The waltz of the marketplace is performed by policymakers.

By Lyn Corum

California is dominating the solar energy business—90% of the US solar market is in the state, according to Arno Harris, chief executive officer and president of Recurrent Energy, a solar startup company in which Mohr Davidow Ventures invested $10 million in June 2007. Since 1998, $230 million in rebates has been spent in California, and the state now has 62 MW of installed capacity, representing more than 15,000 installations, according to the California Energy Commission (CEC).

With the new California Solar Initiative, $3.2 billion will be invested in the industry by 2016. California Governor Arnold Schwarzenegger’s goal is to have 3,000 MW installed by 2020. Underlying this popularity throughout the US, beyond the availability of state and federal tax incentives, of course, is the drive to cut global warming and to increase reliance on renewable resources in the interest of national security.

Thirty-six states offer incentives or rebates to install solar systems. But none have invested the money that California has. For example, Nevada’s utilities, Sierra Pacific and Nevada Power, will be spending about $2 billion on all renewable resources—some 22—by 2015. Now in its fifth year, Nevada’s utility customers have installed 254 solar systems. Almost all—231—are on residences. This year’s program has a cap of 3,760 kW (3.7 MW) and it is already three times oversubscribed. It became fully subscribed within hours on August 1, when applicants could begin registering for the new year.

The New Jersey Board of Public Utilities announced in May 2007 it now has 1,840 solar installations across the state, totaling 26 MW and more than doubled its solar capacity in the first nine months of 2006. It spent $147 million in rebates in 2006. In addition to rebates that are on the order of $3.80 per watt, the state has created a Solar Renewable Energy Certificate (SREC)Program. SRECs are created when the solar system is installed, and utilities are required to purchase them, thereby compensating generators, and making individual solar systems more affordable.

New York’s $48 million program now has 891 solar systems installed—4,216 kW installed on residences, and 1,338 kW installed on commercial buildings for a total of 5,554 kW. The New York State Energy Research and Development Authority offers incentives of $4.00 per watt up to 5 kW to residents, $4.50 per watt for building integrated systems, and $5.00 per watt to schools and nonprofits.

California’s solar initiative, while funded very richly through investor-owned utility bill public interest charges, is complicated and its incentives are lower than the examples just cited. The incentives are designed to decrease on an average of 7% per year between 2007 and 2017. They now start at $2.50 per watt for both residential and commercial customers, and $3.25 per watt for government and nonprofit customers. By year three they will drop to $2.20/Watt for residents and commercial customers, and by year 10, they will be down to 20 cents per watt.

However, the new element added to the program is creating incentives for solar companies to offer customers large systems that will be installed, owned, and maintained by investors who gain tax benefits with the arrangement: If the system is over 100 kW, the incentives are performance-based and are paid out over five years, instead of up front for the smaller systems. Starting in 2008, systems over 50 kW will be paid incentives over the five years. And in 2010, the bar will be moved down to 30 kW. Once systems hit the bar, they will not be able to receive incentives up front to help pay the initial cost of the system.

Introducing Solar as a Service
What has given the solar business the biggest boost is the commercial tax credit passed as part of the 2005 Energy Policy Act. Given that it is the first solar tax credit in 20 years, it has expanded markets for all solar technologies. Coupled with California’s deep pockets for incentives and design of the new California Solar Initiative, solar investment dollars are no longer dependent on a customer’s ability to pay.

Since nonprofits, such as government offices, schools, and universities, can’t take advantage of the federal tax credits, energy service companies and financial institutions have jumped in and are signing power purchase agreements to own and maintain the system and sell the electricity to the customer at a price discounted off the utility tariff. The result is that much larger installations are being installed. And for-profit businesses are jumping in, signing power purchase agreements as well. They prefer holding on to their cash and turning over to experts an infrastructure project that is outside their core business.

Following are a small selection of solar installations in California, Nevada, and New Jersey, dating back five and six years. All areas of the economy are investing in solar systems, not just these schools, local governments, and retail stores, but wineries, farms, water utilities, and waste water districts—far too many to cover here.

Nonprofits
Many public service entities are looking for predictability in their energy costs. Customers are finding the new financial structures a hedge agent against utility price volatility, says a representative of Chevron Energy Services, a major energy services provider to this sector.

