California Public Utility Reduces Solar Incentives Due To Popularity Of Program. Whats Up With That?

Los Angeles California public utility board members have voted to reduce the solar incentives and study the results. Really? Well we could save them the trouble. The results will be fewer jobs, higher unemployment and more cost to homeowners as their inevitable utility bills increase. Of course the program is popular. From a 360 degree view why wouldn’t incentivising homeowners to install solar, reduce their monthly household expenses and create jobs that can not be exported be popular?

Every economist on the planet, that is not tied to some interest group, has said that in times where no one is spending money the government must spend to stimulate the economy. The advancement of high tech solar jobs and easing homeowners utility bills seems like a good place to start.

Caught between “a rock and a hard place,” as its board president Los Angeles Department of Water and Power described it as it voled to proceed with a plan to sharply reduce its solar incentive program. In an article by Paul Gipe in Solar Home Journal, the department’s Board of Commissioners voted 4-1 on Nov. 2 to cut back its solar incentives, effective Jan. 1, because a recent increase in the number of solar applicants has been depleting its solar funding pool much faster than expected.

A group of solar installers pleaded with the board to defer any cuts, saying their businesses would be harmed and jobs would be lost. Board members agreed to revisit the matter within 90 days at the latest to assess the effects of the decision.

Commissioner Christina Noonan, who was recently appointed to the board, dissented. “Just like we’re on a budget, so are all of these businesses,” she said, “and to curtail solar installations for three months may be very damaging to these small businesses. And I also think it really sends the wrong message about Los Angeles being the greenest city and doing the right thing for the homeowners and the local economy.”

The Solar Incentive Program was established in 2007 with $313 million in funding, of which $285 million was to be paid out in incentives. It was intended to last through 2016. Three years into the program, department officials reported at a recent workshop, $45 million has been spent, and another $110 million is in a queue for paying solar incentives reserved by existing applicants. That still leaves $130 million, but demand has soared this year, officials said.

Apart from reducing incentives, alternatives presented to the board included leaving the solar incentive amounts as they are and letting the program run out of money soon, transferring money from other budgeted department programs to keep the program going at existing incentive levels, or raising electricity rates.

The department’s staff has advised cutting solar incentives to give as many customers as possible a chance to use solar electricity, a plan the board adopted Tuesday, Nov. 2. Residential solar customers will face the biggest percentage drop. Under the restructuring, the next step of the department’s residential solar incentive, Step 5, is to decline from the current equivalent of $3.24 per watt of solar production capacity to $2.20 per watt, a 32 percent reduction.

The Step 5 incentive for a 4-kilowatt residential solar system will be reduced, therefore, to $8,800 from the current $12,960. Although the department is now on Step 4 of the program, Step 5 is expected to be reached soon.
Other categories of solar incentives will also see steep declines.

Under the current approach, a 4-kilowatt residential solar system installed under the existing Step 4 incentive would be eligible for an LADWP incentive of $14,256. The new program guidelines call for an incentive of $11,200. The Step 4 solar incentive for a 30-kilowatt commercial system would drop from $77,760 to $69,000, and for a 100-kilowatt nonprofit or governmental solar installation, from $356,400 to $305,000.

Before the vote, a group of solar companies and nonprofit solar installers presented a joint letter to the Board of Commissioners containing other proposed program modifications that the installers suggested be adopted in lieu of a reduction to incentive levels.

First, it said, the utility should purge the queue of pending solar incentive rebates reservations that have exceeded the time allowed to build a project. The letter said many such solar incentive rebate reservations are held by “squatters” waiting to apply the higher incentives they have reserved when solar prices and incentive levels have declined further, making their reservations more valuable.

The group also asked that an allotment of 50 percent of the incentive funding pool for residential systems be enforced. Although residential solar applicants account for the bulk of applications, the systems are smaller than commercial or other installations and use up less of the budget, reducing the depletion rate.

The group suggested that a price ceiling for rebate eligibility be established at $9.50 per watt (AC) of solar production capacity. One issue in the Los Angeles solar incentive program is that installation prices have remained higher than in other places even as the cost of solar modules has plummeted in the past two years.

In many parts of the country, solar incentive programs have reported typical installation prices for residential systems this year of $5 to $7 per watt. The LADWP average for small solar systems has ranged from about $6.50 to $10.50 per watt in 2010, according to department data.

James Brennan, representing a group called Open Neighborhoods, and one of the letter’s signers, said Open Neighborhoods has recently arranged group solar purchases with typical installation costs of less than $5 per watt.

Aram Benyamin, senior assistant general manager of the department, the nation’s largest public utility, said that a price cap could be problematic because every solar installation is different. However, the board in passing a motion to adopt reduced incentives also directed the department staff to further investigate the effects of imposing a price ceiling for incentive eligibility.

The group letter also suggested that the program’s approach of annually capping incentive payouts has a negative effect by delaying rebate payments. It called for accelerating the budget by moving solar funding amounts forward. The letter, signed by representatives of solar companies such as SunRun, SunPower Corp., Real Goods Solar, Suntech and others, as well as the Sierra Club and other nonprofits, said the program could be extended about another 24 months by applying its recommendations.

One factor affecting solar development in Los Angeles, the letter noted, is that electricity rates in the Department of Water and Power’s service area are lower than in the surrounding territory served by the private utility Southern California Edison. Residential rates in the LADWP area recently averaged about 12 cents per kilowatt-hour, while in the the SCE area they averaged about 15 cents per kwh. More significantly, a search of SCE rates reveal they are tiered so that heavy residential electricity users pay much more, up to 31 cents per kwh in the highest tier. Some of the most alert of these customers are now saving thousands of dollars from having switched to solar electricity to offset this high-priced usage.

The lower rates in the LADWP service area mean that higher solar incentives are needed to stimulate solar adoption, the letter suggested. Both the city of Los Angeles and the region served by Southern California Edison have lagged in solar adoption compared with the San Diego area and the San Francisco Bay area.

Commissioners expressed concern about the effect on solar companies and jobs of the incentive reductions, but board President Lee Kanon Alpert said the alternatives were even more unpalatable, putting the board “between a rock and a hard place.” Commissioner Jonathan Parfrey said it had to be made clear that the issue will be revisited soon to make adjustments if the solar incentive reduction should dramatically curtail solar installations.

“I just want to assure the people who participated in the public meetings on solar incentives and credits that their voices were heard,” Mr. Parfrey said, “and that we’re paying very close attention to the signals that we’re now giving to the solar people.”