Tuesday, June 27, 2006

Visit to China

I just returned from a week in China. A couple of days in Shenzhen (via bus from Hong Kong) with a quick visit to Guangzhou, and a couple of days in Shanghai and environs (mostly, the latter). Since it was a business trip I can't really say anything about what I was up to specifically.

I can say that it was not what I expected. Shenzhen is a bustling metropolis. In addition to being a manufacturing hub - especially outlying areas - what I didn't know is that it's a popular destination for Hong Kong hipsters and other local tourists. Shenzhen attracts them with it's lower priced spas, clubs, restaurants, and golf courses. The night life is non-stop; I couldn't even come close to keeping up (might have had something to do with 18 hour work days).

Everything is new, roads, buildings, cars. Lots of cars by the way (GM, Volkswagen, and Toyota mainly). You still see people hauling things around on bicycles and scooters but cars, buses, and trucks dominate the traffic.

Even in areas far from the "scene", though, one fascinating thing is that everyone seems so young. Shenzhen is without a doubt a boom town. I am guessing that young people from all over China are attracted there for work. The streets, even in areas that can't be tourist attractions, feel like a college town -- people strolling, eating, laughing, talking, late into the night, all well under 30.

We also visited a global engineering firm with an office in Guangzhou. It was a beautiful building, with better equipped and organized labs than equivalent organizations in the US. It was bustling with engineers, scientists, technicians, managers, and support staff; all well educated, competent professionals; and again, 80% under 30 I would estimate.

We are encouraged here in the US to think of Shenzhen and places like it in China as areas where people are exploited and oppressed. No doubt, this exists. But the vibe on the street didn't track with this idea. People seemed awfully glad to be there. There was, if anything, a sense of hope, opportunity, and optimism. People seemed and acted more freely than anywhere I've seen in the US. Now of course I'm not talking about their ability to engage in political activities. I'm only discussing how it felt to intersect briefly with their daily lives.

Everything in Shenzhen is new. Shanghai is old. Well parts of it are old. Everything else is new. Shanghai central has a very noticeable post-colonial, Western influence.

Shanghai feels much less rambunctious than Shenzhen, more established. Hard to explain but it just feels older and more laid back even though it is very busy. I didn't spend much time in Shanghai except in my hotel bed, and one night out at a club, which was a bizarre experience involving a band fronted by 3 tiny Chinese women which performed uncannily good covers of Dr. Dre and Guns n' Roses (among others...)

We traveled from Shanghai, on a new highway, about 1 1/2 hours out into the countryside, and it was beautiful out there - rice farms, nice houses. A lot of new development out in the countryside...business parks, condos that look like they were airlifted in from LA, world-class hotels.

This was in contrast to the highway from Shenzhen to Guangzhou -- also new, but through a gritty, grey megapolis dominated by belching smokestacks and abandoned looking (or were they half-built?) apartment complexes; punctuated by wide, lazy canals populated by massive self-propelled barges.

So there is another part of the story to China, but I didn't see it close-up. As part of my work, I did see several manufacturing plants. Of course, we are very selective about who we work with so they may not have been representative. But, they were top notch and working conditions were not very different from the US.

China is thinking big. I saw from the air (flying on one of China's new, Southwest airlines inspired domestic carriers) a project laid out in the countryside that encompassed perhaps 20 miles on a side, a series of concentric, 4 lane ring roads bisected by equally sized radial roads, each coming to an absurdly precise end at a farmer's field; the innermost ring surrounded a perfectly circular, enormous lake. Who knows what it was all about but it was planning on a scale I've never seen. If you build it, they will come, I guess.

So, to touch on energy. Obviously China is using a lot of energy now. The way it is growing, it will need much more in the future. Nothing new there. But I guess I saw a couple of positive things. Shenzhen has stopped issuing licenses for motorized scooters, to cut down air pollution (those 2-cycle engines are nasty). To me, this is indicative of a growing environmental awareness. Shanghai is advertising itself as the "solar city", and indeed, has a "100,000 solar roof" initiative. There is also some PV manufacturing in Shanghai. There are billboards advertising the Prius, and in fact I saw a couple on the road in China - one near Shenzhen, one near Shanghai. So one can hope that this development will be used as an opportunity to do some technological leapfrogging.

A couple other things. I don't think people would complain about exploitation if a company outsourced to Greece. Yet the general level of development and workplace conditions I saw in and around Athens (when I lived there) was significantly worse than what I saw in Shenzhen and Shanghai. I think that we hear a lot of propaganda about China. People are understandably upset about manufacturing jobs moving over there. Of course people are paid much less, but that doesn't necessarily mean they are exploited. The cost of living is also much less expensive. But anyhow, it sometimes seems like when China gets painted as being horrible to workers and the environment, that's to an extent a smokescreen for a protectionist agenda. Of course all is not peaches and roses in China, but again, there are a lot of places that we don't hear about which are similar. Finally, lest we forget, the US is hardly perfect on the "workers rights and environmental protection" scorecard.

Taken as a whole, what I would say is that as far as what I saw, China is well positioned to kick our butt. Their infrastructure is brand new and expanding; ours is disintegrating. Their educational system is producing highly educated, technically trained workers, who are rapidly gaining practical experience in the workplace. Our educational system is falling apart and it's rare that you find younger people with high levels of responsibility. China's manufacturing capabilities seem to be rapidly catching up to the US.

