Whoa

 Illustration of Haitz's law. Light output per LED as a function

of time, note the logarithmic scale on the vertical axis.



 "And in one possible indication of the acceleration of green growth, high-efficiency LED (Light-Emitting Diode) ceiling lamps in the Japanese household market went from 2.2 percent of sales in February 2011 to 57.7 percent this May."

A Crossroads for Japan: Rivive Nuclear or Go  Green?

The SEIA on Tariffs

TMI

This article notes the SEIA has recently taken a non-neutral position regarding the AD/CVD case against Chinese solar cells. Personally, I think the SEIA should have taken a stand back in October rather than doublespeaking themselves out of a situation they should have been directly involved in. That said, it's good to see the SEIA finally waking up to the fact that the industry they represent is overwhelmingly against imposing these boneheaded tariffs. Maybe the SEIA has figured out that this CASM sideshow diverts attention away from much more important matters like, for example, driving down system costs in step with subsidy phaseouts. Maybe, just maybe, the SEIA reacognizes this detour is taking the industry in the wrong direction. It would be nice if the SEIA followed up  this non-neutral AD/CVD position by taking a more progressive stance on several other issues facing the industry such as tax fraud, sustainable deployment policies, etc. It should be clear that status quo strategies will not take this industry into the future.

The SEIA would do well to look up and learn from the history of the Institute of Nuclear Power Operations (INPO). INPO was formed in the aftermath of Three Mile Island. INPO is composed of experienced members from the nuclear community whose mission it is to identify and promote industry best practices. It would be nice if the SEIA stepped up efforts to proactively steward the industry before, rather than after, a TMI type event occurs.

Vocabulary

Experts inspecting the Rosetta Stone during the Second

International Congress of Orientalists, 1874

Loaded Solar: A photoelectric project or system that uses some or all of its generation to serve on-site load.

Unloaded Solar: A photoelectric project or system that feeds all generation into the grid.

Hydel: Shorthand for hydroelectricity

Photel: Shorthand for photoelectricity

Everybody Loves Cartoons

Dear IRS... What are your thoughts on depreciation?

Paying the Tax (The Tax Collector), Circa 1640

Dear IRS

In Germany if you install a solar power system you automatically become a small business that sells electricity back to the grid. As small solar businesses, German home owners with PV systems are allowed to depreciate those systems using a linear and or declining balance schedule. I am curious why home owners in the US are not allowed to depreciate their solar power systems? The rule says:

"This property (depreciable property) is generally limited to tangible, depreciable, personal property which is acquired by purchase for use in the active conduct of a trade or business. "

When you install a solar power system you are involved in the active conduct of trade with the electricity grid. Note also that you are trading electricity with entities that are capable of depreciating their generating stations. Does the IRS intend to classify residential solar power systems as a depreciable asset? If so, what's the time frame? If not, why not?

Respectfully,
Photomofo


Dear Photomofo

Thank you for your questions, whether when you install a solar power system you are involved in the active conduct of trade with the electricity grid, therefore the residential solar power system would become a depreciable asset.

There is no provision in the U.S. Internal Revenue Code (enacted by the U.S. Congress), that if you install a solar power system you automatically become a small business because you sell electricity back to the grid.

Per Publication 334, Tax Guide for Small Business:

Trade or business. A trade or business is generally an activity carried on to make a profit. The facts and circumstances of each case determine whether or not an activity is a trade or business. You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. You do need to make ongoing efforts to further the interests of your business.

You do not have to carry on regular full-time business activities to be self-employed. Having a part-time business in addition to your regular job or business may be self-employment.

Per Publication 535, Business Expenses:

In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

-You carry on the activity in a businesslike manner,
-The time and effort you put into the activity indicate you intend to make it profitable,
-You depend on the income for your livelihood,
-Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
-You change your methods of operation in an attempt to improve profitability,
-You (or your advisors) have the knowledge needed to carry on the activity as a successful business,
-You were successful in making a profit in similar activities in the past,
-The activity makes a profit in some years, and
-You can expect to make a future profit from the appreciation of the assets used in the activity.

Based on the above rules, the taxpayer would have to be in a trade or business of generating and selling electricity, to be able to depreciate the residential solar power systems.

If you are in the trade or business of generating and selling electricity, you could only depreciate the portion of the solar system that is used in that trade or business. The part of the solar system that is used for your home would be considered personal use and not depreciable.

*Underlined by Yours Truly

Dismantling Net Metering and Building the Future

Sortie de l'opera en l'an 2000... A look from 1884 at Parisian
travel IN THE YEAR 2000

If Net-Metering is a net benefit to the ratepayers why would solar advocacy groups such as Vote Solar want to maintain the status quo? These groups should be arguing for a full valuation of solar. At some point you have to admit that net-metering a temporary fix and stop moving sideways. Onwards and upwards are better directions.

Here's a revenue neutral way to dismantle net-metering and replace it with a market based system. 

• Step 1. List all the things that photoelectrics provide the system and then rank these benefits in order of easiest to quantify.
• Step 2. Do a study and come up with a rigorous methodology for valuing this benefit.
• Step 3. Lobby the PUC to have this value get paid out with a monthly check.
• Step 4. Reduce net-metering payments by an amount equal to the the benefit calculated in step 3.
• Step 5. Go down the list prepared in Step 1.

