Solar installers face labor,
material shortages

Year of delay in rooftop rebates
sends skilled workers out of state

By Seth Masia

BOULDER, May 13, 2006 – Rob Ashmore runs Aeon Solar, a renewable energy business in Boulder. But he has spent the past six months installing solar electric panels in New York and New Jersey, while waiting for the much-delayed Xcel Energy solar rebate system to launch.

Now, 18 months after Colorado voters became the first in the nation to approve a clean-energy referendum, that rebate program is finally up and running. During the long wait, Ashmore and several other Boulder-area installers have had to leave the state.

And Colorado homeowners, eager to take advantage of Xcel’s rebates, face a shortage of solar electric panels and licensed installers, leading to higher costs to put generating capacity on rooftops.

Panel prices up sharply

Today, panels install for $9 to $10 per watt, up from $7 or $8 a year ago. At that price, a typical Boulder installation of 2 kilowatts would be quoted at around $18,000 to $19,000. Xcel’s $4.50 rebate covers half that cost, and the Federal tax credit of 30% up to $2000 brings the installed cost down to about $7500.

“A lot of solar companies started doing business in expectation of a Jan. 1 program, and got left holding the bag,” said Ashmore, calling from his truck while driving to a worksite in upstate New York. Because of the shortage of solar panels, smaller companies often bought and paid for the expensive units ahead of time, he said.
When the rebate was delayed, “They had to finance the shortfall,” said Ashmore, who handled the cash crunch by moving East. He has been erecting solar panels under a rebate program run by the New York State Energy Research and Development Authority.

While Xcel delayed its program, a worldwide boom in solar electric generation has created heavy demand for panels, which are now in limited supply.

Local solar installers say they have plenty of orders from eager Boulder homeowners, and the first systems are just now going on-line. But many installers are scrambling to find panels at premium prices, bumping installation prices up about 25 percent and erasing some of the rebate savings.

The Colorado Solar Energy Industries Association lists 13 licensed installers in Boulder, more than any other city in the state – even Denver. Most of these installers paid for panels in expectation of booming business, and then waited while the promised rebate program was delayed a year to January 2006, and then to Feb. 15, and then to Mar. 1.

Licensed installers head to NY, NY, California

With no immediate prospect of receiving rebates in Colorado, installers like Ashmore left Colorado to work in states with more generous rebate programs. Seventeen states now have comparable clean-energy rules with rebate programs, and Colorado must compete with them for panels and installers.

“New Jersey has the best program in the country,” Ashmore said.

At 10.3 to 13.4 cents per kilowatt hour, New York, New Jersey and California have electric rates roughly twice as high as Colorado’s average rate of 5.4 cents. This means that PV panels save twice as much money in those states.

“So the pay-back time is shorter,” Ashmore said.

Despite the panel shortage, there’s been plenty of work in states with high rates. California issued building permits for 1500 to 1600 new residential systems during the past year, according to the Sacramento Bee. New Jersey has put up 1200 new installations since 2001, according the Cherry Hill Courier Post.

Xcel waited for up-front payments

Xcel responded to passage of Amendment 37, with its rebate requirement, by waging a 14-month campaign to add a 1 percent “renewable energy standard adjustment” to residential electric bills. That .charge, approved by the Public Utility Commission, amounts to about 59 cents per month on a typical home. It’s earmarked to pay up-front for the solar electric rebate program. The charge appeared on utility bills for the first time in March.

Xcel didn’t begin accepting applications for residential rebates until the new charge was in place, and announced the program launch on Mar. 1.

Now, two months later, Xcel won’t reveal the number of rebate applications received.

“We’re very busy, but we don’t make those numbers public” said product developer Ron Miller, who designs Xcel’s renewable energy programs. “Given the shortage of panels, we don’t want to drive costs up any further.”

Tom Henley, Xcel’s press contact, said “We have no way of forecasting how many rebates will be accepted and paid.” He noted that between Mar. 10 and 31, about 3000 people visited the website application form, out of about 1.3 million electric customers.

How many solar installs?

Nor can Boulder’s Department of Planning and Public Works account for the number of solar panels going up. Permanent rooftop installations require a permit, and the standard building and electrical inspections. But examination of the building permit database turned up no category for solar panel retrofits.