The Los Angeles Community College District (LACCD) has the most ambitious plan seen to date. It intends to take all nine campuses off the grid—that would eliminate a 45-MW electrical load. The plan is to install 1 MW or more of solar photovoltaic systems at each campus in combination with other noncarbon generation, such as wind and geothermal, plus energy storage.

The energy-storage systems will utilize one or all of three new technologies: flow batteries, lithium hydrid solid state storage, or a new form of lithium ion batteries that can be stored in a container the size of a suitcase in each building.

Larry Eisenberg, executive director of facilities planning and development for the LACCD expected proposals from three energy service companies on December 1, 2007. He says each campus will have at least three acres of panels on building roofs or as shade canopies on parking lots.

The winning bidder will finance and own the systems, estimated to cost between $7 million and $9 million. The LACCD will sign power purchase agreements with the energy company or financial entity owning the system and pay a reduced price for the energy. The systems need to be installed in 2008 so that the owner can take advantage of federal energy tax credits which, if not extended by Congress, will expire on December 31, 2008.

The Los Angeles Department of Water and Power will give rebates of up to $3.50 per watt to each project on six of the campuses. The other three are in Southern California Edison’s service territory, and they will qualify for rebates from the California Solar Incentive program.

Chevron Energy Services is now installing a 1-MW system at East Los Angeles College, and two other LACCD campuses already have small systems that will be augmented by the 1-MW systems. The East Los Angeles College system will be financed and owned by MMA Renewable Ventures. According to Eisenberg, the college will pay 13 cents per kilowatt-hour once the system is built and operating, rather than SCE’s current average price of 21 cents per kilo-watt hour. Under the next contract, this system will be augmented to provide enough power for the whole campus.

The San Jose Unified School District announced in July it was partnering with Chevron Energy Solutions and Bank of America to establish a solar power and energy-efficient facilities program in its kindergarten-through-12th-grade education system. Chevron will design, build, operate, and maintain 5 MW of solar photovoltaic (PV) arrays at the district’s schools. Bank of America will own the solar equipment and sell power to the district under a service contract at rates significantly below market utility rates.

In the first phase of the project, 2 MW will be installed on the roofs or parking lot shade canopies of six high schools at a cost to Bank of America of $18.1 million. This phase is expected to be completed by early 2008. Subsequent phases will add solar systems to seven schools and will also include energy efficiency measure that will reduce the district’s energy purchases and operating costs.

California Solar Initiative incentives, totaling $4.2 million, will offset the first phase solar equipment costs, along with federal investment tax credits, which Bank of America will utilize. The school district expects to save $15 million just from the first-phase installations, representing about one-third of current energy costs at the four high schools, over the 25-year life of the solar systems. The district expects to pay $14.2 million for the power over the next 25 years.

Ty Williams, San Jose School District’s school construction manager, told the San Jose Mercury News if the school district had borrowed the $18.1 million to build the first phase, it would have ended up paying more than $30 million, including interest.

For its part, Bank of America has committed $20 billion to support the growth of environmentally sustainable business activity to address global climate change.

Local Governments and Jurisdictions
The City of San Diego has set a multiyear goal of deploying 5 MW of solar PV throughout the city and it is now at 1.85 MW. Its larger goal is to have 50 MW of renewable resources online by 2013. It already generates 18 MW from methane gas at the city’s landfill to power wastewater treatment plants plus a hydrogenerator at one wastewater treatment plant.

In March 2007, the city announced the completion of a 1-MW solar power installation at its Alvarado Water Treatment Plant. Under the power purchase agreement covering the Alvarado plant, SunEdison installed the $6.5-million PV system at no cost to the city and will own and maintain the system while selling the generated power to the city’s water department at discounted prices.

The system occupies the concrete roofs of three water storage reservoirs, covering approximately 4.33 acres. Annual savings to the city are estimated at $40,000. SunEdison will next install solar PV systems at the Otay Water Treatment Plant, the South Bay Water Reclamation Plant, and, later, the Black Mountain Reservoir.

At the same time, the city has installed small systems totaling 450 kW and varying from 8 kW to 30 kW on various city buildings, including the police headquarters, a new senior center, libraries, and recreation centers. These and another five sites slated for solar systems have been funded by low-interest loans totaling $4.4 million from the CEC. A 500-kV system will be included in the new main library now being designed. That system’s costs are included in the library’s overall construction costs.

