Friday, September 24, 2010

SUN Edison CEO Predictions

Every industry has a rock star. The financial industry has Warren Buffet. The tech industry has Steve Jobs. The oil industry (and now wind industry) has T. Boone Pickens. And the solar PV industry has Jigar Shah.

So what makes someone a rock star in the business world? Well, success is a prerequisite. As the founder of SunEdison, a firm that pioneered the commercial solar power purchase agreement in North America, Shah's rise in his mid-thirties was one of the first high-profile success stories in the modern solar industry.

But achieving rock-stardom is about much more than being a good businessman. Even Shah (who has never proclaimed himself a star of the solar industry) admits that financial success is only a very small part of industry success – especially in renewables and efficiency.

“You can really make a ton of money in these areas and never make a difference. And that's really sad,” he says.

He points to the energy efficiency sector where numerous $50 million-a-year businesses have barely made a dent in Americans' wasteful energy consumption. The same could be said of the solar industry, where a company like thin-film manufacturer First Solar – with revenues of over $2 billion and a market capitalization of $12 billion – is leading a market that represents a tiny fraction of the overall energy mix.

But Shah believes that solar is on a path toward high penetration. He criticizes those who say solar is too expensive, or that we need breakthrough technologies to make any difference. He believes that the positive indicators are staring us in the face, and anyone who doesn't see them is blind or purposefully ignoring them.

And this brings us to another defining trait of a rockstar: Someone who is able to envision and articulate the future of an industry, even if that vision is not always consistent with conventional wisdom (i.e. solar is too expensive, solar is too intermittent, the technology is not ready).

I had the opportunity to co-host a web conference this week with AltaTerra research about the outlook for the solar industry through 2013. Shah was the featured speaker, and he offered a lot of insight into how this very volatile market will play out over the next few years.

The theme of his talk was “The Solar Industry Controls its Own Destiny.” By this, he means that the pieces are already in place for companies to put massive amounts of solar online. It's about building strong businesses now, not blaming politicians or the fossil energy industries for setbacks.

Here's a quick summary of the key points he made:

The magic number for solar is $2 a watt installed. At that price, 30% of the global electricity supply could be cost-competitively met by solar PV.
By 2012, the price of a 1 MW crystalline-silicon solar PV system will dip as low as $2.60 a watt installed, putting solar well within the $2 per watt threshold.
Due to these prices (ranging between $4.60 a watt and $2.40 a watt), existing solar technologies will make a substantive impact today – no third-generation solar technologies needed. Shah believes the incessant focus on “breakthrough” technologies, while important in the long-term, distracts us from the realities of what we can do today.
We can expect to see about a 35% compound annual growth rate through 2013, with a 65% growth rate in North America, 18% growth in Europe and 68% growth in emerging markets like India, Singapore and China. The industry will put about 20 GW of global capacity online in 2012.
As solar reaches the $3 per watt installed range and starts to move below that level, utilities are developing solar for reasons other than regulatory pressure. For example, according to a Florida Power and Light executive, solar PV is now cheaper than new coal facilities in that utility's service territory. In addition, the Georgia PUC reported that a new nuclear facility would raise utility bills in the state by $1.30 a month. But a combination of solar, thermal storage and dynamic load control would have raised rates by only $1 a month.
Due to fewer regulatory and capital constraints, distributed generation will rule the day. With over 3 billion square feet of flat roofs installed globally each year, around 20 GW of solar could theoretically be accommodated. While centralized generation like CSP will be important, Shah says that the complications associated with permitting and building new transmission lines for mega-projects will slow down growth of that sector.
The best companies will be all-stars in international finance. As markets shift year by year, understanding how to finance projects across a variety of markets will be critical to success. Companies that are financially nimble and sophisticated will lead in solar.
Most innovation will take place downstream, not upstream. Shah believes that the low hanging fruit to reduce costs is in the balance-of-systems sector (inverters, power optimization, tracking software, racking, wiring, labor) and in sales and distribution. (If we can create incredibly sophisticated channels for toasters and flat screen televisions, why can't we do the same for solar?) He also believes that lead generation, sales and installation will be separated.
Given all these trends, Shah says that solar will reach a 5% penetration in the U.S. by 2020.
He admits that the policy environment for solar is still sketchy in some markets. But rather than "bitch" about not getting equal support, he says the industry should be telling the fossil energy industries, "we'll get rid of our tax incentives if you get rid of yours."
Shah's main point throughout the presentation was that the industry already has a good business environment to build from – it is no longer about what “they” are going to do to support solar. It's about what “we” are going to do to grow the industry. Even without the full support of heel dragging politicians and utilities, there's still plenty of business to be done.