“We can’t easily separate out that information,” said Jane Nelson of the Department of Planning and Public Works.

“Amendment 37 is fabulous and it will be huge,” said Jay Adler of Community Solar, a financing firm. “But it will be six months before we see a dramatic increase in rooftop installations. It took a long time for Xcel and PUC (Public Utilities Commission) to get to the point where they’re ready to take applications. Panels are hard to get. So the market is responding in slow motion.”

Demand strong, say installers

Local installers, however, report that despite delays and rising prices, demand for installations is strong. Boulder-area residents who waited for the rebate program are now writing checks for down payments.

While smaller installers left town, larger firms that were able to stock up early on panels stuck it out, said Leslie Glustrom, administrator of the Colorado Solar Energy Industries Association.

“They are now doing considerable business, and it came in a big wave after the rebates got approved,” Glustrom said.

Amanda Bybee of Namaste Solar Electric estimates that orders have been coming in at a rate of 10 to 15 per month since January.

“We did eight or 10, only a handful, in 2005,” Bybee said. “Now business has been booming. The phones started ringing around Jan. 1 because people expected the rebate program then.”

“We’ve doubled our workforce,” Bybee said. “We’d like to hire more installers. The limiting factors are weather, budget, roof space and qualified installers.”

Namaste, like a few other large contractors, has a long-term contract with a PV panel distributor.

“We have panels in the warehouse,” said Bybee.

“Half of all our calls now are for solar installations,” said Dinah Newton of Colorado ElectricWorks in Boulder. “We’re installing six systems right now, and have a number of new customers busy designing their systems. It’s just beginning. There were lots of calls beginning in December but most people wanted to hold off until the application process opened.”

More delays expected

Newton warned of further delays.

“Turnaround time on rebates is uncertain,” she said. “There’s a 15-day initial delay to get an application number from Xcel, and one of our vendors just told me he was assigned number 208. I was talking to the county building department and they said they’re jammed. I guess they only have one electrical inspector. They’ve issued only six permits since Jan. 1.”

Newton’s company hasn’t had trouble getting panels, but other parts are in short supply.

“Distributors seem to have invested in panels but inverters and controllers have to be special-ordered. Installers are paying top dollar for panels, but it’s still an incredible opportunity. You’re getting systems for 40 cents on the dollar.”

Smaller utilities offer smaller programs

Demand appears strong across the state, and outside the Xcel service area, smaller utilities have a good handle on the level of success of their solar electric programs in the face of supply shortages.

The Fort Collins Public Utility, serving about 50,000 homes, ran a short pilot program with no rebate that got half a dozen homes equipped this year, according to Patty Bigner, the company’s public affairs officer.

The Colorado Springs Utility spent three months designing a rebate program, allocating $220,000, and launched it Jan. 1. The program sold out by Mar. 30, said Simon Baker, senior conservation officer for the company. Sixteen residential applications went through, totaling 35 kilowatts of new power for the system, and one commercial installation was approved at 25 kilowatts. The largest residential system generates 9.8 kilowatts, and the smallest is .6 kilowatts. Rebates average $3.66 per watt.

The first residence connected to the grid on Apr. 17, just 107 days after the Colorado Springs program started taking applications.

Xcel rebate: How it works

Xcel Energy’s rebate program pays $4.50 for every watt of generating capacity installed on a rooftop. A kilowatt is one thousand watts – roughly enough electricity to operate a refrigerator at its intermittent peak load. A typical small house in Boulder draws about 1.5 kilowatts on average, totaling about 1,000 kilowatt-hours per month. So a 2-kilowatt solar array would, over its life, more than pay for itself by selling excess power back to the Xcel system at the standard rate.

Like most states, Colorado runs its rebate program through licensed installers. An installer takes a down payment from the homeowner and submits a rebate application. The first portion of the rebate is paid to the installer when the panels are delivered. The final payment is made when inspections are complete and the system begins to exchange power with Xcel’s grid.

Electrical generating panels are called photovoltaic panels (PV for short), to distinguish them from thermal solar panels, which make hot water. Because manufacturers can’t meet the worldwide demand for PV panels, the panel shortage has slowed installations in other states, too, said Richard Keller of Southwest PV Systems in Loveland. Keller sells stand-alone solar electric systems for industrial applications, not covered by Amendment 37.

