San Diego Business Journal

Asked why he robbed banks, Willie Sutton allegedly replied: “Because that’s where the money is.” San Diego’s solar electric companies are also migrating to where the money is by shifting away from residential roofs and gravitating toward commercial installations, according to Damian Gutierrez, president of Solar Electric in Carlsbad, which sells solar components and systems.

Qualcomm Inc. and Hewlett-Packard Co. are among a group of companies that recently installed photovoltaic, or PV, arrays.

“People were financing residential systems based on the equity in their homes,” said Gutierrez. “Now banks aren’t lending, and with the price of houses going down, a $20,000 or $30,000 solar system doesn’t make sense.”

Banks are more willing to lend money on a commercial solar project — provided the customer has a healthy bottom line. PV panels typically have a 25-year warranty, and the current average payback period for a commercial system is eight years. After that, “a solar system is cash literally back in the pockets of these companies,” said Crystal Phelps, president of Sun Solar, the systems integration arm of Solar Electric. With minimal new construction going on, much of the current solar business is retrofitting systems to existing buildings.

On the residential side of the business, greater San Diego has more rooftop solar systems than any metropolitan region in California. The San Diego mix consists of 7,000 PV and 1,000 domestic hot water systems.

“California is the largest PV market in America, and growing at 40 percent on an annual basis,” said San Diego-based Cecilia Aguillon, director of market development and government relations for Kyocera Solar Inc., which is based in Scottsdale, Ariz. San Diego accounts for 10 percent of that market.

Initiative Stimulates Solar Expansion

The California Solar Initiative, established in 2006 under the auspices of the California Public Utilities Commission, has a $2.2 billion budget from 2007-2016 to cover incentives for solar installations. California, which had roughly 400 solar companies prior to the Solar Initiative, currently has more than 1,000. The increased competition has reduced the cost and improved the quality of solar installations overall, said Aguillon. Furthermore, the price of equipment has declined by 40 percent in the past year. She attributed the drop to “economies of scale and lots of competition.”

San Diego-based Solarscape Artistry Inc., whose sister company, Landscape Artistry Inc. was founded 17 years ago, recently added PV systems to its home improvement product lines.

“As business tightened up and homebuilding declined, we came to understand that maybe solar electricity was the home improvement business of the next five to 10 years,” said CEO Adam Zoldan.

Solarscape is pursuing business-to-business as well as domestic sales. “One of the largest expenses for businesses, outside of their human resource capital, is energy and utilities,” said Zoldan. “Energy reduction is a significant opportunity for companies — from more efficient use of computers and lighting to creating their own utility. They are also interested in going green and being good corporate citizens.”

Esthetics, which used to be a stumbling block for solar sales, are not as important anymore, according to Zoldan. “The significant return on investment that you get over a very long term is a much more compelling issue,” he said. “More and more people are understanding the importance of renewable energy; of contributing to your community and your planet.”

As for PV technology, the efficiency and cost of modules is changing rapidly, said Aguillon. German solar incentive programs, based on 100 percent efficiency of systems, is driving these performance improvements. In 2004, a system module achieved 10 percent to 12 percent efficiency, compared with the 20 percent-plus efficiency of some of today’s monocrystalline silicon solar cells. The price for a comparable rooftop installation that cost $10 five years ago has dropped to $6 or $7. Commercial installations are even cheaper, she said.

“The name of the game is to reduce the surface you need and the cost to achieve grid parity,” said Aguillon.

Currently, solar electricity costs about twice as much as conventionally generated power — unless there are incentives such as subsidies and tax breaks in place to reduce the initial equipment and installation cost.

A PV rooftop system is like a micro-power plant, said Aguillon.

“Traditional power plants are 100 percent paid for by everybody, and when you pay for electricity generated by them, it’s a retail sale,” she said. On the other hand, individuals who buy their own PV equipment “are paying for everything upfront” — both the power and the plant.

Utilities Open Wallets to Buy

Assembly Bill 920, which Gov. Arnold Schwarzenegger signed into law last October, could be a game changer.

“The bill, which aims to accelerate the deployment of solar by allowing utilities to buy energy from solar systems, represents a paradigm shift in the market. Instead of buying the system to power your house, you buy it as an investment,” said Aguillon. Public utilities have not yet announced the final details of the plan, including the rate they will pay for the surplus energy production.

“In California right now, innovation is more in the business models than in the technology,” said Andrew McAllister, director of programs for the California Center for Sustainable Energy in San Diego. Leasing models that initially financed larger systems in the institutional and commercial sectors are moving into the residential sector. “The premise is that your average monthly utility bill would go down more than the lease would cost you,” said McAllister.

San Diego County and several of its municipalities are implementing programs for financing the PV installations via a property tax assessment. “It’s a significant opportunity for the homeowner to finance out-of-pocket costs without any out-of-pocket cash,” said Zoldan.

Property assessed finance programs include the Financing Initiative for Renewable and Solar Technology, or FIRST, which was adopted by San Diego County late last year, for property owners in unincorporated areas of the county. FIRST enables residential and commercial property owners to finance new PV installations via their property tax bill.

The county pays for the initial cost of installing a solar PV array and adds that amount plus interest to property tax bills over an amortization period of 20 years. The debt is attached to the property rather than to the homeowner.

“This gets around the uncertainties of how long you are going to be in your home and the upfront cost,” said McAllister. “These enabling financial mechanisms and business models will allow solar to really go massive in a way that it hasn’t yet.”

Power Grid Alternative

By 2020, said McAllister, the San Diego region could conceivably have 1,000 megawatts of small-scale rooftop PV, or roughly 20 percent of the region’s peak demand equivalent. “We’d be generating a lot of energy in the middle of the hottest days.”

The buzzword is integration, said McAllister. “We are done with the days when we can build one big central power plant and have electricity pumped from that plant to customers across an existing set of wires. We are moving toward a decentralized, disaggregated resource mix, which is a big shift from the traditional grid paradigm, and integration is a huge challenge.”

Looking ahead to 2020, Aguillon envisions installed PV systems as a source of revenue for schools, parks and various types of state-owned buildings.

“I see solar not as a novelty, I see us doing more in low-income housing solar installations, and I see local banks getting involved in financing,” she said.

Aguillon warned that today’s PV market still requires government regulatory and policy support.

“Getting rid of metering overnight could kill the market, just when it’s getting ready to take flight,” she said.

Sylvia Tiersten is a freelance writer for the San Diego Business Journal.