[RE-wrenches] FW: Utility-owned PV systems on roofs

[Matt Lafferty]

Hi Allan,
(Also sent to RE Markets...)
 
Boy don't the rats scurry when you talk about adding pollution credits to
the mix....
 
Utility Owned Generation (UOG) on rooftops is a growing market. SCE (CA) and
Duke (NC) are doing it on large scale. New Jersey just got approval for
their program. PG&E (CA) has an application in with the CPUC which would
allow them to do it as well. PG&E's intent is to do ground mounts for the
most part, but the application doesn't prohibit rooftops. There are others
at various stages of development right now. All of the programs I know of
are targeting large commercial roofs and systems. 
 
The difference in the proposed PNM plan is that PNM would be getting into
smallerish systems than the others. This would be consistent with SMUD's
original PV Pioneer 1 (PVP1) program, which was intended to run from 1993
thru 1998, but continued in diminishing capacity until about 2001. SMUD let
out annual "block" contracts which, for example, looked like: 100 - 4kW
systems to be installed on customer roofs. A single contractor, commonly a
manufacturer back then, would have to provide turnkey systems and
installations. SMUD provided addresses to put them on. None of these systems
was originally permitted or inspected by the local AHJs. Our very own Joel
Davidson was involved in a year or two of these contracts. I put in 30 or 40
of them in later years personally.
 
The primary difference between PNM and SMUD's old program is that SMUD's
program was intended to foster development of PV... Which it did. SMUD is
OUT of the business of owning PV for a number of reasons, not the least of
which is the Prick In Charge (PIC) of generation there. He doesn't like PV
in any way shape or form. 
 
Most of this is the outcome of historical experience... SMUD was investing
in PV at a time when products, practices, and codes were not nearly as
mature as they are now. As a result, their invested $/watt was much higher
than we expect today. In addition, modules commonly performed at closer to
-10% of their rating and sometimes less. Inverters were largely unreliable
and, even the "reliable" ones were reliably inefficient. SMUD technicians
were the front line for service, and if you've ever paid the loaded price
for one of those guys, you would understand how the price could be high. In
addition, the previous leadership of SMUD's solar program was famous for
reporting installed costs far below actual. This ended up with something in
the area of $3.9M more than budgeted being spent in 10 years just to install
them. Not to mention service costs. When you add it all up, the delivered
$/kWh of PV Pioneer 1 energy was a lot higher than we are capable of
delivering today. 
 
But wait! There's more! One of the unique aspects of SMUD's PVP1 program was
that customers paid $4 per month for the privilege of having the PV on their
roofs. This contract was for 10 years. SMUD paid for and maintained the
systems and received all the power. The 1-page contract never said anything
about "after 10 years you will own the system", but every single PVP1
customer I ever spoke with told me they had been told they would. They all
named the same person. None of these customers knew one another so I have to
believe it happened.
 
Many of these customers thought they had been getting the power all along.
Imagine their frustration when they called up to have the system "converted"
to their side of the meter and found out that it was going to cost them!
SMUD worked out a very favorable pricing for conversion, but there were
rules. 1st of all, SMUD would only convert the systems if they were
completely removed & refurbished, including new inverter. Most of the
vintages were re-racked onto SolarMount rails and the customer had to
reroof. Additionally, due to lack of clear siting guidelines originally,
quite a few were disqualified for shade or poor orientation.
 
Several versions of systems ended up being deemed unsuitable for
reinstallation for one reason or another. Generally due to safety &/or
reliability concerns (Solec & Solarex Millennia Integra). In these cases,
assuming the site was suitable, the customer was offered a different system
based on modules removed from other PVP1 retirements. No matter whether or
not the customer ended up converting or retiring the system, SMUD paid for a
new roof in the area of the system.
 
I believe that all the original PVP1 systems have been converted to
customer-owned or retired now. This process took 5 years and a LOT of
additional money being paid by SMUD. On many fronts I can totally understand
the bad taste for PV on the part of SMUD.
 
I share this short-version of the SMUD experience so others may gain
insights into some of the hurdles which need to be addressed BEFORE
embarking on such a path. It is not intended to incriminate individuals or
PV. Everyone doing PV today is benefiting from the sacrifices SMUD's
ratepayers made. In ways you may not even realize. Please be sure to say,
"thank you" next time you run into one. The challenges were multi-fold, but
can be summed up in two ways: First, SMUD's well-meaning intentions began at
a time when there were many unknowns relative PV, particularly in the area
of equipment performance and costs, which resulted in a de facto "open-ended
blank check" once started. Second, the "end of life" or "exit plan" was not
clearly defined up front. 
 
I believe we have a much better understanding, relative equipment
performance and costs, today, so this shouldn't be nearly as open-ended as
it was 15 years ago. What is critical is having a well-defined plan for the
service life and disposition of the systems. Maintenance, repair, and
decommissioning. Who, how, what, where, when, and how much?
 
