TODAY’S STUDY: CATCHING THE SUN AND DANCING

Around the world, the New Energies - and especially solar energy - have joined with an incentive called the feed-in tariff in unprecedented and seemingly unstoppable growth. It’s very like when a pair of dancers find each other on a crowded floor. The music shines down on them and they harvest the excited elegant energy and dance.

A feed-in tariff (FiT) is a guaranteed, long term, above-retail rate of return (tariff) paid to installers for all the solar (or New Energy) capacity they feed into the grid.

The poster child for the FiT is Germany. Sun there (technically termed insolation) is about that of Anchorage, Alaska. Yet thanks to a carefully designed and instituted FiT, Germany leads the world in solar capacity. The Canadian province of Ontario is another example, though less long-standing, of remarkable solar capacity growth driven by a FiT.

Both demonstrate, as have the FiTs instituted in Spain, the UK and many other places, that the incentive must be as carefully designed to match a nation's resources and economy as dancers' choreography must suit their skills. If the FiT’s elements are not carefully thought through, the incentive can - as happened in Spain - drive too much growth too fast and create a bubble.

In sun-drenched Southern California, Los Angeles, the report highlighted below makes clear, is a city where the music is playing but the dancers have not yet found each other. But city leaders are carefully working to lay out the steps to the dance in the way of an ideal FiT that will drive solar energy capacity growth like Germany's without creating a bubble like Spain's.

The fundamental elements in a smartly designed FiT are (1) the per-kilowatt-hour tariff, (2) the length of the guarantee and - perhaps most importantly – (3) the rate at which the incentive is withdrawn. The goal is to create a marketplace for solar infrastructure and economies of scale in a stable industry that requires no incentive to produce solar energy-generated electricity at prices competitive with that generated by the Old Energies.

If the tariff is too low or the guarantee doesn't last long enough, there will be inadequate investment. It the tariff is too high, it creates a market frenzy (bubble). If the guarantee lasts too long, it burdens the incentive budget and reduces volume, inhibiting the scale of growth.

Los Angeles FiT advocates have noted a unique solar energy opportunity in multi-family housing. It is a fascinating, value-expanding proposition. Apartment buildings offer big rooftops ripe for solar installations. Their dwellers generate big electricity bills, especially during the hot sunny peak demand periods when solar energy provides its highest supply and meets the most crucial demand.

As the report points out, solar installations on apartment building rooftops offer the added value of bringing solar energy to people who otherwise might not have access to it or be able to afford it.

Though not mentioned in the report below, solar installations on apartment building rooftops also offer the larger scale that could bring into play a variation of the FiT called the Reverse Auction Mechanism (RAM). The appeal of the RAM is that it sets a marketplace price for the tariff through bidding by installers.

Los Angeles seems to be on the verge of providing a ballroom floor full of new solar power celebrants the chance to catch the music of the sun and dance.

Making a Market: Multifamily Rooftop Solar and Social Equity in Los Angeles
April 12, 2011 (Los Angeles Business Council)

Executive Summary

Making an Inclusive Market: Multi-family Rooftop Solar and Social Equity in Los Angeles

Overview: Solar Power in the Land of Sunshine

With President Obama's focus on clean energy investments and innovation, along with his efforts through the US Department of Housing and Urban Development (HUD) to build sustainable, affordable and energy-efficient communities, there has never been a better time for making a market for solar investments in affordable housing. According to HUD’s stated goals, the nation’s housing market needs to create and sustain a sufficient supply of affordable housing. Los Angeles is no different, and has the opportunity to lead the way for the nation.

In the city known around the world as the home of dreams and sunshine, it stands to reason that a robust solar energy program would be part of the clean-energy solution for Los Angeles. Local policy-makers are now engaged in designing such a program, which would help realize California’s proposed new law to meet 33 percent renewable energy by 2020, of which 70 percent would need to be generated from California sources. With input from academic researchers, community and business leaders, environmental groups, neighborhood councils and other stakeholders, the City of Los Angeles stands poised to enact a solar energy program that would bring clean, renewable energy to Angelenos at a reasonable cost. In fact, by providing incentives for homeowners and business-owners to install solar panels on their roofs, the city would catalyze the creation of brand-new sources of clean energy that would play a role in weaning the city off its reliance on polluting, coal-fired power plants.

The purpose of this executive summary is to examine the way in which such a program can be broadened to enable more Angelenos to take part, adding to overall solar capacity and providing environmental and financial benefits as widely as possible. The final study will be completed in June 2011 and made available online...

