SUN SHINES BRIGHTER IN TOUGH TIMES

Weak economy makes solar panels more affordable to homeowners; Price cuts by manufacturers, tax credits, California incentives and innovative financing ease the cost of going solar.
Marla Dickerson, August 1, 2009 (LA Times)
and
Half of All Solar Panels Made This Year Won’t Be Installed in 2009
August 10, 2009 (iSuppli)

SUMMARY
Installing a home solar system has never been more affordable. Prices are falling, state and federal incentives are rising and ownership opportunities in the form of financing deals and lease or lease-like deals are expanding.

The cost depends on 4 factors: (1) System size; (2) Panel price; (3) State rebate; (4) Federal Investment Tax Credit.

Solar panel prices are falling because there is an oversupply of panels and silicon. It is a truly glutted market. One manufacturer predicts more than half of the panels made in 2009 won’t be used this year. It also predicts the glut will last into 2012 and has decided to cut its planned production all the way through 2013.

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Total world solar panel production will grow 14.3% this year to 7.5 gigawatts. (Total world solar panel production in 2008 was 6.5 gigawatts.) Only 3.9 gigawatts of solar panels will be installed in 2009. In other words, almost 1 of every 2 panels will be inventoried.

To sell panels and clear their inventories, manufacturers are lowering prices. It doesn’t take a degree in economics to come to the conclusion that the price for solar panels has never been and may not again be so low.

The U.S. wholesale price for top-quality crystalline silicon modules is less than half what it was last year, ~$2.40 per watt. The retail price of an installed system, before subsidies and tax credits, is down from $9-to-$10 per watt to ~$7.50 per watt. Volume buys warrant even lower, below-retail prices.

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California’s “million solar roofs” solar initiative (SB1) is an exemplary state program that provides rebates to buyers. Like many states, California’s rebate can put a significant dent in the cost of a system. (Every state’s program is outlined in detail at DSIRE)

The federal stimulus bill that was passed in October 2008 extended an investment tax credit (ITC) of a full 30% of the entire system cost to every purchase of a solar system.

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A typical home rooftop solar system is 3-to-5 kilowatts (3,000-to-5,000 watts). The cost of panels constitutes about half the system’s cost. In addition to the panels, homeowners must pay for installation (labor, permits, taxes) and an inverter to transform the direct current created by the panels into the alternating current required to run home electronics.

A well-built, well-installed, well-designed rooftop solar system should last 25-to-30 years and significantly reduce the utility bill.

After all the rebates and incentives, the price for a typical system is likely to be around $20,000. That’s like prepaying the utility bill for a quarter century. It may or may not be the right decision for a homeowner.

There are other really interesting and exciting new options that make a lot of sense and will help make the use of solar energy more accessible. They include (1) volume buying, (2) power purchase agreements (PPAs), and (3) publicly-funded plans.

(1) Volume Buying
(a) SolarCity is a northern California-based business slowing spreading to other U.S. areas. SolarCity attacks affluent chunks of cities, organizing them for group solar system installations through which each homeowner in the group gets access to volume solar panel purchase discounts.

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(b) One Block Off the Grid (1BOG) is part of a national community solar movement in which groups of 100 or more homeowners self-organize for the same kinds of volume discounts SolarCity gets for its clients.

The key for both SolarCity and 1BOG is effective community organizing. It slows the process and limits individual choices but, when effective and in big enough volumes, has brought the cost down to $6.05 per watt installed. That cuts $5,000+ from a 5-kilowatt system.

(2) PPAs
Even with the advantage of a volume discount and all the subisidies and tax credits, the upfront cost of a solar system is intimidatingly high. A way to avoid almost all upfront costs and still benefit from the long-term lowered price of electricity that solar systems provide is the power purchase agreement (PPA). It is like a lease.

A company with solar system expertise and financial backing (like SunRun) buys, installs and maintains the system on a person’s house. The homeowner signs an agreement to purchase the power for an extended period approximating the life of the solar system at a guaranteed, below market rate.

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The homeowner can obtain such an agreement at virtually nothing down or can get better rates with a larger down payment. Most homeowners begin with rates 10-to-15% below the retail cost of electricity and can expect, a decade or more into the future when power prices are likely to be much much higher, to pay what will seem like bargain-basement utility rates (compared to a non-solar system owning neighbor, if there is such a thing in a decade).

The PPA-holding company makes its money on the low cost and eventually free electricity it continues selling to the homeowner as the solar system pays itself off.

In addition to its group purchase business, SolarCity also does PPA deals, as do solar industry giant SunEdison and many other finance companies and even some utilities, like the Los Angeles Department of Water and Power and Duke Energy. Bank loan departments and solar installers can steer interested parties in the right direction.

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The newest, hottest idea in beating the upfront cost of a solar system was born in the city of Berkeley, California, and was therefore known for some time as The Berkeley Plan. It was legalized statewide in 2008 as AB 811.