Fast forward to today's UOG programs. The utilities are generally leasing
the roof space from the owner. This will be a nightmare for smaller systems
in my opinion. Homeowners may find it difficult to sell their homes if there
is 15 years left on a 20 year lease of their roof, for example. Not to
mention the internal legal costs to the utility. I am concerned, as you are,
about guaranteed profits and how that plays out in rate cases. Perhaps a
"buyout" arrangement, where PNM installs and maintains them for 10 years
without a lease payment and the customer has the option to buy the system at
a preset price after that, would work. I would structure it so the price is
level (not declining). This would incentivize the customer to buy it at 10
years and not wait. Straightforward stuff. If the customer doesn't exercise
the option, then PNM is getting the electricity for the cost of maintenance.
 
This should allow PNM to recover costs, especially when you factor in
depreciation and carbon credits, and the customer would gain the benefit of
10-15 years of PV at a favorable price. This approach should shield
ratepayers while providing PNM & PV Homeowners with the primary benefits
they each want/need. The local PV contractors would benefit from service
work and so on. This would also free up PNM capital to do something else in
10 years instead of having aging assets on their books. One key to this
being successful is having the system permitted and inspected when
installed. I haven't boiled this through yet, but it's a thought worthy of
consideration. 
 
The most important thing to me is that we don't dismiss the concept just
because it's the utility that is proposing it. I'm sure you have your
reasons for smelling a rat and I'm sure they are justifiable. The way I
understand it, PNM hasn't always been known as a "good guy" utility. Even
so, UOG doesn't have to be a bad thing. I believe it is crucial that the PSC
put a cap on the costs that would be eligible for PNM to recover in rates.
This ensures that they manage the program in a cost-effective manner. This
is a key component to the PG&E application and, for what it's worth, one of
the most important aspects. PG&E is asking for "up to" a certain amount to
be eligible for cost recovery via rates. If they go over that, they have to
eat it. If they come in under that, only the actual costs will be eligible
for recovery in rates.
 
In PG&E's application they have laid out their projected costs and the basis
for them. I sat down with the head guy of their Power Generation and went
through this plan with a focus on the O&M. From my perspective, capital
costs are relatively flat. They are known & understood. The vapor is
generally in unrealistic O&M in my experience. This goes for private PPA
companies, too. I have to say that PG&E's O&M plan, expectations, and $
numbers were very realistic, which I didn't expect. Pleasant surprise! I
STRONGLY advise modeling a UOG program on the relevant portions of PG&E's
proposal. (Cap on costs + realistic O&M)
 
DO NOT BUDGE OFF COST CAPS! This is a fall-on-your-sword issue! 
 
I think it will be hard to come up with a simple and cost-effective model
for the smaller systems. Perhaps a new 30-home subdivision where a 3.5kW UOG
PV system was standard equipment? This could be an interesting partnership
concept for a developer & the utility. PV on new subdivisions has been a
severe PITA in my experience. Hemmorhoid Gigante! But I haven't done any
where it's UOG. By doing this at the developer/subdivision level, the
roof-mounted PV could be setup as a utility easement, which would be filed
with the county registrar right on the deed. There are already utility
easements on the property anyway. This avoids a lot of the hassle associated
with individual homeowner leases and all that. The easement could have a
termination date. As I think about it, I like the 10-year "buyout" plan
here.
 
Peak subdivision demand would likely be reduced by some amount, thereby
reducing PNM distribution equipment requirements. Don't get too excited
about that. Even if there's 100kW in the subdivision, it's not likely that
the true peak would be reduced by that amount. Probably something on the
order of 40kW is reasonable. (PV doesn't peak when the subdivision demand
does). 40kW is a little spark to the substation, so it's not huge by any
means. 
 
I could see this being strategically setup in a win-win manner... New,
high-efficiency homes with "Smart" meters, etc. The customer is going to get
all their electricity from the utility. It just so happens that some portion
of it is generated onsite. Why is that so bad? If part of the deal is that
they come with FULL 10 YEAR WARRANTIES, PNM's ratepayer exposure is
minimized. If the customer has the option to buy the system at a preset
price after 10 years, everybody should come out whole.
 
Regarding the "larger" systems, these should be more straightforward, but
not without challenges. We have to think about these systems in terms of
having 20 or 25 year service lives. Since these are likely to be on
commercial properties, they are gonna have to be on commercial terms. The
most straightforward method would be for PNM to request a demonstration
(limited term) "Retail Solar" tariff and setup shop as a PPA. As with
commercial PPAs, this tariff would be structured so the Year 1 price is very
close to current retail and subsequent years are adjusted at a nominal
escalation rate that results in lower than "non-solar" retail. The
difference grows over time. But that's not likely to happen. So... If I'm
the property owner, "What's in it for me? Roof leaks?". 
 
