May 2009

From Ecopreneurist, May 28, 2009
Written by Ian Rogoff

Ecopreneurist Editor’s Note: The is a guest contribution by Ian Rogoff, Chairman of the Nevada Institute for Renewable Energy Commercialization, and Chairman and CEO of The Helio Group (parent company to HelioPower). This is the sixth post in a series from the CEO’s of major solar companies. You can follow the complete series here.

There is a long overdue debate underway in industry and political circles regarding the merits of federal funding for renewable energy (RE) commercialization.

Distinct from RE projects and RE deployments, commercialization involves identifying specific technologies and entrepreneurs based on their perceived commercial potential and financing the respective project teams along a vector towards commercial success.

The types of commercialization activities typically funded include scaling benchtop prototypes to meet market requirements, characterizing technologies to understand performance and limits, testing boundary conditions, designing for manufacturability, testing for real world conditions, scaling refinery processes, among others.

Commercialization is quite distinct from basic research, and expressly does not seek to fund pure science or unproven claims. Typically, commercialization funding stops at a point where the private sector steps in and either assumes the next funding milestone or market acceptance/rejection obviates the need for additional financing entirely.

Two types of barriers exist today in the commercialization of renewable energy technology: the “valley of death” and the “mountain of death.”

Renewable Energy’s Valley of Death

Basic RE research is being conducted at numerous institutions around the world and much of this technology remains trapped in labs for want of commercialization know-how and funding. Basic and applied research is likewise being conducted in commercial enterprises, but much of that research is often constrained through short-term return on investment requirements.

In addition, renewable energy technology often fails to garner the resources and funding needed in order to reach commercial viability as a result of existing regulatory and fiscal regimens that bias markets towards incumbent technologies. Absent investment and institutional know-how, the commercialization of renewable energy will continue to be hampered in its application and hindered in its ability to cross the so-called “valley of death.”

Renewable Energy’s Mountain of Death

What makes renewable energy different from many other technology-based industries, however, is not just the valley of death which is common to many technology-based industries, but more the “mountain of death,” or specifically the amount of capital and time required to take promising but nascent energy technologies to widespread deployment. The energy industry tends to be an asset-based industry, and those assets are usually expensive. Early stage private capital tends to shun capital intensive businesses, and unlike information technology, for example, the energy industry does not generally provide some highly desirable “must-have” new capability, but simply supplants an existing commodity, be it the flow of electrons, or a transportation fluid, or whatever.

Unfortunately, even in good economic conditions, there is limited funding available for pilot and demonstration phases for scaling renewable energy technology. Add to this the lack of resources required to create and implement commercialization roadmaps and it becomes clear why half-hearted attempts at developing this industry have stalled.

Given the uncertainty, costs and times frames involved in overcoming the mountain of death, there needs to be a very strong enabler in order to stimulate renewable energy commercialization on a large scale. Absent regulation, market signals (like pricing carbon), or specific incentives, there are simply no compelling economic reasons in the short term for the incumbent industry leaders to switch from existing feedstocks to renewable sources. As mentioned above, in other technology-based industries, early-stage capital funds innovative disrupters, but there is simply not enough equity financing available to stimulate the early stage energy companies in such a capital intensive industry, and start-ups simply do not have the balance sheet strength typically required for project finance and other sources of financing.

The renewable energy industry is different from other technology-based industries. Granted, it is slowed by the valley of death, but widespread deployment is truly hampered by the mountain. If we are committed to the potential of renewable energy as a solution to many of our climate, economic and national security concerns, we need to recognize the need for strong federal and state support for commercializing renewable energy technologies or we run the risk of looking back on this period and wondering why (to paraphrase Rahm Emanuel) we wasted a crisis.

(AP Photo/Isaac Brekken)

On his tour today of the photovoltaic array at Nellis Air Force Base, President Obama saw first-hand how solar energy is being used to generate clean electricity supplies – including 25% of the base’s total power.

Located in Las Vegas, NV, the Nellis Air Force Base solar array generates more than 30 million kilowatt-hours (kWh) of clean electricity annually and supplies approximately 25% of the total power used at the base, where 12,000 people live and work.  The solar power system was completed in December 2007, and is America's largest solar photovoltaic array.

President Obama was led on the tour by Col. Howard D. Belote, the Commander of the 99th Air Base Wing, and Senate Majority Leader Harry Reid.

