With a national financial storm forming stiff economic headwinds, the California solar energy industry is navigating to cut through increasingly choppy waters by reducing the cost of photovoltaic retrofits for homeowners. New solar home sales remain strong, but the prospects for expansion in the existing home market are increasingly clouded by numerous factors. These include the growing credit crunch, deepening real estate slump, diminishing state incentive payments, and in Washington the uncertain future of the federal investment tax credit. As the storm clouds darken, solar entrepreneurs are pursuing numerous options including community-wide marketing efforts that capture economies of scale in installation and point-of-sale financing, hopefully backed by government guarantees. “It’s our responsibility to reduce the costs,” said Lyndon Rive, chief executive officer of SolarCity, which has catapulted itself to become the state’s number one solar installation firm through its innovative community solar program. Unless the cost of installed solar systems can be brought down, the industry will not able to crack the mass market, he said. Amid tightening credit, solar retrofit sales remain possible in mature and affluent communities, but are increasingly difficult in areas like Fresno and Sacramento where “the home owner is under the water,” said Rive, due to massive drops in real estate values. Consequently, the retrofit market remains largely limited to “early adapters,” said Gary Kremen, Clean Power Finance, chief executive officer. He thinks financing innovations ultimately are needed to bring solar within reach of the mainstream market. Kremen, who founded the popular dating web site match.com, has turned his entrepreneurial talents to financing photovoltaic systems. At Clean Power Finance, he is pushing for point of sale financing backed by a state credit guarantee program that would make it easy to package solar loans and sell them in the secondary market on Wall Street. State legislation would be needed. In addition to declining property values and inaccessibility to credit for many home owners, the industry faces additional uncertainty because Congress did not extend the solar investment tax credit in energy legislation signed into law December 19. Failure to renew the credit of up to $2,000 for homeowners--which expires at the end of 2008-- threatens to put “a damper on investments made in the U.S.,” said Monique Hanis, Solar Energy Industry Association communications director. This could keep the price of solar panels up. A House version of the energy legislation would have extended the credit and lifted the current cap to $4,000, but the Senate stripped the language from the bill in the face of a veto threat. Now, the industry hopes Congress will pass separate legislation next year to extend the 30 percent investment tax credit for six years for residences and eight years for businesses, Hanis said. Meanwhile, in California incentive payments under the California Solar Initiative are sinking as they are used up. The initiative reduces the payments in a series of steps as certain solar installation milestones are met. In Pacific Gas & Electric territory, where solar has been most popular in California, the incentive payments already have declined for homeowners from $2.50 per installed watt of capacity when the initiative began this year to $2.20/watt. Incentives are nearing the reduction point in other utility service territories. To meet the state’s objectives under the Solar Initiative, homeowners need better financing opportunities for installing photovoltaic systems, agreed Adam Browning Vote Solar executive director. Power purchase agreements and other innovations have helped businesses accelerate adoption of solar technology, he observed, but innovations have yet to reach the residential retrofit market. At Clean Power Finance, Kremen said point of sale financing would help installers “triple” their “close rates.” When people can obtain financing to buy a $30,000 car in an hour or less at a dealer, he asks: “Why can’t you get it [for solar] in an hour?” Kremen said instant financing should recognize that solar panels provide lenders not only collateral but the added benefit of cash flow, as represented by the value of the electricity they produce. However, he noted that Wall Street has been slow to recognize the value of cash flow when it comes to making a secondary market for solar loans. To get around this reticence and create a pool of readily available credit for solar power, Kremen hopes to find a California lawmaker willing to author legislation to create a state solar loan guarantee fund. Through such a fund, the state would not guarantee individual loans--which would be administratively burdensome--but instead back pools of loans made by lenders that would be sold off as investments on Wall Street. Kremen maintained that such loans pose very little risk because the solar systems reduce the energy bill of borrowers enough to cover their payments, plus have collateral value, just like a car. SolarCity has been able to lower the cost of systems to customers by up to 20 percent by marketing solar panels through a community program, explained Rive. This makes it easier for homeowners to finance systems and has made solar a profitable proposition for some homeowners who are large enough energy users to pay top tier utility rates. The company has offered community marketing programs in Marin County, Palo Alto, and other communities and is kicking off efforts in Long Beach and San Juan Capistrano. In the program, SolarCity goes into a community and educates the residents and city government about the benefits and economics of solar energy and by so doing generates multiple sales leads. This allows its staff to make fewer trips to a community to sell and design systems and pull building permits, which reduces its costs. It also allows it to order solar system components in bulk at further cost savings. “We also take a slightly smaller margin,” said Rive, but by doing so the company is benefiting from increased sales volume. Local governments like the program because it offers them a way to advance their green credentials. This successful approach is allowing SolarCity to expand from California into Oregon and Arizona, Rive said.
