Wednesday, October 31, 2007

Dow Jones News Service Covers Group Buying

Today a very complimentary story ran in several Dow Jones publications including Investors Business Daily and CBS MarketWatch. I've added the URL for Marketwatch to the home page, but in case the story disappears from their site, I've copied the story below.

SOUTH ORANGE, N.J. (Dow Jones) -- Convincing a group of neighbors to agree on anything is rarely easy. But in a growing number of communities in the U.S. over the past year neighbors have proven fairly persuasive at influencing dozens of their peers to spend $25,000 or more on a rooftop solar system.

It started in Portola Valley, Calif., a sunny community 35 miles south of San Francisco. In December, 78 of the town's 1,700 homes decided to pool their purchasing power and call in a large order for residential solar systems.

California-based SolarCity offered the community a group discount on the rooftop and backyard photovoltaic systems and installed them. The company, which started out installing individual orders for homeowners, began filling bulk orders for neighborhoods in California in 2006 as a way to try to drive down the cost of solar systems.

"If an entire group comes together they get a discount," said Lyndon Rive, founder and chief executive officer of SolarCity. "With three or four homes you don't get economies of scale."
Plenty of money and effort is being spent on developing solar technology but the most neglected part of the renewable story is the installation piece of the puzzle, according to Rive. Increasing the volume of sales of solar systems will help solar-generated electricity reach price parity more quickly with the electricity generated from power plants that burn fossil fuels, the executive said.

Today, the company has community discount programs underway in seven California cities and has completed installations in another eight. The company says that by September it had sold more than 500 residential solar systems in 19 cities and towns.

By the end of this year, the company is slated to open new offices in Colorado and New Mexico and by the first quarter of 2008 SolarCity plans to begin offering community discounts in both of these states as well.

SolarCity's program is focused on retrofitting existing homes with solar panels. But so-called solar communities aren't new. U.S. home builders such as Pardee Homes, Pulte Homes and Shea Homes have been developing planned communities where residences feature solar rooftops for several years.

Convincing 40 neighbors to go green
The company's offer is simple: if a town can get a sufficient number of homeowners to sign up for rooftop or backyard solar systems they receive a 20% to 30% cut off the local market price of a home solar system. The company typically aims to sell roughly 175 kilowatts to each community. Since an average-size home in the U.S. can usually support at least a four-kilowatt solar system, 44 homes becomes the standard target. Commercial buildings and businesses can also be a part of the mix.

SolarCity set a goal of 175 kilowatts for Portola Valley residents. The community easily topped the goal, with the participating home systems accounting for 343 kilowatts. Additional installations in the community have added 55 kilowatts, bringing the town total to roughly 400 kilowatts of solar power.

Other communities have also surpassed the company's goal. More recently, 119 households in Mountain View, Calif. ordered solar systems totaling 367 kilowatts. Another 124 kilowatts were subsequently installed in the community, even though these homeowners did not receive the rebate. Today, 2% of the single-family residences in Mountain View have solar installations and SolarCity installed more than half.

But not all towns receive the discount offer. SolarCity's strategy has been to handpick towns after conducting extensive local research, educating and interviewing homeowners, inspecting homes to determine if they can be outfitted with a solar system, and evaluating homeowners' electricity bills. The process is rigorous and can take up to three months to complete with 200 site visits to 50 homes, Rive said.

Targeting big energy consumers
The cost of a typical five-kilowatt system translates into about $9 a watt, Rive said. SolarCity can shave off about $1.50 per watt by selling in bulk, which brings the cost down to $7.50 a watt, before state rebates and federal tax incentives.

Federal and state incentives are a key part of the discount program. After deducting state rebates and federal tax incentives -- which pay for about 25% of a residential solar system in California -- homeowners in California working with the discount program have paid around $24,000 on average for a system, Rive estimated.

The California Energy Commission hosts a that allows California residential and commercial electric customers use a ZIP code to generate an estimate of the costs and benefits of investing in a solar system.

A report from Navigant Consulting released in September concluded that "the combination of California incentives, more aggressive [photovoltaic] system price reductions and new business models can have a significant impact on market adoptions."

California utilities use a multitiered pricing system for electricity that means the more electricity homeowners use the higher the rate they pay for electricity. Power prices range from 11.4 cents to 36.4 cents per kilowatt hour. This is why SolarCity employees assess the utility bills of interested homeowners to see if they are above average: higher power bills and a higher price for power is likely to shorten the payback period for a solar investment.

"In the Bay area you have homes with six computers that are always on," Rive said. "There are other parts of California that have tremendous huge air conditioning demand."

Terri Steele, spokeswoman for the California Center for Sustainable Energy, agreed that solar is being marketed to homeowners "with large homes, a couple of SUVs in the driveway" and not to the "most energy conscious"' consumers.

If an intense assessment indicates a town is right for solar, SolarCity gives the community a deadline to sign up the needed number of homes.

Mountain View residents had little trouble meeting the target. "It was pretty darn easy," said Bruce Karney, a resident who spearheaded the local buyers group. Karney now works for SolarCity as part of the team that markets and sells solar systems to other communities.
Karney acknowledged that the decision to go solar can be a significant one for many families. "It's a relatively expensive purchase. It's like buying a car," he said.

But Karney also noted that communities with high-price housing may find it a little easier to swallow the initial investment when it represents a small portion of the total value of a home. In Mountain View, the cost of a solar system is less than 2% of the cost of the average home, Karney said.

"The return on investment differs almost for every customer," said Rive, who estimates that SolarCity customers see a return investment of between 8% and 17% .

