No word yet about how the SFPUC and the Marin Energy Authority are planning to handle this initiative--called the Taxpayer Right to Vote initiative but what should really be called the CCA Killer ballot initiative.

Follow the math, and you can understand how much this means to California's investor owned utilities.  PG&E, as one example, has about $1B in annual ratebase revenue.  San Francisco's CCA would have ripped about $200M in ratebase, and Marin would have pulled another $80M.  This represents a 30% reduction in PG&E revenues in 2010--a change from forecasts in 2006:

"In its medium case, PG&E assumed that 3% of its customers would begin to migrate to community choice aggregation in 2006 and the rate of loss to this market will increase by 1% annually, reaching 10% in 2013."[p 26]

A $240M delta in 2010.  So you can see why the money spent putting together the Taxpayer Right to Vote Act looks like a really good investment.  Efforts to defeat this initiative look insufficient at this point.

As a solar developer, a CCA is a great customer, typically with higher demand for renewables--Marin is planning on offering a 100% renewable program for customers.  More customers means more demand for clean renewable power.  Is this initiative bad news?  There is an interesting carveout in the initiative:

"This section shall not apply to any bonded or other indebtedness or liability or use of public funds that...is solely for the purpose of purchasing, providing, or supplying renewable electricity from...photovoltaic...[or other renewables].

This carveout sounds like it preserves the property assessed energy district financing that is a real innovation, but will it save a CCA if it is sourcing 100% renewable power?  Does this work if you are on the utility side of the meter? Looks like we stay on the customer side of the meter, and compete against retail power rates.  Or we focus on the feed in tariffs working their way through the CPUC and the legislature.

I will vote against this initiative if it makes it to the ballot this fall--the issue is about communities having the right to "own" their ratebase assets instead of the investor owned utility, not about taxpayers and right to vote. 

A close reading also leads me to conclude that it stops any municipally owned utility [MOU] from raising any additional capital or expanding their service territory without a 2/3 majority vote at the ballot box--a very tough restriction in a capital intensive industry.  No capital to establish or expand electric delivery service without first winning a 2/3 majority at the ballot box--this is going to slowly strangle a lot of MOU's. 

Competition in power is a good thing--and this initiative cripples competition because it locks in the rate base with the IOU.

This Mother-of-All project finance incentives--$25 billion--is just what our industry needs to retake the USA's global leadership in the solar industry--a position we last held more than twenty years ago.  

Project finance was the single largest obstacle in continuing our path to a cleaner future.  HR1 is a huge win for energy independence.  Kudos to our President for getting this achieved so quickly.  Now that's Shock and Awe...

1.  Renewable Energy Grants

With the goal of doubling renewable energy generating capacity over three years, this legislation restarts our project pipeline.  HR1 creates a new program through the Department of Treasury that gives us another option to placing the solar investment tax credit with a bank or life company.  Treasury is now authorized to buy our Section 48 Solar Investment Tax Credits with cash grants equal to 30 percent of the cost of solar property placed in service during 2009 and 2010. 

Projects we don't power up prior to 31DEC10 qualify for the grant program as long as we begin construction prior to 31DEC10 and we place in service by 1JAN17. Applications must be filed by 1OCT10.

The single biggest impediment to capitalizing commercial projects was the inability to monetize the tax equity [PTC/ITC above] because the banks were kaput. HR1 fixes this.

Solar's big advantage in being shovel-ready is that many of our projects take only six to twelve months to complete--no discretionary planning approvals required for California.  My projects can be powered up by the time another technology gets through running the gauntlet of discretionary approval.

Stay tuned--Treasury will have to clarify how to apply and what it means to commence construction.

2.  Coupling Renewable Energy Grants with Subsidized Renewable Energy Financing 

Starting in 2009, our projects can now qualify for the full amount of the solar tax credit, or the above grant, even if we are capitalizing a solar project with subsidized energy financing (e.g. below market loans, tax preferred bonds, state grants etc.). Winners here are public entities who need us to capitalize their solar plants as well as programs funded through district energy financing--Berkeley's being one of the first.  Together with state legislation authorizing non-charter cities to offer solar system loans through property tax assessment districts [CA AB811], this funding structure brings our cost of power down to below grid cost here in Northern California.

