Amidst the continuing sturm und drang between the solar industry and the Investor-Owned Utilities (IOUs), we came across this interesting piece over at REWorld documenting some revealing observations by Duke Energy’s CEO, Jim Rogers. Duke - the nation’s largest utility owner, sees the writing on the wall and is not sanguine about what it portends:
“It is obviously a potential threat to us over the long term and an opportunity in the short term… If the cost of solar panels keeps coming down, installation costs come down and if they combine solar with battery technology and a power management system, then we have someone just using us for backup,” Rogers said.
Rogers’ observation comes at a time when the conventional energy industry is facing “anemic” growth in power demand - due to increased efforts at energy efficiency and the growing impact of consumer-owned generation. Since IOUs make a guaranteed return on investment in building, mostly, added power generation capacity, if there is no need for additional capacity, there is no basis for future returns. Not a promising prognosis for an industry that has grown accustomed to those sweet, sweet guaranteed returns.
And that, in a nutshell, is the IOUs’ dilemma - as renewables become ever more cost-effective, and particularly once intelligent storage solutions become a part of standard solar offerings, the justification for the guaranteed existence of IOUs becomes weaker and weaker. Contrast this with the municipal utility model which is owned by the city in which it is based and which exists for the benefit of its residents. If their preference is for distributed generation, then the muni’s goal should be to facilitate the adoption of such systems. Since its customers are also its owners, the interests are aligned.
But not so with IOUs who exist to make a profit for their shareholders and those interests are not necessarily aligned with those of the monopoly-provided customers they “serve". Not surprisingly, it is the IOUs leading the charge against net metering and questioning the “fairness” of local solar power.
Which raises the question: Can we as a society afford to have IOUs anymore? In an era of carbon-driven climate change, are IOUs a dinosaur determined to fight their extinction to the bitter end, even if they take th rest of us with them?
At Run on Sun we are big fans of data, and more specifically, taking data in an appropriate way and using it to gain real insights. We have followed that path to analyze everything from a solar eclipse with a solar array, to finding Outliers and Oddities in the CSI data. So we were thrilled to see someone take real live data and use it to rebut an annoyingly panicked article that ran yesterday in the Wall Street Journal.
The WSJ piece, titled California Girds for Electricity Woes, reads like an uncritical regurgitation of a PG&E press release - and we all know where PG&E stands on solar! In it we are told that California’s power grid is facing a “looming electricity crisis that could be brought on by its growing reliance on wind and solar power." Really? Who knew that California was so reliant, given that all renewables make up a small portion of the overall grid supply. But PG&E is clearly waging its war on many fronts, and this is just the latest assault.
Riding to the rescue of reason is Arno Harris who published a wonderful piece titled, Chicken Little and the “Crisis” of Grid Reliability. Using actual data from grid operations in California, Mr. Harris demonstrates quite convincingly that while the peak load on February 27, 2013 was 29.5 GW, the grid operator had between 32 and 38 GW of generating resources available throughout the day - not exactly a crisis. Moreover, the data also shows that “intermittent” energy sources - such as solar and wind - accounted for a peak of 2.3 GW or less than 8% of the peak load and just over 10% of the minimum demand that the grid operator had to satisfy during the day.
To be sure, as the percentage of renewables grows over time, grid operation will become more complex, and Mr. Harris readily acknowledges that. But he points to the example of Germany - which has balanced as much as 50% of its peak demand coming from solar - as an example that with the proper planning, massive penetration by solar and other renewables can, and must, be managed. Or as he puts it:
It’s not magic - it’s actually pretty logical and straightforward. And the benefit Germany gets is tremendous: a high proportion of 100% clean electricity with solid reliability.
The article is well worth reading - he has enough really cool graphs to warm the hearts of data geeks everywhere - and it serves as an excellent counter-point to the Journal’s alarmist blather. Give it a read.
