Texas Solar to `Explode’ When Paybacks Fall to 5 Years: Q&A

By Richard Stubbe, Bloomberg New Energy Finance editor. This article first appeared on the Bloomberg Terminal, available to clients on the web and on the Bloomberg Terminal

The residential solar market, already bustling in the central part of Texas, will boom statewide when the next step down in costs cuts payback periods to five years, Bret Biggart, chief executive officer of Freedom Solar LLC in Austin, said in an interview with Bloomberg New Energy Finance.

Freedom has installed systems for Whole Foods Market, Office Depot and the University of Texas. BNEF interviewed Biggart and Kyle Frazier, Freedom’s sales director, on Sept. 20, two days before the U.S. International Trade Commission determined that solar cell and module imports have injured domestic manufacturers. President Donald Trump has until January to decide whether to impose tariffs.

Q: What is Freedom Solar’s place in the industry? What’s your typical installation?

Biggart: We do residential and commercial solar installations, houses and businesses, focused on Texas. The average install on a residential system is an 8-kilowatt system for $30,000.

Q: How does the math work on that?

Biggart: With a $30,000 installation in Austin, you get a federal tax credit of $9,000 and you get a $4,000 incentive from Austin Energy that’s about to go away. That gets it to $17,000. You can pay the net out of pocket, or you can finance it and offset the loan payment with your energy savings. You save $150 to $200 a month, and so you’re looking at a seven-year payback and then it keeps paying back. You’ve got a 25-year warranty on the panels and the work.

Q: How much does the business depend on incentives?

Biggart: Last year 80 percent to 85 percent of the solar that was installed in the Texas residential market was in Austin or San Antonio. In those markets, the municipal utilities are the only providers, and they are power-generation providers. They have a reason to provide an incentive because of peak power.

So 85 percent of the market is in two locations that represent 15 percent of the state’s electricity users, and 10 percent are electric cooperatives [member-owned utilities mostly in rural areas]. The other 75 percent is the deregulated market, which is Houston and Dallas and the rest of the state. Those markets have been underserved by solar because there hasn’t been enough incentive.

Q: How fast is the payback for the customer?

Biggart: All the cities have different return profiles because of the utility incentives. Anything over a 10-year payback is hard to sell. Five years and less, the stuff moves quick. Seven years is on the fence.

Solar is driven by two things: the price to install and the price of power. The cost curve is coming down to the point where in Houston there’s a seven- to nine-year payback, down from 13 years three years ago.

We talk about an 18 percent internal rate of return on somebody’s roof on a commercial building that’s owner-occupied. That’s a pretty good deal. That’s in Austin, San Antonio, Dallas if you have the rebate, parts of West Texas. When you get to this point where 75 percent of the market goes from a seven-year payback to a five-year payback, the market’s going to explode. It starts to make sense for just about everybody.

Q: What single change would have the biggest effect on the market?

Frazier: When utility companies ask me how they can support the solar market, I tell them to raise their pricing or change the rate structure. In California, where you have time-of-use [costs vary depending on when power is used], where you’re paying more for peak power, that would do it because solar corresponds with that peak power demand. If we had a time-of-use tariff in Austin, which is on the table, solar becomes very attractive.

Q: Bigger than a general rate increase?

Frazier: Absolutely.

Q: What’s the future of solar in Texas?

Today people come into this market and have a difficult time operating because it’s quasi-deregulated and so different from one little spot to the next. Unlike in California and New York, where the price of power is high and you can roll out a loan or lease product that provides positive cash flow across a good geography, you can’t do that here. That’s kept Texas behind those other states. It’s still a top 10 state. But given our geography and our solar radiation, Texas should be the leader in solar.

Q: What’s the most important trend — the price of panels, the price of installation, the price of electricity?

Biggart: If you do a sensitivity analysis, the most important is the price of electricity. But whether we reduce the cost to install it or the price of the panels gets cheaper, I don’t care, as long as the total stack comes down. There’s lots of efficiency to squeeze out on the installation side.

On the commercial side, we’ve really seen the price drop. You can see the efficiency more extremely on a big flat rooftop. Two years ago, we priced projects like that at $3 a watt, with a 25 percent margin. We priced one today for $1.90, with the same 25 percent margin.

Q: How concerned are you about the Suniva case?

Biggart: 95 percent of what we sell is SunPower, so our exposure is less because we’re selling a product that’s not made in China. (SunPower makes modules at a plant in Mexicali, Mexico.) In all likelihood it gets protected through Nafta, assuming Nafta stays.

Generally speaking, anything that drives the price up and makes the market uncertain I’m not a big fan of, and it’s bad for the industry in general. It’s just created a very difficult situation and we’ll see how it shakes out.

Frazier: They’ll rule that there’s damage. They’ll make a recommendation and then the president will make a decision. We call it the “solar-coaster.” There’s stuff happening all the time. It’s peaks and valleys. We ride the middle. It could have some negative impacts on us, but so does the rebate going down in San Antonio and Austin, and so does Oncor [electric-transmission company] trying to put a tariff on solar homeowners. We try to be agile.

Q: Do you expect another extension for the solar credit beyond 2020?

Biggart: I hope this business doesn’t need it. I long for the day when it doesn’t need any of this nonsense, when the value proposition just works. I think by the end of 2020 that should definitely be the case. That’s when I think this stuff just really, really explodes and is on every rooftop. You don’t need a tax credit, you don’t need an Austin Energy rebate. That day will come, hopefully sooner rather than later.

About Bloomberg New Energy Finance

Bloomberg New Energy Finance (BNEF) is an industry research firm focused on helping energy professionals generate opportunities. With a team of experts spread across six continents, BNEF provides independent analysis and insight, enabling decision-makers to navigate change in an evolving energy economy.
 
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