Thursday, February 19, 2015

A Solar Energy Revolution in Washington, DC Could Inspire the World


A Solar Energy Revolution for Washington DC
Guest post by Don Wharton

By conducting business as usual, we are unlikely to stabilize global warming below the two degrees centigrade required to prevent a dramatic global catastrophe.  If this limit is exceeded, the Greenland ice mass will eventually melt raising ocean levels over twenty feet. Ocean acidity would increase to the point that jellyfish may replace many if not most of the fish species of our oceans. Fully half of existing species could face extinction if we exceed a tipping point of no return. The last IPCC report noted significant risk to global agriculture that feeds humanity. More carbon is encapsulated in Arctic permafrost and in ocean methane hydrates than all carbon fuels burned to date.  A recent article in Science Advances, based on 17 major climate models, is predicting a mega drought for the US southwest and central plains.  The projected drought would be much worse than the current drought in California and the Dust Bowl of the 1930's.  It is simply not an option to allow this carbon from business as usual or Arctic sources to be added to our atmosphere.

Washington DC can spark a major impact by making this city an example of success for the world. Many people are afraid that increased energy costs will be needed to stop the worst effects of global warming. We in DC could show that renewable energy solutions cost less than business as usual.  If we can do this it becomes obvious it is an absurd waste of our resources to not go with renewable energy. Achieving such a price point would enlist natural market mechanisms to prevent an ecological disaster. It would also magnify economic activity in a way that can provide jobs, profits, and increased returns for governmental coffers.

This policy document will review the cost goals, mechanisms to achieve them, and the benefits of embracing the revolutionary change that has already been demonstrated by policies elsewhere.  DC is the capital of the most important country in the world. It is the logical place to synthesize best solar energy policy in a way that proves what is possible with the best governmental vision.

Cost Goals

By mid 2012 German rooftop solar energy cost had declined to $2.55 per peak watt on average for all roof top systems of less than 100 KW capacity. By December 2014 there was an additional decline to $1.43 per peak watt. This was doubly impressive since the decline in solar module prices was relatively modest in this interval. Most of the decline was in the “soft costs” of installation, customer acquisition, overhead, permitting, etc.

German installers are immensely experienced. The best are well known. The costs of acquiring customers are very low since most people know a number of people who have had systems installed. Word of mouth becomes very efficient with large scale adoption of solar. The average American costs are 2.5 to 3 times current German costs largely due to differences in soft costs.

The German experience was accumulated at the price of very costly feed in tariffs (FIT). Early adopters got long term contracts promising that they would be paid $.70 per kwh.  In contrast recent (late 2014) DC electric cost has been less than $.10 per kwh.  This incentive worked to create great economies of scale. A cost effective vision for DC would need to deliver the same efficiency without the long term cost commitments made in Germany. If that could be achieved virtually everyone in the United States with even moderate sun would find solar energy to be less costly than the grid based power they are now using.  Policy changes in the following areas should facilitate this cost effective mass movement to solar:

     Permitting and Inspection
     Utility interconnection
     Mass customer acquisition
     Financing
     Installation
     Large Scale Issues

Permitting and Inspection

Government services are often costly.  However, that need not be the case. Permitting fees are often a very profitable revenue source. If we are to maximize solar energy use, permitting should be a very minor or even near zero addition to the time, energy and costs of solar system installation. The German model across that nation is a simple on-line form that takes an hour or two at most to fill in. In Australia permits are only required if a building is zoned as “heritage preservation.” The American Department of Energy has their Sunshot Initiative that seeks an average total US installed cost of $1.50 per peak watt on residential roofs and $1.25 for commercial roofs. The DOE specifies the streamlining and reduction of permitting and inspection costs as a significant requirement to reach this goal.

Bonded contractors can be required to pass a high level of certification backed with mandatory legal guarantees to correct anything that violates code requirements. Such a policy may be adequate to meet the quality requirements now met by DC's current detailed governmental permitting and inspection process. If that is not adequate it is imperative that waiting in line, clerical interaction, and total time required be eliminated wherever possible. For example, Chicago has implemented a Chicago Solar Express project guaranteeing 24 hour turnaround on permits and a 25% reduction in billed costs.

