Calif. solar effort flags in frozen housing market
By COLIN SULLIVAN, Greenwire
Published: March 20, 2009

SAN FRANCISCO -- California's ambitious solar-energy rebate program is
slumping in the state's deep, prolonged housing crisis.

Builders of new homes filed 139 rebate applications in January and 159 in
February, according to California Energy Commission data. That is down from
709 in December and 485 in November last year.

The solar program's slide reflects the mood in the economy and the downturn
in the housing market, in which new-home construction fell to a record low
last year as banks stopped lending and foreclosures spread. An energy
commission official drew a direct link between stalled solar activity and
the housing freeze.

"The decline that we're seeing is a result of the housing economy,"
spokeswoman Amy Morgan said. "Our program is closely tied in with the
homebuilding industry."

California's housing market has been among the hardest hit in the nation,
with record foreclosures leading to a severe drop in home prices. The median
price of a California home sold in December 2007 was $480,820; by December
2008, the median price had been sliced nearly in half to $281,100, according
to the California Association of Realtors.

So as prices fall, developers have started gobbling up good deals while new
home starts have stalled. The California Building Industry Association says
new home construction has been cut in half since the commission started its
rebate program in 2007.

And the situation figures to get worse before it improves, observers say.
Developers have 36 months to complete a solar project after they have filed
their initial application, which means the drop-off suggests not only
pessimism about the present state of the market but also fears about a
longer-term recession.

"Building starts have changed dramatically since we launched this program,"
Morgan said.

A wider trend?

But does the trend extend to retrofits on older houses?

At first glance, the most recent statistics suggest it does. Officials at
the California Solar Initiative, or CSI, say residential applications to
install solar systems on existing homes fell almost as dramatically as those
for new houses in the first two months of 2009.

In January, the CSI program, which is run by the state Public Utilities
Commission and based on a "solar roofs" initiative crafted by Gov. Arnold
Schwarzenegger (R), reported 608 residential applications to install PV
systems. In February, that number increased slightly, to 646.

But those levels are well short of the 1,162 and 1,053 applications the
commission received, respectively, in December and November of last year.
And applications in March seem to be following the same trend, with 188
filed as of March 11.

So on the surface, at least, the same downturn that is evident for new homes
appears to have leaked into more established communities, which so far have
been the real driver behind California's transition to 1 million solar
roofs, as envisioned by Schwarzenegger.

Yet a senior official at the PUC said it is too soon to draw any
conclusions. Molly Sterkel, supervisor of the CSI, says initial applications
received in the last quarter of 2008 were the highest ever because a state
rebate level was about to change, and many installers feared a federal tax
incentive would expire.

"A couple of things were going on simultaneously," Sterkel said. "I think
it's a mistake to say, 'Oh God, the sky has fallen.'"

Sterkel insists the PUC saw a spike in residential installation applications
toward the end of 2008 because, first, the commission's rebate level was set
to change Jan. 1 from $1.90 per watt to $1.55 per watt. Second, many feared
the federal investment tax credit would expire, until Congress renewed it
late last year.

"Whenever rebate levels go down, we see a short-term slowdown in the number
of applications," Sterkel said. "But the trend is, applications pick back up
within a month or two."

Moreover, solar companies in Northern California especially have been busy
completing actual installations, due to the rush to gain permits at the end
of 2008. The same companies that file the paperwork for homeowners tend to
handle the installation work, making them somewhat strapped for time.

CSI data for the first two months of 2009 appear to bear this out. The PUC's
statistics indicate a record number of completed residential installations
so far this year, with 5 megawatts interconnected in January and 6 MW in
February. "We've never interconnected that many systems in one month,"
Merkel said.

Yet Sterkel admits the picture is not entirely rosy for the solar sector.
The industry has seen a marked consolidation of late, with smaller companies
unable to secure financing to complete their projects and larger companies
buying them up. And she took note of the housing rebate data from the CEC.

"Are we concerned? Yes," she said. "But I'm not completely distraught."

'Lower numbers across the board'

The investor-owned utilities that administer and track the rebates under CSI
are also cautiously optimistic.

Pacific Gas & Electric Co. and Southern California Edison -- the two biggest
investor-owned utilities in the state -- have seen a dip early this year,
but officials at both companies seemed unconcerned.

At San Francisco-based PG&E, new project applications fell from November and
December (789 and 751, respectively) to January and February (389 and 263).
Los Angeles-based SoCal Edison has noticed a similar pattern, with record
highs in the last quarter of 2008.

Like PUC officials, the utilities insist consumers were flocking to the
rebates because they were about to change or vanish altogether. Officials do
admit the struggling economy is a factor, but they nervously expect a
rebound later this year, especially in the summer months.

"We are seeing lower numbers across the board, but it's really too early to
say if that's going to be sustained," said Jennifer Zerwer, a PG&E
spokeswoman.

SoCal Edison, on the other hand, points out that its numbers for January
2009 have surpassed applications for the same period a year earlier. Gary
Barsley, manager of solar and self-generation at the utility, said his
service territory in Los Angeles saw 205 applications in January, way above
85 from a year ago.

"There was kind of a rush to get applications in by the end of the year," he
said, adding that solar rooftops in his region have lagged behind Northern
California because rates are cheaper in the south.

So what about rumors of a collapsing market? Barsley said some recent media
reports predicting doom and gloom demonstrated a misunderstanding of the
nexus between policy and development.

"It's a little bit of a media exaggeration that fits with whole economic
collapse theme," he said.

A spokesman at SolarCity, a solar installation company based in Foster City,
Calif., also admitted some degree of negative economic effect on the
industry, but he said new programs designed to lease panels or work capital
investments into property taxes should benefit.

"Our lease offering allows customers to put no money down and start saving
money each month," the spokesman said, "so it's actually quite attractive in
the down economy."

Still, Barsley admitted new home starts have slowed to a crawl. SoCal
Edison's new homes program, he said, "has gone to zero."

"Frankly," he added, "I suspect they're going to stay very, very low for
quite some time."

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Barack Obama is starting to look like a California flake. When it comes to
heavy mental lifting, Obama is in the same league as musclehead Arnold
Schwarzenegger.