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Solar Energy’s Life Depends on Incentives and Policies!

June 5, 2011

Source: lu3luscrossing.blogspot.com

Solar’s success as a renewable energy source can be traced to several factors. First and foremost is the cost of solar energy. In order of importance, other factors include:
• Incentives – Available federal, state, and local incentives for customers to adopt solar energy.
• Utility Policies – Strong utility policies include a specific solar carve out in the state’s renewable energy portfolio (“RPS”), such as SRECs,
• Interconnectability – The technical rules for solar customers to “plug in” to the electric grid.
• Net Metering – The billing arrangement where customers get can sell excess electricity back to their utility for equal the amount they are charged to consume it.

It will be shown that for the near future, continued growth of solar power installations is inextricably tied to both cost and incentives.

Price declines in the cost of panels and the highly competitive EPC environment have significantly reduced the “All In” costs of PV solar farms. A year ago, it was not unusual to see “All In” costs of $4.00 per watt. Today, it’s possible to construct PV power generations plants for less than $3.00 per watt. Even at these low price points, solar power costs are north of $0.10 kWh. Coal and more environmentally friendly natural gas power generation can be produced as low as $0.04 kWh. With all things being equal, the competitive advantage is certainly not in favor of solar.

At Bloomberg’s  New Energy Finance Annual Conference in April 2011 week,” industry executives and representatives indicated that “Large photovoltaic projects will cost $1.45 a watt to build by 2020, half the current price,” Bloomberg New Energy Finance reported. However, already, in sunny regions like the Middle East and California, “solar is viable against fossil fuels on the electric grid.”

Even at these reduced prices, without incentives solar power will not pencil out. Incentives from the federal government in the form of the 30% Renewable Energy Grants (expires 12/31/2011), 30% Investment Tax Credits (expires 12/31/ 2016), and the 100% Bonus Depreciation Modified Accelerated Cost-Recovery System (expires12/31/2011) + 50% Bonus Depreciation (expires 12/31/2012) to state feed-in tariffs programs are required to justify the expenditure.

Utility Policies arising from state or regionally mandated Renewable Energy Portfolio Standards (“RPS”) and Solar Renewable Energy Certificates (“SREC”) help somewhat. However, without stringent Solar Alternate Compliance Payments (“SCAP,” a penalty for not achieving the mandated RPS benchmarks) and carve-outs (requirements that a certain percentage of the portfolio be generated from a specific energy source, such as solar power) the state’s RPS is meaningless at best.

Since states are not directly obligated by the federal government to have an RPS, several states have not adopted any renewable energy standards, and others have set alternative standards or goals (see following map). http://www.pewclimate.org/what_s_being_done/in_the_states/rps.cfm

Renewable & Alternative Energy Portfolio Standards

Source: Pew Center on Global Climate Change

For example:

Reuters reported on May 13, 2011, that New Jersey’s “combination of a strict state mandate and a generous carbon offset program has made New Jersey — where only three in eight days are sunny — the second-largest U.S. producer of solar power, after California, where more than half the days are sunny.”

New Jersey’s renewable portfolio standard (RPS) — one of the most aggressive in the United States — requires each supplier/provider serving retail customers in the state to procure 22.5% of the electricity it sells in New Jersey from qualifying renewables by 2021 (“energy year” 2021 runs from June 2020 – May 2021). In addition, the standard also contains a separate solar specific provision which requires suppliers and providers to procure at least 2,518 gigawatt-hours (GWh) from in-state solar electric generators during energy year 2021, and 5,316 GWh during energy year 2026 and each year thereafter.