Utility Interconnection

Solar systems installers are often frustrated with the quality of service, timing and costs of interconnection with the current PEPCO utility. In Germany there is excellent cooperation between utilities and solar installers. Installations in Germany can often be accomplished in a single week with two weeks as an unusual outside time frame.  Quick installation is seen as an obvious goal that is widely supported everywhere in German society. This reduces the management overhead costs required to track a larger number of outstanding projects. Management attention is focused on efficient completion of the smaller number of current projects.

If our society is to copy the German example, government will need to communicate the values that create that success. This means a short and reliable time frame for utility interconnection.  Achieving the desired success of distributed solar, requires real reporting requirements and sufficient financial incentives. Many jurisdictions around the world require the utility to assume the interconnect cost. This relatively modest cost can be passed on to all ratepayers without increasing the cost per kwh significantly.  Power consumption has always been highly distributed.  Utilities understand their mission of providing access to all consumers.  A solar energy future mandates that a widely distributed network of energy producers also be a central mission of our electric power utility.

Mass customer acquisition

Government should serve the common interest in areas where it can function more efficiently than the private sector. State level markets under the Affordable Health Care Act, with with their explicit standards and efficiencies derived from million of customers, illustrate this principle. Customer acquisition is extremely costly and inefficient for solar system installers. Only 10 to 20% of cost estimates delivered to prospective buyers result in signed contracts. This implies that between 80 and 90% of site evaluation, engineering, and proposal preparation is wasted effort. These costs then must be recovered from those who do sign contracts. If a government market platform can deliver pre-sold customers then this inefficiency ceases. The DC government has greater power to integrate many complexities into a single transaction which simplifies things for the customer and can eliminate most marketing costs for the provider.

LiDAR techology (Light Detection and Ranging) can be used to create 3D models of all structures and foliage in an area. Many jurisdictions have used it to create tools to estimate solar energy potential. DC Department of the Environment (DDOE) working with Mapdwell has done that for DC. This provides data for selecting the most promising customers and for generating proposed contracts based on a "not to exceed" price point.

Currently, given neighborhoods in DC create group buys which are then submitted for bidding. A city wide bidding process creates greater economies of scale and would enable a continuing market process to serve all neighborhoods. If DC continues to rely on ad-hoc group buys then the lower price points of the bidding process will continue to be available only to specific DC neighborhoods for limited periods of time.  DC needs a dynamic process that solicits customers across the city and offers them the current best price for that month through a group bidding process.  The goal would be to emulate the rapidly declining cost points of recent German experience.

Mapdwell had a $4.32 per peak watt projection for a sample DC system. That is a little over three times the December 2014 costs for German systems and is well above actual DC contracts at the end of 2014.  Neighborhood DC group buys are closer to $3 per peak watt.

Mapdwell projects solar modules with 16% efficiency. DC can specify 18% efficiency as a minimum standard without risking any significant increase in cost per peak watt. An important quality in the solar module industry is bankability. This means the supplier is a high quality manufacturer with the excellent financial strength required to reliably support long term warranties.

Financing

Local governments have several advantages over profit making financial institutions. Property related investments, such as solar energy, can be recovered through the real estate tax mechanism. This is called Property Assessed Clean Energy or PACE for short. DC with its AAA bond rating can access money at the lowest long term rates. DC can directly fund the purchase of solar systems and recover the costs at a profit using the real estate tax bill.  DC can set recovery rates to generate guaranteed direct profit to DC.  The actual rate can be less than required by a bank reporting to shareholders. In addition any funds repaid as part of the real estate tax might be deductible from federal taxes.

There are complexities in the PACE mechanism that must be addressed because of a criterion set forth by the Federal Housing Finance Agency (FHFA).  FHFA feared creation of a claim senior to the first mortgage holder in the event of default. Preliminary evidence shows the arguments against PACE are not factually supported. The default rate for energy efficient homes is lower than for other homes. The added value of solar panels and efficiency upgrades are reflected in their market prices. The lower energy costs are a valuable positive that both reduce the prospect of default and add value that is at least equal to the investment. However, FHFA has placed restrictions on Fanny Mae and Freddy Mac compliant mortgages that need to be addressed in any policy.

