Cooperative Solar Purchasing | Local Clean Energy Alliance of the Bay Area

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Cooperative Solar Purchasing

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 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.