tl Xcel Energy'"
PUBLIC SERVICE COMPANY
IN THE MATTER OF THE APPLICATION
OF PUBLIC SERVICE COMPANY OF
COLORADO FOR APPROVAL OF THE REDUCTIC)N IN
THE STANDARD REBATE OFFER
DOCKET NO. 11A-
DIRECT TESTIMONY
FEBRUARY 16, 2011
E
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF COLORADO
* * * * *
IN THE MATTER OF THE APPLICATION
OF PUBLIC SERVICE COMPANY
OF COLORADO FOR APPROVAL OF
THE REDUCTION IN THE STANDARD
REBATE OFFER
)
~
DOCKET NO. 11A·'_E
)
DIRECT TESTIMONY OF DEBRA L. SUNDIN
ON
BEHALF OF
PUBLIC SERVICE COMPANY OF COLORADO
FEBRUARY 16, 2011
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF COLORADO
*****
IN THE MATTER OF THE APPLICATION OF )
PUBLIC SERVICE COMPANY OF
)
COLORADO FOR APPROVAL OF A
)
REDUCTION IN THE STANDARD
)
REBATE OFFER
)
DOCKET NO. 11A- __E
DIRECT TESTIMONY OF
DEBRA L. SUNDIN
1
Q.
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
2
A.
My name is Debra L. Sundin. My business address is 414 Nicollet Mall,
3
Minneapolis, Minnesota, 55401.
4
Q.
BYWHOM ARE YOU EMPLOYED AND IN WHAT POSITION?
5
A.
I am employed by Xcel Energy Services, Inc., a wholly-owned subsidiary
6
of Xcel Energy Inc., the parent company of Public Service Company of
7
Colorado.
8
Planning, Talent, Technology and Customers (marketing branch).
My job title is Director, DSM and Renewable Strategy and
9
Q.
ON WHOSE BEHALF ARE YOU TESTIFYING IN THE PROCEEDIING?
10
A.
I am testifying on behalf of Public Service Company of Colorado ("Public
11
12
Service" or the "Company").
Q.
13
14
DUTIES, AND RESPONSIBILITIES?
A.
Yes.
A description of my qualifications, duties, and responsibilities is
included as Attachment A.
15
16
HAVE YOU INCLUDED A DESCRIPTION OF YOUR QUALIFICATIONS,
Q.
WHAT IS THE PURPOSE OF YOUR DIRECT TESTIMONY?
1
A.
The purpose of my testimony is to: (1) explain the changes in the solar
2
market which support the need to lower the Standard Rebate Offer
3
("Rebate"); and, (2) to provide the evidence and rationale for selecting the
4
Rebate level requested in the filing.
5
Q.
SET TOO HIGH?
6
7
WHY DO YOU BELIEVE THAT THE REBATE LEVEL IS CURRE:NTLY
A.
The price of installed solar has dropped significantly since
OUi"
solar
8
program began, and has decreased at an even greater rate during the
9
2009 and 2010 time period.
To react to these market changes, we
10
eventually introduced a system of gradually reducing the price we pay for
11
Renewable Energy Credits ("RECs") in our 2010 RES Compliance Plan.
12
Despite these reductions, the price of installed solar decreased more than
13
we expected when we prepared that Plan. As a result, we have already
14
attracted more than twice the participation in the program that we targeted
15
for 2011. These facts indicate that even with the reduction in REC prices
16
the Company has implemented, the solar market is over-subsidized.
17
18
The solar industry in Colorado has grown 91 % in 2010. Large numbers of
19
new installers have entered the Colorado solar market. The number of
20
installers in Colorado is now over 400 strong. Recently, several installers
21
from other states have moved into the Colorado market.
22
number of installers in Colorado and the migration of out-of-state
23
developers into Colorado is also an indication that the market may be
2
The large
1
over-subsidized.
2
combination of federal, state, and local tax incentives, the Company's
3
REC payment and minimum required rebate payment, and other
4
subsidies mean that homeowners and business have very short payback
5
periods for minimal investment in solar installations.
6
growth and efficiency in the solar market was what drove public policy in
7
Colorado.
