stardust localizing

Last weekend, my colleagues in the Local Clean Energy Alliance Kirsten, Leah and I carpooled to a workshop by the Downtown San Jose Solar Project about their experiences setting up a community-based cooperative purchasing agreement.

Cooperative purchasing agreements are a mechanism for aggregating a community’s purchases of solar photovoltaics and thermal arrays. By pooling their purchasing dollars and buying in bulk, people can save 20% or more on their installation. In this arrangement, individuals own their solar arrays. Coupled with the federal and state rebates, this can considerably lower the out-of-pocket cost of solar arrays to such an extent that they are cheaper than purchasing electricity or gas from the utility when the time value of money is taken into account.

Solar City – a solar installation company – was the first in the U.S. to implement community purchase programs whereby homeowners get volume discounts when their neighborhoods go solar and continues to use this as their primary business model. In October 2006, Solar City aggregated a Portola Valley neighborhood’s purchasing power to receive bulk purchase discounts on a total of 343kW of photovoltaics. The threshold for receiving the bulk discount was 175kW. The solar panels were installed on 78 homes within four months with an average residential installation of 4.3kW. The savings for the community aggregating their orders was 20-30% per array installed. After the bulk discounts as well as the CSI incentives and Federal tax credits, the fully amortized monthly cost of these installed systems is less than their previous utility bills. Such programs can be controversial since the “discounts” are being offered by one company in a non-competitive bid situation.

Recently, a neighborhood group – the Downtown San Jose Solar Project – banded together to purchase solar in bulk and find their own solar installer through a competitive bidding situation. They put their collective requirements for three solar systems out to bid by several solar companies to get the best price, quality, etc. As of February 20, 2008, the project includes 24 San Jose homes producing 99kW of electricity. The 24 systems in San Jose will produce 3,560,000 kWh over the systems’ lifetime and will eliminate, according to today’s current fuel mix, about 5,055,861 pounds of carbon dioxide. The community group wants to see this program spread across the Bay Area and hopes the training will inspire people interested in setting up their own community discount programs.

Eight people from San Jose’s District 3 have been working consistently outside of the regular jobs for 3-4 months. The first thing they did was contact their city council person. The District 3 council member Sam Liccardo was very supportive from the start. His staff arranged meeting logistics and a designated staffer attended all the group’s meetings. The meetings were mostly promoted through email lists including the Liccardo’s e-newsletter and several articles in local media.

The largest amount of the group’s effort – about 3 and a half months – was selecting a vendor among those that bid upon the job to install solar voltaics on the first three homes in the project. Following the lead of Marni Kamzam, who writes RFPs for living, they put together an extensive RFP with weighted attributes (e.g., cost is important and therefore rates 5 on a scale from 1-5). Kent Haliburton of REC Solar, the eventual winner of the installation work, said the community group’s RFP was as extensive and professional as any commercial job.

The individuals in the group had the choice of buying their solar system outright or signing onto residential Power Purchase Agreement (PPA) whereby a financing company purchases the equipment, monitors and maintains it, and sells the customer the electricity generated. 75% of the Downtown San Jose Solar Project customers have chosen a residential PPA model from a private solar company called Sun Run, specialists in financing and tax structuring.

Sun Run offers a residential PPA that can be used in cooperative purchasing agreements. It reduces the upfront cost of solar by half and fixes the cost of electricity produced by the panels at a cheaper rate than the customers would pay currently from PG&E for a 20 year period of time. At the end of the 20 year contract, the system can be purchased for an average of $2,000 or the contract can be renewed for a rate that is 10% less than baseline from PG&E at this time. Other companies are scrambling to build this business model (which is very complicated on the backend) and there will be competition in this arena within the next 12-18 months.

Sun Run is able to offer a lower overall price with less money upfront than the householder could get on their own because businesses receive the full 30% federal solar tax credit whereas homeowners are capped at $2000 and those that file the Alternative Minimum Tax can’t participate at all. To increase their margins, Sun Run accelerates the depreciation of the system and does additional proprietary financial wizardry.

After the group selected REC Solar as the installer with the Sun Run residential PPA as a financing option, the group started a 60 day period for District 3 residents to sign up. They deliberated on whether to allow residents from outside District 3 to participate. In the end, they did not market the program outside the District and handled requests from outside the District on a case by case basis.

Overall, it was thought provoking workshop. This effort provides a good model for organizing cooperative buying of solar photo voltaics in the neighborhood context. From what I gather from the example numbers provided by Sun Run, participants got a “community discount” on average of about $2000 or 10%. My main takeaway is that the process is relatively pain free and short (60 days or less) if you already have the installation partner selected. In the conversation with Leah and Kirsten on the way back, I had an idea about cooperative ownership of neighborhood solar that I will follow up with soon.