If a supplier/provider is not in compliance for an energy year, the supplier/provider must remit an alternative compliance payment (ACP) and/or a solar alternative compliance payment (SACP) for the amount of RECs and solar RECs that were required but not submitted. The initial eight-year schedule for NJ’s SACP is as follows:
• EY 2009: $711 per MWh
• EY 2010: $693 per MWh
• EY 2011: $675 per MWh
• EY 2012 :$658 per MWh
• EY 2013: $641 per MWh
• EY 2014: $625 per MWh
• EY 2015: $609 per MWh
• EY 2016: $594 per MWh

The same article points out “Most controversial are 180,000 solar panels being attached to utility poles on New Jersey residential streets, part of a push by the state’s largest utility company, the Public Service Enterprise Group (PEG.N), to produce enough solar power to supply 13,000 homes. The utility’s $518,000 million investment in solar energy will bump up consumer energy bills by 29 cents a month, the company said. Just five panels, which measure 5 feet by 2.5, had been installed on utility poles in the affluent community of Ridgewood in Bergen County before an outcry erupted. Angry residents forced the company to stop work, a halt repeated in three other nearby towns.”

On the other hand Texas law requires that “5,880 megawatts of new renewable generation be built in the state by 2015, which will meet about 5 percent of the state’s projected electricity demand. In an effort to diversify the state’s renewable generation portfolio, the measure also includes a requirement that the state must meet 500 megawatts of the 2025 target with non-wind renewable generation.”

However, Texas, the sixth state to adopt an RPS in 1999, produces only 0.25% (25.4 MW) of its renewable energy from solar. Wind accounts for 98.89% (10,085 MW) of its renewable energy production.

Currently, Texas bill, HB 774, Non- Wind Renewable Energy Credits, under review would establish Tier 1 alternative compliance payment for a renewable energy purchase requirement that could be satisfied with a renewable energy credit from wind energy may not be less than $2.50 per credit or greater than $20 per credit.  Tier 1 energy sources include: solar; wind; qualifying biomass; methane from the anaerobic decomposition of organic materials in a landfill or wastewater treatment plan;, geothermal; ocean, including energy from waves, tides, currents, and thermal differences; a fuel cell that produces electricity from a Tier 1 renewable source; a small hydroelectric power plant of less than 30 megawatts in capacity; and poultry litter–to–energy.

The importance of incentives, utility policies, interconnectability and net metering are summed up in this report card developed by Dan Hahn of SolarPowerRocks.com.

Source: SolarPowerRocks.com

In closing, for the U.S. to have a viable solar industry, robust incentives and utility policies are needed to place solar on the map with other renewable sources of energy. Any negative offset to solar incentives and policies will most likely have disastrous ramifications.

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4 Comments leave one →
  1. Dennis Satnick permalink
    June 6, 2011 7:13 AM

    Interesting

  2. June 6, 2011 1:04 PM

    Solid analysis

  3. hbliss23 permalink
    June 8, 2011 9:38 PM

    I think there’s another factor the advancement of solar energy relies on. Eventually, people are going to realize that we are extremely late in the effort to produce our own energy. Once oil runs low and shortages begin to occur, fear will drive people into action, and we’ll see solar and wind energy take off at an alarming rate. Other than that though, I liked your points. I didn’t know that Net Metering is when the consumer is paid for his electricity he sells back to his company. I knew that it was possible, but not the word, so thanks for teaching me something for today!

  4. Sumit permalink
    January 8, 2012 3:11 AM

    Hi Barry,

    I appreciate the research you’ve done but differ from you on certain fronts.

    Just a couple of months back, India concluded its 2nd round of Tariff bidding for Solar Power projects (NVVN Phase 2). The FITs that won the projects ranged from Rs 7.49 /kWh on wards upwards (thats about USD 0.14/kWh and upwards). At present the Project cost per Megawatt for a Solar PV project in India is hovering around Rs 9-10 Crores/MW ( approx USD 1.64 million/MW).Compare this with Rs 7Cr/MW for coal based power projects at present and the fact that the solar power project pricing is falling at 25-40% yoy , you can estimate that within the next 3-4 years, solar will achieve cost parity with coal power.Then with a commissioning cycle of just 6 months – 1.5 years for most small – medium sized solar projects, my estimate is that investors will start to beeline for solar projects. Subsidies may not be required at all. Ofcourse, over capacilty/shortages of raw material can affect the industry in the short term, but in the long run, Solar Industry is bound to grow.

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