To check out this web conference, go over to the AltaTerra website. You'll find some other web conferences that might be of interest too. Over the coming months, will be working with AltaTerra to put together more online conference sessions, so be on the look out for those.

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Tuesday, September 21, 2010

Electric Vehicles to Stabilize Grid

WASHINGTON--The top regulator of the wholesale electricity markets said that electric-vehicle drivers should be able to make money selling services to grid operators.
Federal Energy Regulatory Commission (FERC) Chairman Jon Wellinghoff today said electric-car owners could make as much as $3,000 a year providing what are called ancillary services, such as frequency regulation, to stabilize the wholesale electric market.
Those types of services are technically possible today but regulations need to be changed and new businesses need to be formed before EV owners are active sellers into the grid, Wellinghoff said. But he predicted that within three to five years, vehicle-to-grid services will be available throughout the U.S.
"There's a business model question but beyond that, there are no other barriers," Wellinghoff said in a briefing with the media after a speech at the GridWise Global Forum here.

Getting money for grid regulation services from electric-car batteries could lower the cost of car ownership, says FERC Chairman Jon Wellinghoff. This is a photo of his slide during a speech today at the GridWise Global Forum.
(Credit: Martin LaMonica/CNET )
Grid operators need to keep supply and demand in constant balance to ensure that there's a steady frequency on the grid. Right now, they call on power generators to ramp up the supply of power. But cutting back on the demand side can maintain grid frequency as well.
Electric vehicles can provide frequency regulation, a service that's needed at all times of the day, by slowing their charge rate or supplying small pulses of power into the grid. The University of Delaware is now conducting an experiment where five plug-in vehicles are providing frequency regulation to grid operator PJM when cars are charged over night. Google has also proposed this idea and developed some experimental software to manage electric-vehicle charge rates.
Before electric-vehicle owners could get paid for grid service, another company would need to aggregate the electricity reductions of many cars. Right now, reductions need to be at least 1 megawatt, which would require perhaps hundreds of cars to meet that threshold.
During his speech, Wellinghoff said that regulations should be modified to give demand-side power reductions the same amount of money as power generators do. This would apply to not just electric-vehicle-delivered services but different efficiency steps electricity consumers do at home or in businesses.
Wal-Mart, for example, has an energy-management system that allows it to provide demand-response services, where consumers lower energy use during peak times. The Brattle Group did a study which found that billions of dollars can be saved on energy spending by shaving peak-time demands, Wellinghoff said.
FERC has proposed making a change to rules so that electricity consumers can get paid an equal amount as power generators for demand-side reductions, but it is opposed by power generators, Wellinghoff said.
"We got the technology to do it. We need to let people make money doing it," he said. "The smart grid is all about the demand side."

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Tuesday, September 14, 2010

Ontario Growth Strong, but Module Supply could be a bottleneck

Toronto, Ontario, CAN -- Independent research and advisory firm, ClearSky Advisors has released a report that states the Ontario PV market will install 694 MW in 2011, including 186 MW of Renewable Energy Standard Offer Program (RESOP) projects. All of the growth is attributed to the provinces's feed-in tariff.

ClearSky Advisors says this market growth will propel Ontario into the top 10 of the world’s solar markets.

