California’s Solar Pot of Gold: How to Switch Commercial Solar Customers Off Demand Charges

This is a transcript of the webinar presented by John Powers of Extensible Energy and James Kennedy of Beach Cities Solar Consulting on June 2, 2021. The full video recording is below:

John Powers 0:00

So, out of respect for people's time, I'm just gonna get started. And yeah, we're just gonna dive into another exciting webinar. I'm John Powers. I'm the co-founder and CEO of Extensible Energy. And we're going to talk today about the "solar pot of gold." We put "California's Solar Pot of Gold" in the title because we're going to do some examples today from California, but really, this applies to most jurisdictions all over the US. And we're going to talk specifically about switching commercial customers off of demand charges entirely. Those of you who have been to any of our past webinars, or those of you who have seen some of our materials or worked with us, we often talk about saving on demand charges. And saving is nice, but eliminating is even better. So we're going to talk about some tricks you can use in certain cases to get 100% demand savings. With me today is James Kennedy of Beach Cities Solar Consulting. And I'm just going to let James introduce himself.

James Kennedy 1:15

Morning everyone. My name is James Kennedy. I'm the founder and president of Beach Cities Solar Consulting. We are an education-based solar solutions provider that works with business owners, corporations, and other large organizations that help them go green, save money, and become energy resilient. We have worked with dozens of large corporations over the past six years on various projects. We donate 5% of our annual profits to nonprofits that benefit people on the planet. And we have a four-step process when working with our C&I customers, and corporate customers.

That process is broken down into four steps as I mentioned, basically determining the organization's corporate renewable energy goals. For a large organization, that could be going 100% renewable by a certain timeframe. For a smaller organization, it could just be adding solar batteries or DemandEx to one or two facilities. We work with the stakeholders to make sure that everyone is on the same side of the table so that we are ensuring there is no time or resources lost in this process. So our clients will receive a written analysis after our initial Zoom consultation. The second step in the process is data analysis. We will analyze all the data across the corporation's or organization's facilities for both existing facilities as well as any new construction projects that they may have in the pipeline. That includes both consumption data as well as interval data. The third step in the process is a turnkey recommendation with a solutions provider. This written recommendation typically comes in the form of an ETB [energy tool base] analysis or something from the provider. In addition to the ETB analysis that shows before and after utility bills return on investment, financing options if necessary, as well as carbon footprint offset. Once the C&I customer or corporation has decided internally how they want to move forward, we essentially hand the project off to our solutions partner. And we stay engaged in the communication again to make sure that all members of the process are moving toward the goal.

Some of our clients include REMAX estate properties, as well as Skechers. We have some large educational institutions in our pipeline. I can't disclose those yet. But just like John, and DemandEx, we work across the country, the majority of our projects have been in California and Puerto Rico.

John Powers 4:30

Thanks a lot, I caught one bit of jargon in there that almost everybody here knows, but I'm gonna just go ahead and say when James and I refer to ETB, we're talking about Energy Tool Base, everybody's favorite way of analyzing interval data and rate information for energy projects. We're going to talk today about maximizing savings for the end customer because while there are many other reasons to go solar, one of the key reasons is that you can save on your utility bill and you can lower your total energy cost. But solar alone, as we all know, saves primarily on one part of your electricity bill, which is the energy charge. It does great for energy, not necessarily for demand. One cloud can ruin your whole monthly savings, the way demand charges are calculated, I'll get into that in a minute. But more savings is good, it makes the customer happy, makes the customer's CFO happy. So to get into that, we're going to have to delve into the realm of rates. Utility tariffs. I don't often admit this in a solar audience, but my first job out of college was in the rates department of an electric utility, Portland General Electric. So I know a lot about how rates are created, calculated, and administered to customers. We're going to talk about what's changing, with some examples from California, and how this affects the entire solar ecosystem.

So before we get into rates, I'm an economist by training. I'm a simple country, economists. There are only two things to worry about: prices and quantities, quantities and prices. So in this business, the quantities are, how much energy you use, and what time you use it. So load shapes are everything when it comes to figuring out the value of any change in your energy systems. So here's an example. [See below.]

