MULTI-PERSPECTIVE SOLARNOMICS

A Road Map To Rational Policy Discussion

Green Summit, March 8, 2012Duane T. Kexel

President, Duane T. Kexel Consulting, LLC

duane@kexelconsulting.com

Motivations For This Paper

Polarization Does Not Promote Progress – Can We Find The Common Ground?

Economics, Not Politics Nor Religion Should Guide Renewable Energy Policy

Issues Are Consequential and Immediate in Wisconsin

Identify Stakeholder Groups Roles for Each and Research Agendas In Moving Policy Forward

Why Solar As Case Study?Generally Seen As An Acid Test Frontier For Policy

Cottage Glen Project Provides 2011 Test Case• 14.1 kW Condo Rec Center PV Project – HOA NFP Sponsor• One Year of Project Evaluation and Development• July 11 – Feb 12 - 10 Minute Production History• Installed Cost Per Watt

Total $5.33 100.0 FOE/WPS Grant $3.52 66.0 Fed Tax Credit $0.54 10.1 Total Net $1.27 23.8

Will Players Each Push or Pull?

Policy SF

Utilities

Suppliers

Buyers

Buyer Group Challenges

Communicate Willingness To Pay Tied to Payback Assess Potential Demonstrate Impact of Various Incentives Expose Critical Barriers Champion Programs That Work

Must Let Policy Makers Know What Incentives Are Needed and Likely Impacts !!!

Modeling Impacts of IncentivesPotl HH (000) Share

2.0% 500 20.0%19.0%18.0%

6.0% 17.0%400 16.0%

15.0%14.0%13.0% Base Less FTC and State Incentive

12.0% 300 12.0%11.0%10.0%

9.0%200 8.0%

7.0% Base Less FTC6.0%5.0%

100 4.0%3.0% Base Cost2.0%1.0%

28 24 20 16 12 8 4 5 10 15 20 25 30 35 40HH Installs FTC & State FTC Base Payback Years

HH Ave kW MW GWh/a4,000 4.0 16.0 19.2

12,000 4.0 48.0 57.6 24,000 4.0 96.0 115.2

Actual 2009 5.31

Cottage Glen Survey Results

Irrelevant (1)4%

Of Interest (3)35%

Influential (4)13%

Decisive (5)48%

Payback Impact

Irrelevant (1)4%

Some Impact

(2)13%

Of Interest (3)30%Influential (4)

22%

Decisive (5)30%

Environmental Impact

52% Decisive or Strong Influ-ence

61% Decisive or Strong Influence

Anecdotal Evidence

Co-op Panel Leasing Programs Sell Out Quickly With 12 Year Payback

Full Cost Leasing – 30 to 40 Year Paybacks

Consumers Power 25 Cents/kWh for 15 Years Oversubscribed

MGE Green Pricing Participation @+2.0 Cents?

10 Year27%

15 Year23%

20 Year27%

Don’t Know23%

Accceptable Payback Period

Supplier Challenges

020406080

100120140160

Ten Year Incentive-Payback Linkage

2011 2016 2021

Commit To Cost and Performance GoalsDemonstrate That Incentives Are Transitory

Item 2011 2016 2021Cost/kW 5,000$ $4,000 3,000$ Wis Incent 3,000$ $1,500 -$ Fed ITC 600$ 750$ 900$ Net Investm 1,400$ 1,750$ 2,100$ kWh/kW 1,200 1,300 1,400 O&M/kW/a 10.00$ 11.00$ 12.25$ Retail Rate 0.120$ 0.146$ 0.169$ Escalation 3.0% 3.0% 3.0%Return 5.0% 5.0% 5.0%Payback 15 14 13

Utilities – A Major Focus

CONTRARIAN VIEWS ADVOCATE VIEWS

Solar Expensive, Rates Up

Solar Not Firm – No Capacity Value

MISO Prices Do Not Support

DOE Sunshot – 10 Years $1.00 Per Watt

Green Pricing Now Provides Choice for Those WTP

CG Prodn At WPS Peaks ~50 – 55% of Capacity

Synergistic Solar Wind, DR, Seasonal Cap Plans

Nor Any New or Some Existing Capacity

Can Solar Compete With New Capacity On Cost and Risk?

$133

$83 $88

$170

$203$191

$156

$0

$50

$100

$150

$200

$250

Pulv Coal Adv Gas CC Gas CC Adv Gas CT Gas CT Util Solar ITC RA3 Util Sol

Levelized (40-Year)$/MWh for New 2016 Capacity

Cap Rec O&M Fuel Carbon Health Total

Utility Solar Leasing Programs

Utility Builds, Owns and Operates Solar Plant Financing Costs Much Lower Than Fossil Plants

Smaller Projects, Modular Designs Strong Long-Term Warranties Federal ITC – 30% Dramatic Risk Reduction Compared to Fossil Plants – WACC Less

3.0% Sell 25 Year Panel Leases At Cost With Proportionate Bill

Reductions – Customers Finance New Capacity Allows Solar Participation in $1,000 blocs – Better than

Packer Stock Mitigates Affordability Barrier

Utility Incentive Programs Design Incentives To Yield 5.0% Return & 10 to 15 Year Payback on Roof Top

Solar – Say 50% of Investment

Utility Gets 40 Year Load Reduction of X kW and kWh at 50% Of Known Up-front Cost + Admin (20%)

Load Reduction of X equals (1+Loss %) X Capacity Addition – Reduces Future T&D Needs

Utility Expenses Incentives and Admin Costs – After Tax Cost = 60% of 60% = 36%.

Customer/Owner Pays All Future Costs Tune Design To Response to Match Needs Incentives Reduced Over Time As Solar Costs Decrease

Policy Maker Agendas

Federal – Investment Tax Credit Is Key

State – Shaw-WPSC Redesigning Renewable Incentives Q1 - 2012 Believe “Incentives to Renewables Were Excessive” “Overcommitment Harmed Cost Effectiveness of FOE” “Incentives Artificially Inflate Renewable Costs” “TRC > 1.0 Is Relevant Test for FOE Portfolio” “Select Non-Monetary Criteria – Maturity, Risk, Jobs

Will Public Be Engaged To Provide Input In A Transparent Process On This Major Policy Revision?

WPSC Requires Portfolio TRC>1.0

$-

$50,000

$100,000

$150,000

$200,000

$250,000

Annual Capacity

Costs/MW

Avoided With Solar

Avoided Energy W

Carbon

Avoided Energy No

Carbon

Total Avoided W

Carbon

Total Avoided No

Carbon

TRC Test - Solar Vs CTs

Conv CT Adv CT RA Solar

Total Resource Vs Conv CT Vs Adv CT With Carbon 1.11 0.93

Without Carbon 1.05 0.88

Will Additional B-C Tests Be Prepared?

TRC Test – Should Measure Public Interest Societal Test – Should Include Externalities Utility Test – Impact on Revenue Requirements Participant Test – Impact on Adoptions (Payback?) Non-Participant Test – Impact on Rates

All Tests Combine To Inform Public Policy

Conclusions

Detailed TRC Requires Specific Data on Marginal Resources and Avoided Costs Over Time

Results Suggest That Utility Solar May Pass TRC Test If Solar Passes Test, Combined Solar-Wind, Solar DR,

Solar EE, Programs Will Certainly Pass Solar Incentives That Yield Paybacks in the 10 – 15

Year Range Should be Possible and Beneficial Cottage Glen Incentives Were Just Sufficient to

Proceed and Can Be Justified In the Public Interest All Stakeholders Must Contribute To Gain Ideal Share