But the growth won’t happen unencumbered. The study shows that demand for bankable Ontario-made modules will exceed the expected supply of 386 MW in 2011. Starting January 2011, FIT rules require 60% of components in a PV installation to be made domestically. Lenders require equipment to be “bankable,” meaning it has a quality track record and financially solid warranty. To date, there aren’t enough manufacturers in Ontario that will be able to meet the demand.

“The Ontario FIT program certainly has created opportunities for individuals, developers, manufacturers and financiers alike” says Jon Worren, co-founder of ClearSky Advisors. "While interest in the Ontario market remains high, it is clear that the market is facing some immediate and significant growth hurdles."

Thursday, September 2, 2010

Understanding Treasury Grant - Beginning Construction

The Treasury Department recently issued a series of FAQs in an effort to clarify when projects will be treated as having "begun construction" for purposes of the section 1603 grant. As you may be aware, a project that otherwise qualifies for the grant but is not placed in service before the end of 2010 may still be eligible for the grant if construction on the project is begun in 2009 or 2010 and the project is eventually placed in service before the applicable "credit termination date." The new FAQs address a number of the unanswered questions. However, the framework adopted by the Treasury Guidance and the new FAQs is complex, and there appears to be a considerable amount of confusion among developers about how the "beginning construction" requirement can be met. Therefore, we thought it important to issue this alert.

“Beginning Construction”

There are two distinct ways to begin construction pursuant to the Treasury Guidance: (1) actual physical activity; or (2) the expenditure of money. These tests are entirely separate, and what counts toward meeting one test generally will not affect qualification for the other.

1. Physical Activity Test

Actual physical activity is the first test for beginning construction. The Treasury Guidance states that “[c]onstruction begins when physical work of a significant nature begins.” FAQ 4 provides that even a small amount of physical activity will meet this requirement. However, FAQ 5 states that Treasury will scrutinize projects where the physical activity, once begun, does not involve a continuous program of construction. In other words, Treasury will evaluate whether work begun in 2009 or 2010 is carried on continuously and may disallow the section 1603 grant if it is not.

The Treasury Guidance and FAQs provide that both physical work done by the applicant itself and physical work done by others pursuant to a binding written contract may be taken into account. In addition, work done both on site and off site may count in meeting the physical activity test.

Importantly, there are specific requirements that must be met for a contract to be considered binding for purposes of section 1603, and only work done after the binding contract is entered into will count for purposes of this test.

On-site work may include excavation for foundations, pouring of concrete pads, building of certain roads, and assembly of machinery. Off-site work may include the manufacture of component parts, such as boilers or solar arrays, to be assembled or used on site. Preliminary work, such as planning and design, securing financing, researching, and site clearing, does not qualify. Physical work of a significant nature may begin even if a specific site for the facility has not been identified.

2. Expenditure Test – The 5 Percent Safe Harbor

As an alternative to the physical activity test, the Treasury Guidance provides that construction begins if a safe harbor is satisfied. To qualify for the safe harbor, an applicant must have “paid or incurred” more than 5 percent of the total cost of the property on or before December 31, 2010. As with the physical activity test, these costs must be paid or incurred pursuant to a binding written contract. This is strictly an expenditure test; physical work is neither required nor relevant. There has been considerable confusion about this test.

The term “paid or incurred” has a specific meaning for tax purposes, based on whether the taxpayer is an accrual method or cash method taxpayer. For accrual method taxpayers, mere payment of an expense (e.g., making a nonrefundable deposit) generally is not sufficient for the expense to have been “incurred.”

For purposes of the safe harbor, the general rule is that amounts are not treated as paid or incurred by an accrual method applicant until the property or services have actually been provided to the applicant by the contractor (or until the payment date, if the property or services are reasonably expected to be provided within three-and-a-half months of the payment date).

In addition, the Treasury Guidance provides that, if there is a binding written contract but the property or services have not yet been provided to the applicant, costs may be treated has having been paid or incurred by the applicant when costs have been paid or incurred by the contractor.