3.  Renewable Energy $60B Loan Guarantee Program

Leveraging off of a forecast $100B in private sector clean energy investments, HR1 includes a two year DOE loan guarantee program for renewable energy projects, renewable energy manufacturing facilities, and electric power transmission projects. The legislation appropriates $6 billion to pay the credit subsidy costs, which should support $60 billion worth of loan guarantees. Eligible renewable projects are those that generate electricity or thermal energy and facilities that manufacture related components.

One side benefit of these loans financing incremental renewable generation is that we insulate our economy and our standard of living from fossil fuel price spikes.

Projects must commence construction by 30SEP11. Davis-Bacon wage requirements (prevailing federal wage) apply to any project receiving a loan guarantee.  Missing piece is now a widely deployed feed in tariff [FiT] that allows us to harvest the available sun and not just offset onsite demand.  Both California and Hawaii should have a FiT in-place by mid 2009.

4.  Renewable Energy Manufacturing Investment Credit

Treasury will provide $2.3 billion to fund a 30 percent investment tax credit for manufacturing assets used to manufacture advanced energy property. Projects must be certified by the Treasury, in consultation with the Secretary of Energy, through a competitive application process. Effective upon enactment.

5.  Remove Limits on Solar Water Heating

Solar water heating is actually the most economic way to harvest daylight--it works in diffuse daylight conditions [cloudy days], in northern climates where you have a higher heat demand than a cooling demand [Seattle instead of Santa Barbara] and to date has not been well incentivized here in the US.  Section 25D of the Code provides a 30% personal tax credit, claimable against AMT, for the purchase of qualified solar water heating property that is used for a purpose other than heating swimming pools and hot tubs.

6.  Extend Bonus Depreciation

PV systems benefited from bonus depreciation in 2008.  HR1 extended bonus depreciation until the end of 2010.

Small business taxpayers are allowed to write-off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase-out once capital expenditures exceed $500,000 (indexed for inflation).

7.  Solar and Green Renovations on Federal Property

HR1 added $5.5. billion to be deposited into the Federal Buildings Fund to construct, repair and make alterations on federal buildings to increase energy efficiency, including installing solar energy equipment.  $4.5 billion shall be available for measures necessary to convert GSA facilities to high-performance green buildings.

The Department of Veteran's Affairs was appropriated $1 billion for non-recurring maintenance on their facilities, including energy projects.

GSA estimates that 75% of the anticipated projects will include a solar component.

8.  Department of Energy Funding

Appropriates $16.8 billion to DOE’s Office of Energy Efficiency and Renewable Energy, including $2.5 billion for applied research, development, demonstration, and deployment projects.

The total amount includes specific appropriations for the following:

1. Conservation block grants  of $3.2 billion
2. Weatherization $5.0 billion
3. Batteries $2.0 billion
4. State Programs $3.1 billion and of these;

• California is allocated $172M,
• Hawaii, $25 million,
• Oregon $50 million,
• Washington $50 million.

9.  Department of Interior Funding

There are about 60GW of renewable projects planned on BLM lands in the Mojave Desert--more than California's current 33GW peak power need.  Lack of transmission and distribution (T&D) and permit approvals from the Bureau of Land Management have stymied these projects.  HR1 appropriates $125 million to BLM for the management of lands and resources and suggests funds be used for renewable energy rights-of-way and related permitting projects.

10.  New Clean Renewable Energy Bonds (“New CREBs”)

HR1 provides an additional $1.6 billion for new clean renewable energy bonds to finance facilities that generate electricity from renewable energy sources including solar facilities.

11.  5 Year Carryback of Net Operating Losses

For tax years 2008 and 2009, extends the maximum carryback period for net operating losses from two years to five years.  Eligible small business may elect to increase the carryback period for an applicable 2008 NOL from two years to any whole number of years elected by the taxpayer that is more than two and less than six. An eligible small business is a taxpayer meeting a $15,000,000 gross receipts test. (see Sec. 448(c))

An applicable NOL is the taxpayer’s NOL for any taxable year ending in 2008, or if elected by the taxpayer, the NOL for any taxable year beginning in 2008. However, any election under this provision may be made only with respect to one taxable year.

12.  Qualified Energy Conservation Bonds

HR1 authorizes an additional $2.4 billion, up from $800 million, in bonds to finance State, municipal and tribal government programs to reduce greenhouse gas emissions.  These bonds can be used by government agencies to reduce energy consumption in publicly-owned buildings by at least 20 percent, implement green community programs, or develop electricity from renewable energy resources. 