This is a real building. And the positive numbers are usage and the negative numbers of generation. So you can see this building every day, selling back to the grid while the sun is bright, but then staying open and using energy from the grid after the sun has gone down. And that pattern repeats and repeats. And this last day that I've shown here has the highest peak value. That's how the demand charge is calculated. Basically, a demand charge charges you for the worst mistake your building makes all month long. And that can cost thousands of dollars a month in some cases, but it need not be so. It does not take much to shift a little bit of that energy away from these high peaks into periods when the solar is much more abundant. And that lowers the demand dramatically.

We talk frequently in our presentations to customers about savings 20%, 25%, 30% off of demand charges. But there are some cases where saving even a few percent of demand can reduce demand charges by 100%. How can this be so? Well? We have to get into the weeds a little bit. So the way utility tariffs work? I use a couple, this is Southern Cal Edison's TOU-GS-2 rate, this is Southern Cal Edison's TOU-GS-1 rate. [See below.]

Now we'll all take a moment to read them. Oh, wait, this first one is actually 20 pages long. The second one is, in fact, 24 pages long. So I won't read them to you. The point is you want someone on your team who has read a lot of utility tariffs and can tell you when they're applicable. So in particular, if you want to switch, let's go back to that for one second. The one thing I will say about the GS-2 rate is it has a demand charge. And the GS-1 rate does not have a demand charge. So the trick is to find a way to move customers from one way to another. All the utilities in the country, but all the utilities in California specifically, have a threshold above which you have to be on a demand rate. My own utility PG&E here in beautiful Northern California puts you on B-1 rate if you are below 75 kW demand every month. Well, actually, the fine print says you need to be below 75 kW at least once every three months, which is the fine print you need to know when you're defining a project and defining a solution for a customer. Because if you go over three months in a row, you will end up on the B-10 rate, which has a demand charge of over $14 per kW.

Don't worry, it gets more complicated. Southern California Edison has a much lower threshold if you go over 20 kW, you have to move to the GS-2 rate. And of course, you can pick between GS-2 Option E which has high energy charges, and GS-2 Option D which has high demand charges. And if you go over the threshold, in this case even three times out of the preceding 12 months, you automatically get moved to one of these higher rates or higher demand charge rates. And San Diego Gas & Electric, not to be outdone, has another complex set of thresholds and fine print rules. Again, the limit is 20 kW, but in this case, if you go over 20 kW even once in 12 months, you can be moved to either the DG-R rate or the AL-TOU rate depending on the whim of the utility and the specific rules around your solar system.

See commercial demand thresholds in California's three utility service territories below.

So if I can just summarize for a minute, what we're looking for in California, then, is folks who are a bit above the threshold that we can move using software to below that threshold. So if we can reduce someone in PG&E's service territory, from 100 kW to 75 kW, then we don't reduce proportionally their demand charge, we reduce all of their demand charge because you shift the customer from a demand rate to an energy-only rate. The energy is taken care of by the solar, the demand is taken care of by DemandEx, which we'll get into in a second. And the savings can be quite large, much larger than just the demand charge on a few extra kilowatts. And the same for SCE and SDG&E. You can move them from say 25 kilowatts, we'll do an example in a minute, down to 20 or below. Then you're saving all of the demand charges that that customer would have paid every year for the life of the project.

So here's an illustration of a real customer that we moved from GS-2 to GS-1 in Southern Cal Edison's service territory, they moved down from 25 to below 20. [See below.]

This was a mixed-use office warehouse building, and they had demand charges of $4600 a year. And now 0. So they have a $0 demand charge. And in fact, the savings are larger than this because again, not to get into the fine print of every aspect of these rates. But the TOU-GS-2 rate has a fixed charge every month that is 10 times higher than the fixed charge or customer charge for a TOU-GS-1. And in one case it's about $155 or $160 a month. In the other case, it's only $16 a month. So if you can move a customer off the larger customer rates to a smaller customer rate, as long as you can put enough solar on there to wipe out the energy charges, you can also wipe out the demand charges and greatly reduce the customer charge, what you're seeing is really almost the elimination of the customer's electricity bill. Of course, all the utilities in California have non-bypassable charges. But in fact, those are administered off the energy, which is quite low.