Excerpts from President Obama's speech today:
"Because right now, we're standing near the largest solar electric plant of its kind in the entire Western Hemisphere — the entire Western Hemisphere. More than 72,000 solar panels built on part of an old landfill provide 25 percent of the electricity for the 12,000 people who live and work here at Nellis. That's the equivalent of powering about 13,200 homes during the day.

It's a project that took about half a year to complete, created 200 jobs, and will save the United States Air Force, which is the largest consumer of energy in the federal government, nearly $1 million — $1 million a year. It will also reduce harmful carbon pollution by 24,000 tons per year, which is the equivalent of removing 4,000 cars from our roads. Most importantly, this base serves as a shining example of what's possible when we harness the power of clean, renewable energy to build a new, firmer foundation for economic growth.

Today, projects like the one at Nellis are still the exception to the rule, unfortunately. America produces less than 3 percent of our electricity through renewable sources of energy like wind and solar — less than 3 percent. In contrast, Denmark produces 20 percent of their electricity through wind. We pioneered solar technology, but we've fallen behind countries like Germany and Japan in generating it, even though they get less sun than we do. They certainly get less sun than Nevada.

Nellis Air Force Base installation of over 72,000 Sunpower solar modules

So we've got a choice. We can remain the world's leading importer of oil, sending our money and our wealth away, or we can become the world's leading exporter of clean energy. We can hand over the jobs of the future to our competitors, or we can confront what they've already recognized as the great opportunity of our time: The nation that leads the world in creating new sources of clean energy will be the nation that leads the 21st-century global economy. And that's the nation I want America to be and I know that's the nation you want America to be."

For the text of his speech, click here.
The White House briefing document including information on the Nellis Air Force Base installation, click here.

By Scott Gordon, Director of Sales, HelioPower

If there were a most commonly asked question contest in the solar business, this question would win hands down: “How long will it take for my solar system to pay for itself?” (Incidentally the second most asked question is: “I have an XXX square foot house, how many solar panels do I need?”).

As you can imagine neither question is particularly easy to answer and both depend on the individual circumstances. If we start with the second question first, the answer is: “The number of panels you require, Mr. Customer, depends upon your 12 month electrical usage history, how your roof is configured, and the type of panels you choose to install.” In other words, without knowing the particulars of a customer’s situation, it’s impossible to answer what on the surface seems like a simple question.

Answering the first question (concerning solar payback) is more complicated because we need to establish a definition of ‘payback’ before we can adequately get to the nuts and bolts answer the customer is seeking.

Then we need to apply customer specific financials to make a final determination. In my experience as both a solar customer and salesman, I believe that there are three ways to think about a solar power system’s payback:

1. ROI – (Return on Investment) – This is what most customers think about. ROI determines how many years of energy savings are required for the solar power system to pay for itself.
2. IRR – (Internal Rate of Return) – Least considered payback methodology, IRR compares a solar ‘investment’ return to other conservative investment returns like interest paid by savings accounts, treasury bills & other bonds, certificates of deposit, etc.
3. Cash Flow – Can financing be obtained that generates positive cash flow for the customer? In other words, will the finance payment be less than the current electric bill? This is truly the Holy Grail.

Using my own solar power system as an example, I’ll address all three of these payback methodologies.

Gordon Residence, solar power in Laguna Beach, CA

1. ROI – My system (installed in February 2007) has an eight year ROI. It will take eight years of energy savings (compounded at 6.7% annually) before my system pays for itself.
2. IRR – That same system provides me with an IRR of 12%. I’m currently paying 4.2% on the money I borrowed to finance the system, so my ‘net return’ is 7.8% (way better than my savings, CDs, or bonds are paying me and certainly better than the 24 month return on my stock portfolio!).

3. Cash Flow – Most importantly, I’ve been cash flow positive from the FIRST MONTH. How? I swapped a $150-200/month electric bill for a $150/month Home Equity payment. Unlike my electric bill, the $150 HELOC payment was entirely tax deductable since it is 100% interest paid toward a qualifying home improvement.
Over the last two years, I’ve paid off a significant portion of the principle (which lowers the monthly payment) and had some luck on the interest rate front. Today, I am $110/month cash flow positive, yet my solar panel system won’t “pay for itself” for another six years!! Funny, because it’s paid me every single month since I installed it in 2007. As you can see, solar payback is truly a matter of perspective.

With the recent removal of the cap on the residential tax credit (Federal), IRR in some utilities is approaching 20%. Warren Buffet became a billionaire by averaging a 20% return over the course of his investing career. Bernie Madoff defrauded investors of billions by promising a 12% return.