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Introduction: Solar FiT as a Policy Solution

In response to Los Angeles City Mayor Antonio Villaraigosa’s call for over one gigawatt of solar development in the city, including a feed-in-tariff (FiT) program, researchers at UCLA and the Los Angeles Business Council have been working for over a year on design and policy recommendations for a solar FiT program. The economic benefits of lower energy costs will be clearly evident to rate payers. However, incentives to retrofit are less obvious to residential and commercial property owners. Building owners would be incentivized to earn a reasonable rate of return on their investment; the utility would receive additional sources of clean, renewable energy, particularly during peak periods; and the city as a whole would benefit from a cost-effective program, as well as huge sums of private investment and thousands of local jobs that would be created.

As a follow-up to two rigorous studies that examined the overall potential for a solar FiT in Los Angeles and specific design models that would be most effective, solar proponents sought to go a step further: to better understand the role of multi-family housing in creating a broad-based solar energy program. With this study, researchers from UCLA and USC seek to answer the following questions:

 How much solar capacity can multi-family housing contribute and what incentives must we create to encourage solar development?

 Who lives in multi-family housing?

 Would solar investment in multi-family housing occur in economically distressed
neighborhoods?

 What policies would most effectively promote solar in multi-family housing?

 What are some of the barriers to success, and how can they be overcome?

As it turns out, there is tremendous capacity for multi-family housing to contribute to a broader solar energy program. And many of the residents in multi-family housing are on the lower end of the income scale. In fact, many of the rooftops with the greatest potential for solar power are found in economically depressed neighborhoods. And there are a number of policies that can effectively promote solar, by drawing on many of the same principles that would guide the broader solar program throughout the city.

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Creating a well-designed multi-family component of a solar program has the following benefits:

 It has the potential to create job opportunities and stabilize distressed neighborhoods

 It can reduce the costs of operating multi-family housing by reducing the costs of common area electricity and reduce or eliminate payments to utilities, allowing budget savings for tenant services.

 It can, if well-tailored, provide monetary benefits for low-income residents in the form of rebates or reduced energy costs

 It gives Angelenos greater opportunity to choose to live in a more sustainable manner, with a reduced carbon footprint

 And it contributes to a larger pool of clean, renewable energy that can power homes and businesses throughout the city

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And these benefits contribute to the broader goals of a solar program for Los Angeles: supplying renewable energy at a reasonable cost, spurring private investment, creating thousands of new jobs, and reducing greenhouse gas emissions.

How can a solar energy program be designed to ensure that lower-income Angelenos –many of whom live in multi-family housing – will have an opportunity to participate? What sorts of benefits could accrue to lower-income Angelenos? What are some of the barriers to success, and how can they be overcome? For answers to these questions and more, please read on.

How much solar capacity can multi-family housing contribute and what incentives must we create to encourage solar development?

Based on past studies, we know that one megawatt (MW) of solar capacity is roughly sufficient to offset the energy needs of 100 homes. With that measurement in mind, we can look at the overall capacity that exists on rooftops in Los Angeles…

It is important to note that these totals are strictly theoretical, as it is unlikely that solar panels will be installed on every Los Angeles rooftop in the near future. Yet they give a general sense of the total physical capacity for solar in the city. Roughly speaking, if every multi-family rooftop could be effectively covered with solar panels, they would have a capacity of 1.4 GW – sufficient to power 140,000 homes – or 8 percent of the city’s current energy needs.

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As it turns out, this capacity is spread throughout the city in a number of clusters of great potential. As it turns out, there is physical potential of between 59 and 130 MW of solar on multi-family housing in each of the city’s 15 council districts. At least six of these districts have capacities of between 75 and 100 MW, further indicating the even spread. The total number of multi-family sites is in excess of 100,000.

So, which of these sites can most easily be developed? The first consideration is size and shape: large, flat rooftops provide the most cost-effective solar power. Based on our analysis, the sites most ripe for development are those with a potential of 50 kW or more.

There are approximately 4,000 buildings in the City of Los Angeles that fall into this category, with a potential capacity of more than 300 MW. Given the economies of scale and the number of large, flat rooftops on multi-family buildings, this sector is likely to be the second most cost-effective market (after commercial and industrial) for solar in the city.

In short, it will be easier and less expensive to harness significant quantities of solar power from multi-family roofs than from single-family homes or smaller commercial rooftops. Thus, it is a tremendous market that can bring very significant solar capacity to Los Angeles.