Tom Blair, the city’s deputy director for energy sustainability and environmental protection, says San Diego chose to own the small systems because it could bundle the projects to include energy efficiency upgrades for those and other buildings in the loans. Local contractors installed most of these projects. It chose SunEdison to install, own and maintain the large system installed on the Alvarado Water Treatment Plant and those to be installed on the other treatment facilities because they are stand-alone projects and the city didn’t have the capital. “So we used other people’s money,” he said.

County Bus Facilities
The Los Angeles County Metropolitan Transportation Authority started out the old-fashioned way when it initiated a three-year project to install solar PV panels on every Metro bus and rail maintenance and transportation facilitiy within its Los Angeles County service territory. It is paying for these installations through energy savings.

Metro installed 1,648 solar PV panels totaling 425 kW at two divisions in Sun Valley and at Chatsworth in the San Fernando Valley in 2006. They are now supplying up to 20% of the facilities’ electricity requirements, saving Metro more than $160,000 annually.

The systems cost $3.3 million, and Metro received $1.82 million in rebates from Southern California Gas Co. ($1.46 million) and the Los Angeles Department of Water and Power ($357,000). Metro is paying the remaining $1.48 million through reduced electricity costs over the next seven to 10 years.

The country transportation authority is now planning to install 1,600 solar panels by December 2007 on the Carson Division’s maintenance building rooftop and shading structures in the employee parking lot. The systems will generate 417 kW, saving $25,000 per month or $300,000 per year. Metro has already received another $1.1 million in rebates for this solar installation.

Future solar installations will be financed through public/private partnerships and power purchase agreements, the authority said.

Alameda County
California’s Alameda County took the initiative early and installed its first solar system atop its Santa Rita jail in three phases between 2001 and 2002 in response to the energy crisis, according to Matt Muniz, energy program manager for the county. It installed seven additional PV systems between October 2004 and August 2005 for a total of over 2.3 MW.

The Santa Rita system is 1.18 MW; the other systems vary between 53 kW and 250 kW and cover the roofs of six county buildings and two carports at the Hayward Public Works and Fremont Hall of Justice. The newest is an 880-kW system being installed on the new juvenile justice system building. In total, the county now has 3.1 MW of solar installed, said Muniz. The systems were all installed by PowerLight.

The county financed the PV system on the Santa Rita jail with a low-cost loan from the CEC. It was built in three phases between 2001 and 2002 and cost $9 million, which included cool roofing and energy efficiency upgrades.

Before the third phase of the system was installed, the jail’s peak summer demand consumption of grid-generated electricity had already been reduced by 25%. The county saved $210,000 during the first year of operations once all three phases were built.

Financing was helped with self-generation incentive funds from the California Public Utilities Commission (CPUC) and a CEC loan. Annual savings were estimated at $250,000. Gross savings over the 25-year life of the project were estimated at $15 million.

Muniz said the county did not have a choice but to get low-interest loans from the CEC to fund the systems. There were no federal solar tax credits for private companies to take advantage of prior to 2006. Furthermore, he said, under the self-generation incentive program that provided incentives for solar installations prior to 2007, companies and public agencies received rebates up front that were used to pay down the initial cost.

Retail and Industrial Customers
Early on, in February 2003, PowerLight completed the installation of a 500-kW solar system at Janssen Pharmaceutica Products in Titusville, NJ, on the roof of its headquarters. In October 2005, also in New Jersey, it completed installation of a 505-kW solar tracking system at John & Johnson Consumer Companies in Skillman. Covering 3 acres, the system tracks the sun from early morning to late afternoon and, at the time, was the largest ground-mounted solar system in the eastern US. It supplies 5% of the campus’s electricity load.

Back in California, in early 2003, Chevron Energy Services installed a 500-kW PV system at its parent company’s Midway-Sunset oil field to power pumping units. The solar system, manufactured by United Solar Systems (Uni-Solar) consists of 4,800 amorphous thin-film silicon PV panels, not glass-based systems. ChevronTexaco is a 20% owner of Energy Conversion Devices Inc., the parent of Uni-Solar.

Wal-Mart and Macy’s are only the latest—but most prominent—businesses of all types installing solar PV systems. Macy’s announced in June it will install 8 MW of solar systems at 26 stores throughout California in partnership with SunPower Corp. Macy’s will purchase power generated by the solar systems from SunPower through a solar services agreement for 15 of its stores. After 10 years, it will have the option to buy the systems. Macy’s will purchase the solar systems outright for the remaining 11 stores.

