Wednesday, January 10, 2007
Back of the Envelop Calculations and Comments: CitizenRe
CitizenRe owns the system
Home owners pays monthly “based” on currently billing rate and systems production
For 25 years
Lets look at the economics.
Example Best Case Scenario
System cost per kilowatt
Anyone that is selling systems today must use today’s prices. This cost estimate is lower than anyone can get, for a small system, while covering their costs:
Balance of System: $500/kW
Additional payments to CitizenRe field staff etc: ~$250/kW
Total cost: $6750/kW
Let’s assume CitizenRe’s Corporate costs for are ZERO!
Marketing: $0/ kW
Contracts and Administration over 25 years: $0/kW
PV System data collection and billing over 25 years: $0/kW
PV system maintenance over 25 years: $0/kW
Cost of money over 25 years: $0/kW
My guess is that these costs equal the system’s cost.
If Citizen’s RE owns the system they get:
30% federal tax credit on installed cost of the system: $2025/kW of system
Accelerated depreciation over the first five years of systems cost
Assuming they are at a 35% tax bracket: $2010/kW
System cost after Federal tax credits: $2715/kW
Payments to CitizenRe: Madison Gas and Electric customers
According to their own calculator MGE power is: 11.7 cents/kWh
A one kW fixed mounted system in the full sun with no snow cover will generate about: 1250 kWh/year
So customer payments would be $146.25/year or $3,656 over 25 years
CitizenRe Return on Investment: MGE Customers
Based on all my assumptions (Zero CitizenRe corporate costs), CitizenRe would make a profit of about $940/kW over 25 years on an investment of $2715
That is a 35% return over 25 years, or less than 2% return per year
Payments to CitizenRe: North Dakota Ottertail Customers
According to their own calculator Ottertail’s power is: 7.2 cents/kWh
A one kW fixed mounted system in the full sun with no snow cover will generate about: 1350 kWh/year in ND
So customer payments would be $97.20/year or $2430 over 25 years
CitizenRe Return on Investment: Ottertail customers
Based on all my assumptions (Zero CitizenRe corporate costs), CitizenRe would lose about $285/kW over 25 years on an investment of $2715
Summary: When evaluating a business plan venture capital investors are looking for returns of 1000% over a three to seven years. CitizenRe does not look like a workable business model.
Second set of Comments
CitizenRe notes that they need a 7 cent/kWh net metered rate to break even. At the noted 7 cents/kWh for 25 years in Wisconsin – the customer would pay $2,1875 to CitizenRe per kW of system assuming a discount rate of zero.
If we assume a discount rate of 8% the customer's payments are worth $970/kW over 25 years. So simply the time value of money reduces their net income, be it from kWh or REC sales, by about 65% over the 25 years!!
Regarding CitizenRe’s claims of vertical integration: Check out Conergy - they have economics of scale and vertical integration today http://www.conergy.de/en/PortalData/2/Resources//investor_relations/pdf/CGY_CompanyPres_HVB_9-06.pdf see slide six, etc. It does not reduce system cost by 50%
Regarding CitizenRe’s claims of plug and play: Maybe "plug and play" could work on a row of identical homes as they are being built in a new sub-division, with the same roof exposure and all the homes getting solar at the same time (that is what CA's new PV program is about).
Talk to any installer about putting PV on existing homes - about plug and play - and they will laugh at you. Just about every system is different, no mater how hard they try to sell similar systems.
Installers would also laugh about a CitizenRe’s claimed 4 to 6 hour installation time (for a 2 kW system). That would about cover travel and being there for the utility interconnection testing.
Regarding their claim of reducing the production cost of modules and passing it on to consumers. Any business that sells modules, sells them at the market price. If you are a low cost producer, say SunTech Power, you sell them at roughly the same price as all the other producers, but you make a lot more profit.
Once you are able to do that, your stock prices goes nuts, and the owners, stock holders and venture capital investors all make a killing (again see SunTech Power). The CEO of SunTech Power is now the richest man in China.