8
sustainable under the current renewable energy standard. My group was
9
asked to determine what should be the appropriate incentive levels
10
offered for on-site solar systems given the declining prices for solar panels
11
and the continuing subsidies that exist in the industry.
12
Q.
13
14
These installers are coming to Colorado because the
The desire for
However, the rapid growth we are experiencing is not
WHAT EVIDENCE DO YOU HAVE THAT MARKET CONDITIONS
SUPPORT A CHANGE TO THE REBATE LEVEL?
A.
There is plenty of information on market trends and solar cost predictions
15
provided by experts in this field.
16
concerning installed prices in the applications we receive as part of our
17
Solar*Rewards program.
We also receive some information
18
19
One of the better research organizations that is unbiased and provides a
20
comprehensive overview of the solar industry world-wide is Deutsche
21
Bank. They provide F.I.T.T. Research reports for investors (F.I.T.T. stands
22
for fundamental, industry, thematic, and thought leading). They issue
23
reports, minimally on an annual basis, on the status of the solar industry
3
1
covering the entire value chain and high installation countries. Another
2
example of the information that is available are reports concerning solar
3
panel prices issued by OTR Global.
4
5
The available industry information indicates that the price of solar
6
installations has dropped significantly since we began the Solar'Rewards"
7
program. Indeed, the price of solar installations dropped significantly in
8
2009 and 2010.
9
information indicates that the price of solar installations will continue in a
10
downward trend. For example, the average sale price of solar modules of
11
a large manufacturer declined 50% from mid 2008 to the third quarter of
12
2009. Using the solar panel to installed cost ratio of 50-60%, this equates
13
to a 25% drop in the installed price of a solar system.
14
Figure 1: Average Sale price of Solar Panels
This history, along with the other available industry
4
I
Figure 7: Solar PV module ASP and cost trends - YingLi and First Solar
4.50
4.00
3.50
_
3.00
~
~ 2.5D
Co
~:g
o
~'"
«
2.00
50
1.
1.00
0.5D
CdTeASP
~ c- S i AS P
- 0 - CdTe CostNVp
-0- c-Si CostJWp
01
20D7
2008
2009
2010
1
2
3
4
5
6
ASP = Average Sale Price
CoGS = Cost of Goods Sold
CdTe = Cadmium Telluride solar panels (a type of thin film solar panel)
c-Si = Crystalline Silicon solar panels (the majority of panels produced
globally are c-Si panels)
7
8
In addition, in 2010 the average installed prices reported as part of
9
applications submitted in the small Solar'Rewards" program dropped by
10
about $1/W.
11
12
While the price of solar installations has dropped significantly, the
13
incentives have continued at levels that have brought the customer's
14
installed price of solar energy in the small, 3
15
programs to levels that are equal or below Public Service's current energy
16
rates. As a result, the Company has seen unprecedented growth in the
5
rd
party owned and medium
1
medium programs.
2
ability to reduce the price we pay for RECs, this indicates that the Rebate
3
levels need to be reduced because market changes have resulted in a
4
disproportionate share of system costs being subsidized under the current
5
program relative to the cost of system installation.
Because we are approaching the lower end of our
6
7
Further evidence of market changes that support a lower Rebate amount
8
include:
9
10
11
12
13
14
15
16
17
18
19
•
A December ts" web release by Solar Alliance
Organization.
The release indicates that the price of
installed solar has continued to decline, stating that the price
of installed solar in both California and New Jersey has
dropped 14-16% respectively in the first 10 months of 2010.
•
The May 6th, 2010 Deutsche Bank FITT report is forecasting
solar prices to continue to drop on average approximately
1O%/year through 2015.
Q.
CAN YOU DESCRIBE THE ANALYSIS YOU HAVE PERFORMED
20
USING
21
COMPANY TO
22
RESULTED IN THE PROJECTED DECLINE IN INSTALLED SOLAR
23
PRICES FOR 2010 AND BEYOND?
24
A.
