Prognosis looks bleak for successful completion of California Solar Initiative program by 2016

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Guest blogger Glenn Harris of SunCentric believes that the goals of the ongoing California Solar Initiative program will not be achieved based on a close reading of the latest data. 

SunCentric published its first report on the California Solar Initiative, “A Triumph or a Train Wreck,” in September 2007. We pieced together the available data, talked with many of our colleagues in the solar business, and took a hard look at how the program might perform in the years ahead. As a result of the findings, our outlook was not too positive.

Fast forward to today and our outlook remains not very optimistic. Through March 2011—the 4¼- year mark of the program—the California Public Utilities Commission’s 10-year general market initiative has only 430MW of the required 1,750MW of solar installations completed, or about 25% of the goal. Based on our analysis, we see no meaningful signs of acceleration that would allow us to project that the program can meet its requirement.

Three important reasons for our less-than-rosy outlook are the CSI’s historical reservation, project completion, and cancellation rates. We believe that the program simply does not have enough demand to meet its year-end 2016 objective.

Our estimate is that a total of about 3,000MW of reservation requests will be needed to achieve 1,750MW of completions. Yet the program had only received about 1,228 MW of reservation requests through March. With shrinking incentives and evidence of declining demand, the program has an uphill battle to more than double reservation requests and reach 3,000 MW sometime in 2016. The numbers are not improving either: reservation activity in Q1 2011 shows demand down 29% compared to 2010.

The program is spending significantly less incentive dollars per megawatt than budgeted.  By the end of March, $147 million fewer incentive funds were actually spent or reserved for performance-based incentive payments than planned. This under budget scenario became plausible when the decision was made early on to allow cancelled megawatts back into the program, but at the current incentive level, which is frequently lower than the level in effect when the megawatts were first reserved. Our budget projections are included in the report: we think the program will stay way under the planned budget for the duration of the program.

The “residential” program is perking along, although there is evidence of declining demand. As March came to a close, about 195MW of 578MW had been completed, or 34% of the objective. Residential consumers are choosing lease or power purchase agreement options at a much greater rate. Over the past two years, the percentage of those selecting a residential finance option has ballooned from about 10% to more than 40% of all confirmed projects.

The “non-residential” program has finished only 234MW of 1,173MW, or 20% of the CSI’s plan. In what at first sounds like a hopeful development, the California Center for Sustainable Energy and Pacific Gas & Electric administrators have announced that, based on confirmed projects, they are nearing the dollar incentive budget for their non-residential programs. To prevent potentially overspending their budgets for those two parts of the program, they decided to continue to accept project applications, but not to automatically offer a reservation. The new step in the non-residential program is called the “wait list,” and there are more than 50MW of possible project installations in this bucket.

The wait list effectively creates a preprogram step. To move off the wait list and into the program, an already CSI-qualified project must be cancelled. By program rule, a project normally has 18 months to be completed and can ask for an up to six-month extension. During this window, the project can also be canceled. How many candidates on the wait list will fall out while waiting for another project to cancel?  How many projects that make it from the wait list into the program will be completed?

The new policy is very conservative and does not take into account the following inescapable fact: more non-residential project megawatts are cancelled than completed.  The wait list process will certainly further lengthen non-residential project times, increase project uncertainty, and could put the hard-won solar industry infrastructure at risk. In discussions with solar contractors, we’ve heard reports that non-residential customers are deciding to proceed with projects and to ignore the program’s incentives.

The latest CSI data also reveal several other statistics and trends of note.

Residential projects now take about 180 days to complete, while non-residential projects require about 350 days. Unfortunately, CSI programmatics, permitting, inspections, and interconnection combine to slow down installations. While there has been high awareness of this situation for several years, we see no definitive evidence of improvement.

The average residential installation price is at a historical low and appears to be stabilizing at about $6.75 per watt before CSI or federal incentives. The average non-residential installed price before incentives has increased to about $5.45, up from the historical low in Q3 2010 of approximately $5.00 per watt. Both parts of the program clearly show that the unit-price goes down as system size goes up.

On the module supplier side, Chinese manufacturers, led by Suntech, Yingli, and Trina, are surging to the front of the pack, while traditional sector leaders SunPower, Sharp, and Kyocera have fallen back. There have been several changes in leadership during the program, based mostly on a company’s decision to supply the market as well as the price of its modules, and we expect this trend to continue in the future.

While some 1,950 contactors have participated in the program, the top 150 have accounted for about 85% of the projects. More than 1,100 contractors have three or fewer projects reserved since the program began, a further indication that a group of dedicated companies is capturing the vast majority of the business.

We estimate that if the program ended now, there is only enough activity in process to complete projects totaling about 730MW, or 42% of the objective. While forecasting five years out in the solar business is fraught with risk, we think the CSI general market program will only complete about 1,100MW by the end of 2016.

California has recently increased its Renewable Portfolio Standard to 33% by 2020. This objective will require massive amounts of new renewables to be grid-connected in the near term. With all the hard work that has gone into CSI, changes should be made to help the program get to the finish line. Because we believe the program will come in under the incentive budget, and dollars are therefore not a constraint, we have a simple solution to offer: let the program continue past the 2016 sunset date until the targeted 1,750 MW in solar installations are completed.

(A presentation of SunCentric’s latest CSI analysis can be found on the company Website. The raw CSI data files, which include over 63,000 projects, can be found here. Administrators post an updated dataset each week.)

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