TODAY’S STUDY: A Successful Feed-in Tariff
April 2016 (Los Angeles Business Council Institute)
Rooftop Solar Program Delivers Dividends for Business Owners
In 2013, Los Angeles launched the nation’s largest urban rooftop Feed-in Tariff (FiT) program, helping building owners turn their rooftops into solar energy plants to power the city with more renewable energy and reduce greenhouse gas emissions.
Just three years later, the Los Angeles Department of Water and Power’s 150 megawatt pilot program has helped catalyze an emerging solar market while creating high-quality jobs and spurring private investment in Los Angeles County.
Rather than relying on public money to fund large infrastructure projects, FiT installations have encouraged major private investment in the solar energy sector – the 150 megawatt program will have attracted an estimated $500 million in direct private investment when fully implemented.
These investments have paid off not only in clean solar power for Los Angeles and in local jobs, but the investors themselves are on a path to profitability. A track record of profitability should attract more private investment, enabling the FiT program to continue to scale to the level envisioned by Los Angeles Mayor Eric Garcetti. Last year, Garcetti set a goal to install 1,500 megawatts of local solar projects by 2025, which is estimated to result in 36,000 or more local jobs for Los Angeles.
Among some of the business benefits so far for companies that have completed FiT projects:
• At CRAFTED, a handmade goods marketplace at the Port of Los Angeles, a FiT installation is expected to gross $5.6 million over 20 years according to an LABC Institute estimate. CRAFTED receives a percentage of an estimated $280,000 annual gross revenue, which it passes on to its small business tenants.
• A combination of FiT and net metering to offset energy use at the headquarters of fashion retailer Forever 21 is providing 16 percent more return than predicted, and is expected to pay for itself within five years.
• At the family-owned Southern California Trophy Building in downtown Los Angeles, revenue over the 20-year contract with the utility is expected to exceed $670,000.
The components of the Feed-in Tariff include a 100-megawatt fixed rate program and a 50-megawatt “bundled” program tied to an out-of-basin project on property owned by LADWP. In 2016, the 100-megawatt fixed rate FiT continues to gain momentum, generating an overwhelming response from the private sector. Since 2013, 23 fixed rate FiT projects have been completed, generating a total of 14 megawatts and the bundled 50 megawatt program will begin to come online in 2016. All told 68 to 88 more megawatts of solar power are expected to come online over the next year, and plans to roll out the remaining program capacity are underway.
As on the rooftop of fashion retailer Forever 21’s corporate headquarters, building owners with large rooftop space have found it lucrative to combine two solar programs: net-metering and feed-in tariff. Building owners use net-metering to zero out their energy use and sell excess energy to the grid. Although less common, the energy cost savings provided by net-metering in combination with the 20-year revenue stream from FiT can maximize the bottom line.
Currently, most of Los Angeles’ renewable power is generated outside the L.A. Basin and transmitted inefficiently across long distances to customers. In recent years, the cost of building large-scale solar plants has fallen dramatically and become competitive with wind power and dirtier fossil-fuel sources. California cities can benefit significantly by balancing those large-scale renewable energy investments with programs such as feed-in tariff that create jobs, drive private investment, bring environmental benefits within city limits and create greater resiliency in the face of natural disaster.
LADWP’s 150 megawatt Feed-in Tariff Program was designed by a coalition of businesses and environmental and civic organizations. Called the Clean LA Solar Coalition, it was spearheaded by the Los Angeles Business Council, the UCLA Luskin Center for Innovation, USC’s Program for Environmental and Regional Equity and LADWP.
In December 2015, the Port of Los Angeles Commission and Los Angeles City Council approved a proposal to develop 10 megawatts of FiT projects at the Port. The Port of Los Angeles is first of several major Los Angeles institutions with current proposals to develop “bundled” FiT projects on large sites across multiple buildings and land parcels.
The 100-megawatt fixed rate program was offered in five allocations beginning in 2013. The price began at 17 cents per kilowatt in the first allocation and decreased with each allocation to 13 cents per kilowatt in the fifth allocation, making Los Angeles’ FiT the lowest cost program in the United States.
