Even before the spectacular fall of Hoku Corp. and its ambitious plans to become a major player in both polysilicon manufacturing and the solar electric design and build business, a growing darkness has been gathering over one of the few local construction trades that has been thriving this past handful of years.
After phenomenal, white-hot growth, Oahu’s solar electric industry is slowing down, leading to a growing sense of anxiety, if not panic, among many of the island’s PV companies. Witness the bribes and gimmicks that are being peddled in an effort to make sales: offers of $4,000 off, $2,000 cash back, vacation for two to Las Vegas, a new air conditioning system, “get free solar,” buy 20 solar panels and get five for free, 15,000 Hawaiian Air miles and “fewer pukas.” (Remember that there is no “s” to denote a plural quantity in the Hawaiian language.)
And despite efforts by some in the industry to pitch it to the contrary (e.g., “We’re expecting sales to increase throughout the remainder of the year”), the second half of 2013 will not be anything close to the monumental ride of last year’s third and fourth quarters. As the pie likely continues to contract July-December, usually the busiest time for PV integrators, these bells and whistles are going to be getting even louder and more desperate sounding.
After modest year to year growth for the first four months of this year over 2012 in the number of PV system permits issued by the C&C Department of Planning and Permitting (DPP) compared to last year, this May and June saw a decline. Even more dramatic is the free-fall from the second half of 2012 compared to the first half of this year with over 50 percent fewer PV permits issued January-June 2013 compared to July-December 2012.
So far this year, over 200 contractors have pulled PV permits on Oahu, reflecting one of the most saturated, hyper-competitive markets in the country. That said, a relatively small number of companies have controlled the bulk of that market. Over the first half of 2013, the top five obtained about 44 percent of all PV permits issued while the top 15 were responsible for 70 percent of the market.
Also worth noting is the decrease in the stated cumulative value of PV projects for the top 15 despite the increase in the number of permits issued, which indicates a reduction in the size of the average system sold.
Striking is the ascendancy of Utah-based and Blackstone Group-owned Vivint Solar (which only entered the Hawaii market in March 2012) and local guys Hawaii Energy Connection and the decline of former numbers 1 and 2, RevoluSun and Sunetric. The stated system value on the PV permits pulled by RevoluSun dropped by almost two-thirds year to year while their number of permits dropped by over 50 percent. Sunetric’s permit value was down 37 percent while permits were down 23 percent. A few companies have bucked the trend and showed year to year growth. The integrators which enjoyed year to year increases in the stated system value on the permits and permits pulled include Vivint Solar, Hawaii Energy Connection, Solar City and Haleakala Solar.
Mainland solar industry organizations, research firms and reporters have been practically gushing over how hot the Hawaii PV market has become over the past two years, listing us no. 7 in 2012 and 3 in 2013 (behind California and New Jersey) as far as a state-by-state ranking in a recent report (read the executive summary).
Rather ironic given the downward trend in the making and all the continued rhetoric from so many quarters touting the need for the state to go further and faster down the renewable energy road. What may account for this leveling out of the growth curve?
Uncertainty over Tax Credits: Since the November 2012 announcement by the state Department of Taxation (DoTax) that it was tightening the restrictions on the ability of homeowners and businesses to claim multiple tax credits per PV project, there has been the one-two punch of both reduced state tax credit incentives and a greater confusion and uncertainty among the buying public. Add to that jumble the striking failure of the dedicated and concerted efforts on the part of the solar industry, its high powered local and Mainland supporters (Hawaii Solar Energy Association, Hawaii Energy Policy Forum, Hawaii PV Coalition, Ulupono Initiative, Sierra Club, Blue Planet Foundation, Earthjustice, Vote Solar, Solar Alliance) and allies in the state House and Senate to get a new solar tax credit passed in May. SB 623 which had broad, though not unanimous, support from many quarters did not make it out of a conference committee apparently due to the concern one or more members of the committee had over just how much SB 623 would cost the state if it were to become law. So the restrictions enacted by DoTax, which were challenged in court by the Sierra Club and Earthjustice only to have their suit thrown out last month, remain in force at least until DoTax were to make further modifications or the Legislature takes another stab at redoing the tax credit next session.
Too much noise in the marketplace: In 2008 less than 1,000 grid-connected PV systems were installed across the state over the course of that year. Back then you could practically count the number of real PV players on your fingers and toes. Now that many PV permits are being issued in one month on just one island and there are probably somewhere around 400 companies around the state trying to get a piece of the action. Solar electric systems are being sold door to door and offered as promotional prizes at your favorite plate lunch shop. Expensive, full-page color ads are taken out. Even more expensive television spots (some more annoying than others) are being purchased. And Mainland-based companies like SunRun, Solar City and Vivint Solar have had Hawaii consumers in their crosshairs with their attempts to be convincing “choose us” pitches. What are homeowners to do as they’re being bombarded by all the solar hype? Perhaps pull back and delay a purchase decision until the market sorts itself out.
No more free permits: After losing more than $18 million in lost permit fees over the past years, the C&C finally started charging to issue PV permits in early April. Prior to then, DPP charged nothing to process and issue PV permits. Nor did they charge to inspect the completed systems. This led, according to some in the industry, to a habit by one or more PV companies to prematurely apply for and obtain permits before having a definite commitment from the homeowner. This practice, if true, may have led to some permits being issued for projects that were never done. Now that a cost is associated with obtaining the necessary permit, this may be a contributing factor to the PV permit numbers dropping off over the past several months.
Electric grid saturation: Of all the possible factors contributing to the present and likely continued slowdown in the adoption of grid-connected PV systems on Oahu, this one gives many in the industry the most concern.
As a long-time PV integrator that now focuses exclusively on the Big Island, my company has been experiencing the practical effects of more and more HELCO circuits becoming impacted by high PV penetration rates. For over a year now, no PV contractor in their right mind on the Big Island would move forward with a project unless they have an assurance that that particular system has been accepted into the HELCO “queue.”
On Maui, since last year, MECO and the County of Maui have worked out an unprecedented arrangement where the County will not even issue a PV permit unless the contractor applicant submits a “pre-approval” letter from MECO, which means that MECO has verified that there’s still available capacity for more PV in that particular circuit.
On Oahu, HECO is now considering implementation of a similar program as a growing number of circuits approach that anxiety-producing 100 percent of minimum daytime load in equivalent PV capacity threshold.
Sooner or later, and more likely much sooner rather than later, HECO will need to implement some kind of regime that stops integrators from selling and installing systems in certain high penetration circuits lest the utility finds itself in the very unenviable position of having to tell those homeowners that they can’t turn on their PV systems pending the time it will take HECO to study the circuit and develop and deploy mitigating means to allow the circuit to accept more PV.
Since the HECO grid is so much larger than even all the neighbor islands combined, management and the engineering staff there have had a comparatively easier time accepting PV systems small, medium and large. Up until now. Whatever HECO does to address this will take place on its own timeframe and schedule. But it’s undeniable that there’s now a greater sense of urgency than there’s ever been and whatever HECO decides will likely lead to it being less easy and routine for Oahu PV contractors to sell, permit and install systems at the pace that they’ve enjoyed in the past.
While it may be easy to take away something of a doom and gloom impression of the current and near-future state of the PV scene on Oahu, there will still be likely be over 10,000 new systems installed this year.
And the state has made laudable progress, with still a ways to go, toward reducing its dependence on imported fossil fuels. Case in point: in 2012 HELCO had more than 40 percent of all the electricity sold on the Big Island coming from renewable energy sources (solar was .02 of one percent).
Exponential PV growth though, as has been experienced these past several years, cannot continue indefinitely. Nor can the market sustain and support the current level of players.
A consolidation of the PV industry will start soon if it hasn’t already. Those companies which accrued debt during the high revenue boom time will be hard pressed to survive during the slowdown. Those companies that expanded dramatically and cannot resize in an orderly fashion will be in a similar situation. But the end result should be a healthier, must sustainable solar electric industry.
Sooner or later tax credits for solar energy systems will and should go away. We as an industry can survive that. Issues surrounding the utilities’ ability to accommodate more and more of what my company, and many others, provides gives me the most worry.
Either we in the PV business provide our customers a means to allay the utilities’ legitimate concerns about high penetration by installing certain equipment on the customer side of the electric meter or the utilities come up with larger scale mitigation measures on their side of the meter. (Having masses of people completely disconnect and go off-grid is not the answer and not going to happen.)
Either way, it doesn’t appear that the availability of any such cost-effective, near-term and practical fixes are coming fast enough to keep up with the hard facts on the ground.
I am grateful to Emily Ebert for her invaluable assistance in collecting and crunching the Oahu PV permit data.
About the author: Marco Mangelsdorf has been in the renewable energy field for 35 years and is president of ProVision Solar Inc., a Hilo-based solar electric integrator that’s been designing and installing PV projects across the islands since 2000. He also teaches energy politics at UH Hilo.
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