Insights Investment Grade Solar Quality Assurance
Implementing Investment Grade Solar Quality Assurance
by Chris Doyle and Matt Golden
As the solar industry continues its recent trend as providers of energy services rather than vendors of labor and hardware like panels and inverters, the need for Quality Assurance (QA) and standardized measurement has moved from a program requirement to a necessity for responsible growth and financial confidence. Quality Assurance is needed to facilitate the efficient flow of capital by private investors into the market by providing confidence in the underlying economics of the off-setting of grid energy with distributed solar energy and in the quality of the physical asset.
Since 2009, the California market for third party financing, in the form of Leasing agreements and Power Purchase Agreements (PPAs), for residential Solar PV has increased from 9% in 2009 to 75% in the first quarter of 2012. Underlying power cost trends supported by a wide and potentially growing range of consumer incentives portend this event become a nationwide phenomenon beginning in areas with a combination of high rates and strong consumer incentives. In addition to California other areas of the country experiencing rapid growth due to Solar Leasing are Colorado, Arizona, Pennsylvania, New York, New Jersey and Massachusetts.
Solar PV Leases and Power Purchase Agreements are essentially a 3rd party ownership of a home's solar PV system. Rather than the homeowner paying for the panels and reaping the rewards of the electricity they produce, a 3rd party owns the panels and they either sell the electricity produced to the homeowner at a discounted rate (PPA) or require a fixed monthly payment on a “all you can produce” type arrangement and guarantee a certain amount of generated electricity. Either way the lease provider absorbs all the upfront cost and with the expectation of reaping the financial rewards of consistent, clean, renewable energy source and a guaranteed buyer, the homeowner. The homeowner gets free solar panels and almost always buys the electricity at a lower rate than the local utility. Sounds like a win-win...not so fast.
Guaranteed production is the equivalent of Ford Motor Company putting a guarantee on miles per gallon on every F350 pickup across the county. The leasing provider is heavily invested in the production of each and every Solar PV system they install, if and installer makes a flawed initial feasibility assessment or does not make electrical connections correctly it could cause a dramatic effect on the actual electricity production of the system. Not to mention quality and liability issues in punching 20-30 holes through a roof to secure panel racking to the roof structure. Questions like “Did an installer factor in shading correctly?” “Will those roof jacks last 25 years?” used to be something that concerned homeowners, or at least should have. However, now it is a risk on those companies who back the lease and may in fact be the legal owner of the system.
To mitigate this risk, the Institute for Building Technology and Safety (IBTS) believes that as an industry it is time to go beyond code or program required quality control, and engage in a more complete and reliable system of Investment Grade Quality Assurance (IGQA) to ensure future security and growth of this clean, renewable energy source.
It turns out that “QA” as understood in the solar Industry, is really more aptly defined as Quality Control (QC). QC is simply a check to ensure that in a moment in time something is correct. More comprehensively, Quality Assurance is a system that feeds learnings from the field back into a continuous improvement process that can save money and identify problems before they become endemic.
As markets for renewable energy mature, the need is emerging for a true Investment Grade Quality Assurance system that can provide a variety of stakeholders with the data necessary to manage risk with confidence. With the advent of large markets for distributed renewable energy and energy efficiency projects, it is now necessary for a dedicated third-party, quality assurance system that manages the complex data required to securitize large numbers of projects against verifiable results, to enable the participation of capital markets, the utility industry, and public programs.
Investment Grade Quality Assurance goes beyond traditional in-house or programmatic quality assurance programs to provide stakeholders with the suite of data necessary for securitization and management of risk. In addition to traditional field inspections to assure work was installed to industry best practices, specifications, and building code, IGQA tracks and reports on a broad set of metrics that include energy outcomes (production or reduction) based on measured data, permits and other documentation for each job, customer satisfaction, and advanced statistical analysis of data to detect potential fraud or anomalies.
This system is designed to ensure not just that a job was done, or done right, but that the long term benefit is delivered. One of the core challenges of energy efficiency and renewable is the need for upfront investment against future product or reduction. This requires a high degree of predictive accuracy, and a long time horizon. Consumers, utilities, and policy makers are being asked to invest today for an asset that is delivered over time. Their combined confidence in the performance of that asset will drive the market.
There are a number of characteristics of an Investment Grade Quality Assurance program that differentiates it from traditional QA.
- Delivery through a 100% third party national infrastructure that is free of conflict of interest, and designed to provide confidence to investors, public agencies, and consumers..
- Tracking performance over time in terms of energy savings or production, and operations, rather than just a post-installation inspection.
- Digital management of the complete record necessary to enable securitization of the asset, including permits, contracts, systems specifications, and other relevant data.
By combining these elements IBTS hopes to deliver a level of consistency and rigor that will allow solar securities to attract less expensive capital, improved ROI, and better performance over time.
Building on over 30 years of experience as a Quality Assurance provider for the federal government, IBTS is a national leader in Quality Assurance for the built environment with national scale, robust and tested technology, and the trained staff to enable true Investment Grade Quality Assurance services to support the needs of the growing energy efficiency and renewable energy industries.
IBTS is a 501(c)(3) nonprofit organization that helps local governments provide high-quality, cost-effective services, manage risk, and meet new challenges through public/nonprofit partnerships. Established to provide unbiased professional services, IBTS is committed to promoting enduring solutions to strengthen communities, enhancing trust and confidence in governance and empowering people to serve communities.
Chris Doyle works for IBTS and is the Energy Services Senior Manager. Chris lives and works in Austin, Texas.
Matt Golden is a Strategic Advisor for IBTS and lives in San Francisco, California.