Solar Shingles, Are They Really Worth It?

Photo courtesy of Tesla

Tesla has done it again. The sexy, cutting-edge, tech company has come out with a product called Solar Tiles, also known as Solar Shingles. This revolutionary product will pave the way for sustainable energy to become the next home-design trend. The 8.65”x14” tiles currently come in two different styles, textured and smooth; the website also shows the two new designs being released next year. How does it work? Glad you asked… The solar tiles are strategically placed all over a home’s roof to maximize sun exposure. The light from the sun is converted into power that is then transported into a Powerwall, or assumedly any other battery system, where the surplus energy is stored. The energy is stored in the Powerwall to guarantee uninterrupted electricity even during bad weather.

Photo courtesy of Tesla

The nice thing about Tesla is that their website allows you to input your address, square-footage, and current electricity bill amount. They use all that information to calculate the percentage of solar tiles you would need, how much it will cost (whether you pay for it all upfront or you finance it), and how much it will save you per month and over the period of 30 years. Now, you may be wondering, “if I only need 40% of my roof covered in solar tiles won’t you be able to notice a difference in tiles?” Tesla has already thought of that. The roof will be made with the same style as whatever tile you select and the remaining 60% of the roof would be covered in tempered glass tiles. Now you’re also probably thinking, “glass tiles don’t sound like they have a long lifespan”. Once again, Tesla is one step ahead of us. These tiles come with a lifetime warranty, and they have proven to be 3 times stronger than standard glass tiles. Tesla’s website has a video of a 2-inch hailstone being thrown at the tiles at 100mph, the other tiles break instantly and the Solar Tile is completely unharmed.

Photo courtesy of Tesla

Now, as all Tesla products are pricey, this one is no different. I can use my home as an example. It’s 2 stories, 3,500 square feet, 5,000 roof square footage, and has an average electricity bill of $280. The overall price for my home would be $132,500, which includes 3 Powerwalls installed in my home and 50% of my roof covered in solar tiles. However, Tesla has it set up to where, not only do you receive a tax credit, but you can finance through your monthly home mortgage payment. For my house, I would receive a $36,900 tax credit and $490 monthly loan payment. If you’re depressed because of the sticker price, I’ll share with you the calculator’s savings estimation. I would save $259 a month over 30 years and $93,300 total for 30 years. Overall, I would most likely break even, considering the cost and the savings put together.

Compare that to a standard solar array, to completely offset my usage it would likely cost around $40,000 before tax incentives. Also keep in mind that because my usage is a little higher than average, I’m having to install a system that is a good bit larger than the average installation in North Alabama.

So, are Solar Tiles worth it? We’re voting no. But only for now. And only because of the price. If Tesla’s performance from the introduction of the Model S to the Model 3 is any indication, Solar Tiles could be a harbinger for much cheaper, mass market products.

The Importance of Reducing Solar Soft Costs

What are solar soft costs? Soft costs are any costs, fees, or taxes that are included with a product after material and labor. While solar energy is worthwhile, thanks to the long term savings and the benefits for the environment, many potential users are hesitant at first due to the initial cost. A significant portion of the heavy sticker price is the “extra” added when taking soft costs into account.

Solar is becoming more prevalent in America, and many users are beginning to see their investment come to fruition. Unfortunately, many potential users are halted before they get started; so let’s look at some of the soft costs and how they could be reduced.

Courtesy of U.S. Department of Energy

As the graph shows, a massive 64% of the cost of solar is due to soft costs. Costs like permitting fees, interconnection labor, installation labor, and installer profit are significant portions of the soft costs, but are also necessary. The solar system needs to be approved by the city (permitting fee), connected to the grid (interconnection labor), installed (installation labor), and the company selling it needs to make some profit to stay open and continue selling their product (installer profit). However, most of the other costs could be trimmed down so there isn’t as much of a cost for each one.

The other portions of soft cost: sales tax, transaction costs, supply chain costs, indirect corporate costs, and customer acquisition, CAN be reduced, sometimes to virtually nothing. Some states actually pay the solar user, through stipends or other incentives, to install rather than charge sales tax; therefore, sales tax could be done away with or reworked so the user gets that cost back. In fact, some states like Florida, do not charge sales tax on renewable energy, effectively eliminating this soft cost.

Transaction costs are costs that come from a third-party lender when the buyer needs a loan and could be reduced to a lower rate. We find that buyers need to be aware of the hidden fees and transactions costs that can quickly add significant cost to their installation. Some transaction costs are unavoidable and more than fair. After all, no one is going to loan you money at 0% interest. That being said, be aware of who is charging what fees and where they’re being charged in the process. Supply chain costs are from the transporting and housing of solar units from the company to the buyer. Better supply chain management and cooperative buying can help reduce this cost.

Lastly, and probably most interestingly, customer acquisition is the cost for the solar installer to reach out and connect its potential customers. This cost is effectively sales and marketing; and while it’s a necessary function, you can immediately see the issue. If hundreds of people contact their local solar installer only to be turned away because of bad site conditions, not being able to finance the system, or any number of reasons, the solar contractor has spent money on a customer that ultimately cannot buy its product. That means this cost must be charged to the next customer who CAN purchase the system. The U.S. Department of Energy and many startups around the country are developing tools explicitly designed to attack this problem. The more information at the fingertips of consumers and contractors helps reduce the amount of time spent on projects that just simply could never be built.

A good way to think of solar installation with lower soft costs is to merely look overseas. Germany is one example of solar installation working without high soft costs and their wide user base is proof it’s effective. By making solar more available (cheaper), Germany has a much bigger user base than the United States and they see more users every year. Although the process of buying solar is different in Germany, they immediately provide savings by getting rid of most soft costs from the start.

Let’s not handicap solar right out of the gate. By working to significantly reduce soft costs, we can make solar more affordable for everyday Alabamians. Quite literally, giving them the power back.

Understanding Public Utility Regulatory Policies Act of 1978 (PURPA)

Defining PURPA

Passed in 1978 as one part of the National Energy Act, the Public Utility Regulatory Policies act (PURPA), provided a major benefit to the production and integration of renewable energy.

The National Energy Act was conceived in reaction to the energy crisis of 1973. It contained a plethora of legislation that would aim to drastically cut the demand for imported oil. One such act, now today as PURPA, would give manufacturers of renewable energy a toe-hold in the door to large scale energy manufacturing and deployment, which is always appreciated. PURPA was meant to promote better energy conservation, domestic power production, and renewable energy construction and integration.

Prior to PURPA, electric utilities were structured in what is known as vertical monopolies, which basically means that they control all aspects of energy supply: the generation, distribution and control were all controlled by one company, which was originally thought to be more effective method of energy maintenance. Well, that is until PURPA was introduced and broke that model and would make it much easier for other energy companies to integrate into the grid.

PURPA also eliminated “rate structure” promotions offered by utilities. Rate structure decreased the cost of electricity by kWh with increasing usage, with smaller increments included, as well.

PURPA’s Role in Renewable Energy

PURPA enabled non-utility generators (NUG’s) to generate and attach energy to the energy grid by breaking the monopolies that held control of it. Not only that, but PURPA also forced utility companies to purchase energy from other energy producers, like producers of renewable energy, if that cost was less than their avoided cost, or the cost of producing the extra energy on their own and delivering it to the consumer. As a result, more and more cogeneration plants were built and implemented into the system. These plants were required by law to harness thermal energy in the form of steam, which would otherwise be wasted if energy alone was produced.

Controversy with PURPA

PURPA was not as big of an issue back in the 1970’s. However, more and more utility providers are having issues with PURPA. Specifically, having to accept renewable energy providers, specifically providers of solar energy, due to the fact that solar energy has become gradually more affordable and viable in energy production over the last few years.

One such controversy has erupted in Montana where the state’s largest investor-owned utility company, known as NorthWestern Energy, filed a claim with the state’s public service commission stating that the current rates of qualified providers (QF’s), which were stalled at $66 per mega-watt hour, was out of date as of 2013. The commission granted the proposal and altered the terms of which QF’s that provided between 100 kilowatts and 3 megawatts received the current avoided cost rate. None of the projects met the criteria.