Sharing Solar’s Promise: Bringing FiT to High-Need Areas
Another key to the program’s success: 40 percent of completed projects, along with those in the pipeline, are located within “solar equity hotspots,” areas of Los Angeles with abundant rooftops and large low-income populations in need of jobs and new economic opportunities. The FiT Program provides the opportunity to link rooftop solar projects with workers in nearby communities. FiT installations have relied on workers trained through a variety of local programs hosted by community colleges, union apprenticeships and non-profits throughout the city that offer specialized training often to less advantaged workers. One such local program is a partnership between Homeboy Industries and the East Los Angeles Skills Center that trains ex-offenders and former gang members to join the “green collar” work force.
In addition to the program’s economic benefits, the Feed-in Tariff Program is a critical component of the LADWP’s strategy to transition completely off coal power by 2025 and procure one-third of its power from renewable sources by 2020. In 2015, Los Angeles Mayor Eric Garcetti set goals to install 400 megawatts of local solar by 2017 – with another 200 megawatts contracted – to reach a total of 1,500 megawatts of local solar by 2025. Meeting the new goals will require continued growth of Los Angeles’ local solar programs, including expanded offerings of Feed-in Tariff, over the next several years.
Promoting clean energy investments and employment opportunities in areas most disproportionately impacted by air pollution has been essential to the LADWP Feed-in Tariff Program. It was that promise that brought together a broad coalition of business groups, public health organizations, labor groups, environmental justice advocates and workforce trainers into the CLEAN LA Solar Coalition. Since that time, the LABC Institute, UCLA Luskin Center for Innovation and USC’s Program for Environmental and Regional Equity (PERE) have conducted several evaluations to assess outcomes and trends in this area.
Today, Feed-in Tariff projects are spread throughout the city, with projects either completed or under development in nearly all 15 council districts. Forty percent of projects, either installed or proposed, are located within areas of the city identified as “solar equity hot spots,” neighborhoods with abundant rooftops for solar installations and a high level of need for economic investment and jobs.
USC defines solar equity hot spots as zip codes in:
• bottom one-third of household income and
• bottom one-third of high school graduation rate and
• top one-third unemployment rate and/or
• identified by CalEnviroScreen as among the top 10% most pollution burdened areas in the state.
The Future of FiT
As we look to the future of LADWP’s pilot Feed-in Tariff program, the Los Angeles Business Council continues to partner with the city, utility, UCLA and USC and the program participants to drive continuous improvement of the program and meet the program’s goal to install 150 megawatts of local, in-basin solar. The successful completion of 150 megawatts of Feed-in Tariff will be critical to meet Los Angeles Mayor Eric Garcetti’s goals under LA’s first Sustainability City pLAn. LADWP is looking to future expanded offerings of 300 additional megawatts of Feed-in Tariff along with expansion of net energy metering and community solar programs to authorize 800 megawatts of in-basin solar by 2020, helping to comply with the state’s new mandate to produce half of its energy through renewable sources by 2030.The private sector has also stepped up with innovations and investment to make successful FiT projects a reality. Many developers, owners, financiers and construction companies have now developed capacity and expertise through completing the program’s first projects, building a pool of local experts able to partner in the FiT’s future success. The 5-year extension of the federal 30 percent business investment tax credit continues to provide a highly effective incentive for local solar projects through the year 2021.
The Bundled 50 megawatt FiT is becoming a promising model as the first projects are scheduled to be completed later in the year. A key advantage to the Bundled FiT is allowing developers and owners to bundle multiple parcels into one project and achieve greater efficiencies through economies of scale. This model is now allowing business owners with large portfolios to participate in the program – including a number of major commercial or industrial properties in and around the Port of Los Angeles.
Leveraging Los Angeles’ vast urban rooftops to generate solar energy remains a difficult business and the costs to install rooftop solar remains substantially higher in comparison to utility-scale solar plants far from urban areas. But the benefits of balancing investments in large out-of-basin renewables with robust local solar programs outweigh the costs. UCLA estimates that achieving Mayor Garcetti’s long-term goal to install 1,500 megawatts of local solar by 2025 will create over 36,000 local jobs in Los Angeles. The completed projects highlighted demonstrate how investments in local solar are driving private investment and innovation, creating new market opportunities for local businesses and their suppliers, and providing opportunities for training and employment of the local workforce. Importantly, 40 percent of FiT projects are located in less advantaged communities where good job opportunities are needed the most. These benefits make the FiT Program a model to be considered by other cities looking to meet California’s climate goals while also driving economic growth within city limits.