The hidden costs of solar power

In this sluggish economy, you would think that selling expensive electricity to businesses or homeowners would not be a good business. But the solar-power industry is doing exactly that. Solar power is more expensive that making electricity from natural gas, coal, wind or existing nuclear plants, and yet the business is booming. [See: U.S. solar power: doubling in 2010!]

Hardly a day goes by without good news for the solar industry. For example:

BrightSource Energy, Inc. just announced that power generation company NRG Energy will invest up to $300 million to become the biggest owner of the  Ivanpah Solar Electric Generating System, the largest solar thermal system in the world, just beginning construction in California’s Mojave Desert. Gov. Schwarzenegger and Interior Secy Ken Salazar joined in a groundbreaking today. That’s a mock-up of the Ivanpah plant, above.

And:

SunRun, a California-based home solar company, said this week it received an additional commitment of tax equity from an affiliate of U.S. Bancorp to develop 1,900 residential solar installations. Given that the typicalinstallation costs about $35,000, that’s roughly a $65 million investment. SunRun has now raised more than  $300 million in project financing.

Recently, I visited a solar PV manufacturer,  Solyndra, at its headquarters in Fremont, CA. While Solyndra is worried about competition from low-cost manufacturers in China, it is still selling all of the photovoltaic panels it manufacturers. Recently:

It announced deals to installs its cylindrical solar panels on the roof of a Frito-Lay manufacturing plant and on rooftops in the Los Angeles area that will supply 16.2 MW of power to Southern California Edison.

None of this comes cheap, although calculating the cost of solar power is not simple–it depends on the kind of system in place, its location and the costs of financing, since “fuel” from the sun is free. Solarbuzz, a respected source, says that:

Solar Electricity Prices are today, around 30 cents/kWh, which is 2-5 times average Residential electricity tariffs.

According to the Energy Information Administration, the average residential price for electricity in June was 12 cents/kWh, the  average commercial retail price was 10.70 cents/kWh and the  average industrial retail price was 7.31 cents/kWh.

So why do the economics of solar power work for the industry? The answer, you won’t be surprised to learn, is generous government subsidies. [click to continue…]

Will rooftop solar go mainstream?

It’s been a remarkable summer for SunRun, the San Francisco-based startup that’s trying to get solar power onto millions of residential rooftops. SunRun raised $100 million in project financing from utility PG&E. Venture capitalists invested another $55 million in the company. Home Depot agreed to distribute its rooftop solar panels, and Toll Brothers, the big home builder, is using SunRun’s solar leasing program to install PV panels on new homes in a luxury golf-course community in Yorba Linda, CA.

Today, SunRun enters Pennsylvania, its sixth state. You wouldn’t think of Pennsylvania as a solar-friendly state but, as it happens, the Keystone State has all the right ingredients–high and rising electricity prices, generous state subsidies for renewable energy, and a regulatory framework that permits homeowners to sell surplus power back to the electricity grid.

Says Lynn Jurich, the president and co-founder of SunRun: “We want to go to markets where we can save customers money, and where we can make money.”

I’ve written about SunRun before (See SunRun: A New Deal for Solar and Solar’s Strange Bedfellows) but the company is growing so fast, albeit off a small base, that it makes a lot of news. The PG&E, Home Depot and Toll Brothers agreements, along with its geographic expansion, all seem to  further validate the company’s business model. [click to continue…]

Solar’s strange bedfellows

solar-home-1.540.330.sNot long ago, it would have been unthinkable for a big utility company to encourage homeowners to put solar panels on their roofs.

If people generate more of their own electricity, after all, utility companies will sell less, they’ll need to build fewer power plants and, at least under traditional regulatory regimes, they’ll make less money.

That’s changing, as evidenced by a deal announced today by PG&E Corp., the $13.4 billion a year utility company based in San Francisco, and SunRun, its much smaller San Francisco neighbor, whose business is providing financing for home solar systems. Pacific Energy Capital II, a unit of PG&E, will provide $100 million in tax equity project financing to fund SunRun’s installation of more than 3,500 new home solar installations across the nation, the companies said.