CitizenRe's 1000 MW module production facility is only words - in other words hype. If they really had something they would go the way of SunTech Power (go the IPO route to make a quick killing) or NanoSolar (Use venture capital funding and stay private). Also, where is their silicon supply contract for the production facility, where are their investors, where will it be located (note, low cost production is in Asia), etc?
Why offer they same deal cross the country when some people net meter at 40 cents/kWh and other 5 cents/kWh? And when there are different amounts of sunshine and state incentives, etc. This makes no business sense. Instead it makes business sense to go where the best opportunity is (see SunEdison, whose is in CA, NJ etc., and on commercial buildings.)
If CitizenRe argues efficiency of scale why go on residential homes? Boring flat commercial roof are much easier, larger, more common, sunnier, etc.?
CitizenRe claims significant income from Renewable Energy Credit (REC) sales. Today, there is no solar REC market in most of the US, so I have no idea what their value would be. I do know that some utilities in the country would say that because they provided net metering they should own the RECs (some incentive programs want to own the RECs too). This would need to be determined for all they states CitzenRe work's in before their business model is complete.
Investors/banks... have no interest in any business models that takes 25 years to cover costs.
That is about all I have to say about CitizenRe.
These are my opinions only.
We do not even need the REC's for our business model to work and we do not need venture capital money. Our financing is coming from the debt markets, which are much harder to obtain than venture capital or IPO money.
I am not going to breakdown our business model on this blog, but you can rest assured that major banks do not hand over $650 million in financing if the plan is not solid.
I understand there are skeptics. Our business model is revolutionary.
You will see press releases over the next month that will validate our model. BTW our plant will be 500Mw, not 1,000Mw.
And we are focusing half of our installation and production on the commercial market.
If you would like to learn more, go to www.jointhesolution.com/join
Click on the solar calculator on the lower left to analyze what you would save on your own home.
Also, watch the short movie with Ed Begley, Jr. that explains our offering.
Thanks for taking the time to check us out. Our mission is to lead the solar industry into producing 25% of all electricity by the year 2025.
President, Powur of Citizenre
Regardless shouldn't you be busy making deals, lining up your financing, rather than responding to blog postings?
But Mr. President, if you do respond to blog postings:
1. Please tell which of my assumptions were wrong?
2. What is your cost of money?
3. Who is providing the financing?
4. How is your business model revolutionary?
To everyone else, please do not give CitizenRe a time of your money until they have a real prospectus, real contracts, a real factory, real financing....
1. The Red herring press release, http://www.redherring.com/Article.aspx?a=20157&hed=Solar%3A+Doing+the+Dirty
includes only comments from Mr. Gregg; and no contract, or anything definite with a silicon producer.
As far as I understand, taking metallurgical-grade silicon then the purifying it, as Mr. Gregg mentions, is hugely costly requiring furnace facilities - and would add to the cost, complexity and construction period of their 5000 MW cell production facility. Most cell manufacturers purchase the solar grade silicon. Companies like Dow, Wacker and MEMC make the solar grade silicon in huge furnaces, very efficiently. I doubt this strategy will significantly reduce their cost of making panels.
2) The Green Peace Report,
I remember reading the Green Peace report on the efficiency of scale in manufacturing years ago. CitizenRe's mention of it means close to nothing - only that they did some reading. (They also hired poor Ed Begley and his wife to make a video that at times comes close to insanity: "Humans were put on earth to save it")
3) I also read last night that the $500 deposit that people make to place a hold on a system - will be returned to them with interest, after 25 years. That is nuts - given that their business model has such terrible economics already. Please ask CitizenRe what the interest rate will be (on an annual basis) - I can run the numbers on that.
4) That $500 deposit is what they are after. Get 10,000 honest folks that believe in solar power to make the deposit, and they made their $5,000,000 (yes $Five Million) and declare bankruptcy.
Oh yes, I think all the names associated with CitizenRe Corporate are really one or two people.
Having an NREL process that works in the lab is completely different from a factory assembly line high that cranks out 500 MW per year.