THIS
AVAILABLE
CONCLUDE
INFORMATION
THAT
THAT
MARKET
LEADS
CHANGES
THE
HAVE
Yes. We began with the annual solar installed cost predictions set forth in
25
a May 6, 2010 Deutsche Bank Report titled Solar Photovoltaics ­
26
Financing the strategic industry in the United States. The forecasted
27
installed solar costs as stated in the Report are in the following table:
28
Table 1:
6
Year
Forecast average installed system price
2010
-$4.80/W
2012
-$3.60/W
2015
-$2.80/W
2020
-$2.35/W
1
Source: Deutsche Bank - 1MW systems, US industry average
2
We then interpolated the data to build the following cost curve along with
3
the annual price drops.
4
Figure 2 - Solar price forecast
Forecasted installed system price
$5.00 r-,
$4.50 +---"-"",~-----------------------1
~ $4.00
ut $3.50 +----...............
----""'---=::::---:---------------1
~
ti $3.00
$2.50
t~======~=:=!:==±;;:;:=:;:::=;:d.
~ $2.00 + - - - - - - - - - - - - - - - - - - - - - - - - - - 1
$1.50 + - - - - - - - - - - - - - - - - - - - - - - - - - - 1
$1.00 +--------,-------,-----.,----...,.----------1
2010
2012
2014
2016
2018
2020
5
6
Table 2 - Deutsche Bank Solar price forecasts with interpolated data
7
Deutsche bank forecast
plus interpolated data
Annual price drop
8
Once we determined the amount by which solar prices are projected to
9
decline by year, we then estimated the 2010 Colorado-specific prices for
$4.80
$4.00
17%
$3.60
10%
$3.27
9%
$3.00
8%
$2.80
7%
$2.71
3%
$2.54
3%
$2.45
~i%
$2.36
4%
Solar'Rewards'" small, customer owned
10
solar installations for the
11
program, the small 3
12
this information below by Solar'Rewards'" program.
rd
$2.62
3%
party owned, and the medium programs. I present
7
1
2010 COLORADO SOLAR PRICE FORECAST BY PROGRAM
2
SMALL PROGRAM - To estimate the average installed price for systems
3
in the small program for 2010, we used cost data set forth in appliications
4
submitted as part of the Solar'Rewards" small .proqrarn and 2010 solar
5
panel prices tracked by OTR Global.
6
Global we estimated the installed price of solar for small systems iin 2010
7
to be $5.05/W, which is the midway point in the installed cost range
8
determined from OTR Global panel price data for the second half of 2010.
9
This $5.05/W price fits well within a 10 (one standard deviation) low to
10
medium range of installed prices reported on applications for small
11
systems «10kW) in the Company's Solar'Rewards'" program ($4.70 ­
12
$5.88/W).
13
MEDIUM PROGRAMS - We estimated the small 3rd party owned and
14
medium program installed price for 2010 based upon our knowledge of
15
the solar industry, the cost variables and business models that drive the
16
economics of this portion of the industry, and current information gathered
17
from
18
estimated the installed price of systems in 2010 to be in the range of
19
$4.25-4. 36/watt. Based upon information gathered from Solar'Rewards"
20
applications, the median installed price for the Solar'Rewards" medium
21
program in 2010 was $4.55/watt. Conservatively, we used the midpoint
22
value between these data points ($4.36/watt and $4.55/watt) to estimate
23
the 2010 solar installed price for systems in the medium program. The
Solar'Rewards" applications.
8
From the information from OTR
For the
medium
program, we
1
estimated installed price for systems in the medium program for 2010 is
2
$4.46/watt.
3
SMALL, THIRD PARTY OWNED PROGRAM - There are two data points
4
that bound the installed price for small, 3rd party owned solar. The lower
5
bound is the installed price estimate for medium program systems. The
6
upper bound is the installed price estimate for small program systems.
7
8
Third party developers marketing these small-sized systems have two
9
advantages over similarly sized projects marketed as small customer-
10
owned systems. The first advantage they have is that they are larger than
11
most developers,
12
components in volume, thus lowering the overall price they pay for these
13
components. The second advantage is that they tend to canvass potential
14
installation areas, dispatching crews to sites that are in close proximity to
15
one another.
16
efficiencies that can be gained from performing installations in this
17
manner.
so they can purchase solar panels and other
This strategy permits them to take advantage of the
18
19
When comparing the bottom line costs of third-party owned small systems
20
and medium program installations, the costs under the small program are
21
slightly higher.
22
power under both programs and can obtain panels at similar costs, the
23
smaller installations have more inverters and line feeds to the customer
Although the developer/owner has similar purchasing
9
1
meter per watt of installation, resulting in higher costs relative to a '100 kW
2
installation in one location. Because of this, we estimated the midpoint
3
between the two system costs to determine the installed price estimate for
4
small, 3rd party owned systems for 2010. The estimated small, customer
5
owned program and estimated medium program installation pric:es are
6
$5.05/W and $4.25-4.30/watt respectively. The midpoint between these
7
two values ($4.30/watt and $5.05/watt) is $4.68/watt.
8
$4.68/watt is the installation price we used as the estimate for small, 3
9
party owned systems under the small program for 2010.
10
Q.
As a result,
rd
SO FAR, YOU HAVE CALCULATED THE AMOUNT BY WHICH SOLAR
11
PRICES ARE PROJECTED TO DECLINE BY YEAR.
12
ESTIMATED THE 2010 COLORADO-SPECIFIC PRICES FOR SOLAR
13
INSTALLATIONS FOR THE SOLAR*REWARDS® SMALL, CUSTOMER
14
OWNED PROGRAM, THE SMALL 3RD PARTY OWNED, ANID THE
15
MEDIUM PROGRAMS.
16
ANALYSIS?
17
A.
YOU THEN
WHAT WAS THE NEXT STEP IN YOUR
We then calculated the annual installed solar price forecasts by program
18
by year, for 2011 and beyond. We performed this calculation by applying
19
the annual
20
Colorado-specific annual costs of installed solar systems to determine the
21
installed costs of solar by program and by year. The installed solar price
22
estimate by year for the years 2011 and beyond was based on our 2010
23
estimate of the price of solar installations by program and the Deutsche
percent
projected
price
10
reductions
to
the
projected
1
Bank solar price declines by year mentioned earlier. To be conservative,
2
we used a 10% drop in solar prices for 2011 instead of the Deutsche
3
Bank forecast of 17% for all program price forecasts in 2011. The results
4
of the calculation for each program are set forth in the following tables.
5
6
7
Table 3 ­
Projected Installed Solar Price Forecast - Small, Customer
Owned Program
Small program
8
Table 4­
9
11
12
13
Table 5 ­
$3.72
$3.41
$3.18=
Projected Installed Solar Price Forecast - Medium Programs
Medium programs
10
$4.09
$4.46
$4.01
$3.61
$3.28
$3.01
$2.81
$2.72
Projected Installed Solar Price Forecast - Small, 3rd Party
Owned Program
14
15
Thus our analysis, which is summarized in Tables 3 through 5 above,
16
leads us to conclude that there is a projected decline in installed solar
17
prices for 2011 and beyond in Colorado.
18
continued presence of the other incentives described in Ms. Kittel's
19
testimony lead us to believe that market changes support the need to
20
reduce the Rebate level.
21
Q.
This analysis, along with the
WHAT IS THE COMPANY REQUESTING THE COMMISSION SET AS
22
THE REBATE LEVEL FOR CUSTOMER SITED SOLAR GOING
23
FORWARD?
24
25
A.
The Company is requesting the Commission approve a Rebate of $0.25
per watt, which will be paid up front on systems up to 100 kW.
11
The
1
Company believes this lower Rebate level, in combination with other
2
incentives and adjustments to the Company-established REC payments,
3
will give the Company the flexibility we need to prudently use our limited
4
RESA funds and set an appropriate incentive level while maintaining a
5
sustainable market.
6
Q.
PLEASE EXPLAIN HOW THE COMPANY INTENDS TO USE ITS
7
FLEXIBILITY
8
PAYMENTS IF THE REBATE LEVEL IS SET AT $0.25 PER WATT.
9
A.