AB 811 grants municipalies and counties the right to offer low-interest loans to residents for the purchase of rooftop solar systems and arrange for repayment through assessments that appear on the residents’ property tax bills.

It could hardly be more convenient for the homeowner. The municipality/county handles everything, from site selection and installation to maintenance. If the house is sold, the assessments transfer to the new owner.

Berkeley, Palm Desert and Sonoma County have programs. San Diego is planning one. Golden, Colorado, has its own version and cities around the U.S. and around the world are exploring the idea.

Communities can obtain very low-cost loans for putting large amonts of money to work in what can only be perceived as very safe investments. The collateral is, after all, overseen by city and county governments. Palm Desert offers a 7% fixed rate in its program. A $30,000 system over 20 years raises a homeowner's property tax bill ~$3,000 a year. At the same time, the homeowner is saving perhaps as much or more on electricity.

COMMENTARY
Until last year, solar panel prices were elevated by a scarcity of silicon, a vital semiconductor ingredient. Demand was greater than supply because the refined material supply was inadequate and, at the same time, Spain radically ramped its demand up with a very generous feed-in tariff (FiT). Silicon refining and panel manufacturing capacities were ratcheted up. Then, the burden of the FiT became too great for Spanish ratepayers, especially in the context of the global financial meltdown. Spain lowered the amount of megawatts on which it would pay the subsidized tariff. Demand immediately dropped off. Prices followed.

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Even with the lower prices for panels, not all houses are good places to install rooftop systems. Ones with high utility bills and sunny, south-facing roofs are best. Even those houses can take 8-to-10 years to return enough in utility bill savings to pay off the installation. A good installer will provide a thorough assessment. Back-of-the-envelope sketches are available from any number of good website calculators, including a list of reliable ones at Go Solar California and the state of California Clean Power Estimator.

An atypical but substantive way of thinking about an investment in a rooftop solar system is that in comparison to all the uncertainties associated with other investments, putting money into a guaranteed energy bill reduction could be the smartest use of present money against future returns.

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Whether now is the best time to buy requires a full and careful evaluative process. Panel prices are down but a lot of state incentives, like California’s, have fallen and may continue falling either because the rising volumes they were designed to drive have started to be realized or because the recession has made it necessary for states to hesitate on incentive programs.

The California Solar Initiative is a 10-year, $3-billion program. Launched in 2007, it is funded by California utility ratepayers. Designed to drive volume, the amount of the rebate drops as the state’s installations reach progressively higher levels of total megawatts. For big utility customers, the rebate started at $2.50 per watt. It is now $1.55 ($1.90 for SCE customers) and will shrink to 20 cents per watt by 2016, the last year of the program. On that schedule, the sooner a system purchase is made, the better. The difference between a 2007 purchase of a 5-kilowatt system and a 2016 purchase is $11,500.

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Many states have or will be adopting such programs, especially those whose state Renewable Electricity Standards (RESs) have carve-outs requiring specific portions of the standard to be met with solar energy.

Many U.S. utilities also have their own solar rebate and New Energy incentive programs. That information is invariably prominent at a utility’s website and is usually featured as part of the communications the company has with its ratepayers (like in the billing statement).

The federal investment tax credit was, until last fall, a limited incentive that covered perhaps a quarter of the sytem’s value and, dependent as it was on the political winds that whipped Washington, D.C., was never very certain. All that changed with the bailout package.

Homeowners now get federal tax credits for 30% of the total cost of the system (after deducting the state rebate). A bigger rooftop system can have an after-state rebate value of $30,000, making the tax credits worth nearly $10,000. That’s a big deal.

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QUOTES
- Nathaniel Bullard, solar analyst, New Energy Finance: "It's really a precipitous drop [in the price of solar panels]…The mood in the industry is grim."
- Henning Wicht, senior director/principal photovoltaics analyst, iSuppli: “The solar industry in 2009 has been undermined by collapse in demand due to the decision by Spain—which accounted for 50 percent of worldwide installations in 2008—to change its feed-in-tariff policies…This demand drop led to a massive buildup of inventory throughout the supply chain, from the raw material polysilicon, to Photovoltaic (PV) cells, to complete solar systems. Despite this, solar panel makers have continued to increase capacity and production, exacerbating the inventory buildup.”
- Wicht, iSuppli, on the duration of low panel prices: “This inventory glut will have a long-term impact on the solar business, with panels set to remain in a state of oversupply until 2012…After that year, fast-growing demand for solar installations will be able to absorb global panel production and inventory…iSuppli’s updated forecast now shows supplier production flattening for the years from 2011 through 2013 compared to the old forecast.”

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- Ron Kenedi, vice president, Sharp Solar Energy Solutions Group: "Jobs are very competitive, and that's translating into lower prices…This is the perfect time to buy solar."
- Dorothy and Walter Harris, community solar system purchasers, 1BOG: "They presented things clearly . . . and made the whole process easy…"
Ned Araujo, homeowner, SunRun PPA signatory: "Anything that happens [to the system], it's their responsibility…"