SMUD Solar Shares

I provide an update to the SMUD solar shares program, which I bought into last summer. I bought a 2kW share for $53 a month.

I will be suggesting here that SMUDs solar shares are a boon for high energy users and an economic loss for energy-wise customers. The reasoning is basic: solar share returns are a function of your usage, not a function of how the utility values your PV output.

What you are paid for your solar share energy is not necessarily dependent on the value of fossil fuel energy you are displacing. It is not, entirely, a function of the cost SMUD would pay to other energy providers if you didn't generate. It is variable based on your own consumption. If you use more electricity, you get paid more for your generation. In my opinion, this concept is flawed.

To be fair, SMUD has attempted to mitigate this inequity by charging low energy users less for their PV shares, but I maintain that this isn't a sufficient enough incentive for low energy user participation...and this ought to be the target demographic. It makes as much sense for SMUD to incentivize large energy users to buy into PV as the government allowing tax rebates on Hybrid Escalades. Good intentions, bad policy.

Here's a section of the solar shares agreement, which provides the cost/kW breakdown for each class of user:

RESIDENTIAL TIERED RATE

Small Energy Use Customer (less than 6,000 kWh/year)
0.5 kW System $10.75/month
1.0 kW System $21.50/month

Medium Energy Use Customer (6,000-14,000 kWh/year)
1.0 kW System $26.50/month
1.5 kW System $39.75/month
2.0 kW System $53.00/month

Large Energy Use Customer (more than 14,000 kWh/year)
2.0 kW System $66.00/month
3.0 kW System $99.00/month
4.0 kW System $132.00/month

My family and I use ~10,000 kWh/year, I bought the 2.0 kW system, and I fall into the medium energy class. Now, my annual kWh usage is heavily skewed towards summer cooling loads, as would likely be for most medium and large energy users in Sacramento. A small energy user either has a house on a shady tree-lined street (read: pre-WWII development), a mid-town condo or apartment, or can simply tolerate triple digits better than most. The following is strongly suggesting that if you are classified as a small energy user, SMUD solar shares is not for you.

I haven't yet upgraded my AC system, but I've completed other energy efficiency projects to reduce non-cooling and non-heating months to tier I rates. Because I'm skewed towards summer loads, my winter and shoulder month usages are on the low end. As a consequence, during those months I only get paid Tier I rates for my excess PV generation from my own solar panels and Tier I rates for all my solar share energy. Indeed, as I might someday opt for that SEER 17 AC unit (with an expected 1,975 kWh/year energy reduction), my usage in the summer will drop and so will my solar share credit rate.

My solar share credit rates ($/kWh) are shown below. They are calculated based on my usage...if I only use tier I energy, I will be credited at a tier I rate for my solar shares. If I reach into tier II, I will be credited at a calculated rate between I and II. The rates will differ for every solar share owner, based on their usage. I also show the kWh monthly production breakdown per my bill -- the annual kWh/kW is the same for everyone, 1,738kWh...my share is 2kW, so 3,476 kWh total, broken down per month:

Aug 08: 0.1562 384 kWh = $59.98
Sep 08: 0.1608 342 kWh = $54.99
Oct 08: 0.0929 296 kWh = $27.50
Nov 08: 0.0934 188 kWh = $17.56
Dec 08: 0.1478 142 kWh = $20.98
Jan 09: 0.1075 156 kWh = $16.77
Feb 09: 0.0861 204 kWh = $17.56
Mar 09: 0.0861 284 kWh =$24.45
Apr 09: 0.0861 333 kWh = $28.67
May 09: 0.1038 376 kWh = $39.02
Jun 09: 0.0965 373 kWh = $36.00
Jul 09: 0.1664 396 kWh = $65.91
Aug 09: 0.0929 383 kWh = $35.58
Sep 09: 0.1711 342 kWh = $58.51
Oct 09: 0.0957 297 kWh = $28.42
Nov 09: 0.0906 189 kWh = $17.12
Dec 09: 0.1294 141 kWh = $18.25

I multiply the credit by the kWh, and subtract $53 to determine my net cost. Some months I'm ahead, most months I'm behind. I am a Tier II/III energy user, mostly, but not in the shoulder months. The solar share cost far exceeds the return for these months...but, this is as it should be. Solar is annual, and time of use/time of production matters. The question becomes "will the cumulative return exceed my cumulative cost?"

I demonstrate through the following graph that the long term answer is "yes." Substituting in last year's credit rates, and forecasting them twenty years hence (assuming an average 3.5% SMUD rate increase), you'll see that in 2017 the system starts paying for itself, but at this point has incurred a -$785 deficit, which will be paid back to $0 by the year 2024.




So. The very worst thing I could do would be to pay into SMUDs solar shares from now until 2017 and then move out of SMUD territory or otherwise end participation at that point. If this is at all possible (and in our mobile society, it likely is), then it ought to be a strong consideration before participation. Remember, solar shares are just as much a long term proposition as it is for anyone considering installing their own PV system.