A solar power system will provide you with a guaranteed conservative Buffett-like return, without making off with your money in Madoffesque fashion. Your exact return will ultimately be determined by your utility’s rebate level; your appetite for tax credits; and net system price.

If you can achieve positive cash flow with solar, your return from either/and ROI or IRR standpoint become less important. Cash is king, and the more of it you keep every month, the better off you’ll be in the long run. However you decide to calculate the payback on your solar panel system, remember, like any attractive investment, there is a cost to wait. Rebates are ticking down and utility rates keep going up. Every month you delay could cost you hundreds of dollars. Now that’s food for thought.

Environment & Energy Daily, Darren Samuelsohn, reporting:  House Energy Commerce Committee voted 33-25 tonight to pass sweeping legislation that would overhaul U.S. energy and global warming policy.

Democrats largely held together in support of the 946-page bill shaped over several months of closed-door negotiations and nearly 40 hours of debate this week. Only one Republican supported the bill, as GOP opponents unified against the measure, insisting it was a costly and unattainable measure to be pushing in a tight economy.

While Democrats have long been promising success in committee, several Democratic swing votes remained at the center of attention. Reps. John Barrow of Georgia, Jim Matheson of Utah, Mike Ross of Arkansas and Charles Melancon of Louisiana voted with the Republicans against the bill.

On the GOP side, Rep. Mary Bono Mack of California bucked her party leadership and supported the legislation. Mack was the only committee Republican to publicly remain neutral on the climate bill.

"While I still have significant concerns about this bill, particularly with regard to its cost and its failure to recognize innovative technologies like advanced nuclear energy, I believe this is the right direction for our district, for our nation and for our future," Bono Mack said in a statement.

This bill, written by Chairman Henry Waxman (D-CA) and Representative Ed Markey (D-MA), lays the foundation for a vibrant 21st century economy fueled by cleaner energy.  It places an economy-wide cap on carbon pollution that will reduce emissions by 17 percent by 2020 and 83 percent by 2050; requires utilities to generate about a fifth of all energy from renewable sources by 2020; invests in energy efficiency, cleaner vehicles, and carbon capture technology; gives Federal nod to feed-in tarifs and much.

Nearly 200 people showed up in Redlands, Ca last night to hear Southern California Edison (SCE) representative, Javier Burgos, talk about the California Solar Initiative (CSI).  Called Homeowner Solar Information Sessions (HSIS), this SCE educational series about solar has been, according to Burgos, “our most successful outreach effort.” 

Along with the overview of the CSI program and its intention to jumpstart solar adoption in California and basics on solar technology, Burgos hit a sobering thought for those looking to the CSI program for a large rebate check this year. 

The EPBB or Expected Performance-based Buydown rebate incentive is a one time, lump sum, up-front payment which is currently at $2.20 per watt, or step 3 of the CSI program for residential customers.  That incentive paid in dollars per Watt is about to go down significantly said Burgos.  Step 4 is a reduction per Watt to $1.90. 

Solar power system in Redlands, CA installed by HelioPower

“In a typical 4 kW system the current rebate is worth $8,500 of a total average system cost of $34,000,” explained Burgos. As the incentive level drops that initial incentive would go down to $7,400 taking other factors into consideration.  “Now is the time to get your incentive in place,” he said, urging attendees to contact solar contractors now to insure the best returns on a solar power system.

In Burgos’ example, the same 4kW residential system would qualify for a 30% uncapped Federal Tax Credit of $7650, resulting in a nearly 50% reduced price of $17,850.

In a town of only 71,000 people solar in Redlands is a big deal. According to the Climate Action Task Force, a green visioning group organized by Mayor Jon Harrison and Chairwoman, Jan Hudson of The Inland Empire Labor-Management Cooperation Committee, Redlands has over 1 megawatt of solar installed.  795.675 kW was installed in 63 installations through the end of 2008.  In 2009 the city went over the one megawatt marker with the installation of 533 kW installed on the headquarters of ESRI, the city’s leading commercial enterprise. 

Burgos, who has been with SCE five years, is an entertaining and informative speaker, managing to make a pretty technical subject, solar power, humorous and engaging.  Upcoming  HSIS sessions include Santa Monica May 30 and Palm Springs, June 4.  For more information, click here.