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We estimate that about 300 megawatts of multi-family capacity could be built if property owners were adequately incentivized with a payment equivalent to 24-26 cents per kilowatt-hour. This is based on paying owners a reasonable rate of return while at the same time ensuring that the cost of power is not prohibitively high. 300 MW would be a significant contribution to the city’s renewable energy portfolio, providing enough power to supply 30,000 homes of average size and need.

Our analysis finds that 24 to 26 cents is sufficient to incentivize broad participation in the multi-family market, paying building owners a reasonable rate of return, while also enabling the other benefits of solar as outlined throughout this report. The price paid is based primarily on two factors: the cost of solar installation and the cost of obtaining financing. These may vary over time. At present, however, it is clear that a rate of 24 to 26 cents per kilowatt-hour will generate sufficient participation and lead to the addition of 300 MW over the next five to 10 years.

Further, a 300 MW program would produce over 4,500 direct and indirect job-years in local professional services, construction, and ongoing system maintenance. Finally, it is worth noting that this payment can take either of two forms: a net-metering program, such as currently exists in the City of Los Angeles through the Solar Incentive Program, but with greater rates of return than are currently offered; or a solar FiT, such as has been proposed and which policy-makers are currently considering.

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Who lives in multi-family housing?

About 1.7 million people in Los Angeles live in multi-family housing – or, just under half of the city’s population. Of these, 94 percent are renters and 6 percent are condo owners. While the households living in multi-family housing vary greatly, most are in middle and lower income brackets. The median household income in multi-family housing is about $36,000 per year, compared to a median household income of $71,800 for single family homes in the city. Among renters, the incomes are slightly lower…Typically, as the number of units in a residential building rises, the average income of families who live there falls. Further, these lower-income residents typically spend a greater percentage of their income on energy…

Would solar investment in multi-family housing occur in economically distressed neighborhoods?

Given that the greatest solar potential lies with buildings that have large flat roofs – which in the case of residential housing tends to be larger multi-family buildings – it is definitely the case in Los Angeles that many areas with high solar potential are also communities in economic need…

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Our analysis indicates that:

 Paying a rate of 24 to 26 cents per kilowatt-hour would be sufficient to attract a significantnumber of property owners.

 A 50 kW system installed at $4.50 per watt would produce an 7.6 percent return for the property owner, if the property owner is paid 25 cents per kWh.

 This rate could be in the form of a direct payment, as in the case of a FiT, or a combination of payment and rebates, such as with net-metering.

 In fact, based on an analysis of expected demand, we estimate that 300 MW of capacity could be generated in the next 5 to 10 years. A well-designed multi-family solar program offers numerous benefits to ratepayers and the general public alike. Such a program would:

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 Contribute to a larger pool of clean, renewable energy for homes and businesses.

 A 300 MW program would produce over direct and indirect 4,500 job-years, based on the latest data.

 It can reduce the costs of operating multi-family housing by reducing the costs of common area electricity and reduce or eliminate payments to utilities, allowing budget savings for tenant services.

 Give more Angelenos the opportunity to live in a more sustainable manner with a reduced footprint.

 A 300 MW program could reduce about 6.7 million tons equivalent of CO2 by replacing coal and 4.1 million tons equivalent of CO2 by replacing natural gas. This is comparable to removing between 69,000 to 112,000 cars from the roads over ten years.

Barrier #1: Local solar incentives are declining, and there is currently no solar FiT in Los Angeles…Barrier #2: It is difficult to channel benefits from a solar program directly to tenants…Barrier #3: It is a challenge to ensure that job creation benefits accrue to local residents, particularly in economically distressed areas…

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Conclusion

With city leaders prepared to embark on a meaningful solar energy program, Los Angeles has the opportunity to ensure the broadest possible participation and benefits. By creating a robust multi-family component of the solar program, city leaders will serve many policy goals. Such a program would magnify the region’s solar-energy potential; contribute significantly to economic development in the form of investment and jobs, largely in distressed neighborhoods; and give lower-income Angelenos, many of whom do not have the same luxuries of choice as upper-income residents, the opportunity to participate in major environmental solutions.

Our primary policy recommendation is that the City of Los Angeles create a FiT, or increase the net-metering program for multi-family buildings with an effective payment of 24 to 26 cents per kilowatt-hour that includes the following elements:

 An energy efficiency tie-in that would allow residents to benefit from rebates or reduced utility costs

 Local job-training programs that would enable more of these residents to be trained for the numerous manufacturing, installation and other jobs that will be created

Through a well-designed program, city leaders can ensure that tangible benefits reach residents in the form of rebates, lower utility rates and possibly lower rent levels. In all, a robust multi-family component is a key part of a solar energy program for Los Angeles and stands to benefit many of its residents.