Germany soaks up panel supply

About 70 percent of the world supply of panels is currently being shipped to Germany, explained Keller. Electrical Engineering Times reports that Germany took 56 percent of the worldwide supply in 2005, buying eight times as much capacity as did the U.S.

“The German government offers solar construction loans at 1 or 2 percent interest, and the utility buys back the power at 5 times the retail rate,” Keller said. “So a homeowner can cover the whole rooftop with panels, reduce consumption, and use the revenue to pay the mortgage. It’s an incredible program and they have tens of thousands of people doing it.”

The result, Keller said, is a severe shortage of panels.

“The industry is sold out 12 to 15 months ahead, and prices have gone up 25 to 30 percent in 12 months,” he said. “A lot of installers are scrambling to get panels wherever they can, and paying top dollar.”

Supply growth stalls

Manufacturers like Sharp, Kyocera and BP Solar have invested in new factories during the past year, Keller said. Electrical Engineering Times reports that panel production rose 32 percent in 2004, and 34 percent in 2005, to about 1460 million watts – about 2.5 million 60-watt panels. But now the shortage of silicon raw material, the same stuff used in computer chips and cell phone circuits, may cut growth to about 10 percent this year.

“There are only 3 or 4 providers of silicon in the world, and it costs over $100 million to build a new factory,” Keller said. And while prices rose, Xcel delayed, he said.

“Xcel fought the program tooth and nail,” Keller said.

Amendment 37 mandates that Xcel produce 10 percent of its power through clean sources – chiefly wind and solar – by 2015, up from about 4 percent generated by wind in 2004, when the ballot measure passed. The rebate program now calls for residential solar generation (systems under 10 kilowatts capacity) to provide at least as much power as commercial systems (over 10 kilowatts). Rules for the larger systems are expected from Xcel and PUC this month.

As implemented under new PUC rules, Xcel’s rebate program offers a $2.00 per watt installation rebate, plus $2.50 per watt to purchase the homeowner’s Federal renewable energy credits, for a total of $4.50 per watt. Xcel keeps the renewable credits.

Other states more generous

Most of the 17 states with rebate programs are more generous, said Ashmore at Aeon. “In addition to the installation rebate and the sell-back of power to the grid, you get to trade your federal renewable energy credits. In Colorado, if you want the rebate, you have to assign your federal credits to Xcel.”

“Most programs start with a high rebate, around $5 or $6 per watt, then lower the rate every six months by 50 cents,” he said. “You get a rebate rate, a tax credit, and in New York and New Jersey you pay no sales tax on the installation. Then you get the renewable energy credit, sometimes called a green tag, that can be worth as much as 20 cents per kilowatt hour. But if you want a rebate from Xcel, you need to sell your renewable credit to them. They monopolize it. They wanted to have their cake and eat it, too, and PUC caved in. The Colorado rebate should be about $6 per watt.”

Green tags are sold to big industrial plants as an offset against carbon emissions. In most states, the typical solar-equipped homeowner earns green tags annually and sells them to a consolidator for resale to industry. Sustainable Industries Journal reports that prices are volatile and can vary across the country. This month they run from as much as 40 cents per kilowatt hour to as little as 3 cents.

According to the SolarBuzz website, the wholesale cost of photovoltaic panels fell steadily over several decades, from about $80 per watt in 1970 to a low of $4.94 in May, 2004. Today, PV panels wholesale from the factory at about $5.41. Importers, distributors and retail installers add their own profit margins, which brings the installed price to $9 or $10 per watt. At today’s electric rates in Colorado, the system would pay for itself in about 15 years. If the electric rate doubles in 10 years, the break-even point is 10 years. The system may also improve the resale value of the house.

The same system installed in California or New Jersey, with their higher electric rates plus the Federal renewable credit of 20 cents per kilowatt hour, is a much better deal. Installed cost is $6000 to $7000 . If the green tag credit is worth $1200 per year, the system pays for itself in under three years, according to figures found on the New Jersey Clean Energy Program website.

Payback can be faster if the installation is financed with a tax-deductible home equity loan – depending on your tax bracket. Aeon’s Ashmore has a way to make the installation decision even easier.

“If the loan payment is less than the savings in electricity, then you do it,” he said. “If it’s more, then don’t.”