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.