California solar data reveals winners as SolarCity heads for IPO

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The California Solar Initiative is seen by many as a barometer of what is happening in the industry in the state.

The CSI programme was the solar poster-child for a star much close to home than the one that burns over our heads 93 million miles away: former Governor Arnold Schwarzenegger wanted to see solar installed on one million roofs in California. The CSI was funded with an initial budget of just over US$2 billion in 2006 with a goal of 3,000MW of solar rooftop systems installed on Californian homes and businesses by the end of 2016.

Residential and commercial rebates range from US$0.20 to US$0.35 per AC watt and US$0.70 to US$1.10 for systems for non-profits and government bodies – well above the retail rate of electricity.

The California Public Utilities Commission (CPUC) is brilliant at transparency and publishes regularly updated CSI data. But what the CPUC is not so good at is interpreting the data for average human consumption.

For all your CSI data crunching needs, let me introduce readers to Jim Jenal, the founder and Chief Executive of Run on Sun, a small Pasadena-based solar installer with a respectable 150kW under his tool belt already.

Jenal was a litigation attorney for 13 years after graduating with a BA in mathematics and a masters in computer science. He may not practise the law any longer, but his inner data geek is alive and kicking, particularly when it comes to CSI data, which he has analysed extensively in his blog.

If anyone can point me in the direction of equivalent data analysis for the CSI or other programmes in California's solar industry, I would love to hear from you. SunCentric's graphs and charts are the closest I have come so far.

Jenal is modest about his pivot table talent, but even he admitted: “I really haven't come across anything in the way of comparable analysis of this kind of data. In particular, I haven't heard of CSI publishing reports that look at the data in this way.”

It's a shame the CPUC hasn't yet seen fit to peel off a few thousand from a billion dollar budget to fund something like the Green Button initiative, which allows electricity customers to monitor their household energy usage. California and particularly the San Francisco Bay Area are filled with bright minds that love to mash up data. But hackathons in the energy sector haven't quite yet caught on.

“That also strikes me as curious,” said Jenal. “You would think that the commission would be willing to allocate some staff time to look at all this data that they are collecting and require all of the installers to provide and do something useful with it.”

So what does Jenal learn from his efforts and hope to share with his fellow installers? One important early finding from Jenal's focus on Southern California Edison territory was the variation in costs that customers were paying. Not all solar systems under the CSI programme are priced equally, or fairly, said Jenal.

“Part of the original impetus was working out our own pricing models,” he said. “This gives you a pretty good snapshot of what the market will bear. What astonished us in looking at this data is that there are some people out there selling a boatload of systems for really jacked up prices that make no flipping sense.”

Last year, Jenal found that that one company's prices in particular leapt out from the data.”That company was Galkos Construction, coming in at a staggering US$13.32/watt compared to an average of US$8.91/watt, nearly 50% above the average,” he wrote. “We also noted that HelioPower was the lowest in our analysis, coming in at just US$6.56/watt or 27% below the average.”

This year, Future Energy Corporation, American Solar Direct and Galkos Construction price systems were US$3/watt above the average for the residential market segment.

Run on Sun's systems for the first half of 2012 were US$5.33/watt, said Jenal. The CSI programme is designed to reduce the costs of solar, not push the needle of competition in the other direction to test what costs extremes the market will bear.

“Projects applying and installing PV systems through this programme should have their installed cost fall within a reasonable limit,” says the CSI handbook. “The current average system cost of PV systems ranges from US$7.36 to US$8.41 per CEC-AC watt, fully installed.” That “reasonable limit” works out at US$10.26 per AC watt.

So much for the installers, but which of the manufacturers are winning in the CSI programme? Trina, Sunpower, SolarWorld and Kyocera lead the pack. SunCentric charts show that SolarCity paid a total of US$38.7 million to Yingli, Trina and Kyocera in the first three quarters of this year alone under the CSI programme.

“After that everybody else is below 5% of the total,” said Jenal. “It's a relatively small handful of panel manufacturers that really dominate the market.”

SMA is still the clear winner on sales of inverters with around 45% of the residential market, but it is feeling the heat from relative newcomer Enphase. “SMA is still far and away the big kid on the block because in addition to the 31% that they have in residential under their own brand name – the vast majority of the Sunpower inverters that are sold are rebranded SMA,” said Jenal.

“Enphase has up to 21% of the residential market. That's pretty dramatic given that they've only been in business a relatively short period of time, and it makes the folks at SMA pretty crazy.”

First and second place for developers goes to Verengo (1,791 projects) and SolarCity (1,153 projects). But Jenal is not a fan of leasing models that use Internal Revenue Service and Treasury rules in order to make every installation as valuable a tax asset as possible.

“If a homeowner finances a system, they don't get to take the 30% tax credit based on the cost of financing,” he said. “So why should SolarCity? If the point of the tax credit is to provide the incentive to install the solar we're not getting more solar for that extra money.

“It doesn't seem to me to be equitable that a company that has this crafty business model can extract more tax dollars to their benefit without increasing the amount of solar that's being installed.”

A homeowner can claim the 30% tax credit on the cost of a system. But what they cannot get is a 30% credit on a loan to finance the system like SolarCity, which adds the cost of the system and the interest on financing to claim the investment tax credit, explained Jenal. This takes money away from the taxpayer and the Treasury, he said, noting that Verengo still makes a good business out of leasing without using the ITC.

Last month, SolarCity was so confident of its solar leasing model that it filed an IPO registration with the Securities and Exchange Commission (SEC) with a target offering of US$200 million.

SolarCity certainly seems to have found a winning CSI formula with commercial and residential sales. But its prospectus lists risk factors to investors, including the company's dependence on incentives, and its progress towards IPO is now under scrutiny by the SEC and the Inland Revenue Service.

“Our business currently depends on the availability of rebates, tax credits and other financial incentives. The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business.

“If the Internal Revenue Service or the US Treasury Department makes additional determinations that the fair market value of our solar energy systems is materially lower than what we have claimed, we may have to pay significant amounts to our investment funds or to our fund investors and such determinations could have a material adverse effect on our business, financial condition and prospects.”

A SolarCity spokesman said that the company could not comment as the SEC registration means it is in a quiet period. But such controversy over funding for solar companies is something the industry can ill afford after last year's Solyndra debacle.

Jenal thinks those in the solar industry should be good citizens. “I actually think that we're supposed to be different. I understand those who maximise their profits. I understand that it's much of the way the world works. But I don't think the solar industry, which is about sustainability, should operate that way. It offends me and my sense of justice.”

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