Among amendments added to the American Clean Energy and Security Act (ACES) of 2009, H.R. 2454, yesterday is important legislation for the solar power industry.  Yesterday’s votes at the House Energy and Commerce Committee markup of global warming and energy legislation included an amendment passed which ”gives states the ability to adopt 'feed-in tariffs' for renewables.”  This amendment was added by Kathy Castor (D-Fla.).  Florida is ahead of the curve with its adoption of a feed-in tariff program in Gainesville, through the Gainesville Regional Utilities, known as GRU.  GRU is the 5th largest municipal electric utility in Florida.

ACES, a combined energy and climate bill, was released by Congressmen Henry Waxman (D-Calif.) and Edward Markey (D-Mass.) in May.  A summary of the legislation from the House Committee on Energy and Commerce web site can be found here.

The Wikipedia entry on Feed-In Tariffs gives this definition “an incentive structure to encourage the adoption of renewable energy through government legislation. The regional or national electricity utilities are obligated to buy renewable electricity (electricity generated from renewable sources, such as solar photovoltaics, wind power, biomass, hydropower and geothermal power) at above-market rates set by the government.”

More from Wikipedia, “The German federally managed program that has proven to be the world's most effective practice for boosting adoption of renewable energy technologies. Feed-In Tariffs (REFIT) have been associated with a large growth in solar power in Spain, Germany and wind power in Denmark. These countries now boast the supply of 9%, 5% and 20% of their electricity respectively. These systems involve fixed payments that are guaranteed in the long term; 20 years in the cases of Spain and Germany.”

For points of view on the ACES, here are a few resources:

Solar Energy Industries Association Improvements to the ACES, pdf summary.

Alliance to Save Energy, offers an energy efficiency perspective. From their website, “This legislation represents our first real chance for a national carbon reduction plan in the United States.”

IEEE, the world's leading professional association for the advancement of technology, is conducting its first ever Energy Fly-In to Washington, DC June 15-16.  A review of their energy policy’s can be found here.  From their website, “Energy underlies and connects three converging challenges that face the United States in the early 21st century: security, prosperity, and the environment.  To address these issues, President Barack Obama and Congress have vowed to make energy issues a priority this year.”

Related information:
Tracking of the bill can be found at OpenCongress.org.

Testimony on the bill can be found at the National Resources Defense Fund site.

Projected Senate and House Votes on 2009 Climate Legislation information can be found on E2.org site.

Tyler Michael is HelioPower’s resident expert for the application of solar in new home construction.  This week he is participating in the Urban Land Institute’s (ULI) Green Building Expo, a forum for sustainable building technologies, in San Diego.  The Green Building Expo is part of the ULI’s Smart Growth awards program and will be staged May 14 starting at 5:30 in the venerable Wonderhaus downtown.

The ULI provides leadership in the responsible use of land, and in creating and sustaining thriving communities worldwide. According to their website, as “the ‘go to’ land use organization for real estate issues in our region, the ULI San Diego/Tijuana District Council facilitates the open exchange of ideas among industry leaders, practitioners and policy makers.”

We asked Tyler about his interest in this region.

E. Tyler, are there special motivations that inspire you to be part of this San Diego Green Building Expo?
T. As a HelioPower specialist in solar for new construction, this event and the people and concepts that I encounter there are critical to my own growth and to my ability to contribute.

I believe that in San Diego/Tijuana we truly share a single urban landscape that is divided by a political line only.  We are in the same region with the same beauty and the same challenges.

We are interdependent in resources and in the conservation of those resources.  In my lifetime, I’ve seen Tijuana transform from just another “border town” to a thriving center of international commerce and I’ve seen San Diego transform from a quiet Navy town to a national force in research and technology. It seems only natural that we become an international leader in sustainability as well.

E. What in your background motivates your interest?
T. After moving to Chula Vista in 1952 and growing up within 7 miles of the Mexican border, I developed a real affinity for the bi-national mindset.

In my late teens, I became a true bi-lingual after studying Spanish for 8 years and hosting 26 Argentine foreign exchange students with others in my high school.

I’ve lived in Spain, Argentina, Ecuador, and nearly 14 years in Mexico. My time in Mexico and the lasting friendships I developed there have brought me a first hand awareness of the serious environmental sustainability practices being put into practice there.  My career in solar for new construction in San Diego has broadened my perspective on sustainability in general and in green building methods in particular.

E. Do you have a vision for the area?
T. The resources we share tie our destinies together. Recognition of those who have dedicated themselves to the careful preservation of those resources is both inspiring and necessary to bring forth the future leaders in this field who are poised to make their contribution.

For more information on the event, click here.

