Executive Summary

The State of California is embarking on an ambitious plan to install 3,000 Megawatts of solar electric power on roofs throughout the state by the end of 2016.  This plan, called the Million Solar Roofs Initiative, will provide substantial economic, energy and environmental benefits to the state.  The purpose of this White Paper is to communicate the costs and benefits of this plan in a coherent and objective way.

The primary benefit of the Million Solar Roofs Initiative is that it reduces California's power needs during hot summer weekday afternoons.  Without this 3,000 Megawatts of solar capacity, utilities must construct this generation, distribution and transmission infrastructure, as well as operate and fuel these plants.  Ratepayers will ultimately pay for these costs.

It is a key finding of this White Paper that the Million Solar Roofs Initiative will save in excess of $6 billion net of incentives, primarily by avoiding this traditional power generation and distribution investment.  Moreover, these savings are likely to be substantially higher as fuel prices are likely to escalate faster than the 3% assumed in this analysis.  These costs and savings of this initiative are detailed below.

The total benefits to California are dependent on the number of solar systems installed -- which is directly affected by the combination of incentive funding necessary to generate this level of demand.  The Million Solar Roofs Initiative is indeed achievable within ten years, with the level of incentive funding set in each solar market segment to maintain the necessary overall market growth rates.  As shown in the chart below, the contributions to California's energy infrastructure, environment and economy will be substantial and will continue to grow even after the program's goals are complete.

Customer economic behavior drives the solar market.  Therefore, all policy and regulatory programs must be evaluated in terms of how they affect customer behavior and market segment growth.  This customer behavior means that incentive levels must be set based on economic factors, not wishful thinking.

Assuming a level of incentives that does not take into account actual customer purchasing behavior based on net customer economics will result in fewer systems being installed within this ten-year timeframe.  Specifically, continuing the current schedule of declining incentives will not result in market growth and - in light of current module shortages and price increases - may cause the market for new solar electric systems to actually shrink.

The solar market is composed of multiple market segments:  residential, commercial, government, and new construction.  Growth in each segment in order to achieve the 3,000 Megawatt goal is shown in the following chart.

In order to predict the costs and savings of the Million Solar Roofs Initiative, a modeling tool is needed that encompasses all these segments using a consistent set of assumptions and data.  The Million Solar Systems Model provides a framework to evaluate the benefits and costs of solar energy in the context of customer behavior. This model is based on detailed analyses of solar market data from the California Energy Commission and California Public Utilities Commission, as well as similar data from the New Jersey Clean Energy Program, Hawaii Solar Program, Japanese Solar Program, and Germany Solar Program.  Energy infrastructure and environmental savings were based on the E3 Avoided Cost model.  Customer behavior and economic savings are modeled based on research done at Berkeley, Stanford, Princeton and Wharton. 

Based on the results of this work we have the following recommendations:

         Structure incentives and related public policy to drive customer purchases based on actual market conditions and recent historical data.  Note that the overall amount of incentive funding may be greater than previous plans and studies because the goal of one million solar systems is ambitious. Nevertheless, the benefits to the state are commensurately greater and will do more to alleviate California's short-term energy shortages and long-term energy needs.

         Specifically, the current incentive level ($2.80/watt) and tax credit (which expires December 31, 2005) for residential new construction and retrofit installations are insufficient to generate the necessary market growth.

         Establish predictable, consistent incentives that change with variations in life cycle costs, third party incentives (including Renewable Energy Credits or RECs) and energy prices.  Existing California Energy Commission (CEC) and SelfGen programs have been effective to date.  In addition, we recommend a public relations campaign - similar to the "Flex Your Power" campaign - to further stimulate customer awareness of the favorable economics for solar.

         Use an analytical tool such as the Million Solar Systems Model to fully evaluate solar net benefits and costs in the context of real-world customer behavior

California is blessed with abundant solar resources and sound environmental policies.  However, we are also challenged with an ongoing energy shortage and an underutilized economy.  The Million Solar Roofs Initiative will save customers and the state over $6 billion while at the same time providing for our long-term energy needs and improving both our economy and our environment.

The complete text of "The Economics of Solar Power for California - A White Paper" is available for download at http://www.akeena.net/about/whitepaper.htm by clicking the pdf link at the bottom of the page.