JUICE: Snow Blind

“Put on your sunglasses now,” I yelled at the 11-year old who repeatedly ignored me during a cross country skiing group outing. While the girl was focused on getting an even tan from the bright sun shining above I was focused on her avoiding snow blindness below. Legislators and regulators who hope to make California shine with a million solar roofs above should also don polarized sunglasses. Protective shades are needed to thwart the blinding glare from some slush around the $3 billion California Solar Initiative program. Like unadulterated sun exposure, a new unregulated industry that offers to install small solar systems for small businesses and home owners under power purchase agreements could fry the state’s ambitious solar energy program, as well as lawmakers, regulators, ratepayers, and solar advocates. This industry surged in response to solar subsidies offered by the state, city, and federal governments. Under opaque, non-negotiable arrangements offered by intermediary firms, a small business or homeowner agrees to pay a monthly rate set forth in a binding agreement for the sun power produced by units on their rooftop. The installation is owned and operated by the intermediary company. These deals allow property owners to avoid the large upfront installment costs--which can run about $40,000 for rooftop solar panels. The owner of the small solar power unit, not the property owner, reaps the associated 30 percent federal tax credit, California Solar Initiative subsidies, and other rebates, as well as the accelerated, five-year depreciation offered for the solar system. “It is a great business. After the first three years it is pure profit,” said Susan Munves, Santa Monica energy and green building administrator. The arrangements could be too much of a good thing, particularly given the lack of protections to unsuspecting and unsophisticated property owners. Most worrisome is the lack of contract transparency standardization. This raises numerous questions--the answer to which could advance or undermine the state’s significant efforts to grow in-state solar power to 3,000 additional megawatts. Questions about these private financial arrangements include: -How much the customer actually pays over the life of the power system for the solar output? -How can an unsophisticated homeowner or business owner compare the costs of signing up with a financing outfit to buying a solar power unit directly? -What happens if the third-party intermediary goes bankrupt, or is a fly-by-night firm? Under Internal Revenue Service rules, a business reaping accelerated depreciation need only stay in business for six years. Many of these deals are for up to 20 years. -What about warranties on the installations? Who is responsible for system repairs and who is on the hook in the event of damage to the premises? For example, inverters generally have a life of about eight years. Who is required to pay for their replacement--which can cost about $2,000? For homeowners and small businesses who bind themselves to these solar agreements, it is caveat emptor. In contrast, bargaining parties involved in wholesale power purchase deals between utilities and renewable developers have teams of lawyers sitting around a table who hash out contract terms. (Transparency has also been a big issue in these deals but the parties are sophisticated.) Homeowners and small businesses generally don’t bring lawyers to a table and instead are presented with a complex, unregulated, multi-page contract. I spoke with a representative of one of these companies, SunRun. He said he could not tell me what the kWh price or range would be for a homeowner. He also would not reveal a lease or agreement, acknowledging they were not standardized. It made me wonder what there may be to hide. (Calls to SolarCity were not returned before press time.) I managed to get a copy of an agreement. I have no idea if it is representative of what is out there but when viewing it through my legal lens found some of its terms unnerving. There was an upfront cost for the property owner of more than $10,800. The agreement was several pages of legalese, and the appendix noted there was a 3 percent annual rate increase every year on kWh charges over the deal’s 20-year life. I was told by some sources that annual inflation increases are not uncommon. A California Public Utilities Commission spokesperson said “customers are voluntarily signing agreements with solar [power purchase agreement] contractors, and we are not looking at the prices of these contracts.” Andrew Kotch, CPUC spokesperson, added, “We haven’t analyzed how the prices of PPA providers compares to non-PPA providers.” A CPUC update on the progress of its California Solar Initiative from last October shines a bit of light on average prices for systems bought by the homeowner compared to those installed and owned by third parties under power purchase agreements. It looked at the average cost per watt for direct solar installations and ones involving third parties. Solar installer Akeena’s average rate, for example, was $9.69/watt, REC Solar’s $8.99, Borrego $9.11 and SPG Solar $8.77. In contrast, the third party financing deals provided by SolarCity averaged $10.39/watt. Intermediaries, such as Sun Run, SolarCity and SunEdison arrange the financing for long-term deals and work with solar companies that install photovoltaic systems with willing retail customers. Last week for example, PG&E Corp. subsidiary Pacific Venture Capital and SolarCity announced $60 million in equity financing for solar installations. Policymakers, regulators and solar advocates need to scrutinize how all that hard work and money expended to make the solar initiative happen is being used to avoid not be blinded by the lack of “light” on these contracts. Journalists have a saying that “sunshine” is the best disinfectant. Exposure to the public light--or “sunshine”--is crucial to see just how good or bad these arrangements are, particularly given that state funds are involved. Looking at the bright side, under these deals home or business owner don’t get saddled with burdensome upfront solar installation fees. These financing arrangements have increased the number of solar system installations because they provide alternative funding in a tight lending environment. Also, they’re helping the state meet its goal of 3,000 MW of solar power under the California Solar Initiative within the CPUC bailiwick. But like the 11-year-old on the slopes seeking a smooth tan, state regulators must think beyond the glow of more solar installation. They should require as a condition of reaping the Solar Initiative rebate that these financing deals for small systems with residents and small businesses be transparent, standardized, and written in plain English so they are fair to the consumer. Otherwise, ratepayers, regulators and other supporters of solar power may be incapacitated temporarily or long-term by snow blindness.

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JUICE: Snow Blind

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