Demonstration projects that reduce peak electrical use also qualify.  Public education campaigns to promote energy efficiency can also be funded. 

13.  Electric Transmission Infrastructure

3,000 miles of new or modernized power transmission lines and 40 million smart meters.  HVDC grids need to run east/west to follow the sun.  Current HVDC transmission runs from Bonneville Power's dams on the Columbia to Los Angeles.  HR1 remedies this by permitting Western Area Power and Bonneville Power Administrations to borrow funds (up to $3.25 billion each) to construct or finance transmission lines.   It's a big, multivariable problem--here is the current report on available renewable resources.

DOE is directed to include analysis of renewable energy sources, including solar, in its 2009 National Electric Transmission Congestion Study.

14.  Solar for Schools

HR1 has a provision for a $53.6 Billion state fiscal stabilization fund.  Approximately $10B of this shall be used for public safety and other government services, including the renovation of facilities and schools to meet green building standards--including installation of solar electric and solar thermal.

15.  Green Collar Jobs

Appropriates $500 million to fund job training programs in energy efficiency and renewable energy.  Also appropriates $250 million for rehabilitation and construction projects on Job Corps Centers, including energy efficiency and renewable energy projects.

16.  Smart Grid

HR1 provides up to 50% reimbursement to smart grid demonstration projects in urban, suburban, tribal, and rural areas, including areas where electric system assets are controlled by nonprofit entities or investor owned utilities.  The Secretary of Energy is also required to maintain a smart grid information clearinghouse.  As a condition of qualification, demonstration projects are required to use open protocols and standards. This sounds like a great idea for our Marin Energy Authority.

The legislation provides a 30% tax credit for property designed to produce energy conservation technologies (including energy-conserving lighting technologies and smart grid technologies).

17.  Solar for the Military

The military is one of the biggest energy users in the Federal Government, and its operations are often in locations with limited or non-existent grid power.  HR1 appropriates $300 million for DOD research, development, testing and evaluation of projects to improve energy generation, transmission, and energy efficiency.

An additional $100 million is appropriated for Navy and Marine Corps facilities, and further specifies that funds are for energy efficiency and alternative energy projects.

18.  Remedy for AMT and R&D Credits in Lieu of Bonus Depreciation

Where a taxpayer is in a loss position, deductions in excess of income are unable to enjoy the benefit of bonus depreciation. HR1 extends the allowance in the Foreclosure Prevention Act of 2008 that permits AMT and loss taxpayers to receive 20% of the value of their old AMT or R&D credits to the extent such taxpayers invest in assets that qualify for bonus depreciation. The amount is capped at the lesser of 6% of outstanding and unused AMT and R&D credits or $30 million. 

The extension of the additional first-year depreciation deduction is generally effective for property placed in service after December 31, 2008. The extension of the election to accelerate AMT and research credits in lieu of bonus depreciation is effective for taxable years ending after December 31, 2008.

19.  Solar Water Treatment Plants

Water treatment is a huge energy user.  The stimulus bill provides $6 billion for the State and Tribal Assistance Grants account ($4 billion for the Clean Water State Revolving Funds and $2 billion for the Drinking Water State Revolving Funds). To ensure that the funds are used immediately to create jobs, the money must be committed to projects under contract or construction within 12 months of the date of enactment.

HR1 requires that not less than 20 percent of each Revolving Fund be available for projects to address green infrastructure, water and/or energy efficiency, or other environmentally innovative technologies. The bill allows States to use less than 20 percent for these types of projects only if the States lack sufficient applications.

________________________________________________

The single biggest issue to me is the lack of confidence among our customer base--solar happens when your customer believes it is the right thing to do, and commits.

I do a low gear flyby of current technology, and then get into demand, capitalization, and design of PV systems.  The recent shortage of tax equity--and the increased cost of this essential part of the capitalization stack-- has meant dramatic changes in solar project finance.  Need more info?  Here is the current draft of the syllabus. This will be updated between now and the start of class to reflect changes in component availability, pricing, and tax incentives.  A multi-disciplinary approach to underwriting solar is used--this course is designed for tax credit investors, commercial [ppa] solar integrators, lenders and attorneys to help them get solar deals done in today's difficult environment.