ON
A
GOING
FORWARD
BASIS
TO
SET
REC
We will review current solar prices that are prevalent in the industry as
10
well as predictions of anticipated solar installed costs. This information
11
will be used, along with other information like current application volumes
12
and information concerning other available incentives and rebates to vary
13
REC payments to set an appropriate total incentive level.
14
Q.
PLEASE ILLUSTRATE HOW SETTING THE REBATE PRICE AT $0.25
15
PER WATT, COMBINED WITH THE COMPANY'S FLEXIBILITY TO
16
ADJUST REC PRICES, WILL PERMIT THE COMPANY TO ESTABLISH
17
THE
18
PROGRAMS?
19
A.
PROPER
INCENTIVES
FOR
THE
COMPANY'S
SOLAR
The easiest way to describe how we will use this flexibility would be for me
20
to describe the analysis we undertook to establish the $1.00/watt REC
21
price for the small program, assuming a $0.25 Rebate level is established
22
by the Commission in response to this application.
23
12
1
For the small, customer owned program, the first step in understanding
2
how the proposed REC price was set is to understand the small program,
3
customer-owned installer business model. The installers do not own the
4
system, the customer does. The assumption is that the installers are
5
passing through the cost of the labor and materials and earning a margin
6
on the total cost of the installation. Although the invoices received in the
7
Solar'Rewards" small program in 2010 show the costs of all components
8
and labor, they do not show a line item for the profit of the installer. It is
9
safe to assume that installers are earning a profit by either marking up the
10
cost of the installed equipment - solar panels, inverters, mounting
11
hardware, etc. and/or earning margins through the labor estimate. It is
12
also safe to assume that they are at least earning a fair market return, or
13
they would not install the system.
14
15
The customer's out-of-pocket costs can be determined by using historical
16
data. Using the Solar'Rewards'" small program installers invoice data for
17
2010, the current small program total incentive, and the Federal
18
Investment tax credit ("ITC"), it is easy to calculate the customer's out of
19
pocket costs over a statistical range of reported costs. We used.a :20 (two
20
standard deviations) range around the average solar price, (approximating
21
68% of applications) to develop the statistical analysis on the small
22
program installed costs in 2010. They are displayed along with the
23
corresponding customer out-of-pocket cost estimates in the table below.
13
1
Table 6 - Solar'Rewards" small program data
Solar installed cost $4.70/W
2
Customer out of pocket costs
$8,255
$5.88/W
$7.07/W
$12,355
$16,250
3
We believe the median figure is the average market price for the
4
Solar'Rewards'" small program.
5
Q.
PLEASE EXPLAIN HOW YOU USED THIS INFORMATIONI AND
6
ANALYSIS TO ESTABLISH THE PROPOSED PRICE FOR RECs,
7
ASSUMING A $O.25/WATT REBATE LEVEL, FOR THE SMALL '
8
PROGRAM.
9
A.
One can see from Table 6 that that the customer's out-of-pocket costs for
10
a small system ranges from $8,255 to $16,250. If one assumes a
11
forecasted installed cost for small customer owned systems for 2011 of
12
$4.55/watt from Table 3 above, and a Rebate price of $0.25/W, a REC
13
level of $1.00 per watt produces a customer out of pocket cost of $11,550
14
as follows:
15
Figure 3 ­
Calculation of Customer Out-of-Pocket Cost
System cost $22,750 (5kW x $4.55/W x 1000)
REC $5,000 (5kW x $1/W x 1000)
Rebate $1,250 (5kW x $.25/W x 1000)
$6,250 .($5,000 + $1,250)
ITC $4,950 ($22,750 - $6,250) x 30%
Customer out of pocket $11,550 ($22,750 - $6,250 - $4,950)
16
17
The customer out of pocket cost of $11,550 is just below the 2010 median
18
market price for Solar'Rewards" small customer owned systems, which is
19
$12,355.
The Company believes this is an appropriate level of incentive.
14
1
At this incentive level customers are paying out of pocket less today with
2
the reduced Rebate than they were when the program first began.
3
Q.