The way we do this is with a software product called DemandEx. We teach buildings to learn from the past predict the future for better control and the present. That's easy to say but hard to do. We use machine learning of 15 minute interval data from smart meters and all the commercial buildings, and we build a hyper-local solar and whole building load forecast for that building. We put that into an optimizer and send signals down into the building that control any flexible load. Those flexible loads could be stationary batteries, they could be car chargers behind the meter, but they are not even in California. That's the science fiction future we all hope to live in. The main control is on HVAC systems, that's the biggest flexible load in buildings as they exist today. And no one cares when the compressors run, they only care that it's comfortable inside. So that tends to be a very large amount of energy that you can move away from the peaks as I showed a minute ago, into periods when you're not paying nearly so much.

So, this is a little more detail on the case study I showed a minute ago on that mixed use building that we worked on with James. It's about a 50 kW PV system. It's not a very big building. It's a small building, but 50 kW is enough to take care of their energy needs. So you know we we have scrubbed the numbers a little bit. So this is not the exact numbers for a particular building. But the basic idea is you can move from call it a 7 - 7.5 year payback to a 5 - 5.5 year payback by adding DemandEx to a solar project. Now, this is this is the difference between a sale and not a sale and a lot of cases. If you have if you have a shorter payback time, the answer is yes as opposed to the answer of maybe. So these numbers again, don't apply to this specific building we talked about because again, I'm trying to keep their data private. But the general idea is you can knock at least 2 and often 2.5 years off the payback time of a solar system in a small to medium commercial sector, by controlling the loads first. If you control the loads, you then can specify a system that is much more economical for the end customer. If this sounds like a battery, well, it's like a battery, I guess, at 1/10 of the cost.

So basically, no matter how many times I watch the headlines from Canary Media, and Bloomberg and all the rest talking about how the price of lithium ion batteries is going down, down, down, down, down, down, down. Well it is. But for some reason, the price is not going down on the installed costs into small to medium commercial buildings that were never built to host a battery. Well, why is that? Well, we're not making master electricians any cheaper, we're not making fire suppression any easier. We're not making critical loads panels and all the other electrical improvements in the building any easier to do permitting any faster. All these things are going up in cost not down. So most of the costs of battery installed in a small, medium commercial building is not battery cost. It's all the other costs that go along with it. And so we tend to think that software is a better answer, you can achieve dramatically lower costs one day installation, no permitting no fire suppression, pretty much no hardware or labor.

I like what our graphics guys did here. They did a comparison of the DemandEx gateway that we put inside the building with the racks and racks of batteries that you'd have to put in to do the same thing. [See below.]

So this is not a California problem. This is an issue that is arising all over the country. So we're talking about a California example today. But demand charges are rising all over the country, these thresholds are in place all over the country. We did a project very similar to this on a larger scale for a customer in Colorado where the threshold was 100 kilowatts. Anything above 100 kilowatts puts you on a high demand charge rate, anything below 100 kilowatts, you can be on an energy-only rate, so we're saving that customer a lot of money as well. But the trick is to do what James said at the beginning. The trick is not to think of yourself as a panel salesman, but rather as an energy problem solver. If you can get in and help the customer with all of their energy needs, if you can understand their energy usage patterns and what their corporate objectives are, you are way ahead of the folks who are just pushing panels. So if you understand how load shapes interact with rates, you will be able to identify opportunities that your competitors will miss. And that's why we like working with folks like James because this is 100% partner-driven business, we don't go direct to end customers, we work through you to reach your customers with a higher return on investment, lower payback time, so that you guys can get more solar on more buildings.

I'll just recap by saying again, at least in California, here's a cheat sheet for what to look for in terms of folks who can actually bring the demand charges all the way down to zero. [See below.] If you see buildings that look like this, call James, call me. We'll figure out how to get you and your customer set up.

With that, I'm just going to say we should take some questions because I see the room is filled up quite a lot. And I'm going to let you use the Q&A panel. And I'd rather use Q&A rather than the chat but I'll watch both. And yeah, James, do you want to add anything about the customer we worked on together while folks are typing some questions into the Q&A panel?