SECOND UPDATE - Over at PVTech, Felicity Carus has written about the Sunrun lawsuit and quoted Run on Sun Founder & CEO, Jim Jenal at length. Here’s a link to her article: Solar lease companies face criticism over calclulating energy savings.
UPDATE - The lawsuit against Sunrun was covered in the March 1, 2013 issue of California Energy Markets (an independent news service from Energy Newsdata) and Run on Sun Founder & CEO, Jim Jenal, is quoted at length. The article, titled Lawsuit Charges Sunrun with Deceptive Marketing, begins on page 8 of the attached pdf and Jenal’s remarks begin on page 9.
Solar leasing giant Sunrun now finds itself the target of a statewide, class-action lawsuit, alleging that its business practices in marketing residential solar leases are false and deceptive. But just because a lease is a bad deal for the consumer doesn’t make Sunrun’s marketing actionable or a lawsuit justified. Here’s our take.
Readers of this blog will know that we are far from fans of residential solar leases. In our view, those leases are a boon to finance companies but not such a great deal for homeowners. By luring potential customers with the enticing prospect of getting something for nothing, residential solar leases have become the driving force in the residential market - even though the customer would be far better off financially if they purchased the system and collected the rebate and tax credit for themselves.
But the lawsuit against Sunrun does not allege that the Plaintiff, Shawn Reed, got a bad deal from the company. Instead, the Complaint claims that:
The central premise of SunRun’s [sic - misspelled throughout the Complaint] uniform marketing campaign is that increases in electricity prices will result in cost savings by installing the SunRun Solar system. But SunRun deceptively states with certainty something that is inherently unknowable. Those whose electricity prices are not as high as estimated by SunRun are already experiencing the cost disadvantage of the SunRun system. Others whose electricity prices will not rise as high as estimated by SunRun will experience the cost disadvantage in the future. But whether the cost disadvantage is experienced or not, the promise of a system sure to result in cost advantage was false when made and likely to deceive consumers into leasing a system they otherwise would not have.
Complaint, ¶ 3 (emphasis added).
To be sure, there are other allegations in the Complaint, including the claim that Sunrun acted as a contractor without a contractor’s license and that Sunrun’s contracts are less than clear about whether a customer can terminate their contract when they move without penalty. However, for our purposes we are only going to focus on the allegations about Sunrun’s “central premise” in their “uniform marketing campaign.”
The gist of Reed’s claim is that Sunrun told him that his system would save him money - “tens of thousands of dollars” according to the Complaint - based on a prediction as to what future energy prices would do, namely rise. Sunrun claims, according to the Complaint, that “Nationwide, electricity rates have been increasing 6% per year over the last thirty years,” but this, according to the Complaint, is itself deceptive, citing data from the California Public Utilities Commission showing the increase from 1982 to 2010 was only “3.25% annually.”
Leaving aside the nit of California data (cited by Plaintiff) versus national (allegedly cited by Sunrun), the larger question arises: what is a fair basis for predicting future costs of electricity? After all, this is an issue that affects far more than solar leasing companies. Every seller that markets a good or service designed to reduce your usage of grid energy - whether by generation or efficiency - makes assumptions about future energy costs as a basis for predicting your return on investment. There simply is no other way to do the calculation. Are all of these folks engaged in “deceptive” marketing tactics? As long as the assumptions are disclosed - and without seeing the contract at issue we cannot say whether they were or not - it is hard to see how even an erroneous prediction could be deceptive.
Moreover, anyone who has looked at a graph of the cost of energy in California over the past fifteen years knows that it more closely resembles a roller-coaster ride than anything consistent - what with a trader-generated energy “crisis” followed by the greatest recession in living memory. With that much noise in the system, what is a “fair” prediction?
