Hello Death: Are You coming for me?

Will Death visit Solar?

After all the federal, state and local rebates it still costs quite a bit out of pocket to put solar on your house. For most people, that stops them in their tracks, but the solution is simple right? just finance it. But what happens when the credit market crashes? ...more/less

Will Death Visit Solar?

Why the collapse of credit is so dangerous for solar

by Steve Newcomb

If you answer no to any of these questions, then keep reading:

• Did you know that we need to have about 20% of the homes in the world to have solar on top of them before we make a significant dent in carbon emissions?
• Did you know if you increased the rate of adoption of solar in the US for a full year by 6,000X its current rate, we would only reach 1% adoption by the end of that year.
• Do you know anyone who can tell you who to trust to install solar?
• Do you know the difference between quality solar panels and piece of crap?
• Can you name even one solar company that you would consider a trusted brand?
• Do you know how much solar should cost per KW installed?
• Do you know what your options are for financing solar - and within them what is a good deal and what is expensive?

Well if you answered "no" to any of these questions, then you are not alone. In fact, you are in the majority. Most people answer "no" to every single on of these questions. So how in the world are we ever going to get people to adopt solar?

When television came out, everyone knew what it was, but it wasn't until prices came down and trusted brands emerged that adoption took off. Fortunately for the television industry, that happened quite rapidly. But why has it taken decades for solar to get to just .2% adoption in the US?

Until recently, solar has really only been an option of the wealthy. So what do we need to do to get it into the hands of the every day family? How can we make it like buying a television?

First, let's admit that buying solar will never be like buying a television. It's much more expensive and complex, but we should look to ways of characterizing the transaction in a way that makes it simple and understandable for consumers.

So in a vain attempt to do that let's look at how much it actually does cost to buy solar by breaking it down to a ridiculously simply example that probably has many things wrong with it as a result of over generalizations. (note: I'm covering my ass here)

Let's imagine that an average home would cost about $40,000 to install solar if you simply bought everything outright - and that would add up to covering say maybe 70% of your energy bill for the next 20 years (after which let's assume they need replacing) So if 70% of my energy bill is $200 per month, and that is the amount I no longer need to pay, then $200 X 12 X 20 is my savings to switching to solar = $48,000.

Hmmm.... ok so I guess it makes sense - IN 20 YEARS! - most people want to have a payback a little sooner than that.

So the government said, "ok, we could either wait until natural market forces and innovation reduce the price (which decades of relying on this strategy hadn't worked) or they could step in a provide an artificial influence that made the investment pay off faster than 20 years. So the federal government, followed by state governments, followed by local governments stepped in and provided rebates.

Ok. so let's look at the net effect. If you added up all of the rebates, that $40,000 price tag is now reduced to about $12,000 give or take. So let's redo the calculations. At $12,000, I break even in 5 years. That's better, but it is still 5 YEARS! So what happened to the adoption rate you ask - welp, not much. It seems 5 years and $12,000 is something that Americans just don't have.

The problem is that even with massive rebates from government, it doesn't get us where we need. Massive adoption will not occur until a consumer can switch to solar and it is cheaper than their utility from day 1 - so what is supposed to happen from here? Well, the idea is that various financing options would come in to provide options to take care of that last pesky $12,000.

in other words - the credit industry. In the late summer and early fall of 2008, there was a flurry of activity around creating a Solar Lease through Tax Equity Credits. Solar City, one of the largest installers was awarded a $100 million financing deal with Morgan Stanley to create the Solar City Lease. This lease was made available to consumers and guess what happened?

Over 80% of people in the sub urban areas chose to financing and demand went through the roof (no pun intended) In reaction, the whole industry went into a flurry. Panel manufacturers increased production, all of the installers sought similar types of financing options, the whole industry started hiring, acquiring, buying selling and it really looked like the engine of this industry had finally turned over the crank successfully and started up in first gear.

Unfortunately, that lasted about 1 quarter. Soon after this Boom (if you can call it that) the world economy fell apart, so did the credit market and Morgan Stanley had to pull out of the financing deal - thus leaving the solar industry in a lurch - with no money for creating a lease adoption quickly stalled.

Customers, who had signed deals with leasing attached were now in an awkward position. Solar companies that had to deal with angry customers and had geared up to expand also found them selves in tough spot. The whole industry seemed to revert back to the pre-"actually working" industry before financing came along.

Does this mean that solar won't survive. Not at all. In fact it means, that we already know how to make solar work, we just need to solidify the financing component. So how are we going to do this? Well here is my take:

As you know, 1 Block Off the Grid, which is owned by Virgance (which is a company that I am Chairman and CEO and own a significant amount of stock) is playing a key role in the solar industry to solve this problem.

1 Block Off the Grid is organizing city-wide solar buying clubs for the purpose of 1) getting financing in bulk and 2) using our consumer buying power to reduce prices. In the last 6 months since the economy fell apart, 1 Block Off The Grid has signed a major deal to provide $100 million in financing solutions in partnership with a new company called SunRun 2) we are working with local governments to create a new type of financing and we are looking at having access to about $150 million of that by the end of this year and 3) we have driven prices down from $7.25 per KW installed when we began to as low as $6.09 per KW installed.

The next result of the combination of 1 Block Off the Grid being born and the the collapse of the credit industry could end up being a net gain for the consumer. 1BOG, as we call it, can now offer solar at $1,000 down (5 months to payback) with month payments less that existing energy bills. In addition, the prices are continuing to drop - albeit not as a result of 1BOG, but rather as a temporary correction in market forces. When the panel manufacturers when into super production last year, then the market fell out, the result is an over supply of panels - thus the prices are dropping rapidly.

So actually, right now is the best time to buy solar - so check it out.

Posted by Steve Newcomb on March 18, 2009 10:05 AM | Permalink