Since we're thinking these are gonna be smallerish in the grand scheme of
things, 100 - 250kW (I remember when that was HUGE!), PNM is gonna have to
come up with some juice for the property owners. Basically, if PNM is
putting PV on their roof, then the owners will lose the opportunity to do it
themselves, so they will want compensation and assurances. Flat roofs are
notorious for leakage and flat-roof owners are notorious for being gun-shy
about their roofs. If I owned one of these and the utility wanted to install
PV on it, I'd be wanting some cash. Whatever "lease" payment is negotiated
is going to be added straight onto the cost of the PV. So will the
administrative and legal costs. Any time you are looking at a relatively low
number of specialty contracts, the per-unit cost is high. Since they are
thinking in terms of just over a dozen in this class, bend over. Take my
word for it, lawyers cost $ and doing onesey-twosey with commercial property
owners chews up a lot of legal time.
 
Since there isn't likely to be a direct energy benefit to the property
owner, I would consider targeting shopping centers. These folks are into
leasing stuff by the square foot and they deal with such things every day.
This is much different than an industrial or individual commercial party who
only deals with it every 10 years or so. If PNM cracks the code with these
folks, they should end up with a happy medium. I say shopping centers, as
opposed to shopping malls. Next to dealing with government, malls are the
epitome of painful. Ever had a bad case of poison oak or poison ivy? Malls
are worse.
 
Hate to be non-communist here, but I would look for a single entity that
owns or controls enough roof-space to do the whole commercial part of the
program. This will minimize transaction costs greatly. If I were setting up
the program for the utility, I would go to my key-accounts people and ask
them for suggestions of which commercial property management companies were
decent to work with. I would take that list, look at their properties from
satellite view and pick the most favorable one to talk to first. I would go
through the list until I had three interested and reasonable candidates.
Cherry pick from the top down. Then I would have them all come in and sit
down for a meeting. All at once. Lay out the plan and give them your price
per sq. ft.. Tell them how you intend to address roof issues. Hand them a
copy of the sample contract. Tell them it's first come, first serve. Sweeten
the pot by telling them maybe we can do a little community green-washing,
call the local news for a "good news" story, etc. Then kick them out of the
office. First one back in with a signed commitment gets to go forward. Just
like that.
 
OK. I've been whacking keys long enough. Hopefully there are some valuable
pieces in here that prove beneficial for you and your neighbors. If you are
interested in more or care to discuss finer details and strategies for a
potential program there, contact me off-list. My bottom line is that PV
should be appropriately deployed and maintained if a nickel of public money
is involved. This hasn't & isn't always the case. I hope it can be in New
Mexico!
 
Pray for Sun!
 
Matt Lafferty
Solar Janitor 
 
  _____  

From: re-wrenches-bounces at lists.re-wrenches.org
[mailto:re-wrenches-bounces at lists.re-wrenches.org] On Behalf Of Allan
Sindelar
Sent: Wednesday, July 29, 2009 1:40 PM
To: 'RE-wrenches'
Subject: [RE-wrenches] FW: Utility-owned PV systems on roofs



Wrenches, 

Below is an excerpt of an announcement about New Mexico's largest IOU
developing a utility-owned PV roofs program. They will contract the
installations but own the systems. The details aren't yet out; the
announcement is about an upcoming meeting to gather feedback.

 

I can't help but smell a rat. I want to be prepared to challenge the plan if
appropriate. It seems to me that a regulated monopoly with a guaranteed rate
of return and deep pockets should not own PV systems on customers' roofs,
and shouldn't be competing with the private sector to offer systems.

 

I remember that some years back this came up in California and CalSEIA
successfully fought it. I also recall that SMUD originated this approach and
got out of it as a failed experiment, but I don't know the whole story.

 

I'm writing to request links, archives, strategies, and experiences from
similar battles (or not) elsewhere on this issue. I would like to be well
prepared if we are to fight this.

Thank you.

 

Allan Sindelar

Allan at positiveenergysolar.com

NABCEP Certified Photovoltaic Installer

EE98J Journeyman Electrician

Positive Energy, Inc.

3201 Calle Marie

Santa Fe, New Mexico 87507

505 424-1112

www.positiveenergysolar.com

  _____  

From: 

Subject: PNM Solar PV Workshop

As part of the PNM renewable energy strategy, we would like your feedback on
an innovative program we are developing that would place utility-owned solar
PV systems on customer roof tops or customer land.  Because of your
experience installing solar PV systems, we value your input and would like
for you to join us in this interactive workshop on Wednesday August 5, 2009

In this workshop, we will share our plans for this program and get your
ideas.  Here are some program highlights so far:

*         4 MW of installed solar capacity (turnkey installation by PV
system integrator or PV contractor to be determined)

*         Solar PV systems ranging in size from 2kW to 250kW on customer
rooftops and customer land 

*         Awarded in blocks (to be determined): EXAMPLES ONLY

        50 residential systems of 2kW totaling 100 kW 
        10 systems of 100 kW totaling 1MW       
        4 systems of 250 kW totaling 1MW 

The objectives of the workshop are: 

*         To select optimal block award 

*         To brainstorm optimal size of residential and commercial PV system

*         To explore program design

 

 

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