Burn Some Daylight

"Occupiers are indicating that they are prepared to pay more for green real estate and that it is important for their organizations to occupy sustainable buildings...Occupiers will pay more for sustainable real estate solutions and where possible avoid non-sustainable real estate solutions."

--Jones Lang LaSalle--Corporate Real Estate Impact Survey

PV is the sizzle that sells green real estate--sustainability where you can see it.  Architecturally significant solutions that increase property performance.  The quoted survey reveals that 64% of respondents are prepared to pay a premium for greener real estate.  Sustainability is rapidly moving from a nice to have to a must have.

More than marketing--these sustainable solutions harness the latest in global technology to reduce onsite costs and increase performance.  We harvest a site's solar resource landing on marginal real estate--think parking lots, airspace over parking garages, patios and walks.

"only 18% of respondents considered current provisions of sustainable real estate good or adequate."

PV is a new way of thinking about real estate value creation--another layer in how you develop spatial solutions when renovating or developing property.  Harvesting the local solar resource, monitoring and measuring the load, load shape and the pv system's performance demonstrate the reduced carbon footprint and document sustainability efforts.

Users are prepared to pay more, but are under-supplied with sustainable building stock.

...although the math should only be the third ranking reason to adopt PV on your property.

Reason one is that our systems are designed to a 30 year life--providing clean power, carbon free power, when the sun is shining.  No moving parts.

Reason two is that PV is a relatively painless way to start making the changes we all need to make to minimize the effect of CO2 in the atmosphere.

And reason three is that the math works.  Now.   Even before PG&E's seven percent rate increase.  How many of your investments get you 10% returns--with no downside?

...to go green was Friday's decision by the CPUC to allow commercial building owners charge their tenants for power used, rather than rolled into the base building operating expenses.  Owners will now be able to submeter and charge tenants for the exact amount of power they use.

Large tenants now have a much stronger incentive to utilize on-site photovoltaics as a tool to avoid peak demand charges, reduce their carbon footprint, and increase brand equity.   Inequity in cost allocation need not be tolerated by tenants any longer--Green tenants will no longer be subsidizing more energy intensive uses--and energy intensive users now have incentive to manage this cost exposure.  Landlords now have another way to reduce building operating expenses, and create value.

This rule only currently applies to properties served by PG&E, and the CPUC expressed the intent to expand this statewide.

Applications for rebates under the California Solar Initiative, at least in PG&E territory, show that the program is working--people want pv--and the industry is responding to this want.

Governor Schwarzenegger pushed to get the California Solar Initiative into place, adding 3,000 MW of solar power to the state's base in ten years.  The equivalent of two new nuclear power plants distributed over rooftops, parking lots, and vacant fields.  No moving parts, a thirty year life, and no issues about what to do with spent fuel.

So, naturally, Californians are taking to solar power like the latest cult pinot noir. 

Here is number of applications by month, vs. forecast:

...is captured in a book and a recent report on the transformative capability of solar power.  When I begin to doubt the potential of using photovoltaic technology to transform our homes and commercial property while reducing the impact on the world we leave behind, I pick up either this book or report, and the doubts evaporate.

The book, available on Amazon, takes a predictive approach to looking at how solar power, and distributed generation, can power our economy as costs drop.  I don't fully buy his pitch that it will transform the energy industry.  I do buy his predictions that solar will reach grid parity, and the ability to match our onsite needs with onsite generation is enhanced by these cost reductions.  The implementation will happen at the margins--and pv is already working at the margins.

This report--Solar Generation IV--[pdf 5MB] goes even further, looking at the jobs and economic effects of the transformation.  The report highlights the jump developing economies will experience with distributed pv generation, leapfrogging their lack of present energy infrastructure, to power schools, community, and home. 

Their prediction?  Solar power for one billion people and two million jobs in less than 15 years.

Shifting to a triple bottom line, distributed generation, sustainable way of looking at how we use the tools of home, workplace, and where we gather requires reminding myself of why this transformation is so important, and how it really is not that far from implementation.   Very possible.

had to be the 12,500 attendees--people who believe in the power of the sun to leave our world a better place than we found it. This new talent, together with some great products, and cooperation from those that run the power grid, set the stage for an extremely productive several days.

What was new?  Several new commercial size inverters, designed for longer life and at higher efficiencies. New module manufacturers--particularly from China--were in evidence.

Also evident was a willingness to roll up sleeves and get to work reducing the pace of global warming.

"I am not going to leave a burned-out, hot-house world that is not sustainable to our children and grandchildren.

We know what needs to be done, and by dammit, we better do it.

And that's why I am here."

--Ted Turner

Better tools to harvest the power of the sun--and the motivation to start now--were the best components of this show. 

...of green energy is our local utility--PG&E.  I would not have believed it before this year, but they are doing it--working with end users, installers, the CPUC and the state.  This article in Business 2.0 chronicles PG&E's approach to green power, and I for one am very appreciative of their support.

Many hands make light the work of bringing the power of photovoltaics to sunny California.

PV adoption among real estate professionals is reaching new highs.  Hedging higher energy costs, easing the challenge of greening their bottom line, and straight-forward financial smarts are all resulting in greater demand for PV in new and retrofitted buildings.

"We believe that energy costs will continue to escalate rapidly, and addressing these issues now will help mitigate the cost impacts to our operations"

--Sanford Smith, Toyota Motor Sales USA

Green Buildings Research White Paper [October 07] tallied over 2500 responses to find the current industry stance on green building.

Sure, the capital costs can be slightly more, but when you look at the total cost of the operation of a building, most of the features added make solid economic sense.  Add to that the perceived productivity increases from more-satisfied employees or tenants and you have a winning combination."

--Jim Petsche, Nike Inc. 

The next step?  Senior management buy-in--seeing the costs from a life-cycle perspective, not a first cost perspective.

is designing buildings that engage the environment in a way that dramatically reduces or eliminates the need for fossil fuels.

Buildings use 48% of total annual energy production--40% for building operations and 8% for building construction. 

Building operations account for 43% of total annual greenhouse gas emissions.

75% of all electricity produced at power plants in the US goes to operate buildings.

Architecture 2030 issued the 2030 Challenge--reducing the fossil fuel energy consumption for all new and renovated buildings by 50%, progressing to carbon neutral by 2030.

Sounds like a perfect job for PV.

There are a couple of ways to visualize how we contribute to CO2 in the atmosphere through our daily routines.

One is with a graph--the infamous hockey stick made famous in Nobel Prize winner Al Gore's documentary.

What I like about PV is that it doesn't release CO2 during operation.  Besides avoiding expensive, and dirty power, costs, it is clean.  But graphs don't work for everyone.

The other, perhaps more compelling, is this Australian advert:

Burning fossil fuels releases CO2 trapped eons ago.  There are better ways to maintain our productive lifestyles--PV being one of them.

McKinsey recently published a study on the costs of reducing US greenhouse gas emissions [GHG's].  This study looks at the costs of abating the amount of carbon we use in our economy and lifestyle and assigns a value, based on current technologies and cost, of different abatement options.

Sustainability is rapidly becoming a priority for those of us in the real estate and renewables business.  The most significant take-away was that the cost of becoming sustainable is not as forbidding as some think.  McKinsey brought an analytical structure to looking at the costs and benefits--giving us a robust point of departure for determining what we build and where.

What struck me was the potential of PV in California and the West to be a dramatic driver for reducing our carbon footprint, insulating us from escalating energy prices, and adding value to real estate.  The math really does work...

"...distributed generation with photovoltaics represent considerable abatement potential.  In total, distributed solar PV could achieve nearly 50 gigawatts of capacity by 2030..."

PV was one of more than 250 abatement options McKinsey researched, from swapping out light bulbs to buying that Prius.

PV is not a slam dunk.  The US is late [this time] to this global technology, and there is a significant inelastic response to new ways we develop, build, and operate real estate.

"...abatement from solar power exhibits the widest range of potential outcomes.  In 2005, the US had less than 0.5 gigawatts of installed solar PV capacity.  By 2030, the US could have somewhere between 28 and 148 gigawatts of solar pv capacity, depending largely on the degree of cost compression and learning rates achieved for production and installation."

California is at the head of the pack--we have a favorable climate for integrating this technology into our built environment, our Governor has set up a ten year funding program to aid cost compression, and our power costs are high--and increasing.  And we have great sunshine.

I recommend you spend some time going through this study. For a country that put a man on the moon, reducing our carbon footprint is a much more manageable moon-shot--but we need to get going.  Now.

The first post AB 32 report on California's energy policy just came out. 

This was not an easy task to pull together.  California is the second largest consumer of transportation fuel in the world--16 billion gallons of gasoline and 4 billion gallons of diesel annually.  We are the twelfth largest emitter of greenhouse gases [GHG's] in the world, and the eighth largest economy.

The major issues are transportation and powering our electrical grid.  Reducing our dependence on fossil fuels is critical to restraining climate change, and the California legislature has passed a number of laws addressing what needs to be done.

How effective are all these laws and policies?  Our public utilities are no closer to meeting the requirement that 20% of their power come from renewables by 2010 than when the law was enacted:

Demand has grown apace with bringing renewables online--but they are just treading water.  This may be telegraphing an increase in power costs to lower demand.

If not the utilities, then who?

The California Public Utilities Commission, through its “Big Bold Energy Efficiency Strategies,” has adopted three programs designed to move all new residential and commercial construction to a zero net energy standard. The goal of this program is to reach zero net energy in residential construction by 2020 and in commercial construction by 2030. 

The CPUC is calling on builders and developers of residential projects to design to a net-zero energy building standard by 2020, and 2030 for commercial.  Distributed generation--namely PV--is exempt from property taxes in California, is exempt from discretionary review--building permit review only--and can be deployed in a matter of months rather than years.  And people like shaded parking!

Entire report [pdf, 4MB, 301p] downloadable here.

says Kleiner Perkin's Second Law.

I depend on making an emotional connection with my audience with I talk about Solar Options.  And I have experienced no better emotional connection than this talk by John Doerr about how everything we are doing about climate change is not enough.

What conversation are you going to have in 20 years?

One of the most remarkable things about this energy flow chart from Lawrence Livermore Labs is the amount of energy lost getting it to where it is used--56% of the total, or 134% of what we use.

This is part of what makes distributed generation so compelling.  You use the energy harvested from your PV array onsite.  No system losses.

The Senate's recent filibuster of the tax extender for the 2009 30% Solar Investment Tax Credit is the latest manic-depressive moment in our industry.

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.

In doing my homework for my trip to the UAE last week, I came across an investment bank's report that concluded that, outside of California, the UAE is the highest potential market for solar in the world.

Part of the rationale comes from the math--PV power runs $0.22/kWh and grid power derived from $100/bbl oil costs north of $0.40/kWh.  Why use your oil to provide heavily subsidized grid power at $0.054/kWh when you can sell it to we Californians as transportation fuel?

Part of the rationale comes from insolation--I measured much higher than I expected.  And part comes from the fact that rapid development growth has outstripped the grid's ability to power these new buildings.

My take away from the trip?

• Solar power is a very feasible option for the UAE.
• They need to start building for a world where energy is expensive--build to LEED Silver, California Title 24 and EPA Greenstar standards, before they look at solar.  Think Negawatts, not Megawatts.
• AC is the critical load--look at geothermal exchange heat pumps [groundwater is ~2m from the surface, temp 20m down should be ~14C] that provide a cooling sink function or absorptive chillers using solar thermal.

Solar makes sense, but only on energy efficient buildings.  This will require a big change for a country used to free energy.  How do you go from the biggest per capita carbon footprint in the world to a zero net energy future?  Stay tuned.

Was back East last week, and in between meetings with bankers about helping my company capitalize projects in our pipeline, I took some time and talked to graduate students at Columbia University's Master of Science in Real Estate program and at my alma mater--the MIT Center for Real Estate.

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.

is the latest column from Tom Friedman.  He is baffled by the complete lack of leadership from inside the Beltway on restoring America's leadership in global solar production.  Ditto.

In ten years, the USA has gone from providing 40% of global solar production to 8% last year.  Why?  The Europeans are putting their money where their mouth is.  And us?

"The McCain-Clinton proposal is a reminder to me that the biggest energy crisis we have in our country today is the energy to be serious -- the energy to do things in a sustained, focused, and intelligent way.  We are in the midst of national political brownout."

The impact?  Over 35,000 green collar jobs either lost or not created, and $8 billion worth of investment not made.  Where?  Primarily here in California.

With petroleum demand and pricing at historic highs, now is the time to catalyze this new industry, and California has the perfect mix of technology, awareness and climate.

Contact your legislators now.  Need their contact information?

Just returned from Intersolar--the global trade fair for the solar business.  Over 42 acres of space for 1,000 exhibitors and 50,000 visitors from over 130 nations planning and building a clean, affordable energy future.  My head is still spinning a week later.

The winners are the large solar parks.  The industry has clearly evolved towards larger installations.  Here is the breakout for solar power plant development in Germany:

Much more equipment--inverters, racking, trackers, security systems, and software related to running large solar parks was evident this year.  The dramatic growth in Spain over the last year has changed the tenor of the industry.

My top seven were:

1.  Cents per kWh is the new mantra--as we approach grid parity, the new benchmark is what you can sell power for.  With the present ITC, we will be at grid parity in large parts of California and Hawaii by next year.

2.  Applied Materials' Sunfab line produced a large format, 61SF, 220 pound, glass/glass module that is designed for groundmount installation.  AMAT has sold several lines for installation in Germany, India, and the UAE.  They predict a production cost of under $1/W in about 24 months--the magical grid parity number.

These large format, heavy modules are meant for solar fields/ground mounts.  Particularly suited to Germany and Spain where the array can float and not required to be grounded.  Heard that thin film degrades faster [on the order of 20%] if the array is grounded.

3.  Solar trackers really developed due to Spain and has a number of attractive offerings.  Cost is about $1.50 watt, and you generate 250 to 400 more kWh per kW per year.

4.  Concentrating PV--works well for arid and desert climates where cSi degrades under heat.  You need really accurate tracking--as the sun's rays are focused on a tiny solar cell--that is 99% accurate.  The installs are smaller than solar thermal fields, and don't use any fresh water, a big deal in an arid climate.  They do need to be kept clean--the Pilkington glass [enameled?] is a good candidate because it sheds dust easier.

5.  Racking systems that speed installation, including sliding in modules.  Labor in installation is going to become a critical installation cost component in getting installed cost to grid parity.

6.  Over thirty different module manufacturers from China.  Quality?  How do you value the 25 year warranty?  Production?

7.  Large solar thermal (>500MW) parks are making economic sense where you can interconnect, have access to a secondary heat source (CCGT or methane) and H2O.

The biggest deal may be the fact that Q-Cells announced that it is getting respectable performance from upgraded metallurgical silicon--this will increase module supply much faster than we originally forecast.

Predictions made over 20 years ago were that PV would be providing power cheaper than you can get from the grid by 2010.  Looks like we are going to be there.

Robert Metcalfe, the guy who developed Ethernet, is now focused on clean, cheap power--and the world needs LOTS of it.

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.

Need to round out your understanding of commercial solar projects and how to get the math to work in our current difficult environment?    Check out this course I am instructing at UC Berkeley Extension in downtown San Francisco this spring.  The essence of the course is a team=based exercise in investment grade due diligence for solar photovoltaic [PV] investments in California and the West.  The capstone of the course is the preparation of your team's investment grade feasibility study for presentation to your classmates and a professional jury on 2MAY09.

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.

President Obama is due to sign HR1, the $787 billion American Recovery and Reinvestment Act tomorrow in Denver.  Contained in HR1 are 19 provisions that provide critical incentives to reduce our dependence on foreign oil, help create over 100,000 jobs, and starts to put in place a smart energy grid that doesn't carbon load our atmosphere.  This is a great extension to the pipeline created by the 2 to $3B of venture capital that has gone into funding renewable energy startups over the past twenty-four months.

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.

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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.

"Even in this time of enormous financial uncertainty (not to mention a deepening concern, if not panic, about the health of the planet), the sense of boundless potential, the promise of The Graph, is palpable."

From the DEC08 Fast Company article.

California's Community Choice Aggregation Act [AB 117] looks like it may have been TOO good an idea.  Following on the heels of San Francisco and Marin issuing RFP's for community power, there is now a proposed ballot initiative that would change the power customer opt-out provision to basically an opt-in provision.  This makes quantifying the rate base asset much more difficult.  And if you ain't got the rate base, you got nothin'.

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.

The key to commercial and utility scale solar is finding feasible projects and successfully capitalizing them.  I am the instructor for a UC Berkeley Extension course this fall, taught at the downtown campus, that has precisely this course objective.

Click here for the current draft of the syllabus.  The course commences with a low gear flyby of current technology and then dives into demand, capitalization and design of commercial PV systems.  The essence of the course is a team-based exercise in investment grade due diligence for a solar photovoltaic [PV] investment.  The capstone of the course is the preparation of your team's investment grade feasibility study for presentation to your classmates and a professional jury on 7NOV09.

These are the texts I use.

       and        

Intent is to build a foundation for getting commercial solar projects identified, quickly selecting the feasible ones, and putting them on a track to executing a deal.  Planning and Installing is exhaustive enough that you can really dive in, or just refer to it when needed.  I believe this is the best current overview and reference on PV--it covers what is happening in Europe and the world, for PV is a globally applicable technology.  Strategic Selling was added this semester, because when you do a feasibility study, you want it to lead to a project, and the study isn't going to do it on its own.