HelioPower and groSolar have been awarded the new San Diego 1BOG solar program, which kicks off this week.  The program brings homeowners together to secure group pricing for solar power installations. 

From the 1BOG website:
We’re extremely happy to have partnered with both solar integrators, and they are working very closely on this program with each other to keep it simple and provide the same pricing and service to all 1bog participants. When we decided to chop up San Diego I anticipated a 4 hour conversation before we had an equitable split of territory, and it actually only took  30 seconds. groSolar said, “We’re thinking this, what do you think?” to which HelioPvower replied, “yup that works for us.” And since then they’ve been meeting regularly to discuss best practices for the program. (Dave Llorens, co founder)

From the groSolar RFP response: “From the panels to the smallest bits you’ll see us use the highest quality parts in the business. We build our systems to last, and back them with a full system 10 year warranty. Moreover, if your system goes down, we will fix it in one day or pay you for the lost power until we do get it fixed –this is our one day reliability guarantee and it is also good for 10 years. This guarantee is not just your standard manufacturer’s warranty, but is in fact our pledge that we will stand behind the return on investment promised in each of our proposals, and we will put it in writing and back it up with our pocket books.”

From the HelioPower RFP response: “HelioPower has installed systems in the San Diego area for almost a decade. We were founded in San Diego in 2001 and have a strong customer base and reputation for quality in the area. We actively participate in area events including Green Build San Diego, Western Days, the Avocado Festival, Temecula Balloon & Wine festival, as well as various Earth Day events. Tyler Michael, one of our local San Diego sales reps, is the trusted resource for CCSE when referring utility customers to an expert on the complex NSHP program. HelioPower is also proud of the fact that we’ve installed almost a dozen utility projects specifically for SDGE. We are very familiar with interconnection and permit requirements and have processed hundreds of solar rebates in San Diego.”

HelioPower will be working in the Northern San Diego area, with groSolar taking southern San Diego.  More information is available on 1BOG's San Diego page.

Writer Richard Crume, of Solar Today Magazine, brings us this excellent review of home energy upgrades that pay in their March 2009 issue.  Solar Today is the publication of the American Solar Energy Association. Here is an excerpt, click here for the full article.

Are homeowners making good choices when it comes to reducing home energy consumption? Do they make decisions about improving energy efficiency based on the best advice of experts, or are decisions driven by popular trends and the latest advertising campaigns? If our nation is to make progress toward the goal of energy independence, we need to understand whether homeowners are making rational decisions about conserving energy when remodeling their homes, upgrading their appliances or simply replacing light bulbs.

President Obama’s New Energy for America plan makes efficient use of energy a national priority. Calling energy efficiency the “cheapest, cleanest and fastest energy source,” the president wants to cut electricity demand by 15 percent from projected levels by 2020, saving consumers an estimated $130 billion in utility costs while reducing greenhouse gas emissions. Under the president’s plan, more efficient energy use will be required across all segments of American society — in our factories and businesses, on our roads and in our homes.

Energy efficiency in the residential segment is particularly important because houses consume so much energy — nearly 21 percent of total U.S. energy production. Many homes are old and poorly insulated, and their owners cannot afford to make necessary improvements. Acknowledging this problem, the president’s energy plan sets forth a national commitment to weatherize at least 1 million low-income homes each year for the next decade. With simple improvements like sealing around windows and doors, fixing leaky ducts and installing insulation, the energy plan estimates home energy bill reductions of at least 20 to 40 percent. And by upgrading the furnace and adding energy-efficient lighting and appliances, a homeowner can achieve even greater savings.

Wise Decisions for Home Energy Upgrades
What are homeowners doing right now about energy efficiency? A recent survey by building products manufacturer Johns Manville (jm.com) helps answer that question. When homeowners were asked about energy upgrades made in the past year, 54 percent reported taking some action in their homes to conserve energy. The most popular action was putting in energy-efficient lighting, followed by caulking and sealing and then by installing energy-efficient appliances. Just 16 percent of respondents invested in attic insulation, a suprising outcome given that this may be the single most effective means for conserving energy in many older homes. (According to the U.S. Department of Energy, roughly 80 percent of older homes are poorly insulated.)

An interesting survey outcome concerns what motivates homeowners to conserve energy. Asked about the best reasons to increase home energy efficiency, homeowners gave these responses:
• Reducing home heating and cooling costs — 64 percent
• Reducing home contribution to global climate change — 19 percent
• Home comfort — 11 percent
• Increased resale value — 5 percent