Examples of this include: First Solar, Evergreen, and Nanosolar
Here is a little history on First Solar (who make a 9% efficient CdTe module - no silicon)
Founded in 1999 (i.e., they had their patented idea)
Began significant production in 2005
with 20 MW of production
Here is a little history on Evergreen (who draw the silicon in a thin layer out of the melt)
The were founded in 1994 (i.e., they had their patented idea) and hit sales of about $20 million in 2004
NanoSolar - thin film PV
Founded 2002 - hope to have initial production this year (2007). I bet it will be 2010 before they will be at full capacity.
UniSolar has a similar story.
(Note they all claim to significantly reduce the production cost of cells as well.)
Everyone else makes the same old conventional crystalline panels at roughly the same cost.
Owning a patent or an NREL idea does not mean a production line cranking out MW's in six months!
This is true for any high-tech industrial process.
CitizenRE is marketing to the whole country because it costs them nothing to do so... who is to say which states may be handing out big subsidies in the next couple of years?
If you've signed up as a customer in a state without big subsidies, you're going to have a long wait for your panels... but if your state is passing out the cash (CA, CO, NJ come to mind) then I see no reason why you might not have panels in 2008 or soone after they get their plant working (which could easily take a lot longer than they say.)
Homeowners: Switch to Solar Power the EASY Way
Teach Homeowners How to Switch to Solar Power
& You Can Earn a Significant Income Stream
Homeowners: Switch to Solar Power the EASY Way
Teach Homeowners How to Switch to Solar Power
& You Can Earn a Significant Income Stream
PV semiconductor devices are subject to the same exponential growth curves governing all technological progress. See Ray Kurzweil's excellent discussion of this in his book "The Singularity is Near" (http://www.kurzweilai.net/). In a nutshell, Kurzweil shows that all technology advancement is accelerating exponentially and that, in the short-term, the slope of an exponential line "appears to be" straight.
Virtus Energy, a research firm in Austin, has a log plot of the cost of PV from the years 1978-2000 (http://vera.com/downloads/solar_long_term.pdf). [note, PDF Doc]. (A decending straight line indicates on a log plot indicates an exponential trend), This plot shows Solar PV costs approaching conventional fuel costs--within 5 years they will drop below them.
Additionally, in this global warming/peak fuel era, conventional fuels cost more to find, process, and deliver and pending legislation is pressing dirty fuel to clean up (more costs). Now we have a nearly-infinite supply of energy (solar) being processed by semiconductor technology. I'm betting my "suburban farm" in Texas on solar.
The homeowner gets the utility tax reduction, the fixed price in the face of rising electric costs, the switchover to electric heat with lower gas appliance maintenance costs, and the satisfaction of reducing CO2 emissions. Additionally, plug-in hybrids and protection from blackouts from weather or earthquake or grid failure events is available.
Sounds like a win-win to me. Not a big mystery. Technology does win-win very well.
The company can surely sell these credits dollar for dollar to other companies for states that have them?
Did you also add in Citizenre selling Carbon offset credits per kWh like Green Tags too?
I geniunly want to know.
1. has a good solar resource
2. has high electricity prices
3. has state incentives (that they are eligible for)
4. allows non-utility's to sell power to customers (I do not think Wisconsin allows this)
5. has retail net metering
Then their model could work.
However I would argue that in most of the US those five conditions are not met.
* why they are marketing before they have a product to sell?
* why they are marketing a service that will take years before it can be a viable business strategy in most of the markets they are marketing in?
Note, CitizenRe says that they do not need to sell the renewable energy credits for their model to work.
Comment to Tony Cecala
Over its history the cost of PV modules have dropped about 20% every time production per year doubles. That is well known. I think it will be greater than that in the future - at least once we get over the silicon shortage and then the panel shortage.
But that says nothing about why CitizenRe's business model is viable. The module prices will drop for everyone.
And please don't doubt my passion for solar.