James Kennedy 19:45

Yeah, I think you hit the nail on the head. You know adding DemandEx to almost any commercial facility is going to add value to both the customer as well as your presentation and your solution. Batteries are certainly a solution for some scenarios where the customer has that need. But really, again, identifying their goals and understanding their needs is the most important thing. This customer did not want to have a utility bill whatsoever. It was a new construction project that was referred to me by the architect. And from the onset, I didn't want them to incur the cost of installing batteries, not knowing what their demand profile looked like. So they came back to us about a year after the installation and after the facility was built, and they said, "Hey, we're still getting, you know, these demand charges from Edison." And I had to explain why and then provide potential options. And it was very clear when I provided DemandEx versus a battery solution, that this was the more economical method for the business. And, of course, they wanted to move forward. And the process was very, very simple, very easy, like you said, instead of waiting around for the city and permitting and, you know, six months later, and installation, you know, I think this was done within 10 days after they said yes, and signed the contract.

John Powers 21:27

Yeah, you know, we try and do a one day installation. And there's always some, you know, customer interaction as to how to schedule that. But there's some, a little bit of work inside the building, and then monitoring of the solar and whole building load those. That's it. So, yeah, it went pretty smoothly.

And so we're getting some questions. Let's see, Jerry asks, "Your DemandEx can work with batteries also. I have a customer with 16k monthly demand charge." Ah, that's good. Yes, we're controlling a battery for one of our customers who bought it for resiliency purposes. They're very sensitive to outages, and they really wanted to make sure that they, they could ride through outages. I'm sure you all have had the experience of explaining to customers how, when the sun is shining brightly, and the power goes off from the utility, you will not be able to use your solar. So this customer didn't like that. So he went for the microgrid controller and the resiliency option on a good sized battery. We control that battery, up to 50% of the capacity for demand charge savings, always reserving a certain amount for resiliency. And that amount is weather-dependent. So we actually model the likelihood of thunderstorms, which are the biggest problem for this particular customer in Colorado. And, you know, we save him as much money as we can. The battery would never pay for itself on demand charge savings alone, but we up the savings that we're already getting from controlling his HVAC systems. And yeah, we can control the combination of battery and other flexible loads in any building. I like the 60k monthly demand charge, we definitely can work with that anything really over call it 20,000 a year is enough for us to make this economical even without a rate switch.

So there's a couple more questions I think for me here. There's, "Can you explain how the shared savings model works? And are there other options for purchasing and licensing?" So the shared savings basically, if we save the customer $1, we keep 33 cents, that's the general idea. But yes, we can come up with a different pattern if that's necessary for a particular customer. So a lot of customers buy it at the same time as they buy solar and our partners bundle the software with their hardware and installation. And I'm not your tax advisor, but they qualify it all for the investment tax credit. So you can sort of put it in as an adder to the solar instead of just a flat shared savings model. We can discuss that--but that's just how we calculate the price. So there's a question on "What mechanism is used to control loads and how many loads can be controlled?" So we try to be as unobtrusive as possible in controlling loads in a building. So there's no limit on the number of things that can be controlled. And typically for an HVAC-based installation, we're controlling through thermostats, or through the energy management system. We put a little IoT gateway, Internet of Things gateway, into the building that allows us to communicate using any of the protocols that buildings know. They know BACnet or ZigBee, or Wi Fi or Zwave, we put in smart, communicating thermostats, we rip and replace the dumb thermostats put in smart thermostats that we can communicate with. That's the way we control the HVAC systems. For a battery, we need to know whose battery it is and there's usually an API that we can get into to control the charge pattern there. And for the car chargers behind the meter, it's still a little wild west. There's still quite a few different varieties, although standards are coming along now so that we can communicate via open-charge point protocol and a couple other things, Open ADR, to communicate with those. Let's see... other questions?

"Are you working with non-bank equipment finance? And will they finance the entire stack?" That one's for you, James. How are you financing these deals, or how is your partner financing these deals?

James Kennedy 26:15

In this case study, it was a cash purchase. It depends on the customer. And again, I think having a portfolio of solutions providers is really the key. You can bundle it into almost any financing option. I really enjoy working with Extensible Energy because we control on our side based upon the amount of work and education and hand-holding with the client, our compensation. So Extensible Energy guarantees their savings, it's a very easy pitch to the customer. And then depending upon the involvement of the consultant or the EPC that's selling the software you can make the numbers work where it's worth everybody's time and it's a win for everybody.