This is the text I use.  Purpose is to build a foundation--it is exhaustive enough you can really dive in, or you can just refer to it when needed.  I find this book the best current overview and reference on PV, and it covers what is happening in Europe and the world, for PV is truly a global application. 

My perspective is that of seasoned solar developer with over twenty years of commercial real estate investment and development experience here in NorCal. 

I hope you can join me for this course.  First session is Saturday 21MAR09 from 9A-5P, then five Tuesday evenings from 630-930P, then presentations on Saturday 2MAY from 9A-5P.

In this talk [real networks required] at MIT he discusses his concept of the Enernet and goes about mining the history--and his recollection, since he "was there"--of the Internet for lenses on how to view our current energy crisis.

His main thrust is that you can't do clean, or green, without cheap.  The current trends, cleantech and green, miss the target:

• Cleantech--omits the need for "cheap"--no permanent solution works if it is not affordable.
• Green--is too anti-corporate, anti-global, anti-everything. This Luddite tendency will backfire, because the solution is has never been to regress.

"The climate change problem is going to get solved really quickly...But once we have solved that, we are still left with an energy problem"

Political expediency results in answers like corn based ethanol--bad feedstock made into a bad fuel.  So Washington is not the answer.

"Spend less time telling us there are no silver bullets, and more time finding the damn silver bullets"

His answers have a lot to do with distributed generation, a (much) smarter grid, and welcoming the unexpected.  Thus informed, I went on a search at Intersolar for silver bullets.    Here is what I found:

Direct purification of metallurgical silicon to "upgraded metallurgical grade silicon or UMG Si" --BP, Elkem, Q-Cells, Dow Corning.  Crystalline silicon cells much cheaper--much sooner.  Warranties still an issue as degradation rates are not fully understood.  2008 production sold out.  Ramping from 1200T in 2007 to 10,000T in 2009.  Potential for silicon costs to go from $4.50/W [current spot] to $0.30/W [UMG Si at scale]--in under three years.

CPV--Concentrating Photovoltaics.  The main players here are Concentrix, Solfocus, Greenvolts.  The big advantage CPV has is that it performance degrades less with increased temperatures than flat plate PV does, the tricky part is the harvesting--you have to be pointing directly at the sun or you harvest nothing.  Tracking is the killer app here.

cSi modules designed for high humidity environments--think HI, FLA, the Caribbean.  EVA, the gel the cells sit in, loves moisture, this approach uses an inert gas and vacuum instead.  Another harvesting technique.

And my favorite magic bullet wasn't even at Intersolar, since they are targeting the California market first.

The students are a great group--reaffirms my optimism that we will create a built environment that thrives in a time of expensive energy [relative to the last decade] and responds to the climate change challenges we currently face.  A very tall order, but they are smart, talented, and motivated.  And they will need all of that to fix this problem.

They asked great questions, and I really enjoyed meeting them and exchanging views on PV powering real estate.

Click on the image to download a copy of the slides [pdf, 3.8MB]

Many thanks to Michael Buckley, Tony Ciochetti, Marion Cunningham, and Maria Vieira for giving me this opportunity.

Turns out the city is apparently asking for a percentage of the project's power be generated onsite. And they want the commitment as part of the entitlement process.

If the project draws a total of, say, 25 kWh/SF/year [average for a biotech building in SF], you would need 2SF of PV array area to feed 1SF of gross building area[GBA] to meet 100% of demand.  For example, to power 10% of this complex with onsite pv generation means 1SF of array area for every 5SF of GBA.  A 40,000SF array over a parking garage would meet 10% of forecast power demand for 200,000 square foot biotech building, or 500,000 SF of a general office building.

PV is cost effective--PG&E rates and current incentives work--our industry deployed over $700 million of PV in California last year alone.  PV is basically a prepaid clean power contract--you get 20 to 25 years of power for an upfront payment of six to eight years of electrical demand.  You have to get over the first costs problem, and then you have to match onsite pv power generation with onsite demand.

The problem is not that the math doesn't work, it is timing, and agreeing to a commitment that allows for a couple of different ways to get the job done.

Onsite clean power generation typically comes from the user, or increasingly, from the institutional investor partner.  This is the first time I have heard of a jurisdiction making onsite green power generation part of the entitlement process--well intended, but you need to add some carrot to the stick...