The federal govt. is one of the bigest buyers of REC's. they will buy 90 million this year. I know this for a fact as I almost bid on the sale. I did not bid as I am not an agent.
If the Business model dose not need this income, then it will be added plus.
How ever I am going to give Citizenre a chanceand some time to work out the bugs.
Any out there ever hear of Amway---- early adopters there are very happy they worked the plan even though it sounded too good to be true.
this should be bigger.
By the way I am in the solar industry ,no one i have talked to is laughing. they are stunned.
I have been unable to find anything that supports that they waive the deposit for good credit ratings. Still looking...
I for one will give them a chance. I can see no reason to shy away from this and all the reason to jump on board and do my part.
This is a chance for an average guy like me to make a difference and I intend to take it win or lose.
If I lose, all I have lost is time, but the possible rewards to our environment are well worth the risks.
As far as the waived deposit, I am unaware of that. The deposit is not there to ensure your ability to pay, but rather to help recoup some of the money for installation and removal should you get out of the contract early from what I understand.
The only thing I had read otherwise was something about deposits being waived for those who signed up earlier. From what I can tell, that was a promotion but I am not even sure if that happened or not. I am relatively new to the CitizenRe.
As far as why market before they have the product ready to sell, I imagine it is so their investors can see how much interest there is in the product/service. They already have a certain amount invested, but if they can show real significant interest in this idea, then imagine what investors would do with that.
And for taking the money and running? They are not taking a dime from a customer until the panels are ready to be installed. By that time, you will have all the information you need regarding financing , location, or whatever else.
Until then, why try and kill it before it gets going?
My suspicion is that they're kinda hiding there real key factor for generating revenue: it's in earning commissions for third party products and services.
But I lack the ability to even do back of the envelope calculations for that scenario.
Secondly, some comments count the likely progress a la Moore's law in PV technology in Citizenre's favor. I'm not so sure: wouldn't it simply mean that their 1st generation installs will be hopelessly obsolete soon without a chance in hell to recouping the investment?
3) one guy correctly ridiculed the installation time estimates of 2-6hs. Right on. I stuck around when my panels were installed. They were mounted on a well designed grooved rail rack that allowed for a speedy montage. But this and the concurrent installation of the AC line, inverter, security switch and connection to the breaker took a day and a half. To estimate installation cost at $500 for stuff and labor is unrealistic. I'm not even counting obtaining the building dept permit which requires time and persistence as any carpenter will assure you is time consuming and will often cost $200-300 based on the combined cost of equipment and labor (different from town to town).
4) I cannot assess the claims regarding the time it takes to take a product to mass production but will say this: I was blown away by the apparent simplicity of my panels. There really isn't much to manufacture here. This is less complex than just about any electrical appliance or gadget in your household.
Eg, my windows are from Eagle Windows, a company that decided to offer a single quality construction/design, rather than an array of cheapo 'contractor' windows, medium and high end versions. So it's a single process.
5) $650m in capital, I'm told, is available to get this off the ground, and a press release with more details about the business plan are coming in a week or two, and there are partnerships with the Sierra Club etc in the works. Hmm. $650m - is that a lot of money? Not sure. They're going to need some serious revenue soon because that's quickly burned up.
No press releases about the sitte as of jan-31-2007
and read all the data and facts - make your own educated decision to sign up for SOLAR!!
You can read a generic FRA (meaning, void of any customer data) here, and the terms and conditions here.
Note that section 2 of the FRA states
"If it is determined that such Contract Address as described below is in fact not where the REnU will be used, then the terms and conditions of this Agreement are
null and void, or at minimum, the rate will be adjusted to the then applicable and current rate of the true area of use."
So if you are a customer, you can take or leave Citizenre's offer. Personally, I'm not sure why anyone would pass up the chance to lock in their electricity rate for up to 25 years at no risk to themselves, but then again, I'm just one person expressing my particular opinion.
You seem to have a good grasp of the details. I agree with you that this is not an issue about solar or not solar but about what CitizenRe is doing and what damage that can do to a nascent industry that needs to grow and grow fast to make it profitable.