Boom in solar use
California was a natural focus for SolarCity. The sun-drenched state is the leading solar market in the U.S., representing 73% of the systems tied into the U.S. power grid in 2006.
In 2006, U.S installation of solar photovoltaic devices jumped 33% from the previous year, according to a 2007 report from Solarbuzz, LLC.
The solar boom in California is a result of the California Solar Initiative, a ten-year, $2.1 billion solar incentive program for existing residential homes and commercial buildings launched in 2007.

A new report released by the California Public Utilities Commission says solar "demand is booming." CPUC launched the California Solar Initiative on Jan. 1 with a goal of creating 3,000 megawatts of new, solar-produced electricity by 2017. The program has a budget of $3.3 billion over 10 years.

In the first nine months of 2007,requests for California Solar Initiative incentives "are on track to exceed California's total installed solar from the previous 26 years," according to the report.
Disregarding applications that have been withdrawn or rejected, the program has received 5,109 applications for 160.5 megawatts of demand, worth $320 million in incentives. Residential applications dwarf all others (4,564 applications) and comprise 13% of the total megawatts in the active applications.

As of Sept. 18, there are 1,157 projects installed and operating, and that have either received payment or are about to be paid. The installations add 9.4 megawatts of new solar capacity and total $25 million in rebates.

But California's rebates step down over time and as this happens company discounts like those offered by SolarCity are likely to become more important to customers looking for a price break. "The faster you convert the better your rebate," said Steele.


Thursday, October 25, 2007

Berkeley Mayor Proposes Innovative Approach for Financing Solar

Mayor Tom Bates of Berkeley has just proposed a very interesting idea: city financing of solar and energy efficiency investments paid for over 20 years through a tax assessment on the property being improved. See this press release for more details.

Say you want to buy a $20,000 solar PV system. The city pays the contractor and places a tax assessment on your property for 20 years at a rate of $1,500 per year (or something like that). The $30,000 that you will pay includes $20,000 of principal and $10,000 of interest. (This example assumes that the interest rate is 4.5%.)

If I understand the proposal correctly, the homeowner's tax payments are tax deductible (if he itemizes), unlike an ordinary loan in which only the interest paid is deductible (and there are limitations on the deductibility of interest). [Update: according an e-mail from Cisco de Vries in the mayor's office, the tax payments are deductible from your California tax return but not Federal. He didn't explain why the deductibility varies.]

If homeowners can get low interest (because the loan is secured by the taxing power of the city) and better deductibility of interest, it would revolutionize solar financing and potentially many other capital-intensive (but sensible) investments in renewable energy and conservation.

Kudos to Mayor Bates and his Chief of Staff Cisco de Vries!

Monday, October 15, 2007

Solar Water Heater Incentives Go Into Effect 1/1/2008

The Governor recently signed AB 1470, a bill authored by Assemblyman Jared Huffman. It's titled "Solar Water Heating and Efficiency Act of 2007."

The bill establishes a framework for a 10-year program of declining incentives for solar water heating that is similar to the "Million Solar Roofs" initiative, passed in 2006, that has lit a fire under the solar photovoltaic market. The bill covers the use of solar thermal devices to provide domestic hot water and to heat homes, but specifically excludes solar pool heating - see article 2861(h).

One thing that is not yet clear is how big the incentives will be. The stated goal is to encourage 200,000 systems, and the budget for the program will be no more than $250,000,000. That means that the average incentive can be as much as $1,250. However, the incentives are also supposed to decline, just like PV incentives. That implies that incentives in the first year of the program (2008) could be $2,000 or even more. In the recent past the California incentives for solar hot water were $750.

Given that the typical price of a solar hot water system (including installation) is usually $5,000 - $6,500, and the fact that such systems are eligible for a 30% federal tax credit, the cost of installing a solar domestic hot water system in 2008 could be as low as $2,100.

Here's the math:

$5,000 initial cost
-$2,000 state incentive (estimate)
$3,000 out of pocket
-$ 900 (30% Federal Tax Credit)
$2,100 net cost

That's about twice what I paid recently to buy a conventional 30 gallon storage water heater and have it installed. The ROI on such a system would be high and the payback period low.

Unless I'm missing a big piece of the picture, it sounds like the prudent thing to do is to schedule your solar hot water site evaluation for late 2007 and arrange for installation in early 2008. Unless Congress gets its act together and passes an energy bill that the President will sign, current federal tax credits for solar will drop from 30% to 10% at the end of 2008.

Thanks to Kurt Newick of Horizon Energy Systems for his assistance with the details of this posting.

Sunday, October 14, 2007

Congratulations to Al Gore

On Thursday, Oct. 11 we saw Al Gore speak in Cupertino. He gave a shortened and updated version of "the slideshow" from An Inconvenient Truth. The most chilling new slide was one that showed the degree of melting of the Arctic ice cap this September. Normally, the ice cap shrinks to a size about equal to the lower 48 states. This summer it shrank to a size equal to the lower 48 west of the Mississippi.

Based on this, scientists now project the Arctic Ocean will be ice-free in summer by 2030, not 2050 as they had projected only a few months ago.

The next morning we awoke to the news that Mr. Gore had won the Nobel Peace Prize. I hope the Supreme Court doesn't step in to take it away from him.

Tuesday, October 2, 2007

Installations Essentially Completed

I'm pleased to learn that virtually all the systems purchased between February and April have now been installed. This is almost one month ahead of the date we were given back in the Spring. There are still about 15 systems that are not installed because the work is being coordinated with remodelling, re-roofing, or some other factor where the delayed installation is at the customer's request.

If anyone reading this who was part of the original buying group disagrees, please contact me so I can intervene on your behalf.