The wrinkle is the area I want to use would not be built for four years and they wanted a price now.  PV is, and will be, a tax driven deal for the next four to five years in California--designed to pull demand forward and grow the 40,000 or so green collar jobs expected in this industry sector.  The federal incentives presently available will expire at the end of this year.  Any forecast more than nine months out is based on the probability these incentives will continue.  Not a bad bet--current sense is that a one year extension has an 80%+ probability of happening this year--but you can't take it to the bank.  Four years out?  No way to predict a green power price in a market that is growing 60% a year--globally.  PV is a great plug and play solution--but to propose on something that is four years out, for a real estate investment that has not been entitled yet?  There had to be another way.

So no proposal--but I wanted to help my friend out with an answer--what I would do if it were my project.  Here's what I would do:

Plug in SREC's for the 10% renewables component until the garage is built and the buildings are occupied.  And get a quid pro quo with the jurisdiction that we provide 10% renewable energy if they offer to buy the renewable energy credits--something that is already starting to happen here in Northern California.  The system owner owns the SREC attribute in California--it is ours to sell or use.

I like Solar Renewable Energy Credits [SREC's} as an interim solution. The SREC is the "green" attribute of solar power stripped off from the clean energy produced and sold separately.

A 100,000SF biotech building would require roughly 250 green tags a year to offset 10% of total demand.  At current pricing of $50/solar green tag, this would add $12,500 to the occupancy costs, probably passed through to the tenant on a triple net lease, similar to other utility costs.  It would add $0.06PSF a year to the rent.

The City of Palo Alto is currently purchasing green tags [pdf, 30k] for solar power generated within the city limits, paid for by the ratepayer. 

Could this jurisdiction set up a similar program?  This would be a great motivator for a property owner to quit buying SRECS and install the actual onsite generation at the time you have leased up sufficiently to put in the system.  A nice carrot, indeed...

Part of the solution may be what I saw in Abu Dhabi, at the site of a new Sir Norman Foster designed zero carbon city.  Located in the emirate with the fourth largest oil reserves in the world, Al Masdar (Arabic for "the source") plans to meet a significant amount of its power needs with a 200MW array. 

The question is how well PV will work in the summer heat of the UAE.  PV does not like heat--it produces less power when the cells increase in temperature.

Summer ambient temps can reach 45C [113F] and temperature at the cell [Tcell] can be 25C +/-5C over that.  To determine how PV actually performs, Dr. Abu-Zaid at Masdar is running the largest PV competition in the world--testing over 30 1kW systems from manufacturers in UAE field conditions.  Data from the competition, including

• power output,
• temperature,
• power loss from dust and
• peak power output

using identical inverter and measurement equipment will be used to determine what type of pv power is best suited for desert conditions.

At roughly 9A that morning, with 25kW installed, these systems were collectively performing at over 50% of max--in February!  The UAE has great potential as a market for PV.

Dr. Abu-Zaid is doing the right thing.  There is a dearth of actual performance data available for use when designing systems.  This competition will be a great add to the Photon data.  And it motivates me to incorporate ways to get more performance from my systems deployed in high-heat environments.

What does this mean if you want to power your World with onsite clean power?  There is little time to waste--we typically need six months from GO to power up--and we only have a little over ten months left before the 30% Solar ITC reverts to a 10% credit.

Why should you care?  Here is the value stack under the present tax law, present California incentives, and present avoided power costs.

Here is what it will look like if you flip the switch after 31DEC08, under present law.

The 25% system value-add drops to 5%.  Still positive, but much harder to justify the investment.  The after tax IRR drops from high teens to below 10%.  Not enough to pull demand for renewables forward five years--to accelerate the job creation and adoption--that the 30% stimulus does. 

And the cost of doing the right thing is about what we burn in two months in Iraq using the President's $186B 2008 Iraq war cost estimate.

The McKinsey report did not acknowledge that a long term distributed generation + renewables federal tax policy is critical to kicking our brown power habit. Think of it as The Patch.  It helps us get where we need to be.

There are a number of institutional investors sitting on the sideline ready to get in the game if there is a multi-year tax policy to pull demand for renewables forward five years--which is exactly what the solar ITC does.  It creates green collar jobs in California and elsewhere, and provides a stable platform for R&D and getting the costs out of distributed PV power.

There are three things you don't wanna do when harvesting your available solar resource.  Number three is procrastinate.