CitizenRe are not the only ones who are thinking about this business model, other are doing it but in a much more realistic manner and not promising the world to people. The issues with CitizenRe is that they have not made substantive claims that can be verified independently all the while flooding the market with their MLM. I happen to think that this is a fishing expedition to see how big this market can be and that's all.
The bad part is that it will have a negative effect on the Solar Industry not because they are innovating or have a new business model but because they will create an abundant ill will for the consumer. The people who have signed up to do their sales are going to be screwed in the long run and the whole idea of installing PV panels in the residential market in the fashion that CitizenRe is proposing will be damaged for quite a while stopping legitimate companies from being able to do it.
Looks like the "Powur of Citizenre" is catching a lot of attention and I would like to throw some words down. First off... I am not a Scientist have a Phd or anything close to that... as far as formal stuff... I am the regular below average income home-owner. I am considered permanently partially disabled and am on a fixed income. I am not in a wheelchair but do live in constant pain from syotic nerve damage from surgeries years ago Last year in February I thought about looking into Solar thinking maybe we could get a loan that could fit our budget... that soon became evident that there was "no way" we were going to upgrade to Solar.
In Sept last year Allen Priest an Executive Sales Director with Citizenre contacted me after I emailed him from a post he had about Solar and I was amazed at what he had to say... It was.. "we will set you up with Solar and charge you the rate you paid your utility last year and lock that rate for up to 25-years. We take care of all the Engineering, Permits, installation, and maintenance." Now... I may just be an ol' dumb country boy bumpkin' but that sounded pretty good to me!
I agreed immediatly! That night I was talkin' with some friends that came by and told them what I came accross and they were interested too! I called Allen about them and he suggested I look at their compensation plan... I told him I wasn't a salesman and actually despised most salesmen especially after being burned for about $15K in the last 10-years... he said I was doin' good just by telling friends... now... I thought for a bit and it hit me what a great thing this could be... I could get paid for turnin' friends on to Solar.... as simple as this was set-up it was a as they say now a "no brainer"... that was mid-sept 2006 and since then I have been like a kid waking to Christmas everyday! I feel like I am again a productive member of society... I feel like a GIANT! This ol' hickerbilly is going to make a huge difference in all the pollution especially where folks in areas supplied by coal-fired plants live.... I am going to make a difference! Citizenre is helping me do that! Now there are some folks yellin' BS and I plain do not understand why... this is an awesomwe idea and I am proud to be involved... some folks are ridiculing or skeptical and others are praising us. I myself see no reason why anyone would try to stand in our way or disrupt what we are doing... I have heard the same about other awesome ideas in the past... the TV Dish systems are a good example... they were expensive and rare for years until an outfit said give folks their own dishes and charge them for the Sat Service... the Dish outfits then said it would never work... they were too expensive to build and took too long to set-up... look at them now! Heck even I have one. Please folks if you are skeptical... just step back and watch... maybe wish us luck in doing what I feel deep in my soul as a good thing! Also... I had never even heard of "Peak Oil" until joining The Powur of Citizenre... I have been spending a minimum of 15-hours a day 7-days a week lovin' every minute of this and enjoying the fine training they offer... the more I learn the more driven I am to let folks know there is such a thing as Peak Oil and Global Warming... I am almost turning Evangelical... Like I want to stop traffic in town and tell folks how serious this really is the more I learn the more I am driven... please folks give us a chance... we have not collected one penny from anyone and there is no "scam" just a wonderful idea to make things better... even if by some stroke of rotton luck this does not work... at least there was a heck of an attempt made! Please try to help us be allies in helping save our planet.. if you see something you know in your heart that could be a detourant... maybe make a suggestion... instead of crying foul! This planet needs all the help it can get... and if it makes any difference it will get one fella' off of disability so the pay can be sent to someone who else needs it as I have in the present and past. They say if this works... I will not have to worry about money. I am already rich in my heart and soul knowing I am determined to help our Earth and am making a difference.
thanks for lettin' me throw my two-cents in... take it or leave it!
www.becomethesolution.com - SolarSeabiscuit
In short, we need to market solar as an investment that will save money while you own it and return most or all of your investment when you sell the building it's sitting on.
