Saturday, January 22, 2011

Solar More Popular Than Expected - Subsidies Running Out

Despite four years of economic malaise, Californians have been installing solar panels at the speed of light, pushing down subsidies and creating turmoil in the solar installation industry, according to some industry observers.

California politicians, notably former Gov. Arnold Schwarzenegger, have long tried to stimulate the economy by pushing legislation designed to help "green" industries, such as those that develop or distribute solar and wind energy, or promote energy efficiency. They hoped such businesses would create jobs for sidelined construction workers and foster innovation.

A subsidy established to grow the solar industry may have worked too well: Californians bought up so many solar panels that the training wheels were pulled away too quickly, shaking up the industry as some companies folded while others expanded to take their place.

A bright beginning

California started redirecting utility ratepayer funds into the California Solar Initiative in 2007, and provided $2.167 billion to fund it. Legislators set up the program so that generous subsidies would lure in buyers early by reducing high costs, but dwindle as solar energy became more popular and solar power businesses could stand on their own. The subsidies fell in discrete steps as Californians achieved certain milestones in solar electricity generating capacity. Ideally, the subsidy would drop one step a year, administrators said.

But Californians burned through the money faster than expected. As of the last quarter of 2010, commercial, nonprofit and government customers of Southern California Edison had reached the eighth level of 10, and the utility's residential customers reached the sixth, both several years ahead of schedule.

San Diego Gas and Electric Co.'s residential customers are at step 8, and nonresidential customers have no steps left ---- they must sign up for a waiting list and hope someone else drops out.

An official for the California Center for Sustainable Energy, which administers the subsidy for SDG and said the speed with which the public used up the subsidies surprised local solar installers and suppliers.

"There was no preparation for this," said Katrina Perez Morton, a program manager for the center. "This was not something they (installers and suppliers) saw coming. They expected a 10-year program."

Darker days

As subsidies fell, some solar installers couldn't handle a sudden drop in demand: National installation company groSolar shuttered its El Cajon office and got out of the residential installation business in California two weeks ago; Solana Beach installer Sequoia Solar Inc. folded; Akeena Solar, based in Los Gatos, stopped installing in California; and the list goes on.

"The real magic point happened from May 2010," said Scott Gordon, vice president for sales for Murrieta solar installer HelioPower.

That was when, in San Diego County, the subsidy took a big drop, from $1.10 per installed watt to $0.65. A typical residential installation in the state is 5,000 watts, which means the subsidy declined from $5,500 to $3,520, a difference that caused a drop in demand. Today, it's at $0.35 per watt, which pins the subsidy at $1,750 for a typical system.

Daniel Sullivan, owner of Sullivan Solar Power in San Diego, said he thinks newer installers just weren't aware of the seasonality of the solar installation business, and they didn't plan for a normal drop in sales in winter.

"For newer companies, it’s a major eye-opener. They think their ship is sinking," he said. "It just so happens, the rebate level is so low, people are looking to that as why sales are down."

Gordon said he thinks that some companies failed to anticipate that the drop in subsidy would come with a drop in demand, and so they failed to manage their savings to get through any lull.

Solar still shines

But he also said HelioPower is still doing big business in other parts of California, and as a result, the company has been hiring staff and adding offices. Though subsidies in Pacific Gas and Electric Co. territory in Northern California were at the same step as in San Diego, he's doing plenty of business there, thanks to substantially higher electric rates. And he's still doing installations in Southern California Edison territory because the utility's subsidies are still high.

Edison subsidies are just now dropping a step to $1.10 per watt for residential customers, and there's still room in its nonresidential program, said Gary Barsley, solar initiatives and self-generation programs manager for Edison.

Barsley said PG and E charges more for electricity than Edison, so PG and E's customers have stronger financial incentive to install solar. He didn't offer a clear explanation for why Edison's customers have been installing solar panels slower than SDG and E's customers.

Indeed, San Diego County leads all counties in California in residential solar capacity, with 23.8 installed megawatts of solar panels among 5,245 residential customers. Riverside County is fourth, with 2,007 applicants installing 11.5 megawatts. Among nonresidential applicants, San Diego County ranks first in applications, but fourth in capacity, with 21.8 megawatts. Riverside County is fifth with 16 megawatts. One megawatt can power 650 typical houses.

Sullivan disagreed with Gordon's assessment of San Diego installations. He said his business increased 50 percent in 2010 from 2009, and 2011 looks good, too.

He said that although the subsidy has dropped, the cost of solar materials and installation dropped faster. According to the California Solar Initiative, costs per watt dropped 22 percent in inflation-adjusted terms in SDG and territory for residential customers to $8.04 per watt (before subsidies), and they dropped 9 percent in Edison territory to $9.64.

Sullivan's not worried about the industry surviving the subsidy.

"We see a new company jumping into the solar industry every week or every couple weeks," he said. "We see the same amount falling out. They think it's a way to get rich quick, they come in, they see it's not easy, and they fold. Companies such as ours, they've been fine, and sales have continued to increase."


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