One solution is to make PACE related loans junior in default claims to the mortgages covered by FHFA policy. Vermont, Oklahoma, Maine and Rhode Island have taken this approach, as does a $230 million PACE program in Miami.  Commercial properties and residential properties with no first mortgages or non FHFA confirming mortgages do not require this legal option.  There is some modest increase in risk to the government where this junior status is allowed. This can be addressed by requiring more substantial equity above the first mortgage to get the best loan interest rates, and a very modest increase in rates to compensate for risk if there is less equity above the first mortgage.  Energy related loans can be senior to home equity lines of credit and secondary mortgages since they are not traded by Fanny Mae and Freddy Mac. Another approach to PACE loans used in California creates a fund which guarantees payment of PACE related obligations in the event of default.  This avoids FHFA related risk in the absence of specific clauses that may exist in a first mortgage agreement and is working for 160 California localities, but is not the policy supported in this article.  FHFA dislikes this arrangement and may take future action against it.  It is mentioned here just to illustrate again that FHFA regulation is not preventing PACE funding.

The major competition to private ownership of solar systems are the various leasing arrangements that promise lower energy costs to the home or building owner. While such arrangements work after a fashion they have not provided the intensity of support for solar required to achieve the German success level. However, in order to compete with these leasing arrangements the government must provide comparable simplicity to the homeowner while taking advantage of all financial options. This means the sale of SRECS and provisions to reduce capital cost from Federal and DC related credits should be part of a single financial instrument. This would emulate the simplicity of leasing arrangements while delivering greater benefit to DC residents and the DC government.

It should be noted that the DC Sustainable Energy Utility (DCSEU), which encourages home energy efficiency upgrades, could use the above PACE mechanism to finance home upgrades more cost effectively.  Currently they can only use commercial banking services for this purpose. The actual funding may still come from banks.  If DCSEU acquires and vets the customers and handles all interactions through the real estate tax mechanism, it would be possible to negotiate lower rates for a PACE mechanism requiring zero bank interaction with specific customers or the risk of loss from those customers. As noted above, the AAA bond rating may make bonds a less costly source of funds.

Installation

Time and motion studies done by the Rocky Mountain Institute found that German installers are able to accomplish all installation tasks two to four times faster than US installers. No specific governmental policy will make US installers more efficient in loading trucks and getting material to the work site. This and other needed changes must be a side effect of highly streamlined governmental policies and a more competitive  market platform. We must expect that economies of scale and long term experience will allow US installers to emulate German efficiencies.

In the future, there will be specific additional governmental policy changes required to support installation efficiency. A major policy direction of the Department of Energy is their Plug and Play strategy. They  envision that people will be able buy small and modular systems from retailers. Such systems, if plugged into the grid with a standard interconnect, will become a commodity that reduces costs and increases functionality with a speed of change similar to PCs, cell phones and other consumer electronics. There are a good number of vendors attempting to provide technology in this marketplace. However, there are significant disadvantages with all of them and the required market scale has not yet appearing. We will need a more intelligent and a standardized grid interconnect. It is intrinsically possible for a home smart meter to recognize a newly connected device in the same way that a PC recognizes a newly attached printer or flash drive. The recognition could then be communicated to a central database with automated generation of all require permitting.  Current policies do not presently support this technology. Government should recognize that these changes are coming and be prepared to implement supportive policies as the opportunities arise.

Large Scale Issues

The German experience also demonstrates as solar energy becomes a more significant fraction of provided energy it will be important that grid managers have the ability to control the dispatch of energy from all providers. Solar and wind energy are intermittent energy sources.  Blending energy from various sources will be a complex engineering task as renewable sources increase as a percentage of the whole supply. In Germany grid managers make small changes to cycles per second to signal a decline is required in energy provided from the solar energy systems. If they did not have that ability the grid could be overloaded. The US will need to achieve similar smart grid capabilities as increasing renewable energy resources become installed.

Summary Policy Implications

The best governmental policy can greatly lower renewable energy costs. There are many important elements in such a policy if DC is going to demonstrate that success at a scale that will inspire much of the rest of the world. Government is not configured to earn a profit. However, the success advocated here will have substantial positive implications for DC income. Many homes will have the capacity to produce much more energy than they will use. If that power is provided by a leased system the excess power will provide profits that will accrue to and be spent by a leasing company chartered elsewhere. If it is owned by DC residents they will pay taxes on those profits to DC and spend those earning largely in DC.