WHY DID YOU ATTEMPT TO SET A REBATE AND REC LEVEL. THAT
4
PRODUCES A CUSTOMER OUT-OF-POCKET COST THAT IS JUST
5
BELOW THE MEDIAN COST?
6
A.
We believe the median customer cost displayed in Table 6 is the average
7
market price for the Solar*Rewards small customer owned program. We
8
believe initially setting the customer out of pocket costs to slightly below
9
the average market price will help drive efficiencies in the market, which
further lower the installed cost of these systems for consumers.
10
11
Q.
IS THERE ANY ADDITIONAL INFORMATION THAT WOULD MAKE
12
YOUR ANALYSIS
13
PRECISE IF IT WERE AVAILABLE TO YOU?
14
A.
OF THE APPROPRIATE REC LEVEL
MORE
Yes. Although the installed price of systems is reported on applications
15
in the small customer owned program, the prices do not include a
16
breakdown of the installers' and developers' margins on these systems. If
17
we knew this information we might be able to more precisely estimate the
18
incentive levels.
19
We receive less information in the 3rd party owned applications.
20
knew the installers' and developers' cost information, including debt to
21
equity ratios and borrowing rates, plus their expected returns or margins,
22
we might be able to more precisely estimate the REC levels.
15
If we
1
Q.
2
3
DOES THE FACT THAT THIS INFORMATION IS NOT AVAILABLE TO
YOU ALTER IN ANY WAY YOUR RECOMMENDATION?
A.
No. Our proposal gives us the flexibility to vary the incentive payments in
4
response to market changes.
5
including information on the rate of applications we are receiving, to vary
6
the REC payments in order to adjust the rate of applications to a more
7
reasonable level. Therefore, while having this information might make our
8
analysis more precise, it is not necessary to have this information in order
9
to set appropriate REC levels.
10
Q.
We can review the available information,
DO YOU BELIEVE THAT THE $0.25 REBATE LEVEL ALONG WITH
11
THE FLEXIBILITY THE COMPANY HAS IN SETTING REC PAYMENTS
12
WILL PERMIT THE COMPANY TO RESPOND TO CHANGES IN
13
MARKET CONDITIONS AND FACILITATE THE CREATION OF A
14
SUSTAINABLE SOLAR MARKET AND PERMIT THE COMPANY TO BE
15
RESPONSIBLE STEWARDS OF THE LIMITED RESA DOLLARS
16
AVAILABLE TO IT?
17
A.
Yes. Our proposal was developed employing a logical approach which is
18
based on, among other things, industry information from reputable
19
sources and the Company's Solar'Reward" program invoice information.
20
We have verified our recommendations with industry information and
21
other sources, including information from local developers. The Company
22
believes that its proposal will enable it to set and vary the total incentives
23
so that they will be better aligned with market conditions. This will in turn
16
1
facilitate the creation of a sustainable solar market - which helps us meet
2
our obligations under the RES -- while at the same time being responsible
3
stewards of the limited RESA dollars available to us.
4
Q.
DOES THIS CONCLUDE YOUR TESTIMONY?
5
A.
Yes.
17
Attachment A
Statement of Qualifications
Debra L. Sundin
I graduated from Bemidji State University with a BS degree in Business
Administration and an MBA degree from the University of St. Thomas.
I have been with Xcel Energy for 30 years involved in DSM through Product
Management, Market Research and Regulatory Management. I am Director, DSM and
Renewable Strategy and Planning for Xcel Energy Inc. I am currently responsible for
the strategy, planning and product development for energy efficiency programs in
Minnesota, Colorado, North Dakota, New Mexico and Texas.
From 1979 to 1991, I provided market research support to Northern States
Power and was involved in conservation program design and evaluation work.
became the manager of Residential Marketing in 1992 implementing programs such as
Saver's Switch, Appliance Rebates, Appliance Recycling and Lighting.
In 1998 I
transitioned to Manager, Energy Management where I was responsible for strategic
market planning for business products as well as DSM regulatory strategy and filings.
Since the merger that created Xcel Energy in August of 2000, I have had management
responsibility for the DSM portfolios system wide.