We know for a fact that SCE just secured a three-year, 17.2% rate increase from the CPUC. That works out to 5.7% per year - pretty close to the allegedly “deceptive” prediction of 6% cited in the Complaint. As California’s cap-and-trade law begins to be felt, it is expected that there will be more upward pressure on energy prices, yielding even greater cost increases in the future. Add-in an economy recovering from recession and suddenly a prediction of 6% annual increases doesn’t seem to be particularly unlikely, let alone deceptive.
Of course, asking a potentially unsophisticated consumer - no offense intended to Mr. Reed - to push back on the assumptions made in any ROI calculation may be asking too much. But is a lawsuit really the best way to address this problem? Litigation is a painful process which rarely provides societal benefits, and class-action lawsuits are often the worst of the worst with no one really benefiting - except, of course, the lawyers.
A better approach would be to see some appropriate legislation passed that would standardize the disclosures provided to potential clients by all solar companies.
There are plenty of examples that could serve as a model. Think of shopping for a major appliance - when you go to compare two different refrigerators, you will see a prominent label that reveals how much energy each one will consume in a year and how that usage compares relative to other, similar units. You will also see an estimated cost to run that unit for a year - with all of the assumptions set out on the label so that a GE product uses the same assumptions as one made by LG.
The time is ripe to devise a system by which any seller of solar power systems in California would have to provide standardized, regulated disclosures.
You could make it more palatable to solar companies by providing a “safe harbor” against deceptive business practice lawsuits like the one facing Sunrun - as long as the solar company provides the necessary information in a standardized manner, they would be deemed to have satisfied their disclosure requirements to the potential client. (They could always add more information as long as it didn’t obscure the meaning of the required disclosures.)
This would also be a boon to consumers since a properly designed set of disclosures would allow competing proposals to be judged as apples against apples - something that is almost impossible to do now.
So what should those disclosures include? Here is our (non-exhaustive) list:
Such a law would work no hardship on reputable solar companies as we are already providing that information to our clients. But putting it in a standardized format would move the solar industry forward and help avoid pointless litigation like that now facing Sunrun. As responsible members of the solar industry, it is up to us to make this happen.
Yesterday we attended the public hearing held by Senator Kevin de León (D-SD22) to discuss his proposed SB 39 which is intended to provide the mechanism for allocating Proposition 39 funds. We went into the meeting with significant concerns given the failure of the bill’s initial draft to say anything about clean energy generation. We came away impressed with Senator de León and encouraged for the future path of this legislation. Here is our report.
The hearing - technically a hearing of the Senate Appropriations Committee Subcommittee on Fiscal Oversight and Bonded Indebtedness - was held at Murchison Elementary School in Los Angeles, a school which could certainly benefit from the funds to be raised by Prop 39 and potentially allocated by Senator de León’s SB 39. De León chairs the subcommittee, but neither of his colleagues - Ricardo Lara or Mimi Walters - attended. Instead, Senator de León was joined on the dias by Assemblymember Nancy Skinner (D-AD15) - an old friend from Berkeley City Council days and one of the leading environmentalists in the State legislature. (Sadly, Assemblymember Skinner had to leave before we had our turn to speak. Perhaps she will read about our comments here.)
The format of the scheduled three-hour meeting was to take testimony from a number of invited speakers - representing LAUSD, the LA Chapter of the Green Building Council, the Building & Construction Trades, Global Green USA and the Coalition for Clean Air (my officemates from my time at CBE out in Venice) - and then hear from members of the public. During the course of the hearing it was hard not to be impressed by Senator de León’s concern for the largely working class community that he represents (Murchison school is in his district), his knowledge of the issues and his desire to come up with an appropriate formula that would be equitable and effective. He was articulate, passionate, friendly and humble - a combination rarely found in an elected official.
One topic kept coming up again and again - how best to allocate these funds so as to do the most good. Governor Brown is proposing to allocate the funds on a per capita basis - which seems even-handed, and easy to administer, but may not do such a good of applying the money to the greatest need. Senator de León was clearly focused on finding a different solution and he pressed the witnesses to offer their suggestions.