John Powers 27:07

Yeah, and I can I can point folks to a couple of the past webinars we've done, if you go to our website, on the resources page, we've done a couple with different financiers who have different approaches to bundling hardware, software, and financing into a single deal. It gets pretty complicated sometimes. There's a PPA option, there's pace options, there's all of that. But yes, there's no problem incorporating DemandEx with a system that is being financed in a non-cash deal as well. So here's a question from Jerry, who asks, "Can you control contractors if software does not work?" I'm not sure what that means. Good news, the software does work and we guarantee it. So, Jerry, if you want to clarify that question, I'll be happy to address it. And then Nick says, "That changes it from a CapEx to an O&M expense." So yeah, again, this comes to knowing your customer, right? There are customers with CapEx budgets and there are customers who have O&M budgets. So solar is typically a CapEx item that saves on the O&M budget, right? So that's already an issue around the needs of the customer. So when you're working with the customer, you can structure the deal so that there's more O&M savings or more year by year payment. Whatever the right combination of CapEx and OpEx is. James, you want to put any more color on that?

James Kennedy 28:56

Yeah, again, it's about knowing your customer and understanding their needs. In going back to this case study, we did a 15 year subscription because that was an apples to apples comparison with the battery solution. And again, it was just about 90% more cost effective, with this solution meeting their needs and achieving their goal. So I think if you take that approach, you're always going to win deals with this platform.

John Powers 29:32

So I have a question from Barrett. Hi Barrett. He asks, "How are new versions of software handled?" So this is all cloud based software. It's almost as though there are no versions, right? We put out new capabilities, basically at least every quarter, usually every month, to enhance the dashboard that customers have to be able to monitor their own performance to improve the number of devices that we can control. So we're adding new kinds of thermostats, whole new libraries of controllable end uses. So the nice part about it is that it just automatically updates itself. It just updates itself as we add new capabilities to it. So unlike a battery, which gets worse over time, degrades over time, the software gets better over time. We use machine learning algorithms that do a better job of weather forecasting, the longer we are at a site, better job of whole building load forecasting the longer we are at a site. So it just gets better over time as the software improves. There's no need to worry about versions.

So, "Do you push out new firmware automatically?" Well, you know, again, most of this is handled in the cloud. We don't need to push firmware out to the end of the system. The algorithms are all running on our cloud-based service, we use Amazon Web Services. And so when there is an upgrade to the specific devices being controlled, if we need a new protocol, we can push that out to our IoT gateway, again, invisibly to the customer. There's no change to the physical hardware that belongs to the customer whatsoever. Our gateway is just the way we communicate with that hardware in the building.

"Do you offer any performance guarantees? What if a demand spike is missed?" So we do offer performance guarantees. We always guarantee that you'd never pay more than the price of our software. So the guarantees are basically, you know, this is a very low to zero risk proposition for any end customer. The savings is all upside to the customer.

"Can you control electrical relay contactors via your software." Soon, not right now. So the one of the next things we'll be working on is sort of on/off switches that can be controlled this way. It's a "this year" thing for sure. I have to check the development calendar. But it's this year that we'll be able to do on/off devices as part of the system, not just control of say, thermostats, or level of charge or any of those things. So good question now.

"What if the building changes control systems or software?" Ah, yes. So we do have to be notified of any major changes to the building. So if the building that we go into is half empty, and suddenly becomes fully occupied, we have to recalculate the baseline against which our performance is being measured. And if the building installs a whole bunch of new electrical equipment, they have to tell us that. So again, we you know, this is not magic, this is software, right. So if the building makes major changes, we have to know about it. And we may have to either reestimate the the savings achievable, or, you know, put in something new to to control the new loads. So yeah, this is, again, there's always an interaction with the building as changes go on. But when you think about it, that applies to solar, too. If the base load of the building doubles, you're not saving as much with solar as you used to be either. Okay, I think those are the main questions that I've seen so far. And if you want to add any color to any of that, James, go right ahead.

James Kennedy 34:34

I think there were a couple of questions regarding our model. We do consult with other industry companies. And we're not just the buy side company. We do work with other solar companies and other other consultants. And I mentioned it at the beginning of the presentation. We do work throughout the entire continental US.