Cooperate and graduate is a big part of the course--you will learn a great deal from your fellow classmates, and you are expected to contribute your experience and perspective as well.  In addition, we are fortunate enough to have some great guest lecturers on several evenings.

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

Here are a couple of slides from the course:

I hope you can join me for this course.  First session is Saturday, 26 September from 9A to 5P, then five Tuesday evenings from 630P to 930P, capping off with Presentation Day on Saturday, 7NOV from 9A to 3P with a debrief afterward at the Thirsty Bear.

Click here for enrollment information.

I started responding to some great questions asked by a Stanford MBA student preparing for a class presentation on emerging business demand.    The questions prompted answers that I thought would be most productive noted as an essay on PV, commercial real estate, and where demand is today.

What do you think the biggest business need is in relation to the installation of solar modules on new and existing buildings?

Finding a home for the 5 gigawatts of modules being produced this year that aren't contracted for.  This twenty eight times what California installed in 2008.  This oversupply is a massive opportunity to add value to real estate if you execute correctly.

Module prices have dropped 40% this year, and manufacturers are experiencing rising break-even percentages as prices drop, forcing them to run their factories at higher utilization rates, putting a collar on the amount produced--and setting the conditions for a price war.  Net installed price is about a wash--because lower California incentives just about equal the price drop in modules. 

We are at grid parity in the markets I work in, the need is to recruit users who want to insulate themselves from utility company rate shock and add value to their real estate.

Taking a couple of steps back from this over-supply condition, you have a more fundamental need. 

Solar is part of an overall approach of designing and developing real estate to be a net-zero energy user.  Form follows Energy.  PV is a harvesting technology and is best used as the third energy strategy you deploy.  For new buildings, site planning to work with, rather than against the elements, is the most important thing you can do.  Minimize the amount of sun that hits western glazing, for example.

Intervention, also called passive solar design--daylighting, shading, night flushing of heat trapped inside a building, landscaping to minimize heat gain [in California] or heat loss [northern Europe] is the second strategy we utilize.  Keeping heat out of a building means you don't need to pay to remove it.

We deploy PV as an active harvesting technique only after we are satisfied we have maximized the first two phases.  A general rule of thumb is that it makes sense on 65% of flat commercial rooftops and 20% of residential rooftops.

How big does the building have to be for solar panels to be used efficiently? 

Solar is a modular technology--it scales very easily--so it scales well with the size of the building.  You don't need a big building to make solar work for you.  More relevant than the size of the building is the size of the harvestable area, whether it be rooftops, parking, or open area. 

If you are trying to balance energy consumption w onsite generation, the intensity of the energy used by the building user, and when it is demanded, is important.  You size the system to offset a portion of the cost-based energy demand of the building.  A typical solar system will produce 10 to 15kWh/SF per year, and office buildings use roughly 15/20kWh/SF/yr--a rough rule of thumb is a 1 to 1 offset on square footage--an 80,000SF office building for general office use would need 80,000SF of harvestable area to zero out its electrical use. 

How much sun in the year is needed (or what locations in the country make solar module installations viable)?

The answer depends how much you pay for electricity, and what incentives are provided to stimulate demand.

PV has been proven in Germany as a means of obtaining energy independence--the climate comparable in the USA is Nome, Alaska.  German solar incentives are much higher to stimulate demand, their grid prices are higher, and much of their natural gas is imported from Russia.

In California, electricity from a solar generation asset is now cheaper than utility grid power in the higher residential tiers, and for the A1 and A-6 Time of Use [TOU] tariffs where we can spin the meter backward at the higher $/kWh rate and offtake at a lower nights and weekend rate [think parking lot lighting].

From a big picture perspective, anywhere in the red or orange portions of the solar atlas to the left are feasible areas for solar development in the Western USA.

PV is distributed generation, so it fits where there is demand, high energy prices, and incentives.  From the National Renewable Energy Laboratory:

The northeast and California are great locations due to high energy prices, and Florida and the Southwest due to high insolation, and summer air conditioning loads.

Does it make more sense to use solar panels on certain types of buildings (e.g. on retail vs industrial vs residential)?

The key here is net metering--you want to offset the amount of energy used onsite.  Net metering is based on the value of the kWh generated--kWh generated by the asset during peak period times are worth three times what a kWh used at night or weekends costs.  To maximize the value of the system under a net metering scheme, you maximize how much surplus you generate during peak times, and time shift as much demand into off-peak times.  Parking lot lighting loads are a prime example.

Demand is generated by the user--and some users value the benefit of solar more than others:

This chart shows universities and corporate real estate users are adopting PV as a component of their real estate faster than other types of users.  Developers have a first-cost problem--PV is basically a pre-paid, tax incentivized power contract.  Reducing future operating expense is not as attractive as reducing first costs.

Where it makes tremendous sense for developers is to make the building PV Ready--installing the conduits and configuring the electrical system for a PV system that may be installed by a future user.  The first cost is minimal, and the fact that the property is set up to accept a system can be a key feature at the time of sale or leasing.

How much does installing solar panels help with getting LEED qualifications?

It can help a lot if you are pursuing LEED Core and Shell [LEED-CS], and only a little if you are pursuing LEED Commercial Interiors [>50% of total energy use].    Core and shell energy demands are only for the building shell and services such as elevators, and you get credit for reducing heat islands and introducing innovative technologies. 

We can get up to 50% of LEED certification score on LEED-CS.  LEED CI requires 50% of all energy used to be renewable, and I find it harder to score in multiple areas since the criteria is only energy use and is not concerned with sustainable sites.

Are cities actually requiring solar panel installation or how is demand being driven for this product?  Any idea how you would measure demand or how much demand there is?

