Solar Power – Commercial Development – Tom Rooney SPG Solar

Many of our posts and articles here at AEHQ deal with the home residential solar power market and how folks are using solar to get off the grid for their power generation. But today we look at the larger commercial market place. AEHQ interviewed Tom Rooney, CEO for SPG Solar, to get his insights to the rapidly growing commercial solar power market, what is driving growth, how the industry is dealing with government support, how the industry is approaching supply chain issues due to surges in growth overseas and much more.

I think you will find Tom’s comments most enlightening. You can listen to the whole interview below and soon we will post text excerpts to this post from the audio interview.

[audio:http://www.alternativeenergyhq.com/wp-content/uploads/2010/09/tomrooneyinterview.mp3|titles=tomrooneyinterview]

Here is the transcription of the interview with Tom Rooney:

Kevin: Hello and Welcome, Kevin Rockwell with Alternative Energy HQ, with me today a very special guest Tom Rooney who is the chief executive officer of SPG Solar. Welcome Tom.

Tom: Thanks Kevin, thank for having me.

Kevin: You bet. If you could start by giving the listeners a little bit of your background and what your company is doing in the solar sector.

Tom: Sure, so, I’m the CEO of SPG Solar, and as background I have an engineering degree and a finance degree, so a little bit of engineering operations and finance. And, I have been the CEO in the clean tech sector on several occasions, both in the public company water space and now on the board of a number of energy related companies, and most specifically and most aptly, the head of SPG Solar. And, SPG Solar is a company that was founded in 2001, in the photovoltaic area. That would make us by virtue of being around for nine years now, would make us one of the oldest and largest players in the solar photovoltaic area. We’re based in the bay area, in Nevado, California. We’re basically a solar integrator, which means that we help our clients from the initial stage of economically modeling whether or not or how to do solar, all the way through the design of the systems, the procurement of all the equipment. We actually manufacture tracking systems which support the solar panels, all the way through the construction, permitting, and commissioning of the systems, and in almost every case we warrant and maintain systems for a decade or more. So, we’re very much in the power output business. The typical project size for us, is larger than residential. We spent the first seven to eight years doing quite a bit in the residential area. But, we’ve spent the last five or six of those nine years really becoming experts and specialists in the distributed generation commercial scale and small utility scale projects. So, often times from 200 kilowatts all the way up to 10 megawatt systems. According to certain lists and studies, we would be right now the second largest in California doing that. So, I suppose by proxy that would make us one of the top 10 solar integrators in the United States right now.

Kevin: I was speaking with a residential developer last week about building green homes essentially and integrating solar into the homes. I talked a little bit about him with where the market was with these homes. What do you see with sectors you’re in, the integration sector and more of the commercial scale, where is the market for your company right now? The best market I should say.

Tom: So, I could come at that question in a couple different ways. Geographically, the best markets in North America right now are California, New Jersey, and in North America, Ontario Canada. We are also seeing other markets geographically open up rather quickly, so up around New Jersey you also would have Pennsylvania, Massachusetts, Maryland, Delaware, states like that. Out here on the west coast the hottest geographic markets are Arizona, California, Mexico, Nevada, Colorado. What’s interesting is almost as every day go by, we see legislators enacting programs that will spur new solar, so as an example Delaware three or four weeks ago, maybe a month ago, became an interesting place for solar. Illinois just passed legislation, so new hotspots for solar seem to be popping up. I would tell you that internationally historically Germany has been the number one solar market on the planet, followed by Japan, and currently Italy with the U.S. being unfortunately fourth in the world as far as solar goes. Which in and of itself is a bit of a problem from the standpoint that most of the manufacturing base for solar is China today, and most of the technology leadership in solar is really in Germany and Europe, and the reason for that is that the United States has been not quite dormant, but has not been in a leadership role globally which is rather perplexing given the fact that this is a high tech technology. In terms of other ways to look at this, the size of projects around the United States have gotten to be larger and larger. So, five years ago a 200 kilowatt system would have been large. Today, one and two megawatt systems, roughly ten time the size, are very common. We are starting to see combining of plans and projects in the two and ten megawatt system much more frequently than we ever saw. So, the average sizes of projects have been moving up. Then, the user groups that are thinking about going solar are interesting. We do a fair piece of business with pharmaceutical companies, schools, government agencies, wineries, agro businesses, and Fortune 500 companies. I would tell you one of the most interesting drivers in the industry right now has been the effect of Wal-Mart. Wal-Mart, now I should make a quick clarification, we have no business with Wal-Mart at all, they are not a business partner of ours or a client or anything else. So anything I’m saying here is just how we see the world. Wal-Mart has become a very interesting driver for solar, and other forms of renewable energy. They have, you could figure this out by looking at their Web site, or talking to their supply chain, but they’ve become very energetic about driving costs out by going with renewable sources of energy. So, many of the clients that do business with us have a very high incentive to go with renewable energy simply because they’ve been asked to look at it by Wal-Mart. When Wal-Mart asks it doesn’t always look like an ask, it looks like a tell. That’s probably become the most interesting driver for the solar industry as far as we see it in the last twelve months.