The Federal Energy Regulatory Commission (FERC) declared that the Montana State Commission had ruled in a way that was inconsistent with PURPA. However, as of this writing, they have not made any movements to rectify the commissions movement, which begs the question as to how seriously PURPA is being enforced.

In another instance, a North Carolina based utility company, Duke Energy, is currently backing a bill that would bring all renewable energy construction to a slow crawl. Introduced by Rep. Dean Arp (R-Union), House bill 909 is encouraging the once halted negotiations between Duke Energy, renewable energy advocates, and other PURPA stakeholders.

The bill would remove all North Carolina renewable energy projects from the umbrella of PURPA, and would throw those projects into a bidding process lead by Duke Energy. The bidding would have a ceiling of a predicted 400 megawatts.

“This bill would crush renewables in every sense, except perhaps in agriculture,” said Chris Carmody, the executive director of the North Carolina Clean Energy Business Alliance. You can read more on the North Carolina controversy here!

But Montana and North Carolina are not the only states seeing conflict with PURPA. Utah and Oregon utilities are starting to call for new contract lengths, rates, and other changes. Solar companies have since stated that the proposed changes would make it impossible to finance solar projects. It is not farsighted to say that further controversy could emerge in the near future.

New Legislation Affecting PURPA

PURPA is seeing a steady decline in significance as most of the contracts signed in the 1980’s are coming to an end. Furthermore, PURPA was amended in 2005 under the Energy Policy Act of 2005. The amendments to PURPA begin on Section E, subsection 1251 through 1254 of the Energy Policy act. Here is a short list of what amendments were made:

  • Each electric utility service shall make available upon request net metering services to any electric consumer the utility serves
  • Each electric utility shall develop a plan to minimize dependence on 1 fuel source and to ensure that the electric energy it sells to consumers is generated using a diverse range of fuels and technologies, including renewable technologies.
  • Each electric utility shall develop and implement a 10-year plan to increase the efficiency of its fossil fuel generation.
Perfect Utility Rate Design

The Ins and Outs of Electricity Rate Design

Electricity rate design has the power to completely alter the energy sector, for better or worse. The world of electricity rate design can be a confusing one, so before we get into which rate design would be most beneficial for you and the energy sector (that’s for a later blog post!), let us first define and explore three of the main types of rate designs.

Fixed Charges and Consumption Charges – The current system for billing electricity for most utilities across the country, this rate design charges fixed fees in tandem with a usage bill and is most common with residential consumers. Fixed charges never change from month to month (as the name implies), as they are there as a result of your connection to the grid. Recently, utility companies across the country have been advocating for significant fixed charge increases. In theory, a fixed charge is there to compensate the utility for the fixed portion of their costs as a result of having you as a customer (for instance, the cost to bill you and read your meter).

Related: Are fixed utility charges bad for consumers?

Time of Use – This system is decidedly more complicated than the previous one, and would require some work on the part of you, the consumer. The idea is simple: the cost of using electricity would change according to the time of day (for instance, customers would be charged higher rates for using electricity during specified peak demand times).

Figure 1: An example of a suggested TOU rate for summer months. Source: www.pge.com

The execution of Time of Use (TOU) rates (such as advocacy and ensuring customer understanding) is where the system becomes more complicated. States such as California and Massachusetts have already adopted a TOU rate design, and our own Tennessee Valley Authority has also proposed making the transition to TOU rates. Additionally, TOU rates are already available in most states on a voluntary basis. At its most basic, TOU rates provide price signals to customers to encourage them to use when rates are low and conserve when rates are high.

