.
I totally agree with Burt. Feed in tariffs are the future. The fact that you can not track kWhr offset through net metering makes it difficult to identify the environmental attributes and does noting to discourage consumption and efficiency. Put in a 2nd meter and provide an incentive rate with a 10 year term. Couple this with our tax credits and we have an improved German model. The Government can tax normal consumption and use it to incent efficiency. The RE generation after 10 years competes with any new generation and wins. A win-win-win, the customer wins, the utility wins, and the goverment wins. It all creates Jobs!
Hmmm... I found the excel spreadsheet charting the reservations and I see what you mean by the over-subscription in the 150+ kWp bracket. What does that tell you? It tells me the FiT was clearly set too high. Oh well... You need a honey pot I guess. That said I think they can lower the FiT rate more aggressively in the 150 to 3000 kWp tranche than in the smaller tranche.
I'm pretty sure the 30 to 150 kWp bracket will easily get it's subscription.
Good point about the State PTC - certainly does make a difference. (Sadly, nothing like that in CA.)
However, with all due deference to Jigar Shah, no one is building projects in the "small project" category - 30-150kW - on commercial roofs in the City of Los Angeles for $2.00/Watt even including the ITC. Or if they are, you would not want such a project anywhere near your building.
As for advertising and a lack of information - well, we did advertise and we have published more about the LA FiT than just about anyone else around. There was some interest, a few people "kicked the tires", but no one pulled the trigger. It remains to be seen how the small project category will be supported under the FiT.
The State PTC (special incentive) and the ITC (standard) cut the LCOE of that Macho Springs project by half! Greentech seems to be the only rag that caught this point. Absolutely everyone else simply printed the deets which make no sense if you're thinking about where pricing is. Seriously!
The large projects out in the Basin are only temporarily the cheapest. Germany, Belgium, Australia and elsewhere show there are no significant economies of scale with solar - A utility project is maybe 10 to 15% cheaper than a medium sized commercial project in terms of installed costs but if there are any extra transmission/substation costs with the remote project this installation cost delta gets wiped out.
17 cents/kWh is certainly high enough in a 1500 kWh/kWp climate. Jigar Shah talks about $2/Watt projects (with ITC) in the US all the time. Germany is doing $1.75/Watt w/o incentives. I'd guess the reason the FiT is undersubscribed has to do with an information shortage plus the fact that installation costs (hassles) are currently significantly higher than they will be in a year. Spend some money advertising and see what happens.
I don't have a problem with a 17 cent/kWh FiT as a kickstart but special attention will need to be paid to adjusting the FiT. Ultimately you want to ratchet down to 12ish cents/kWh - it's doable. I've run the numbers.
What "special tax benefit" is involved with the First Solar project?
As for the price point of the FiT - I think the whole point of the process that LADWP went through with the demonstration program was to suss out the price that was needed to subscribe the FiT. That price came in at $0.175/kWh for projects capped at 1MW. Thus, if the premise of that program had any validity at all, you would not expect to see a price *below* that value succeed.
What we have seen so far from the actual program is that the large projects jumped in w/both feet and greatly oversubscribed the FiT by more than 500%. Not so on the small project side which as of Friday (when the data was published) was well below the 4MW subscription target.
That tells me that $0.17/kWh is too high for large projects and too low for small - and anyone who has run the numbers can tell you the same thing.
Bottom line - if all you care about is the bottom line, then very large projects out of the basin are the cheapest way to go. But if you care about other things not so easily quantified - such as local jobs and the impact of seeing solar throughout the City - then the RPA's analysis was way off the mark.
Jim Jenal is the Founder & CEO of Run on Sun, Pasadena's premier installer and integrator of top-of-the-line solar power installations.
In addition, Run on Sun offers solar consulting services, working with consumers, utilities and municipalities to help them make solar power affordable and reliable.