Kevin: The fella I believe who is driving that initiative is the former Sierra Club president who they hired on, and he took a lot of flak for taking that job, but in fact, as you say, if you can drive an industry and help kind of push and nudge a commercial industry to these technologies, that has gotta be good. Especially on the ???? the power that a Wal-Mart would have.

Tom: That’s right, so, you know at one level the question would be if Wal-Mart would start putting solar panels on their roofs. I’m told they are, again they’re not a client of ours, so I can only tell you that I’m told they are. But far more interesting than even all the buildings they own, are their supply chain. So, in the United States, Wal-Mart has a 60,000 point supply chain, so 60,000 companies are selling into Wal-Mart. Globally it’s on the order of 100,000. So, the fascinating element is that Wal-Mart is making demands of their supply chain, so 60,000 companies in the United States to go to renewable sources of energy. And not necessarily, and not specifically to save the planet or global warming or anything else that someone might suspect to be a soft or indirect issue, but really because Wal-Mart is all about driving costs out. So, I believe it’s rather telling that enterprises like Wal-Mart, and it’s not just Wal-Mart, it’s also Unilever, P&G, and others. But, a lot of corporate titans are now demanding that their supply chain introduce renewable energy to drive costs down, and drive reliability up. So, I think to your point the person who left the Sierra Club to go to Wal-Mart would have thought that was selling their soul and going over to the dark side, and quite to the contrary, I would tell you as somebody that talks to our clients every day, the effect that Wal-Mart has on the industry is in some ways more powerful than government agencies have.

Kevin: Well, I guess that was my next question. Well, certainly we have been pushing and hoping our government agencies and governments state and local and national would push toward these efforts to get more development and clean tech and certainly solar, but could this kind of push more from the capital side, the industry side, be more effective?

Tom: Yes.

Kevin: From the whole save the planet, certainly we want to save the planet, but getting it away from that as the central core argument which isn’t going to reach true conservatives.

Tom: Right, and unfortunately this mindset has arisen that renewable energy is either a deeply liberal cause, or conspiracy, but it’s definitely not a conservative cause and it’s definitely not a fiscally responsibility cause. I know quite to the contrary. That is to say the vast majority of our clients, and maybe even all of our clients are driven to go with solar, and one would have to presume wind also, but certainly in the case of solar for an economics benefit. And, so, there are really two benefits. One is an immediate savings on power bills based on the use of solar energy. The second is it insulates our clients against the cost of electricity of having a shock in the future. Which is to say, although the clients that go with solar have perfect predictability, the cost of sunshine just isn’t going to change over the years. While, one is getting megawatt hours off of a system every year, its predictable out for 20 years. So, two things, one is that the economics of solar is so powerful right now, and second is that the predictability of energy costs out into the future is extremely valuable, so those are not liberal concepts, those are fiscal conservative concepts. So, when one sees a Wal-Mart making the leap into renewable energy, that becomes the ultimate validation that this is an economics exercise and not a social exercise. I feel that that sort of leadership is critically important.

Kevin: You sense things about conservative and their perspectives on energy, could you summarize what your thoughts are on that?

