Selling Residential Solar—A Market Based Approach Presented by:

Selling Residential Solar—A Market Based Approach

Presented by:

Gerald Bernstein, Stanford Transportation Group and

Claire Starry, TDS Economics

Presented to

Silicon Valley ChapterNational Association for Business Economics

October 13, 2009

Introduction

Brief Review of the Status of Solar PV

Costs of Residential Solar PV

Costs of utility-provided electricity

The basic economics (or lack-thereof) of residential solar

High electricity consumers—where to focus if CA is to economically achieve emission-reduction targets

Current Situation: Solar Has A Long Way to Grow

Residential System Component Costs

• Residential System Costs in California ($/DC W)- Panels $5.00- Inverter $1.00- Balance of System$2.00- Installation Labor $2.00- TOTAL $9.00

• Residential typically are 3 – 4 kW, $27,000 - $36,000• Due to oversupply, panel prices are down• Due to recession, labor costs are down

Residential Systems with Rebates and Tax Credits(4 kW system)

• Nominal System Cost: $36,000• Federal Tax Credit (30%) - $10,800• CA Solar Initiative (CSI) Rebate $1.55/W - $ 6,200• San Francisco Rebate ($2,000 - $4,000) - $ 4,000• NET INSTALLATION COST $15,000

(approximate A/C output in SF = 6,000 kWh/yr)

• Some locations (Berkeley, Sonoma Co) offer upfront loans repaid with 20-year charges on property tax bills

• New Jersey uses market-based Solar Renewable Energy Credits (SERC) with the utility “buying” credits annually from homeowners

• Germany’s Feed-In Tariffs have propelled it to #1 worldwide. But… solar has not met its intended purpose of replacing nuclear reactors

Estimating Financial Returns for Residential Solar Installation

First step is to compare the costs of purchasing from electric utilities versus the cost of installing rooftop solar systems.

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0.05

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RooftopSolar, NoSubsidies

RooftopSolar, Federal

Subsidies

RooftopSolar, Federal

and StateSubsidies

InvestorOwned

Utilities, Low

InvestorOwned

Utilities. High

MunicipalUtilities, Low

MunicipalUtilities, High

Cents per kWh

PG&E SDGE SCE LAWP PA SMUDGas & Electric

Low 3,700 3,832 3,705 4,200 3,650 7,920

High 5,300 5,494 10,475 6,000

All Electric

Low 6,400 4,818 4,780 4,200 3,650 10,920

High 10,100 8,742 12,793 6,000


The next step is to identify the baseline consumption levels

Tier 2 goes to 30% over baselineTier 3 goes to 100% over baseline

Tiers 4 and 5 are those where rates are the highest.

Baseline Amounts: kWh per year


Estimated IRR for PV Solar Systems for Households Consuming 20,000 kWh per Year and

Served by Investor-Owned Utilities

Sources: TDS Economics and Stanford Transportation Group

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2

4

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8

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12

Perc

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IRR)

San Diego Long Beach Bakersfield San Francisco

Replacement to Tier 2 Total Replacement with Solar

Finding Households that Benefit fromResidential Solar Installation

Distribution of CA Residential Accounts by Investor-Owned Versus Municipal Utility

Accts. 2004 MWh 2004

(Millions) (Millions)

12.3 84.0

(Percent) (Percent)

Investor-Owned Utilities 79% 78%

PG&E 36% 35%

SDGE 9% 8%

SCE 33% 33%

Publicly-Owned Utilities 21% 22%

LAWP 10% 9%

SMUD 4% 5%

Source: California Energy Commission


Distribution of CA Households by Annual Electricity Consumption

Source: 2005 RECS Survey, DOE, 2009

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Households Purchased Electricity


Criteria used to select solar households:

• Single family dwelling units.

• Households served by investor-owned utilities

• Smallest system installed is 2 kW

• A household would be willing to install solar only if it can financially justify a 2kW system (generating about 2,500 kWh per year) based on an expected IRR of 5% or higher.

For respondents living in single family attached or detached housing with consumption exceeding 14,500 kWh per year with all-electric utilities and 10,500 kWh per year for other households, we assumed that 75% would have a financial incentive to put in sufficient solar power to generate enough electricity to lower their purchases from utilities to 12,000 kWh (all-electric households) or 8,000 kWh (gas and electric households).


Estimated Number of Households with Financial Potential to Install Solar Panels

Sources: TDS Economics, Stanford Transportation Group

Number of Households

Amount of Electricity Consumed

Potential for Solar

Solar as a Percent of

Total

Million Million kWhMillion kWh Percent

Total Households 12.1 84,588 9,539 11%

Not Candidates for Solar Power 10.3 59,380 - 0%

Candidates for Solar Power 1.8 25,208 9,539 38%

More than 1 million CA households can benefit financially from rooftop solar systems with the potential of installing over 10 times the state’s goal of 577 MW of residential capacity.

The state should focus on the limited group of households with a financial incentive to install solar systems. This would reduce the need for subsidies.

We expect programs to finance solar systems to continue to evolve. Any form of “emission” or “carbon” tax will accelerate solar developments.

But we remain a LONG way from widespread adoption.

Conclusion

Market Forces Can be Used to Help the State Meet Its Million Roofs Goals

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Selling Residential Solar—A Market Based Approach Presented by: