Responses to Budget & Finance Committee Questions on the Pilot Solar Energy Incentive Program GoSolarSF Power Enterprise, SFPUC Introduction to the Program The San Francisco Public Utilities Commission proposed to initiate, as a pilot program, the Solar Energy Incentive Payment program, pending before Budget and Finance Committee. The pilot program would provide a financial incentive for San Francisco residents and businesses to install solar (photovoltaic) energy systems on their properties. The pilot Solar Energy Incentive Program, announced in December 2007, and supported by the Public Utilities Commission in Resolution 08-0004, would provide from $3,000 to $5,000 for residential installations and up to $10,000 for commercial photovoltaic installations. The pilot program would offer a one-time incentive payment for local solar electric projects to reduce the cost of installation. The pilot program would have three distinct incentives for residential installations. The incentives are limits on assistance, meaning that the higher incentives are not additive to the lower ones, but are total incentives. The incentive for businesses is a simple capacity-based incentive. Residents Businesses Basic Incentive $3,000 City installer incentive $4,000 $1.50 per Watt a system is designed to generate, up to a cap of $10,000. Environmental justice $5,000 incentive Incentive payments are tied to individual electric meters, meaning that buildings with more than one meter or applicants owning more than one property are eligible for more than one incentive payment, subject to the provisions below. Any system whose California Solar Initiative incentive reservation date is on or after December 11th 2007 would be eligible for the pilot San Francisco incentive. The basic incentive would be available to any resident installing solar generation on his/her own property located within San Francisco. One incentive would be allowed per meter. The city installer incentive would exist to encourage the use of local installation businesses. It would be available to residents eligible for the basic incentive who contract with an installer holding a current San Francisco business registration certificate showing a San Francisco address as the place of business. The environmental justice incentive would be available to installations on property in lower income neighborhoods considered “environmental justice districts” because of their proximity to industrial sites and major highways. The SFPUC will apply the environmental justice incentive payments to installations on properties located within the zip codes 94107 and 94124. 2 The SFPUC intends to fund the pilot program by redirecting $3 million allocated to the Mayor’s Energy Conservation Account toward this program. The Board of Supervisors were asked to endorse the program, and express their intent to appropriate from $2 million to $5 million annually. Running the Numbers The installed cost of residential solar photovoltaics in San Francisco is close to $10 per Watt of capacity. A typical two-kilowatt system on a single-family home costs around $20,000 before rebates and incentives. The California Solar Initiative (CSI) rebate on a system this size is $2.20 per watt or $4400 on the system as of April 2008, and the federal tax credit is $2000.1 Incorporating the $3000–$5000 San Francisco incentive, the net cost will decline to $8,600– $10,600, or about half of the original cost. CSI rebates decline over time according to the amount of capacity put into service, as shown in the table below.2 The highlighting shows the steps within PG&E’s service territory at which rebates are being offered for the week beginning 14 April 2008. California’s three investor-owned utilities (PG&E, SCE, SDG&E) are the administrators of the CSI designated by the program’s regulator, the California Public Utilities Commission (CPUC). One-time (‘EPBB’) rebate for small systems Performance-based incentive (PBI) for large MW in (< 100 kW, per kW installed) systems (> 100 kW, per kWh) Step step Gov’t. / Gov’t. / Residential Commercial Residential Commercial Non-profit Non-profit 1 50 n/a n/a n/a n/a n/a n/a 2 70 $2.50 $2.50 $3.25 $0.39 $0.39 $0.50 3 100 $2.00 $2.20 $2.95 $0.34 $0.34 $0.46 4 130 $1.90 $1.90 $2.65 $0.26 $0.26 $0.37 5 160 $1.55 $1.55 $2.30 $0.22 $0.22 $0.32 6 190 $1.10 $1.10 $1.85 $0.15 $0.15 $0.26 7 215 $0.65 $0.65 $1.40 $0.09 $0.09 $0.19 8 250 $0.35 $0.35 $1.10 $0.05 $0.05 $0.15 9 285 $0.25 $0.25 $0.90 $0.03 $0.03 $0.12 10 350 $0.20 $0.20 $0.70 $0.03 $0.03 $0.10 Notwithstanding the decline in rebates, the number of solar-power installations has been increasing exponentially within San Francisco since the California Energy Commission began gathering data in 1998. In that initial year, the CEC recorded three solar installations, the number growing to around 140 year in each of 2006 and 2007. By the end of 2007, 618 installations had been completed within the city, for a total of 2 megawatts. These totals exclude municipal projects. The objective of the CSI is to stimulate California’s solar market, with a goal of one million solar roofs over ten years from the beginning of 2007. By proportion of population, this goal would equate to 22,850 solar roofs within San Francisco.3 The San Francisco Electricity Resource Plan of 2002 suggested a within-city target of 50 megawatts of solar capacity by 2012. Taking the average size of solar installations within San Francisco from the CEC data—which is around 3.2 kW, encompassing both residential and commercial systems—the 50-MW target in the ERP would equate to around 15,625 solar installations city-wide. Using an average of the year-on-year growth rates in solar installations over the past five years (ignoring the early years because of small sample size), we can project the growth of rooftop solar 1 The federal tax credit is scheduled to expire January 1, 2009. A number of legislative efforts directed toward its renewal/extension are pending. 2 CSI Handbook, page 7. 3 California’s population is around 35 million. San Francisco’s is around 800,000. 4/14/2008 Responses_B&FCommittee_20080416.doc 3 within San Francisco under the CSI. We take the lower of the two estimates of the total potential number of solar roofs within the city (15,400) as the ‘carrying capacity’ which this growth will approach. The GoSolarSF Incentive Payment Effect A $3 million budget for the San Francisco Solar Energy Incentive Program (SEIP) we estimate will fund 707 installations per year, net of administration costs. This estimate assumes around 4 installations are completed on commercial buildings in a year, each receiving a $10,000 incentive payment, with the balance on residential buildings, each receiving on average a $4,000 incentive payment. This is the estimated number of additional projects that could be stimulated by the San Francisco program. The graphs below shows the possible effects of the San Francisco program. Using state data on solar installations city-wide up to the end of 2007, we project the installation rate forward in two ways, incorporating the effect of the San Francisco program in each. The first projection assumes simply that the number of installations will climb towards a ceiling representing the availability of economically available roof space. Implicit in this projection is an assumption that either incentives are plentiful and long-lasting or that the solar industry becomes self-sustaining, by virtue of falling costs. We use a ceiling of 50 MW installed, which is the suggested target for rooftop solar by 2012 in the City’s 2002 Electricity Resource Plan. Out of this 50 MW, a portion will be attributable to the San Francisco incentive. In the second projection, the declining availability and value of state rebates limits the rate of solar installations. The assumption here is that solar power without rebates will remain significantly more expensive than grid power so, as CSI rebates decline, so will the solar installation rate. The Appendix describes the methods in detail. Simple projection of solar installations in San Francisco with and without SF incentive. 16,000 With SF solar incentive (max) Without SF solar incentive 14,000 ons i t 12,000 lla a t 10,000 ins r la 8,000 o s e v 6,000 i t a l u 4,000 m u C 2,000 0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 4/14/2008 Responses_B&FCommittee_20080416.doc 4 Rebate-limited projection of solar installations in San Francisco with and without SF incentive. 9,000 With SF solar incentive (max) Without SF solar incentive 8,000 ons 7,000 i t lla a 6,000 t ins 5,000 r la o 4,000 s e v i t 3,000 la u m 2,000 u C 1,000 0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Under the simple projection, the maximum number of additional citywide installations stimulated by the San Francisco incentive evens out at 3535 out of a total of 13,889, or about one-third. Under the rebate-limited projection, the San Francisco incentive stimulates almost six times as many additional installations (7687 compared to 1324) by the end of 2016. Between these two scenarios lies a middle ground where state rebates will remain available at low amounts almost to 2016, as the CSI originally intended, but also where the cost of solar will decline as the market matures—if not to grid-parity then perhaps to within a fifty percent premium.