Tom: I should start by saying that I’m deeply conservative. I am a fiscal conservative as much as any you might meet. In fact, I studied finance and got my MBA at the University of Chicago, in the Chicago school of economics. Most notably with Milton Freedman, Freedman and others are deeply conservative, economically conservative. So, I start in that camp, so my position is fairly simple and that is there is a lot of brilliant people that are completely misunderstanding renewable energy and see it as a social fantasy or see it as something that it is not. And point of fact, if one really gets into the economics of solar, and also the economics of fossil fuels, one comes to the realization that the notion that the only way that solar and renewable energy remains alive is with subsidies is interesting and wrong. Unfortunately its wrong because we have a subsidy driven economy around all forms of energy. So, oil and gas and coal and nuclear, all have embedded subsidies that are rather dramatic, and the new kid on the block would be the renewable energy, wind and solar, and so any subsidies overlaid on wind and solar, even if they’re one tenth of that which fossil fuels get, there’s a cry that this must be a social exercise, and it’s not. And so, there have been a number of reports that have come out, in 2005 during the Bush administration, there was a congress requisitioned a report from the national academy of sciences, which just came out this past spring, that report to congress was entitled, “The Hidden Costs of Energy.” And it fairly well lays out that there are enormous hidden costs associated with what we consider to be the incumbent forms of energy, coal, gas, nuclear, and oil. That upon discovering what those hidden costs are its not quite so obvious that solar or wind is more expensive, and in fact if one looks pound for pound for the new technologies with the subsidies that are involved, solar and wind are actually economical right now. That’s what I think people are waking up to realizing. It’s about fiscal responsibility to go to wind and solar. It’s not about some liberal agenda or what have you. I think also, what people have come to see is that the international energy agency, at the request of the G20, funded by groups such as Opec, actually came out with a similar report this past summer talking about subsidy programs around fossil fuels all around the world. The punch line from that report, and again it’s the National Energy Agency so it’s a public document, is that globally is that subsidies for fossil fuels run 12 times as high as the subsidies for renewable energy. And so, in the wonderful world of being a fiscal conservative, one would actually argue let’s get rid of all forms of subsidies of energy, and let’s only pick the energy supplies that can stand on their own. I think that people would be shocked, stunned, and amazed that solar would do incredibly well in that world.

Kevin: That’s a key message that probably needs to get out. Do you think the ultra conservatives who see it as only a fantasy, that they see it as a liberal cause, that it’s unaffordable, do they need to be convinced, or these other efforts that we have been talking about on this call are going to be more powerful in terms of moving the marketplace forward and getting more escalation.

Tom: Sure, well there are probably two or three things that are very powerfully at play here. We mentioned what I’ll call the Wal-Mart effect which is when you get these fiscally conservative commercial organizations making choices. That’s a powerful point to keep in mind. I don’t think we’re going to see that turn back. The second would be that fossil fuels in general are becoming more expensive, even in the subsidized world that they live in right now. So, the cost of electricity is going up, the cost of oil, the cost of gas and so forth. And that’s understandable, and it’s natural. Interestingly enough, the counterbalance to that is that the cost of most forms of renewable are going down in dramatic fashion. I can speak most specifically to solar. The cost of one megawatt solar installation two or three years ago could have cost six or seven million dollars to build. That same exact system, which has the nominal value of a megawatt system, is less than five million dollars today, and sometimes as low as four million dollars. So, what we’ve seen is that the cost of solar, and presumably the cost of wind, is plummeting. By the way, once that expenditure is in the ground and the cost of electricity every day after is free, so as I was saying earlier, it doesn’t cost you anything to take sunshine out of the sky. So, we see those two trends as very powerful. One, is that the commercial business enterprises are waking up and making the very intelligent decisions to go this way. And, a certain center of gravity and inertia will begin to take place around that. The second is that the cost of renewable energy is dropping so fast, at a time when the cost of fossil fuels is continuing to inch up. There will naturally be a day where even with the unfair subsidy advantages that fossil fuels have, they will begin to lose in the unfair and unbalanced scenario. I’m very pleased with the dimensions and the trajectories of those trends.

Kevin: What do you guys, do you have any concerns with the growth that is going on with being able to have enough panels. Is the supply strong enough? Recently I heard that the strength of the German market alone had the ability to tilt the international supply of panels this year. Do you agree with that or not?