From our perspective, while many measures could be used - such as the percentage of students entitled to receive a free lunch - it seems to us that a metric more closely tied to existing energy inefficiency - such as kilowatt-hours per student - might be a better allocation measure given that it is possible to have poor students in an efficient school (even if that is not common). Another possibility would be to allocate funds strictly on a cost performance basis - direct the money to those projects that would produce the most bang for the buck - but pool the savings and allocate them to the neediest schools first. Of course, one of the secondary benefits of more efficient schools is that they also improve the learning environment by being cleaner, quieter and healthier places to study. Those benefits are hard to quantify and they make a “bang for the buck” approach less desirable if those benefits cannot be captured in the equation. Clearly the quest for “equity” here is complicated and it is hard to see how any allocation formula will satisfy everyone. (No doubt the reason for the Governor’s administratively easy approach.)
Which brought us to the time for our comments. Sadly, we represented the only solar installer in the room, although, curiously enough, there was a representative from national SEIA there who spoke before us and in favor of including solar in the mix. (Even more curious, there was no representative from CalSEIA there to speak.)
Given that SEIA made the point to include solar - which Senator de León appeared to agree with completely - we decided to shift gears and make the point about how solar could not only save energy and money, but unlike energy efficiency measures it could also enhance a school’s educational mission. We noted that our project at Westridge had done exactly that - with students and administrators alike excited about the addition of solar on campus, and we even mentioned our geek-fest over the analysis of solar eclipse data. Noting that solar was sexier than an LED, Senator de León agreed with us that both had a place in the mix of Prop 39 funds. As an adjunct to our comments yesterday, and since there is a chance that he and/or his staff will see this post, here is our Westridge video for their viewing pleasure:
It remains to be seen, of course, how SB 39 will evolve to accommodate the input provided yesterday and the process calls for continued monitoring. Still, we came away convinced that Senator de León is committed to doing the right thing and we wish him well in his efforts to balance the competing demands for funding and devise a formula that is fair and effective.
A future hearing is likely to be held at a later date in Los Angeles - we will let you know when that hearing is scheduled.
One of our favorite analysts of the solar scene, Paula Mints, has an interesting piece out today over at RenewableEnergyWorld titled, “Don Quixote, Chasing Unicorns and Treasure Maps in the Solar Industry ” - we recommend it highly.
As she notes, for a long time the solar industry has struggled to be the success that we all kept predicting it would be - and which many of us in the industry desperately wanted it to be - and not just for personal gain. Not surprisingly, when the industry took off:
[I]t seemed as if solar was a no-lose choice. Not a doubter in the crowd — every idea seemed to have merit and even if it did not, merit could be invented. Past struggles were forgotten and the industry moved on to its inevitable and successful future.
But that enthusiasm overlooked the real challenges facing solar, particularly from the established energy industry.
Today, as we face battles with those very entrenched forces, the road ahead is far less sure. Rebates are going away. The 1603 grant program is over and the sunset of the federal ITC is just a handful of years away. “When the odds against solar are tallied, Don Quixote’s quest to change the world as well as a need to believe in magic, unicorns and instant lottery riches seem almost insignificant,” she writes.
So why do we endure? Why do we push forward anyway? Well, it could be that some of us just aren’t very bright and we can’t see the writing on the wall. Or perhaps we are just too stubborn to give up and admit defeat.
But Mints has a better ending:
[T]hey continue developing solar technologies and business models in good times and in the hard times — and the hard times have lasted much longer — because the cause is lofty and the outcome crucial to the health of the planet. It is human nature to wish for a treasure map pointing the way to a successful outcome. It is also human nature to persevere without magic, a treasure map or ensured overnight success, sallying forward with just a lofty and crucial cause to shore up courage.
Let that be the focus for today: on our “lofty and crucial cause” to make the world a better place, one roof at a time. Forward!