Recently we discussed whether you can save money by installing solar panels on your home. To follow up, we sat down with Jason Brown, CEO of Gen110, a distributed energy company that provides a cost-effective, alternative way for heavy energy users to purchase residential electricity. Gen110 serves over 2,000 customers in California, protecting them from rate hikes by producing ~13 gigawatt hours of electricity annually at their own homes.
So, who does residential solar make sense for?
Jason Brown: Heavy electricity users who live in states with the highest electric costs and adequate sunshine. At Gen110, we are focused on the raw economics of residential solar – we must match or beat the current electric rate in order for it to make sense to the homeowner. We believe that currently, residential solar only makes sense in California, Hawaii, New Jersey and Massachusetts.
In California, anyone who pays over $120/month for electricity should investigate residential solar as a means to protect themselves from future rate hikes.
Table 1: Average Residential Electricity Cost (cents/kilowatt hour)
|District of Columbia||13.76||14.01||13.40|
Source: US Energy Information Administration (www.eia.gov)
Can anyone throw panels on their roof and start saving?
JB: People often associate residential solar with savings upfront, but the bigger benefit comes in the form of rate hike protection. PG&E just asked California regulators for permission to collect and extra $5.25B from customers over the next three years. The money would go towards grid maintenance. This would raise the average homeowner’s bill 15% by 2016.
Sadly, it doesn’t make sense for everyone. Only one in 10 homes is suited to residential electricity generation. The key factors that drive the economics of whether it makes sense are:
- Heavy energy usage – >$120/month
- Roof characteristics: type of material, pitch of roof, and direction the roof faces. Composition shingle and concrete tile are best. It’s not impossible to do with wood shake roofs, but it means that the other factors need to be aligned just so to make the economics work.
- Not too much shade covering the area where you’d put the panels.
What are the key drivers in rate hikes?
JB: Transmission and distribution costs are a significant portion of your electric bill. People generally don’t want power plants in their backyards, so coal-fired and natural gas power plans are located far from population centers. This requires a large transmission network to carry the electricity to your home.
It costs $15 to deliver $10 worth of energy, and given the aging distribution infrastructure, maintenance costs will only continue to add up. Getting a network of distributed energy generation (e.g. solar panels on homes) in place reduces transmission and distribution costs.
Does residential solar make sense in the absence of subsidies?
JB: In California, residential solar is viable without subsidies. There are two kinds of subsidies, Federal and State. The Federal subsidies expire in 2016. We project that by 2016, the efficiencies of scale we are realizing will mean that we won’t need the subsidies. Key efficiences are coming through:
- Cost of the panels is coming down as panel manufacturers improve production methods
- Installation technology is improving
- Customer acquisition costs are decreasing
- Financing costs are decreasing
What’s the biggest hurdle in residential solar adoption?
JB: Most people have no idea how much they pay for electricity. It’s not like the price of gas – everyone knows when that goes up. Without knowing how much you pay, you aren’t as aware of how vulnerable to rate hikes you are. Anyone who pays $120 or more per month should take a look at their bill.
Jason kindly provided us with an annotated PG&E bill. As you can see below, transmission and generation costs are responsible for the lion’s share of the cost of service and consequently rate increases: