Tuesday, September 6, 2011

How Utilities & Home-Builders are Teaming Up to Boost Solar

Despite the near-total collapse of the housing market in the U.S. in the last few years, there has been a relatively rapid adoption of solar power among some homebuilders, as well as a much greater focus on energy efficiency in new homes.

More home developers are now offering solar energy systems as an option or standard feature in their developments. In addition to solar, builders are also investing in a higher level of energy efficiency in these homes. To achieve more installations of solar equipment required a partnership among government agencies, utilities, solar providers and homebuilders.

Let's gain deeper insights by exploring one development by Pulte Homes' Centex Division located in Elk Grove California, a bedroom community of Sacramento. The Elk Grove community is served by Sacramento Municipal Utility District (SMUD). The solar equipment provider and installer at this community is SunPower.

The Benefits of Leveraging Rooftop Solar
Homes are an excellent untapped resource for utilizing solar energy. The benefits include:
Avoiding unnecessary land use. By using roofs, less land will need to be exclusively dedicated to solar, making the rare California desert tortoises and many other constituents happy.
Making use of existing and costly infrastructure used to transport energy.
Managing peak demand, which decreases the overall cost of electricity since "peaker plants" that are brought on-line to handle peak loads are the most costly to operate.
Increasing a home's value. According to Southern California Edison, "a solar energy system increases a home's average resale value by $20,000 for every $1,000 of annual electric bill savings." In other words, the roughly $84 per month in electricity-bill savings from a solar installation equates to about $20,000 worth of added value to a home.
Installing solar at the same time as the home is being built reduces the cost of installation per home, in part because builders can use the same design on a large number of homes using a similar layout, and also because it's much easier to access the roof as it's being built than to retrofit solar onto an existing home.

More About the Players and Their Goals
The state of California encourages new homes to install solar as part of its larger "GoSolar" program that was launched in 2007. The overall goal of "GoSolar" is to provide 3,000 megawatts of solar electric energy and more than 400 megawatts from new homes by 2017.

SMUD is a public-owned utility that is the sixth largest in the nation. In addition to exceeding the state mandate on renewable energy generation and reducing its carbon footprint, SMUD also wants to reduce its dependence on purchasing electricity on the open market. Jim Burke, Senior Product and Service Coordinator for "SolarSmart" at SMUD explained, "The hot summer months when electricity demand is at its peak, SMUD may pay up to $125 million for just 40 hours of electricity to avoid disruptions."

SunPower is a leading solar manufacturer and installer. As a growth-oriented company, SunPower noticed that new home developers were underserved and developed a strategy to focus on this segment.

Pulte Homes is the largest builder in the United States that also leads with the most Energy Star certified homes. Sam Rashkin, National Director of the Energy Star for Homes Program states that "Pulte Homes stands out for their outstanding efforts. In addition to being one of the first large national home builders to join as a partner in 1996, Pulte Homes currently has the most divisions as active partners and the most completed [Energy Star] labeled homes."

Why Building a Solar Home Takes more than Sun and Solar Panels

The goal of offering solar and energy-efficient homes is to differentiate from other builders by providing the right balance of energy investments that make it affordable for the consumer. As Jim Petersen, Director of Research and Development at Pulte, explains, "Once the economics worked for our customers, solar was a natural extension to our long-term commitment to energy efficiency."

Of course, the key player is the consumer who needs to find the offer attractive enough to buy into solar. The Pulte – Centex development in Elk Grove attracts the entry-level or first time home buyer. This buyer is often limited in the cash available for the down payment. Monthly expenses are also a major concern.

Building a Solar Home Takes More than Sun and Solar Panels
California's investment in solar is the foundation upon which the new home program is built. The state provides one of the most generous incentive programs in the nation. For new homes, the state of California has delegated the program administration to the utilities, such as SMUD's "SolarSmart" program.

SMUD's strategy is to provide incentives for homebuilders to do both, efficiency measures and solar. A big part of making solar cost-effective is what the builder does before the solar panels are installed. Investments to conserve energy are often less expensive than the cost to generate electricity with the combination of energy saved and energy generated providing the greatest return-on-investment.

SMUD thought carefully on how to best recruit homebuilders to the program. One inhibitor for homebuilders was dealing with the complexity of choices to achieve SMUD's conservation goal. To make it easier for homebuilders, SMUD with the help of energy consultants determined the best mix of efficiency measures for each dollar invested.

This approach is different from some utilities that set a target and then allow the builder to select how to achieve the target. SMUD believes that for the first phase of its program that a simple approach that all homebuilders could easily implement would lead to more participation.

One other benefit of this prescriptive approach "is less cost for the builder since the builder can focus on deploying rather than researching options" explained SMUD's Burke. It is also easier for SMUD to verify that the builder is achieving the SMUD efficiency goal.

Pulte Centex is experienced in both energy efficiency and solar from its other developments and welcomed the SMUD conservation prescriptions. Pulte's Petersen said "At Pulte, we don't take a poor performing [energy] home and tack on solar. Prior to offering solar, we do all the energy efficiency investments that are cost-effective."

Pulte turned to SunPower for the solar installs. The reasons that Pulte selected SunPower are SunPower's leadership in increasing the efficiency of solar systems, its focus on aesthetics like solar shingles, and its history of working with municipalities and fire marshals on regulatory compliance.

With a trusted partner, Pulte works with SunPower early in the process to design the solar installation to optimize for site conditions, which includes rightsizing the solar equipment installation to cover the most costly electricity.

If We Build It, Will They Come?
SMUD dictated that a development had to be fully installed with solar equipment to participate in the program. To offset homebuilder and consumer concern about the lack of choice, SMUD's program provides sufficient incentives for the homeowner to be cash positive in the first month.

Given the Centex buyer may be cash strapped, a leasing option is also provided for those buyers that would prefer not to finance the solar equipment.

SMUD certification of insulation and other efficiency measures provides a level of veracity to the homeowner that the work was performed at high level of quality to ensure benefits are achieved. SMUD's Burke reported that at the beginning of the program in 2007, "80% of homebuilders were challenged in meeting the insulation guidelines to ensure no thermal bridges or gaps. Since then, a combination of inspections and education has improved compliance on the first inspection."

Pulte segments its overall market into three groups -- entry, move-up and active adult (55+). The message to the consumer is modified to each segment and community. As Pulte's Petersen illustrated, "For our first-time Centex homebuyers, our message is almost exclusively focused on the benefits of lower utility bills. For Pulte Homes (move-up buyers) and Del Webb (55+) homebuyers, we often talk about healthy living, sustainability, resale value and long-term investment. Solar as a hedge to rising energy costs for those on a fixed income also resonates."

SMUD made an effort to supplement the builder's marketing by sponsoring direct mail inserts to its customers, radio ads, email blasts, Google ads and Twitter social marketing.

Once a potential homebuyer visits Elk Grove, the primary sales consultant, Mark Stock says he listens carefully to learn about the visitor. Stock says "I don't have a canned pitch, but tailor the message once I get to know the customer's interests and concerns."

Stock finds that most consumers are aware of the benefits of solar and are excited about the program. He not only educates the customer about the solar equipment, but the other energy efficiency measures such as cool roof, insulation and low-e windows. Stock explained, "The total home works as a system. It needs to be durable, reliable, and easy to maintain for the home owner."

Results of the Project
GoSolar is on-target to achieve both the new home and overall program goals by 2017.
SMUD is finding that one in four new homes are installed with solar equipment and the SMUD prescribed energy efficiency measures. Thirty percent (30%) of builders in the region were recruited and all continue with the program. As the program matures, there is continued growth. Some later recruits to the program saw firsthand the benefits of solar when a neighboring solar development siphoned off customers.

SunPower's efforts have paid off. According to SunPower, they have installed 80 percent of all solar equipment for new homes in the nation.

It is still early in the lifecycle at Elk Grove development, but other developments with similar offering have proved popular with consumers. At Pulte's Las Vegas developments, consumers send letters of gratitude for reducing utility bills and providing a unique differentiator in a tough resale market.
SunPower also confirms that consumers are thrilled. A recent survey of new home owners with SunPower solar systems indicates that 92 percent would recommend a new solar-powered home to a friend.

Overall Lessons
1. Provide a great value proposition for the consumer. The combination of incentives and financing need to provide an immediate payback for the homeowner. Start with a simple marketing message such as "save money the first month." The basic message may then be supplemented during the one-on-one discussions.

2. Crawl / walk / run approach with home builders. SMUD was prescriptive with its programs to help those home builders who may be less experienced with energy efficiency measures and solar. In upcoming phases SMUD is considering more opportunities for homebuilders to also select efficiency measures.

3. Efficiency in delivering solution. Economies of scale and engineering provides sufficient return-on-investment to make solar cost-effective.

It is encouraging that with the right incentives and well developed programs, solar installations are viable and valuable. With more homes installing solar, we may soon reach Malcolm Gladwell's "tipping point," where solar is the new normal.

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