If DC provides a large percentage of the energy used in the city with DC based labor, then fewer of our energy dollars will be supporting West Virginia coal mining and North Dakota gas fracking.  Meeting DC power needs with DC labor, skills and vision is an obvious advantage for our city.  This has the additional  benefit of taxes paid to DC providing resources to meet other needs of DC citizens. A strategy using the best of governmental policy is a win-win strategy that serves our local needs while providing an example of success that should serve as a shining example for all humanity.

Resources

German site with rooftop solar costs in euros:

Rocky Mountain Institute (three documents)
Can the Cost of Solar in the U.S. Compete with Germany?

Lessons from Australia - how to reduce U.S. solar PV costs through installation labor efficiency

Reducing Solar PV Soft Cost: Focus on Installation Labor

Chicago Solar Express project simplifies rooftop PV for city residents and businesses

Mapdwell web site for evaluating solar energy potential of DC buildings:

5 comments:

  1. a SOLAR ENERGY CAR made by amateurs have crossed Australia. Why CAR´S FACTORIES do not want to know that?. Petroleum´s economic interests. Shame politicians

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  2. ...global warming ("good" no longer spend cold)... pouring pollutants greenhouse effect into the air is melting the Poles. Besides on melting permafrost will free into the Atmosphere million Tm of methane with big greenhouse effect. This large amount of freshwater to the ocean could stop deep sea current which depend on starting downwards on a delicate balance between fresh and salty water and temperatures. Heat from the Sun reaches the equator and currents distribute it throughout the Planet, then...goodbye to our warm climate. The horizontal oceanic currents produced by winds and some others by the rotation of the Earth, rotating all by the Coriolis effect, will continue...but the vertical currents produced by the sinking of horizontal currents that reaches the Poles where the water is sweeter, less salty, and form deep currents would stop (whay are the Grand Banks fishing in cold latitudes?...because over there is the POLAR ICE, freshwater, different sweet/salty density, salty dense water arriving and sinks in a little salty water environment...nutrients that are removed from the bottom and rise to the surface, phytoplankton that feed on nutrients, zooplankton that feed on phytoplankton, fish that feed on zooplankton)... No polar ice over there will be no vertical currents...could reduce the rise of nutrients of the surface and therefore PHYTOPLANKTON SHORTAGE MAY DECREASING ITS VITAL CONTRIBUTION WITH OXYGEN TO THE ATMOSPHERE (90 %)...fish...winds in some places of more warm latitudes carry out the surface hot water permitting the outcropping to surface of water and plankton (the upwelling) from the bottom cold current coming from the Pole, forming other Banks fishing... Without polar ice the sea it could almost stratified into horizontal layers with little energetic movement of water masses in vertical which is what removes fertilizer nutrients from the sea bottom... Besides lowering salinity of the sea, for that great contribution with freshwater to melt the Poles, will increase evaporation (ebullioscopy: the less salt has, more evaporates) producing gigantic storm clouds as have never seen, that together with altering of the ocean currents, could cool areas of the Planet causing a new ice age... Warming...invasion of tropical diseases carried by their transfer agents, already without the "general winter" containing them woulf fall upon the World like a plague...can produce a cooling, a new ice age, like living at the North Pole...and less oxygen in the Atmosphere... Is not known to be worse... Go choosing.

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    1. Thank you for your excellent explanation of what are known as NADW (North Atlantic Deep Water) and NAO (North Atlantic Oscillation). The fact that the Gulf Stream circulates along the North Atlantic coast and curves over to England and Europe is a major reason these areas are as habitable as they are. Few in US realize how much further north those areas are compared with the US. Without sea ice forming (which is fresh water ice) in the far north, the sea water under it would not become more concentrated with salt and heavier, thus causing it to sink to the bottom of the ocean where it circulates back toward to tropics to repeat the cycle over and over again. This is another important reason for the move toward renewables like solar. If the Gulf Stream fails, we and Europe will need all the energy we can get just to keep from freezing to death. Be sure to check out my blog post on super insullated, low cost Straw Bale Housing (April 1, 2013): http://gleeaikin.blogspot.com/2013/04/straw-bale-buildings-solar-for.html

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  3. This comment has been removed by the author.

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  4. You might be eligible for a new government sponsored solar energy program.
    Determine if you qualify now!

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