John Powers 35:02

Same here, we're active in multiple states outside of California as well. So, there was a question before the webinar about the Midwest and Illinois. And yes, we get lots of inquiries from from that area as well. And again, it all depends on what the demand charges are and what the TOU charges are as to what the best solution is. But, you know, we've looked at tons of buildings there. We love getting interval data. Again, if you have not been to our partner portal, you can log in submit buildings that you want to have us take a look at. We look at them all the time. These are great questions. Keep them coming. If the audience has any more questions, let them fly, cuz we've got a little while. James and I are here. So go ahead and ask.

I'll ask James one about the customer base that he works with. When you come across in place with multiple sites, because you talked about some of the larger places you're working with? What are typically the considerations, how do you work with the EPCs to handle multiple sites for some of these corporate accounts?

James Kennedy 36:47

Really good question. It's a case by case basis. You really have to provide a custom solution for each client. Some clients only have the bandwidth to work on one, two or three facilities at a time, some are looking to do more of a portfolio approach. Obviously, with economies of scale, you can offer a more competitive offering, if they're willing to increase their buying power. Again, I think it's really important to know your client, at the very beginning in the outset, and understand what's important to them. Is this going to be a five year rollout? Are we just looking to provide, you know, a solution to meet city requirements? I mean, that was the case with Skechers. It's new construction, so they've got to meet local jurisdiction requirements. If it were up to me, we'd be paneling, their 2 million square foot distribution facility out in Reno Valley, but we have to know your client and work with them and build that relationship. Hitting singles leads to getting those doubles, triples, and home runs.

John Powers 38:07

Absolutely. Again, back to the the theme of this whole discussion, is if you put yourself in the customers shoes and really understand what it is that they're up against. You can deliver way more than just a "how many panels do you want?" kind of solution. So the ability to integrate batteries where they're appropriate, the ability to integrate software, integrate stuff that saves on all aspects of the customers' carbon, electricity bill, comfort, convenience-- all these things are powerful differentiators. Because electricity is a commodity. Electricity is is not the only role here. It's being able to understand their budgeting process, their corporate sustainability goals, their resiliency, the importance of resiliency for their operations as I discussed in the customer we're working within Colorado. If you're sensitive to outages that's a much different solution than if you're okay with a handful of outages a year. In California, the "fear uncertainty and doubt" folks are out in force around public safety power shut-offs. There's been a ton of batteries sold off of the idea that we're just going to be losing power all the time. And really, again, that's up to the customer. If the customer finds that a high priority, then of course, it's you know, we're in the business of helping them to solve those problems.

James Kennedy 39:53

Yeah, just piggybacking on what you just said, adding DemandEx to your portfolio of solutions, whether you're an EPC or a consultant, gets you out of the race to the bottom. Even if you have a really strong relationship and you're able to manage the bidding process, which is an ideal situation, you've got to be able to add value and show your customer that you're not just a salesperson that you're an expert. And that's what they're paying you for.

John Powers 40:25

Yeah, that's what we've encountered with the most successful of our partners is that they want to dig in hard to the niche that they're in, understand what customers in that type of business are up against. So we work with folks who specialize, for example, in car dealers who really have mastered the idea of what energy solutions that they're in need of. So yeah, it's not a solar sale, it's a solar plus LED retrofit, plus, you know, protection to the cars plus all these other items that folks don't think about. And then they of course get wildly better return on investment than somebody who's going in and saying, "How big is that roof? I think I can fit this much on." So the more you know about your customer, the more you're going to be able to differentiate and beat the race to the bottom.

Okay, I'm gonna say I haven't seen a question in a little while. And, you know, James, and I can talk anytime. So I am going to make a couple quick announcements, which is that we will have this webinar recorded and available [here]. And we'll send out links to all of the attendees so that you can share it with your colleagues. And after that, I will say you see on the screen contact information for James and for myself [See below]. If you have any other questions, feel free to reach out at any time.

And I just want to thank James for a wonderful discussion and some great insights on his approach to the solar market. James, I'll give you the last word.

James Kennedy 42:22

I don't have much more to say except we appreciate the partnership and please feel free to reach out if there are any questions. We're always here to help.

John Powers 42:37

Fantastic. Okay. Thanks, everybody. Have a great rest of your day. We'll give you 15 minutes back.

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