Demand is driven by the user.  Cities are beginning to require LEED certification and in some instances, will expedite permitting or reduce permit fees for solar project installations.  Net zero energy real estate requirements are still in the discussion stage and not a permitting requirement as yet.

Demand is driven primarily by the ability to monetize the tax attributes of a system [~52 to 54% of cost] + the ability to lock in power costs competitive with the market, and secondarily by using PV as a way to architecturally brand your real estate. 

McKinsey had a tough time estimating demand, but reported that PV's greenhouse gas reduction abatement potential exhibited the widest range of outcomes.  Depending on cost compression and learning rates for production and installation--demand could be significant.

And we are getting material amounts of both cost compression and learning rates today.

Carbon cap & trade and Feed-in Tariff programs add to demand--I have a hard time throwing a number at this now--but it adds to the snowball effect.

Who currently provides financing to developers for this?

30% of the system installed cost for commercial projects is covered by a cash grant from the US Treasury.  The state of California has a performance based incentive that covers about 15% of the cost.  The remainder of project finance requirement is met via cash, equipment leasing firms, or debt.

Alternatively, there are financial companies that own the systems and just sell the power on a kWh basis, called power purchase agreements or PPA's.  We do not see much of this energy service model being utilized at present, as it depends heavily on the California performance based incentive to cover 25% or more of the system installed cost to meet investment hurdle rates, and incentive levels have dropped below this, to about 15% of installed costs.

The Treasury Cash Grant is paid at the time of the system's Commercial Operation Date, but vests similar to a tax credit over five years at a rate of 20% per year.  Should the system change ownership during that five year period, the cash grant is recaptured.   You should plan to own the generation asset until your tax benefits fully vest.

How much financing do they provide?  At what rates and deal terms?  Is there a huge shortage of financing currently? 

The Treasury cash grant program has met the demand for tax equity through the end of 2010.  Project financing depends on the corporate user's credit.  PPA financing is looking at mid-teens IRRs--most projects do not meet this hurdle due to lower California incentives.

Sale leaseback financing is starting to be offered again, after a dry period of nine months--since October 2008.  The off-taker needs to be a ratable credit, however.

The other option is to include the net costs in your renovation or new construction financing.  Since there is very little new construction financing at any price available at present, this may not be a viable option.

About how much does it cost/SF to buy solar panels? 

Net system installed costs, after the Cash Grant, are $40 to $60 PSF.  Integrating this into the architecture allows you to use the system as a UV and rain screen, which should save you about $25/PSF you would have spent for cladding or scrim material.

What tax benefits do developers get from installing solar panels?

At this point--we find users with a sustainable goal--think universities and Google--are the most attracted to onsite solar generation assets.  As is true with most parts of the energy market, there are very attractive tax benefits for those who own the systems during the vesting period.  These benefits include:

• 30% Investment Tax Credit or Cash Grant through 2010
• 5 year MACRS depreciation
• no state property taxes on the value of the system

Over the twenty five year life of one of our systems, they are net present value positive, reduce a user's carbon footprint, and help brand the real estate--for PV puts the sizzle in sustainability.  It is a visual brand of doing the right thing for the environment, for the company, and for the place we leave behind.

Our solar component manufacturing partners won a significant piece of the Section 48c manufacturing tax credits awarded for renewable energy equipment manufacturing facilities.  183 awards were made from an applications pool of over 500, with tax credit applications totaling over $8B. The solar industry ended up with over $1B in awards.  The awards were made to facilities across 43 states.  They are designed to help rebuild domestic manufacturing and bring private capital off the sidelines. 

The big winners:

• CIGS technology was a big winner—at a capex of $0.50/W, this adds 1.2GW of production capacity
• CdTe technology—at a capex of $2.00/W, this adds 30MW of capacity.
• 55,000 metric tons of polysilicon and 5,000MT of uMg Si added—enough for 8GW of xSi modules annually.

So now is when it gets interesting--

Time for the heavy lifting of project development to start.  I see two big risks—

1. On-time, on-budget completion of clean-tech manufacturing facilities--with hard completion deadlines or you lose the 30% tax credit, and
2. Getting good value from third party tax investors for the credit.

Our integrated solar project delivery [Bridging] tool may be the best way to deal with the first risk.  It accomplishes the following:

1. defends the price,
2. protects against “fastrack” or GMax-type change orders,
3. maintains clear responsibility for post-construction problems, and
4. gets to an enforceable contract sooner. 

The 30% tax credit is all or nothing—if you miss either your certification or completion deadlines, you lose the credit.  Selecting the right delivery tool is a big deal.

The second risk is mitigated by using a market-friendly tax equity structure.  Of course, the best answer is to put the tax equity on your balance sheet and match it with your federal tax liabilities, but not everyone has the cash flow to do that.  If you need to monetize the tax equity piece [like most solar developers do],  you typically have three options:

1. equity flip partnership
2. operating lease, or
3. inverted lease with an tax credit pass-through. 

What follows is my take on what needs to be done—please remember I am a solar developer, not a tax accountant, so please confirm your own understanding on the tax equity side. 

Monetizing tax equity—No cash grant option in this program—so credit monetization structures, such as partnership flips, sale leasebacks, or inverted leases will have to be utilized if the credit cannot be used directly.  If the facility takes over two years to build, the credits can be used during construction.  Not describing a partnership or leasing structure in the credit application, but admitting an investor later using a partnership or lease structure does not appear to change the project in a “significant” way, provided the investor signs the same credit agreement executed by the original taxpayer. 

$2.3B is the total award, and some companies will be able to use the credit to offset their own tax bill.  A significant share of third party tax equity will be needed however—and to solicit this from a market that is just opening up again after being shut down during the financial crisis—I question how much of this equity gets placed.  Will the IRS want to see a tax investor prior to certifying your project as eligible for the credit?  Do you start construction and buy equipment without your tax investor lined up?

