1. Selling Residential Solar—A Market Based Approach Presented by: Gerald Bernstein, Stanford Transportation Group and Claire Starry, TDS Economics Presented to Silicon Valley Chapter National Association for Business Economics October 13, 2009

2. Introduction  Brief Review of the Status of Solar PV  Costs of Residential Solar PV  Costs of utility-provided electricity  The basic economics (or lack-thereof) of residential solar  High electricity consumers—where to focus if CA is to economically achieve emission-reduction targets

3. Current Situation: Solar Has A Long Way to Grow

4. Residential System Component Costs Residential System Costs in California ($/DC W) - Panels$5.00 - Inverter$1.00 - Balance of System$2.00 - Installation Labor$2.00 - TOTAL$9.00 Residential typically are 3 – 4 kW, $27,000 - $36,000 Due to oversupply, panel prices are down Due to recession, labor costs are down

5. Residential Systems with Rebates and Tax Credits (4 kW system) Nominal System Cost: $36,000 Federal Tax Credit (30%) - $10,800 CA Solar Initiative (CSI) Rebate $1.55/W - $ 6,200 San Francisco Rebate ($2,000 - $4,000) - $ 4,000 NET INSTALLATION COST $15,000 (approximate A/C output in SF = 6,000 kWh/yr) Some locations (Berkeley, Sonoma Co) offer upfront loans repaid with 20-year charges on property tax bills New Jersey uses market-based Solar Renewable Energy Credits (SERC) with the utility “buying” credits annually from homeowners Germany’s Feed-In Tariffs have propelled it to #1 worldwide. But… solar has not met its intended purpose of replacing nuclear reactors

6. Estimating Financial Returns for Residential Solar Installation First step is to compare the costs of purchasing from electric utilities versus the cost of installing rooftop solar systems.

7. PG&ESDGESCELAWPPASMUD Gas & Electric Low3,7003,8323,7054,2003,6507,920 High5,3005,49410,4756,000 All Electric Low6,4004,8184,7804,2003,65010,920 High10,1008,74212,7936,000 Estimating Financial Returns for Residential Solar Installation The next step is to identify the baseline consumption levels Tier 2 goes to 30% over baseline Tier 3 goes to 100% over baseline Tiers 4 and 5 are those where rates are the highest. Baseline Amounts: kWh per year

8. Estimating Financial Returns for Residential Solar Installation Estimated IRR for PV Solar Systems for Households Consuming 20,000 kWh per Year and Served by Investor-Owned Utilities Sources: TDS Economics and Stanford Transportation Group

9. Finding Households that Benefit from Residential Solar Installation Distribution of CA Residential Accounts by Investor-Owned Versus Municipal Utility Accts. 2004MWh 2004 (Millions) 12.384.0 (Percent) Investor-Owned Utilities79%78% PG&E36%35% SDGE9%8% SCE33% Publicly-Owned Utilities21%22% LAWP10%9% SMUD4%5% Source: California Energy Commission

10. Finding Households that Benefit from Residential Solar Installation Distribution of CA Households by Annual Electricity Consumption Source: 2005 RECS Survey, DOE, 2009

11. Finding Households that Benefit from Residential Solar Installation Criteria used to select solar households: Single family dwelling units. Households served by investor-owned utilities Smallest system installed is 2 kW A household would be willing to install solar only if it can financially justify a 2kW system (generating about 2,500 kWh per year) based on an expected IRR of 5% or higher. For respondents living in single family attached or detached housing with consumption exceeding 14,500 kWh per year with all-electric utilities and 10,500 kWh per year for other households, we assumed that 75% would have a financial incentive to put in sufficient solar power to generate enough electricity to lower their purchases from utilities to 12,000 kWh (all-electric households) or 8,000 kWh (gas and electric households).

12. Finding Households that Benefit from Residential Solar Installation Estimated Number of Households with Financial Potential to Install Solar Panels Sources: TDS Economics, Stanford Transportation Group Number of Households Amount of Electricity Consumed Potential for Solar Solar as a Percent of Total MillionMillion kWh Percent Total Households12.184,5889,53911% Not Candidates for Solar Power10.359,380-0% Candidates for Solar Power1.825,2089,53938%

13.  More than 1 million CA households can benefit financially from rooftop solar systems with the potential of installing over 10 times the state’s goal of 577 MW of residential capacity.  The state should focus on the limited group of households with a financial incentive to install solar systems. This would reduce the need for subsidies.  We expect programs to finance solar systems to continue to evolve. Any form of “emission” or “carbon” tax will accelerate solar developments.  But we remain a LONG way from widespread adoption. Conclusion Market Forces Can be Used to Help the State Meet Its Million Roofs Goals