The second worse thing I could do is employ energy efficiency practices in my home, reducing my total demand by ~40% to just 6,001 kWh per year. This would effectively reduce my credit rates down to [primarily] tier I levels. I would get paid less for my shares, but wouldn't have any recourse to change, or to lower, my $53/month payment.

The third worse thing I could do is employ energy efficiency practices in my home reducing my yearly energy draw to 5,999 kWh per year. While I would then be able to reduce my payment to $21.50 per kW, I could then only buy at most 1kW. All monies previously spent for that second kW would [presumably] disappear. The SMUD solar share agreement doesn't comment on the cost implications for changing between user use states, only that SMUD has the right to modify your participation based on your annual usage.

SMUD recognizes these exact implications to their Solar Share customers in the following graph that SMUD presented at the Solar American Cities meeting in San Antonio this month:


Very clearly my analysis matches theirs, in that participants who consume the maximum amount of electricity in their use class see the biggest benefit. Ask yourself -- does it make any sense that the more you consume, the more you get paid for your solar energy? What's the point of subscribing to solar shares to "save the world," to "reduce dependency on foreign energy," to "be green," and all that other horseshit if you're incentivized to consume more natural gas fired SMUD generation? But I digress...

This first graph is only useful for me -- these are the rates only I am paid for my energy. All other solar share participants would have a different rate payment based on their usage. So I did the following...I assumed a target participant who never uses more than tier I energy during any month and who's usage is just shy of 6,000 kWh/year. She buys a 1kW share for $21.50 per month. Knowing her solar share production (1/2 of my 2kW system), and knowing she will be paid Tier I prices for her energy:



This is a losing proposition. There will never be parity for a low energy user -- it bottoms out at almost -$917 and never recovers to $0: solar shares is a financial failure for tier I energy users; they shouldn't participate. And if they decide to participate anyway to 'save the planet,' then they can do so with the knowledge that they are subsidizing large electric customers consumers, helping them pay less for consuming more.

I don't have to show it, but I could easily demonstrate that Tier III energy hogs in a Folsom starter mansion using 23,000kWh/year would reach payback in under 15 years and would never have more than a -$500 outlay (per kW) at any point. This family would be ideal candidates for SMUD solar shares. I can see the advertisement now --- Martha and William laying on their 7/8 acre lawn outside their 3,950 sq ft home with little Bill, Jackie and Martina, all enjoying the sunshine, enjoying the fact that 16% of their electricity comes from the Sun. Ten Thumbs Up for Solar Shares!

PV is expensive energy. It only makes financial sense if it displaces other expensive energy. There aren't sufficient incentives, anywhere in the US, that promote energy efficiency along with renewable energy. These two must go hand in hand but we refuse to acknowlege the link. Solar shares based on consumption is just one piece of that failed equation, as are excess PV generation payments that are also paid out on a user-consumption-basis. As I work to further reduce my demand, through a higher SEER unit, through better insulation, whatever...and assuming I'm still using over 6,000kWh/year -- I unwittingly erode the value of my excess PV generation and my solar share generation. Such a fantastic incentive, isn't it?

Also consider that SMUD charges .2 mills for every non-PV kWh consumed. By doing so, SMUD realizes the need for direct subsidies for PV. How is this any different from simply paying a common rate for PV energy from PV generators? Instead, everyone is paid differently depending on their usage; and the more you use, the more you're paid. This is a minor point, I know, but I am passionate about it because it's absurd. It isn't lost on a low energy using solar share owner who will never recoup her investment (and in my opinion, should not be a SMUD solar share subscriber) -- because if subsidies are to exist, they should exist for exactly her -- not high energy users. Establish a feed-in tariff -- oblige SMUD to purchase PV energy at a tariff determined by public authorities, and keep it in place for a specific time period.

Nonetheless -- I am still a solar share participant and will remain so. It isn't only about finding economic parity...for me it's also about engaging alternative solutions to sourcing my electricity. The above work is just telling me that we (collectively) aren't going about it correctly. Then again, we do live in America -- we don't go about building places correctly or building transportation systems correctly either. That's why I'm here; that's why I blog.

Edit 30 Dec 09: SMUD has established a feed-in tariff; not for small residential roof top installations such as mine, but for larger commercial installations. This should go a long way towards more installations as now investors can better project future revenues with which to evaluate the economic breakpoints.

Secondly, SMUD recently raised rates (the first of three rate increases over an 18-month period) but importantly reduced the residential tiered rate structure from three tiers to two. This will impact my analysis on the viability of solar shares along with my own installation. I actually expect that I will benefit more from the new rate schedule as, based on my usage, I would never expect to get paid tier I energy for my solar share/excess PV generation like I did in the past. More to come...