Tax Basis [263A cost]--Eligible investment credits cover future expenditures and cover investments made after 17FEB09.  This credit does not apply to a building or its structural components—the basis can only involve the equipment portion of the facility, meaning building leases make more sense than owned real estate—but lease costs are not includable in basis.  Good news for Silicon Valley, where the commercial property vacancy rate is north of 20%.  Qualifying property must be “necessary for the production of specified advanced energy property” and qualify as tangible personal property.   Base building upgrades—power, technical infrastructure, HVAC, industrial gases, lighting, logistic systems and disposal facilities—need to be clearly tied to equipment support, and probably won’t be includable as basis unless specifically needed for the project.

IRS Terms for the credit will be dictated by 15MAR2010.  This credit agreement needs to be executed and returned to the IRS so that they can execute it by 16APR2010.  Any successor taxpayer will have to file a new credit agreement, or face forfeiture or recapture of the credit. 

The taxpayer will have one year from the date of the award letter to provide evidence that all requirements for the allocation have been met—construction contracts, all permits, long lead-time components ordered, the balance of project financing, and off-take agreements.   The IRS may disallow the credit if facility plans are changed significantly.

Integrated Project Development—To mitigate or eliminate risks of forfeiting the credit, the facility description needs to translated from the business plan into working drawings and construction contracts in a manner that demonstrates consistency with the original facility description. 

The applicant will have one year from the date of the IRS acceptance letter, or 8JAN2011 to pull all permits and complete all other long lead-time work required to demonstrate a placed in service date no later than three years after this certification date.

Pull all permits within 12 months of Treasury acceptance letter >> 8JAN2011.

Treasury will certify that project is eligible for tax credits.

Place project in service within three years of certification date.

The taxpayer will have three years from the certification date to place the property into service, Including receipt and satisfactory signoff of all federal, state, and local permits—including occupancy permits, if applicable.  If you don’t complete within that three year window—the certification is no longer valid.

DOE or Treasury can audit the project—so care in project development and management practices, along with the accountant certs and opinions need to be in the development files.

Construction risks when you have already locked in the value of your credit and when you face deadlines in placing the equipment in service are significant, and rest squarely on the taxpayer’s shoulders.  That is why I like our integrated, two step project delivery tool for this application—we lock in certification at the same time we have price and schedule certainty.  And with the most enforceable construction contract in the industry, to boot.

Recapture—the credit vests at at 20% per year, so the recapture risk exists for five years after the date of service due to the taxpayer selling the project or more than one-third of their stake in the facility.

Don’t hesitate to email or call with any questions, or to discuss a potential project.  Successful project execution will need both tax equity structuring and integrated project delivery expertise to meet these deadlines.  We can do both, or be part of a team that gets it done.

  Tom Friedman is right--our clean energy future and energy independence depend on deploying these credits and getting these new clean technologies right. Now.

CREBs—Clean Renewable Energy Bonds—$2.2B of them were allocated as part of the American Recovery and Reinvestment Act of 2009—are a tool for schools and public agencies to fund solar electric and hot water systems on their buildings.  Called “new CREBs”, the borrower pays back only the bond principal, and the bondholder receives federal tax credits in lieu of interest payments.  All in costs are lower than issuing most tax-exempt muni bonds and lower than current power purchase agreement rates as well as continuing to pay for grid power.  Here is the way Santa Clara County compared the options.

Simply put, CREBs are a financing tool to put solar on public schools—a noble intention. 

California government agencies were allocated about $640M of these bonds—Palo Alto Unified School district allocated over $20M, Mt. Diablo USD allocated over $50M, San Diego USD allocated $74M for 111 projects, and LAUSD received over $120M for 90 projects.  These allocations are good for three years.

Problem is, the $1.2B 2005 allocation of “old CREBs” authorized under the Energy Policy Act of 2005 never got much traction—only $50M of them were issued.  A real missed opportunity.

Part of the problem is that CREBs are allocated on a smallest to largest basis, but you needed to aggregate about $10M of CREBs to have the costs of issuance be covered by the two percent cost cap allowed.  The other part of the problem is that public agencies have their credit rating re-examined every time they go back to the market—and risking your agency’s current rating for a small issuance of CREBs could be a bad career move these days.

The bonds yield about 6% pretax—and since they are paid in tax credits, borrows can use 70% of the payment to offset their federal tax liabilities.  To make the bonds attractive, bondholders have been asking for either discounts or interest payments in addition the federal tax credits—these have been averaging about 1 to 1.5% to make them equivalent to munis.  Repayment is established through a sinking fund, and the power savings can be redirected into this interest bearing sinking fund account.  Currently, the tax credit can be stripped by the issuer or holder and sold separately.

I don’t understand why California’s Investor Owned Utilities don’t make a market in these bonds—they have the tax appetite, they have a vested interest in seeing solar distributed generation more widely adopted, they would have first crack at buying the system SRECs to offset their RPS requirements, you have a market size of north of $500M—seventy to a hundred megawatts of solar created—and the halo effect of sponsoring solar on schools would be huge.  They could buy these bond in private placements, so a school district’s credit ratings would not be publicly bandied about.  They seem like the perfect buyer for the school’s new CREBs.

What don’t I get here?

In most of the markets my company is active in, solar is close enough to grid parity that it can no longer be considered “too expensive” or “not efficient”.  Colleague Aidan Foley has a great post that 50% of US markets are now solar-ready.

Now it’s about discovering what the off-taker’s investment threshold is, and how you compete for investment dollars.

Most of my corporate customers use discount rates of seven to nine percent—solar now meets that easily with the value put on RPS compliance using tradable RECs.  Investment solar gives you mid-teens returns if you are a corporate owner [not subject to passive loss restrictions].  Not a bad return on investment given the low risk of solar energy production. 

California is moving towards sourcing 33% of its electricity from renewable sources in ten years, up from 15% today.  The California Independent System Operator tracks actual renewables production within the ISO grid on an hourly basis.  Click here for the CAISO reporting site—nice work.