Related: 6 Reasons Why Time of Use Rates Are the Best Option

Peak Demand Charges – In many states and especially for commercial customers, electricity use is billed in two ways by the utility: based on consumption, that is, how much electricity you actually used in a given period, and peak demand, or the highest capacity required during that billing period. A simple way to think about this is with an analogy: the odometer in your car would represent the “consumption,” and the fastest speed you traveled during that period would be the “peak demand.” Your car needs to be able to last for a long time (high mileage) but also may need to go fast from time to time (of course, if you drive a Tesla Model S, that’s all the time! But we digress…). In the case of this electricity rate design, you would be charged for both consumption and peak demand, and oftentimes these two charges appear as one combined charge.

The main idea behind peak demand charges is that they provide customers with price signals to encourage them not to make large, instantaneous demands on the systems but instead to spread their usage out over the day more smoothly. Depending on the rate structure in a given area, and your habits, demand charges can constitute up to 30% of an electricity bill.

Related: Probing Residential Demand Charges

 

What is the Utility Death Spiral?

The “utility death spiral” sounds pretty scary, doesn’t it? It could be if you’re a utility company. In 2013, the Edison Electric Institute (EEI) released a report positing that an eroding revenue stream, declining profits, rising costs, and ever-weakening credit metrics would diminish the ability of electric utilities to survive in an increasingly off-the-grid world.

“Recent technological and economic changes are expected to challenge and transform the electric utility industry,” the report said. “These changes (or ‘disruptive challenges’) arise due to a convergence of factors, including: falling costs of distributed generation and other distributed energy resources. Taken together, these factors are potential ‘game changers’ to the U.S. electric utility industry.”

The report gave no indication as to when this “utility death spiral” would begin happening, and, to date, no major U.S. utility has gone defunct. Is the utility death spiral, then, simply a myth? Not necessarily.

In an article from 2015, William Pentland of Forbes argues that “the predicted casualties of the death spiral have turned out to be the victors and the predicted victors have turned out to be the casualties.” In this case, the “victors” are the utility companies and the “casualties” are the distributed renewable energy companies. SunEdison, for instance, a supposed “victor” in the report, had lost more than two-thirds of its market value in 2015.

While that may have been the case in America in 2015, utility companies in Europe have hit a bit of a bump in the road since the report was released. The German mega-utility RWE lost more than $3.8 billion in 2013 as it closed down numerous unprofitable fossil fuel plants. Similarly, in the same year, the Swedish utility company Vattenfall experienced $2.3 billion in losses due to a “fundamental structural change” in the electricity market. Clearly, as grid maintenance costs increase and the cost of renewable energy decreases, more customers have substantially reduced their energy consumption from the utility or moved entirely off the grid. According to the Wall Street Journal, 16 percent of German companies are now completely and entirely energy self-sufficient. This massive shift in the energy sector could spell the end of many utility companies.

But what about across the pond, here in America the beautiful? What has happened since 2015, when renewable energy was cited as a “casualty?” As it turns out, a lot – especially in California and Hawaii.

California has seen the most progress in this area. Because of its successful energy-efficiency policies and its policies supporting utility-scale solar and rooftop solar, the state has helped more than half a million customers go solar since 2007. As a result, utility companies there have seen the beginnings of a utility death spiral. California regulators predict that, by 2020, 85 percent of customers in the state will be using electricity from entities other than investor-owned utilities.

In Hawaii, electricity prices are far higher than anywhere else in the U.S. Naturally, this means that many customers have been making the switch to solar. However, because so many customers were installing solar, utilities have had to place restrictions that prevent some from even turning on their systems. So many Hawaiians saw the positives of solar that they were literally breaking the system. Nice.

Does Hawaii’s need to restrict solar mean that your state will have to do the same? Not at all. The main reason behind the restrictions stems from Hawaii’s isolated grid. Because there are no power lines linking Hawaii with the rest of the U.S., the utility has nowhere to discard excess solar power. Obviously, this is not an issue with continental states. Because of its isolation, Hawaii has had to rethink the way it does electricity, and we think the rest of the U.S. should be in on that too.

While the utility death spiral is, in fact, a real thing, there are some things that can be done to make the transition to solar as smooth as possible. For instance, good rate design and policies can protect consumers and utilities and help manage the transition without large disruptions in the market. Stay tuned for a future blog post where we will talk about these solutions in more detail.