Chances are, as natural gas and oil prices go up, there will be a corresponding jump in your monthly electricity bill. So, instead of promoting a solar power system based on today's savings in electricity, we need to have easily understandable projections on what the savings will be over the life of a system. These numbers need to reflect what's really happening to the cost of energy!
Here are some ideas I'd like to share. First, we need to find a way to make renewable energy economically competitive without the tax incentives. We do this by answering the question: "What is the opportunity cost of not using solar to decrease your energy bill?"
There's something interesting I've found. There's a direct correlation among electrical rates, the cost of air conditioning a building, the heat index and the amount of sunshine on any given day. In other words, on the hottest, sunniest days, we use more electricity that costs more per kilowatt. So, why do we continue to promote average hours of solar production, when in fact (at least down here in California), we produce far more solar power per day during the heat of the summer when energy costs are highest, than we do in our temperate winter months when energy costs are lowest. A sound marketing approach would be to evaluate solar energy in "dollars" of production per year instead of in kilowatts. I'm sure there are some smart people out there who can match kilowatts of solar production on any given day of the year to what the rates will be (based on the projected costs of electricity).
Secondly, we should stop trying to sell a solar package as a "cost." In real estate, there is a principle that says anything affixed to real estate becomes an integral part of the real estate. Once a solar package is installed, it immediately increases the value of a property. So how can you predict how much more a building will be worth in 5-10 years with a package as opposed to without one? In the real estate appraisal business, there are three approaches to appraising a property. The market approach (what are comparable properties selling for), the reproduction cost (the cost of creating an identical building at current construction and material prices) and the actual original cost adjusted for inflation. In all three methods, there's a strong case that a system installed today will make the building worth more today and in future years.
We need some realistic numbers to predict how much more a property will be worth in the years following installation. I believe that if you sell a building 5-10 years after installing solar, you should recoup all of your investment in the system plus an added bonus. If the rumors are true, a residential system (using the market approach) adds $20 of value to a home for every $1 it saves on the electric bill.
For commercial appraisals, you would divide the income (savings) by a cap rate (which was about 9% at last report). A system that saves $2000 a year then would be worth $40,000 on a home or $25,000 on a business. But if the cost of electricity goes up (if that is remotely possible), then wouldn't the value of the solar power system increase as well? In reality, we are not selling something that costs — we are actually offering a financial investment that grows comparably with other forms of energy.
In short, we need to market solar as an investment that will save money while you own it and return most or all of your investment when you sell the building it's sitting on. In commercial real estate, they use a "Cash Flow Analysis" form as the tool to evaluate a building's value using the income approach. We need a similar tool for putting a value on solar. If solar makes sense with this approach, then just think of how much better the systems look when you add the tax advantages!
This approach also applies to the cost of Energy efficiency implementation.
Reducing operational costs increases the value of the business and or property.
Compiled by Jay Draiman, Energy analyst
It has been a long time since I have hit the blogs about Citizenre and am happy to say there is some great news!
After a lot of passion and dedication of those of us who did not give up on the mission to bring renewable energy to the masses we have now got what we need to really make a difference.
We had a press Release this morning and I am happy to share three of the links where you can read about recent developments:
We are finally doing what we started out to do even tho' we had to make many changes.
Our plan is now even simpler... there is no longer a deposit required and all it takes to get a system is to be a home-owner in one of our service areas, have a home suitable for solar power, and the first month's rent.
No credit checks and a fixed rate for 10-years so many citizens can produce their own clean green energy.
WE will be adding new service territories as time progresses.
P.S. I have literally over 400 blogs to post to that basically wanted not to hear from us until there was some serious action so you may see this same message repeated... I certainly don't have time to make individual posts right now and will have many hours just copying and re-posting!