Nice to see solar is starting to make a contribution, and with the requests that are coming in, this share looks to triple over the next three years.  It is still a fraction of wind and geo-thermal, but with costs coming inline with other renewables and the peak-ish demand profile of solar, there is going to be a lot of sunlight harvested and turned into clean energy for the California economy.

Great article[pdf, 3MB] in the New Yorker about how an eco-minded engineer, Saul Griffith, discovers and works with the limits of innovation.  Renewables, and carbon reduction, is no longer primarily a technology problem.  It is a management, capitalization [in the case of solar], and lifestyle problem.  How do we reduce carbon loading of our atmosphere while maintaining our perceived quality of life? 

He uses watts as the metric to understand the scope of the problem instead of metric tons of carbon—this translates human activity more easily into demand for renewables—and the nation-size scope of the solution required.

The article searches for a

“…focus on ways in which affluent societies can make dramatic reductions in energy use without reducing their perceived quality of life—a challenge that involves wrestling with human nature as well as physics.”

Appropriate now because renewables are a part of a well thought out climate change plan.  And reducing the carbon intensity of a site’s operations won’t happen if profitability is impacted, or the effectiveness of the employees is diminished.

Saul created a website,  Wattzon.com, to enable you to measure the effect of your current lifestyle. 

Here is a video of Saul’s carbon/energy audit of his own lifestyle, and his personal climate change plan.

Why is this important?  You need to measure before you manage.  First step is to measure what you are doing, and express it in terms that translate easily into action—defining what you are doing by its energy use.  You can then make better choices on lifestyle vs energy consumption.

Why now?  I like Tom Friedman’s take on the Power of Green--the first one to figure this out will create the jobs, equity, and lifestyle that the world will want.  And will get us away from importing 70% of our oil, the largest single component of our trade deficit.

Why change?  A new approach is needed to maintain focus.  Per Saul, “I know very few environmentalists whose heads aren’t firmly up their ass.  They are bold-facedly hypocritical, and I don’t think the environmentalism movement as we’ve known it is tenable or will survive.  I don’t think we can buy the argument anymore that you get special dispensation just because what you’re doing is worthwhile.  Right now, the main thing I am working on is trying to invent my way out of my own hypocrisy.”

And the change is a really nice filter on your purchasing/consumer self and towards living much higher quality lives.

My fall commercial solar course—promising The Shortest Possible Path to Profitable PV Projects—starts on Saturday 11SEP10 with a full day overview of the industry, and a discussion of the story arc of the class over the next five weeks.  I developed this course over a year ago because I felt I was spending too much time on bad deals, and there had to be a better way to get solar out into urban areas. 

Taught at UC Berkeley’s Downtown Center (425 Market Street, San Francisco),  I use the feasibility report as the framework for understanding what goes into a profitable project.  Click here for a current draft of the syllabus.  Here is the course overview:

This course may be a great use of ~20 hours of your time if you really want to dive into what comprises a feasible solar project.  The course capstone is a day of student team presentations on 23 OCT.  You and your team present your feasibility report on a potential solar project of your choosing.

What is new this semester?  We will discuss the $700M in Clean Renewable Energy Bonds that have been allocated to hosts in California, and what it will take to get this financing tool more widely used. Understanding Utility Feed in Tariffs and how to use them to capitalize projects.  And what is the future of PACE—Property Assessed Clean Energy financing—after the Fannie Mae/Freddie Mac smackdown of this tool.

You will learn a great deal from your fellow students—you will be working with them to understand, underwrite, and present potential solar investments.  We use Microsoft Excel [or Google Docs], Google Sketchup and Google Earth as evaluation tools—give yourself a headstart, download them now [they are free] and start to play with this software to understand how these tools work.  All course materials will be available on a class-specific Google Groups site that serves as the online partner to your classroom work.  Here are the texts I use:

           and           

Course intent is to build a foundation for getting commercial solar projects identified, quickly selecting the feasible ones, and putting them on a track to a real deal.  Planning and Installing is technically complete enough that you can really dive in, or just refer to it when needed.  I believe this is the best current overview and reference on PV--it covers what is happening in Europe and the world, for PV is a globally applicable technology.    When you do a feasibility study, you want it to lead to a project, and the study isn't going to do it on its own. I added Strategic Selling because no one has a project until someone sells something.

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

I hope you can join me for this course.  First session is Saturday, 11 September from 9A to 5P, then five Tuesday evenings from 630P to 930P, capping off with Presentation Day on Saturday, 23OCT from 9A to 3P with a debrief afterward over pizza and beer w your fellow students.

Click here for the enrollment site.

Thanks to my friend Luigi, I was given an opportunity to talk about solar to over 100 intelligent, engaged and fun members of CORENET’s Northern California chapter on 19AUG2010. 

I moderated a panel on Getting the Carbon Out, and had the chance to frame solar and other renewables as the third step in a coordinated carbon reduction campaign.  Gratitude to event organizer Melody Spradlin for putting this together, and kudos to fellow presenters Stephanie Glazer and Tim Chadwick for a really informative session.

Over the course of an hour and fifteen minutes, we walked our CORENET friends through the steps of understanding and curating your corporate real estate portfolio in a future where leadership is increasingly defined by how you manage the carbon intensity of your operations.

Click here for a copy of Stephanie’s carbon accounting presentation [1MB pdf].  Click here for a copy of Tim’s Improving carbon [and energy] efficiency presentation [2 MB pdf].  And click the slide below for a pdf of my relevant slides on implementing renewables[200k pdf]:

A very relevant question was “How would you understand what to do with an older 100,000SF building you just bought?”  My approach is headcount focused, since most companies look at revenue per employee, RSF per employee, and have readily available utility bills.  Here is my take:

1. Understand energy use per employee—California average is 7.5MWH/person, I have one client whose use is currently 43.75 MWH/employee [pharma]--so this number needs to be put in context with your industry peers.
2. Have an energy audit done of the building—PG&E can do this for you.  They identify lighting upgrades, VFD swap-outs, and EMCS options that can help frame the easy wins on focusing carbon intensity.
3. Look at renewables, primarily solar, in locations where shade becomes an asset—parking, rooftops, western glazing.