In plain language, that means that the utility company will, in partnership with SunRun, pay the upfront costs of solar panels in exchange for tax credits and a share of future payments from the homeowners who install them. SunRun is one of several companies trying to take some of the risk and complexity out of home solar by paying the upfront costs (which can mount to $20,000 to $50,000) and managing the installation hassles for its customers. (See my 2009 blogpost SunRun: A new deal for solar for more.)

This is the second investment this year by PG&E in a home solar firm. Back in January, the utility invested $61 million with Solar City, which competes with SunRun. Generally, PG&E is bullish on solar, although most of its investments have been in centralized solar thermal or solar photovoltaic plants, as opposed to distributed, rooftop panels. It’s ranked No. 1 in the Solar Electric Power Association’s utility solar rankings. (PDF, download.)

Nor is PG&E alone in promoting distributed solar. As  I reported yesterday, New Jersey-based PSEG has a solar loan program for homeowners although it doesn’t cover the full costs of installation.

So why would a utility like PG&E Corp. finance a competitor? Partly because it expects to make money on the deal, partly to better understand the solar business and partly because if the utility companies doesn’t get into the home solar business, someone else will.

As Brian Steel, director of corporate strategy and development at PG&E told Forbes:

We’re happy with the financial returns. And by investing in these assets it gives us an opportunity to learn in a way we wouldn’t have otherwise. When you get down in the weeds, the difference in what one learns is stunning.

Ed Fenster, the CEO of SunRun, told me much the same thing when we spoke about the deal: “This is going to happen with them or without them. If it happens with them, they are earning a return on it.”

None of this would be likely, it’s safe to say, if California hadn’t taken a smart approach to utility regulation by decoupling a utility’s financial returns from the amount of electricity it sells. That enables utilities to make money by serving their customers’ energy needs, even if what they are selling is energy efficiency or distributed power.

sunrun-logoStill, it’s important to keep all this in perspective. SunRun and rooftop solar are still small businesses. SunRun signed up about 1,000 customers in the first quarter of this year, and it has about 4,500 customers in all, Fenster told me. Still, he said, even though California’s subsidies for solar are declining, the company’s growth rate is accelerating–no small feat in this sluggish economy. The PG&E deal will enable the company to fund solar systems in at least five states, he said, including California, Arizona, Colorado, Massachusetts and New Jersey. All offer solar-friendly subsidies.

Because the Gulf oil disaster is on everyone’s mind these days, I asked Ed if he thinks it will have any impact on his business. Americans don’t burn much oil to make electricity, but we do use natural gas, which may have been a factor in the explosion. What’s more, if electric cars roll out later this year as planned, electricity may become an alternative transportation fuel, albeit on a small scale.

“The BP tragedy may very well lead people to think harder about renewable energy,” he said.

Let’s hope so.

SunRun: A new deal for solar

Until recently, you had to be deep green—and have deep pockets—to put solar photovoltaic panels on the roof of your home. The costs were high–$20,000 to $50,000 or more. The technology was baffling. The return on that big upfront investment was uncertain.

A California company called SunRun is changing that. A well-funded renewable energy startup – yes, even in these tough times, this small company has raised capital — SunRun offers homeowners a simpler, cheaper and less risky way to go solar.

Photo credit: Gray Watson, Creative Commons

Photo credit: Gray Watson, Creative Commons

It’s doing so by adopting a business model that has been proven in the corporate arena. When you see solar panels on the roof of a Wal-Mart, Whole Foods, Safeway or Kohl’s, chances are that they don’t belong to the retailer. Instead, those companies have signed what’s called a Power Purchase Agreement (PPA) with a solar provider. The provider (Sun Edison, near me in Maryland, is a big one) buys and installs the panels, owns and maintains them and sells the electricity at a fixed long-term rate to the customer. The retailers, in other works, benefit from solar power without paying a lot upfront or worrying about maintenance. [click to continue…]