Finally, the food is really, really good. Just stay away from the water cockroaches and fermented tofu (take it from me).

Saturday, June 03, 2006

Tanzania Fundraising Drive!

Please click on the title to find out more about this project and how you can help make it a success!

CEC considers PBI for New Homes

The CEC is proposing a performance-based incentive (PBI) for PV on new homes. It's still in the works; their proposal is here.

Is this a good thing? There are some serious problems with their proposal...but first some background.

Currently, incentives in California are based strictly on installed system size, in $/Watt - a capacity rebate. The California Energy Commission (CEC) uses a method developed by PVUSA to "derate" the manufacturer's nameplate PV output (at Standard Test Conditions or STC -- test conditions convenient for quality control) to estimated field performance. This is referred to as the PVUSA Test Condition or PTC rating. The incentive is presently $2.80 / Watt (PTC) .

Capacity rebates have advantages and disadvantages. The main advantages are that they are straightforward to administer, highly predictable (the decline steadily with time), can be taken by any party in the transaction, and act immediately to defray upfront system cost. The disadvantage, of course, is that the goal of any incentive program is to reward kWh on the grid, not estimated installed capacity (kW). Systems can (and do) receive full incentives even if installed North facing or heavily shaded. Sometimes installers are unscrupulous; sometimes the customer just doesn't care and wants to put on a big PV array. Either way it's counterproductive.

PBIs deal with the problems of capacity rebates directly by paying the incentive based on actual or predicted system performance.

The most extreme example is feed-in tariffs used in Germany and Portugal, where renewable energy projects are simply paid per kWh generated like any other powerplant but at a significantly higher rate. Making sure the financials work in this structure requires fairly sophisticated performance modeling capabilities. These have been pushed back onto the project developers and 3rd party verification companies, typically hired by project financiers. Also the upfront cost is not defrayed, requiring bankers who are willing to lend to this kind of project. It works fine for big projects in Europe (banks seem more enlightened) but it seems onerous for small projects and difficult in the US.

The CEC has a pilot PBI program where performance is measured over three years and based on this performance, the project owner gets quarterly checks. This is a bit better in that it at least accelerates the payment schedule but still has many of the feed-in tariff issues. The CEC has abandoned this approach for the proposed new homes PBI in part because there is a "split incentive" problem in new homes development -- the developer pays the cost upfront, but the homeowner gets the benefit over time and has sole control over some things that affect performance, like planting trees and hosing the PV off periodically.

For new homes, the CEC is developing a modeling program where all the relevant parameters (specifics on the PV modules, system orientation, shading, etc.) is input, and annual kWh are predicted, for every individual system. From this the rebate is calculated and it is payed in a lump sum after an on-site audit. Another aspect is that the CEC wants to eventually implement advanced metering that would allow homeowners to utilize rate structures that favor solar - such as much higher utility rates during peak periods, when the meter is typically running backwards.

As long as their modeling is accurate this sounds great, right? Well, maybe for retrofits. There are some major issues in new home construction.

The problem is that working with builders, ideally you want to structure big deals for large developments -- hundreds of homes. These are constructed over several years. The builders want to lock in the PV price at the time the deal is signed, to control their risk. At that point in the cycle, roof plans and the orientation of each house is still up in the air. This makes the rebate amount for each house impossible to predict in advance. So, in turn it is impossible to lock in price. This is a major disincentive to builders to think big with solar and lock in deals for entire solar developments. Instead they are forced to negociate much smaller contracts at multiple phases in the development cycle. This is bad for everyone.

Installers in this market should be predicting and monitoring energy output from each system. By making that prediction, and making real time data available to homeowners, they are putting their money where their mouth is. So installers do already have an incentive to make sure the systems are installed in the best orientation possible, and to set customer expectations properly if a non-optimal orientation is unavoidable. One huge advantage of doing PV in new developments is the prospect of repeat sales to the builder. In turn the builders want repeat sales from the homeowners (they want to move them up to bigger homes within their developments). So, if homeowners start to complain about underperforming systems this is a bad thing.

Perhaps if installers were simply required to predict and monitor system performance the issues around poorly performing installs would take care of themselves.

In any event, I expect that there will be some push-back on the CEC with this program. It should be simplified and somehow, the rebates need to be made predictable. There are models where preferentially higher capacity rebates are given for systems in certain orientations, for instance.

As for the real-time pricing, the solar geek in me thinks this is extremely cool - but how can you predict the actual cashflow? If you underpredict you lose sales; overpredict and you have unhappy customers.

The bottom line is this. Remember that the people selling PV-equipped homes are not solar experts, and the potential buyers are not solar enthusiasts. There needs to be a straightfoward value proposition. The intent is to create more incentives for homeowners to demand PV systems; to achieve this the economics need to be predictable and salable.

Different rebates for every home based on sophisticated modeling software and complex real-time pricing structures are attractive to the CEC because it improves accuracy and makes better use of the incentive pool. It also justifies their employment of a bunch of PhDs - my main criticism of the CEC is that it strikes me as the ultimate ivory tower. No doubt, there are merits to the approach, but on the ground it seems as if this proposal just muddies the waters.