Tom: That’s a great point. So, just to give you some orders of magnitude, the U.S. market is about a 500 kilowatt solar photovoltaic market. The German market this year is going to be roughly ten times that size, or about 5000 to 6000 megawatts, or said differently five to six gigawatts. So, it’s ten times the size of the U.S. market, so if the German market gets super heated in a particular year, it starves other markets such as the U.S. market. I’m an American, and I always like to think that we’re the biggest economy on the planet, and that which happens in the United States influences others, but this is a case where the tables are turned, and have been turned for a decade. So, that which happens in Germany dictates prices in places like the United States. So, yes, exactly to your point, this past year the German market shot up, and it shot up because a certain feed in tariff was set to expire. So, you had all of these solar developers rushing to get their projects finished before the feed in tariff dropped. And so, there was a sudden rush to market. And it did, that rush in a market ten times the size of the United States consumed all the excess panels on the planet. So, whether it was Chinese panel manufacturers in China, or Japanese or German manufactures in Europe, it had a massive sucking effect on the supply chain because that’s the bad news, and that had the effect of slowing down price decreases around the world. That’s the bad news, the good news is that the German market isn’t super heated anymore, it’s coming back to a point of normalcy. So, the supply chain and chains around the world, have leveled for that, so we fully see the price of solar continuing its trajectory down while the availability of panels is becoming robust again.

Kevin: Do we someday need to have every one of these gigantic warehouse buildings, or whether it’s the Wal-Marts or Home-Depots, or just the giant manufacturing plants, do we someday need all of those huge rooftops to be covered in solar, or is it more that we need specific solar generating power stations?

Tom: Well, what we really need is to match power generation with power usage in places where it makes since. It’s the idea of highly distributed power generation. So, if we have a cold storage warehouse that happens to have a big roof on top of it that would be seen as a place that consumes a lot of power because of refrigeration, but also is able to produce a lot of power because of having a large roof. And then if we think of each and every home, that’s a power use location, but its own roof is a power generation center. Now, not every home can produce electricity, you might have a huge tree hanging over your home, or you might have a roof that wasn’t suitable. But, for the most part the answer to your question, wherever we consume power we should be trying to generate power and match use with generation. That has by the way have the wonderful effect of reducing loads on transmission lines because the degree to which power is consumed and generated in the same location, we really don’t stress our transmission lines much at all. The way to think about it is the best places for producing electricity in a given geographic area is where we should be. If we were actually to look at a quadrant of a city, take maybe a Los Angeles as an example, you wouldn’t necessarily be able to perfectly match up energy consumption and use in every single square inch of Los Angeles, but you might have a large roof next to a neighborhood that may or may not have good power generating, so wherever we have those roofs, then yes we should probably be thinking about using them because the large roofs are great places to hide a large solar system. What I don’t think we’re going to see is massive energy production happening out in the Mojave Desert, or locations a hundred miles from population centers or from power use because they tend to have problems with people who don’t them citing there, and there tends to be a large scale where people find then untenable. But also because we tend to be producing electricity not in the same place where we are going to use it, so we then have to transmit the power over transmission lines, and that creates all kinds of other issues. So, the simplest way to think about it is that you generate power in the same general location that you are using it.

Kevin: Well, Tom, this is a very interesting and exciting conversation for me. I was wondering if you could touch on just briefly some of the success stories for your own company, some projects that you are particularly happy about having participated in.

Tom: Sure, we’ve been very successful in terms of helping clients site adapt solar where they may not have considered they could do it otherwise. So, we helped a winery in Napa Valley by figuring out how to take solar panels and float them on water so that they could use their retention ponds for power generation instead of using wine ground for wineries. We’ve helped Fortune 100 companies figure out how to economically become diversified so that they are not constantly buying electricity. We’ve helped a lot of agro businesses where they had challenging needs, and we were able to figure out how to make the projects economically viable. We’ve just helped a lot of clients from Arizona to New Jersey to Florida and California how to make the objective that they ultimately have, which is to save money work for them in real time. It’s just been a lot of fun. It’s been a lot of fun.

Kevin: Well, Tom, thanks very much for joining me today, I hope that we can carry on this conversation further and get the word out as much as possible. I really appreciate you joining me today for this conversation.

Tom: My pleasure Kevin, thanks.

Please give us your comments on this interview below. We would love to hear your take on this topic of commercial solar development.