Example:

• Step 1. A study determines that the energy value of photoelectricity is the easiest to quantify.
• Step 2. A value of 5 cents per kWh is determined for the energy value.
• Step 3. The owner of a 20 kW system which exports 1,000 kWh a month starts getting a check for $50.
• Step 4. Instead of getting the full retail value the 1,000 kWh that's exported the net-metering payment is reduced by 5 cents per kWh. This means the solar system owner gets $50 less per month for her electricity.
• Step 5. Repeat...
• Step 1. Experts conclude the capacity value of PV is the next easiest to quantify.
• Step 2. A value of $20 per kW year is determined. 
• Step 3. The 20 kW system would be paid $35 per month in capacity payments - ($20/kW x 20 kW)/12 months
• Step 4. The solar system owner gets paid $35 less per month for her electricity.
• Step 5. And so on with quantifying the value of reduced losses, avoided transmission costs et cetera.

At the end of this procedure net-metering has been completely dismantled and replaced by a market regulated pricing mechanism. This procedure is specifically designed to be revenue neutral but it's not completely so. There are several factors which throw off neutrality. First off, taxes must be paid on the revenues from the sales of photoelectricity. Secondly, this system allows residential photoelectric system owners the ability to depreciate their systems. Here's a rough example of how the math works out comparing taxes to depreciation.

Assumptions:

Tax rate = 30%

Cost per KW = $3000/kW

Export volume =  800 kWh/year

Export rate = 10 cents/kWh

Taxes = Export volume x Export rate x Tax rate = 800 x .10 x .30 = $24/year

10 year Linear Depreciation Benefit = Cost per kW divided by 10 years x Tax rate = 3000/10*.30 = $90/year 

Net benefit of $66 per KW. If you have a 5 kW system that's $330. For this kinda money people are going to buy the Solar Edition of Turbo Tax.

Load: A Rough Cut Sprinkled with Secret Sauce

If you're a utility manager, you want the load to be as consistent and as close and safely possible to capacity throughout the day and the year. The most picturesque example of this phenomenon comes from the early days of electricty. Back then, electric trolleys fromed the dominant load, so companies built amusement parks at the ends of their lines to suck up nighttime load and also generate some extra traffic and revenue. This "load balancing" brought us Coney Island. By 1901 more than half of trolley companies operated at least one park with rollercoasters or underground tours or other rides.

-Alexis Madrigal, Powering the Dream

Load in 60 seconds

•  Load profiles are shaped like a wave with a peak during the day, an off-peak period at night (AKA: trough) and shoulder periods connecting peaks and valleys
• Weekends and holidays generally have lower peaks than adjacent weekdays due to less commercial and industrial activity
• Hot climates peak in the summer. The hottest days have the highest peaks due to A/C load.
• Cold climates peak in the winter. The winter peak is driven by heating loads.
• Load drives the price of electricity up
• Supply drives the price of electricity down.

Supply vs. Load vs. Price

The graphic to the right is a supply side depiction of several solar penetration scenarios for California. For my purposes nuclear, coal, wind and geothermal power plants can be disregarded because they remain unchanged in all scenarios. The generators to take note of here are the load followed resources. These being imports, combined cycles turbines, hydro, pumped storage and gas turbines.

In the Base Case all the load following plants follow the same basic pattern - they ramp up in the morning, peak during the day and ramp down in the evening. If you look carefully you can see that as the solar penetration increases the peaks progressively flatten and eventually divide into two peaks - a minor morning peak and a major evening peak. We can also see that the load following plants are all shifted from the middle of the load curve to the right of the curve as the solar penetration increases. For reasons unknown this graphic assumes a fixed load curve for each penetration scenario. This flawed assumption limits the usefulness of this graphic.

An improved graphic would incorporate the fact that solar power drives the price of wholesale electricity down. Electricity isn't known to be all that responsive to prices but there are price responsive customers - these customers would undoubtedly shift their loads around to capture cheaper electricity if they could. An improved graphic would show the load curves reaching incrementally higher peaks and lower troughs with increasing solar penetration.

I'm not going to say I've got it all figured out. Things get really unpredictable really fast. Here's a sketch of some possibilities.

Now: Natural gas peaker plants (AKA: Combustion Turbines or CTs) are currently used to meet peak load.
Next: Photoelectric plants easily cover peak load. CTs go the way of the dinosaur.
Now: Prices peak during the day and bottom out at night.
Next: Prices will flatten during the day and drift up marginally at night. The price peaks will occur at the load shoulders.
Now: Pumped hydro reservoirs fill in the middle of the night and run at the peak.
Next: Reservoirs will fill up at night and run in the morning shoulder then fill up in the middle of the day to run during the evening shoulder.
Now: Base load is approximately half of Peak load
Next: Base loads are going to shrink and Peak loads are going to rise.
Now: Demand Side Management (DSM) programs offer cheap rates to customers who move loads from peak load hours to off-peak hours.
Next: We should see DSM programs adjusted so that the cheapest rates occur during the day. This will move flexible loads (irrigation pumps for example) out of the off-peak load hours and into the peak load hours.
Now: EV buffs imagine these cars charging at night.
Next: EVs charging strategies will be designed to avoid the shoulders - day or night should be fine. You'll aim for the weekends if you can.
Now: People think photoelectrics need storage
Next: People recognize that all the displaced natural gas, hydro and imports will be available to provide back up. People also recognize that photoelectrics mathed to load behaves like a firm product

Germany is already seeing some of this stuff happen. For example, they are seeing lower daytime wholesale prices and higher prices at night. They are seeing double cycles of their pumped hydro plants and they are also seeing the disappearance of CTs. Consider that this is all happening at relatively low penetrations of solar (approximately 4 to 5%) and despite the unexpected decommisioning of six nuclear reactors following the Fukushima Daiichi nuclear disaster. Had those plants been up and running this past year we would have seen even more pronounced daytime price depressions due to excess power supply and even more peaker plants decommisioned due to poor economics.

SEE: Power too cheap for new gas turbines in Germany

To be continued...