PowerLight, a SunPower subsidiary, will install the solar systems and assist Macy’s in improving the energy efficiency in all 26 of Macy’s stories. Combining energy-efficiency upgrades with the solar systems, the goal is to reduce utility-provided power by 40% in the stores.

Wal-Mart announced in late September 2007, to a large audience at the Solar Conference in Long Beach, that BP Solar and other solar power providers will install solar PV systems on the roofs of 22 Wal-Mart stores, Sam’s Clubs, and distribution centers in Hawaii and California. On average, each system will provide up to 30% of the power at each store.

BP Solar installed the first 624-kW solar system on a Wal-Mart store in Santa Ana, CA. Under an agreement in which it will develop 4.3 MW for seven Wal-Mart stores in California, BP Solar will sell all energy produced by the solar systems to Wal-Mart as well as operate and maintain the systems. BP Solar is making the upfront capital investment and will own the systems. SunEdison and SunPower subsidiary PowerLight will be installing solar systems on the remaining 15 stores under similar financial arrangements.

In April 2006, Microsoft began operating its 480-kW solar PV system installed by PowerLight at Microsoft’s Silicon Valley Campus in Mountain View, CA. The system provides 15% of the campus energy needs. It is part of an overall effort by Microsoft to promote good environmental practices, including reducing water usage, lighting and air conditioning, and upgrading lighting with energy-efficient equipment.

Tony’s Fine Foods began operating a 1.2-MW rooftop and ground-mounted solar PV system at its frozen and refrigerated food distribution warehouse in West Sacramento, CA, in July 2006. It used a rebate awarded by Pacific Gas & Electric to cut in half the cost of the system supplied by Sharp Electronics Corp. One of the largest privately owned installations in northern California, the 5,782 modules will generate 1.5 million kWh, supplying about 40% of the warehouse’s electricity needs and reducing the company’s electric bills by $22,000 a month.

Constellation Energy Projects & Service Group, a subsidiary of Constellation Energy, announced its entry into the solar power market with its first solar installation in August 2007. Constellation Energy installed, and will own and maintain a 588-kW roof-mounted solar PV system at Alcoa Building and Construction Systems’ Kawneer manufacturing facility in Visalia, CA. It will sell the power to Alcoa.

The 4,300 Uni-Solar panels will provide approximately 80% of the 200,000-square-foot facility’s peak electricity needs. Constellation Energy also installed 200 solar light tubes to supplement artificial lighting with daylighting.

A month later, in September 2007, Constellation Energy Projects & Services Group announced it signed an agreement with General Motors to construct an 870-kW solar system at GM’s 300,000-square-foot service and parts operations warehouse in Fontana, CA.

Constellation Energy will own and operate the system and sell power to GM under a 25-year power purchase agreement. The 6,400 Uni-Solar panels will supply nearly half of the power requirements at the warehouse and reduce electricity costs approximately 10%.

Federal Projects
Various departments of the US government have been buying and installing renewable projects for several years. For example, PowerLight installed a 309-kW system on a historic aircraft hanger on Ford Island in Pearl Harbor for the US Navy in the summer of 2005. The 1,545 solar panels were installed on the hangar roof, and in addition to supplying power the system will add insulation and protection for the roof.

However, the most ambitious federal solar project built to date is the 15-MW system, operating since December 2007, at the Nellis Air Force Base in Nevada. It is being touted as the largest solar system in the country, but it probably won’t be for long.

Approximately 70,000 solar panels are installed on a ground-mounted solar tracker system on small cement pyramids spread out over 140 acres leased from the Air Force on the western edge of the base. The Sierra Nevada Mountains rise in the background. The system will generate more than 25 million kWh annually, supplying more than 25% of the base’s power needs.

MMA Renewable Ventures will finance, own, and operate the system and sell the power to Nellis under a power purchase agreement. PowerLight Corp. will install the system.

Looking to the Future
Chief Executive Officer Arno Harris of Recurrent Energy sums up the rapidly maturing solar industry. “The reality is, the vast majority of solar systems are being paid for by rebates," he says. "As equipment prices go down, so will rebates [at least in California]. There is a dance happening between policy makers and market prices,” said Mr. Harris. “It isn’t so much that we will end up with solar systems that are much cheaper than utility rates.” Because of that dance, he explains, the net prices will remain the same, but businesses will continue to expand and address more and more locations. We hope he’s right and that Recurrent Energy will flourish. 

California-based frequent contributor Lyn Corum specializes in energy topics.

DE - January/February 2008