One particular point that resonated well was the fact that fuel cells, if natural gas is your feedstock, are dirtier [800# CO2/MWH] than PG&E’s current mix of generation [635# CO2/MWH].  Won’t be long before permitting a fuel cell will trigger CEQA compliance issues, requiring environmental impact analysis and mitigation measures.  I am a big fan of fuel cells run off of landfill gas, digester gas, or captured methane from CAFO--but natural gas is too useful a feedstock for fuel cell applications.

The other point that hit home was, thanks to AB 2473, permitting of all types of solar systems in California “shall not be willfully avoided or delayed”.

And did I mention that installed PV costs a third less on a capacity basis, lasts three times as long [10 yrs v 30 yrs], produces zero C02 emissions, and costs a helluva lot less to operate than a fuel cell?

The latest chapter on good jobs vs out-of-state oil companies in California is due to play out on November 2, with voters being asked to vote on Proposition 23.  The intent of the proposition is to kill our climate responsibility law, AB 32.  This is a big deal—total campaign spending on this proposition alone could top $150M. 

The stakes are high.  AB32 was a piece of bi-partisan landmark legislation that helped launch California’s clean tech industry.  Cleantech is creating more jobs in California right now than any other sector—10x more. To gut this science-based approach to climate change before the movement spreads to DC, oil refiners Valero and Tesoro are spending an estimated $120M on this proposition to kill  suspend this legislation  [“AB32 Would Be Suspended, Likely for Many Years”].   They propose to gut it by suspending AB32 until unemployment remains below 5.5% for four consecutive quarters—something that doesn’t happen very often:Why?  AB32 introduces a cap and trade program, among other tools, to motivate large emitters to reduce their greenhouse gas [GHG] emissions.  Valero and Tesoro are presently mandated to report on emissions from, and clean up, their refineries in LA and near SF [their Benicia refinery is the 8th largest emitter of GHGs in California] at their cost.

AB 32 was designed to align our state’s economy with a healthier and more innovative future less dependent on foreign oil.  [click here to see China’s progress on same].  Since AB 32 was passed, 60% of all venture capital in the USA has been invested into California cleantech companies.  Record amounts of private equity have poured into California, startup companies financed, and jobs created by the thousands.  Northern California is emerging as the center of the US cleantech industry, largely as a result of AB32.

President Obama and Congress have failed to pass a USA clean energy bill.  California’s clean energy future is underway, launching a clean-tech industry with AB32’s science-based approach to the climate, incentivized by a landmark climate law, and fueled by strategic investors such as Sharp, MEMC and First Solar.

The Texas-based players behind Prop 23 intend to stop this California job-creating revolution—before it gets to Washington DC.  These high stakes have caused George Schultz, former secretary of state during the Reagan administration, to take a leading role in the campaign against Prop 23.

Creating jobs is not easy—but good jobs are what California, and the USA, need right now.  It takes capital, technology, incentives, and committed customers.

“One of the biggest challenges for government is convincing investors that incentives will remain in place long enough for them to earn a profit, and suspending existing regulations won't help with that.” 

And by voting NO on Proposition 23, California voters will send a message that good jobs, energy independence, and a clean energy future, matter.  This is too important to leave to the politicians in Congress.  Leadership starts at home.

Vote NO on 23 on 2NOV.

Had a very entertaining discussion about public policy and solar at a holiday party.  The discussion had two main thrusts:

1. Solar demand would evaporate without subsidies, and
2. Subsidies would be better spent on R&D rather than covering a percentage of installation costs.

My response on point one was that all we need is a level playing field.  The energy industry is the most subsidized industry in the world, and policy driven initiatives—such as reducing our dependence on coal, putting a real cost on carbon loading the atmosphere, or getting the US military out of the job of securing imported petroleum—as well as reducing the carbon intensity of our economy, means that solar incentives is money well spent.

Current solar value is 10% greater than unsubsidized cost, and energy payback is even greater—cSi takes <3years of energy to produce the entire installation, and will produce energy for ~25years.

Point two underestimates the importance of an installed base and agile capital markets in driving cost compression and learning rates.  R&D has provided us with innovative, even exotic, technologies, but solar is driven increasingly by balance of system costs [everything but the module & inverter] that are proven out in the field and with lower costs driven by more effective installation methods.  The balance of systems costs are now 20% higher than module costs—R&D in balance of systems is driven by the number of installations and how quickly you climb the learning curve.  To drive learning you need to drive installations—solar is a new model of distributed energy generation, not reliant on huge transmission towers.  Instead, this critical tool in our energy independence is reliant upon property owners who get the math, financiers that can capitalize the upfront costs, and agreeable utilities.

A level playing field, and recognition of the importance of cost compression and learning rates in preparing for our nation’s future.  Not to much to ask for, is it?

This semester’s UC Berkeley Extension course on getting to feasible commercial and investment PV projects faster starts next Saturday, 2APR.  The focus is on finding profitable PV projects smarter and faster.  Here is the highlights deck:

Using a series of case studies, sample feasibility studies, and a review of technology, financing, sales, and operations and maintenance, we build to a final day when you and your fellow students present your prospective projects.  Click here for the syllabus.

Here is the text you will  use. Planning and Installing Photovoltaic Systems is technically complete enough that you can really dive in, or just refer to it when needed.  I believe this is the best current overview and reference on PV--it covers what is happening in Europe and the world, for PV is a globally applicable technology.

I hope you can join me for this course.  First session is Saturday, 2 April from 9A to 5P, then five Tuesday evenings from 630P to 930P, capping off with Presentation Day on Saturday, 23OCT from 9A to 3P with a debrief afterward over pizza and beer w your fellow students.

Click here for UCBX’s online enrollment site.