3. Pros and Cons of the Two Tests

The 5 percent safe harbor is useful if physical work, either on site or off site, will not begin before 2011. Conversely, where it is possible for physical work of a significant nature to begin before the end of 2010, the 5 percent safe harbor has limited application. However, one advantage of meeting the 5 percent safe harbor, rather than the physical activity test, is that there is no requirement for the safe harbor that construction be continuous (see FAQ 22).

Planning and Drafting for Meeting the “Beginning Construction” Requirement

It is important that various agreements, such as EPC and BOP contracts and turbine and other equipment supply agreements, address how the “beginning construction requirement” is intended to be met. Where necessary, these agreements should be drafted to ensure they meet the requirements for “binding written contracts.” It may also be appropriate for them to set specific performance and payment deadlines, and to obligate particular parties to provide reports, allocate costs, etc. in order that the application for the section 1603 grant can be completed. Finally, the agreements should address the question of allocation of risks if the various requirements for “beginning construction” are not met.


Developing and implementing a strategy for satisfying the “beginning of construction” requirement requires a thorough analysis of the particular transactions being considered. In addition, great care must be exercised in drafting the various agreements to ensure that they address the various requirements.

We would be pleased to assist you in accomplishing these goals. Please contact one of the Stoel Rives attorneys listed below.

Smart Meters Accurate

An independent review of smart meters installed in Northern California by utility Pacific Gas & Electric found no technical flaws, but a poor roll-out with customers.
The California Public Utilities Commission on Thursday released the evaluation of PG&E's controversial smart-meter program, which was conducted by consulting company The Structure Group.
After PG&E installed two-way meters in Bakersfield, Calif., customers complained that their utility prices shot up, which they blamed on the new meters. Since then, there have been questions over PG&E's handling of the program by regulators and push-back from various communities in its territory.
Earlier this summer, the CPUC contracted with Structure, which tested 750 smart meters and 147 old electromechanical meters. The test found that smart meters reported accurately and that customer billing matched the expected results.

A smart meter from PG&E
(Credit: PG&E)
However, Structure identified problems in PG&E's customer service. In reviewing 1,378 customer complaints, Structure said PG&E didn't meet industry standards, leading to people receiving multiple bills or not having questions about smart meters answered.
"The report is encouraging in terms of the performance of actual meter hardware. However, I am very concerned about PG&E's performance in terms of industry best practices and how in some of the best practices areas, PG&E's performance has actually declined," CPUC Commissioner Dian Grueneich said in a statement.
PG&E's rocky experiences in rolling out smart meters in California has taken on national significance with other utilities trying to learn from PG&E's missteps in introducing the new technology. PG&E's meters allow people to view their energy usage on a daily basis, which helps people better understand their consumption and save energy.
In another case, smart meter installations by utility Oncor in Texas have created complaints from consumers over prices. A review found that that those meters are accurate.
Earlier this year, PG&E released an internal report identifying problems with its smart meter program, which led to a revamp of its customer service operations aimed at better educating customers. About 6.6 million gas and electric meters have been installed so far and the company plans to install 10 million by 2012.
Apart from the accuracy of meters, consumer groups are raising health concerns about the electromagnetic field from smart meters, which transmit information once an hour using a radio frequency.
On its Web site, PG&E says that radio frequency emissions from smart meters are lower than other common electronic devices, such as Wi-Fi routers and cell phones. At a press conference on Thursday, PG&E's Chief Customer Officer Helen Burt echoed those statements and pointed to experts on this question.
A number of cities and towns in PG&E's territory have considered moratoriums on smart meter installations. Senior Vice President of Corporate Affairs Greg Pruett said that PG&E is holding open houses with customers and other groups. "We genuinely believe as we work and talk with customers and show that we are genuinely interested in listening to them...ultimately those cities and counties considering moratoriums will reconsider that desire," he said.

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