Solar Technology Propels Low Prices and Bankability for the Solar Industry

The collective US solar brain trust gathered at the Solar Solutions Conference in Memphis, TN presented by the Tennessee Valley Authority and the Tennessee Solar Institute, April 10-11.  The big news?  Technological innovations have propelled solar prices down.  Today’s solar market is one of the most attractive to investors — not only is it actually “bankable,” but there are several financial models to choose from, provided your state has the right regulatory framework.

Low Prices and Low Emissions are Compatible
Representatives from the Department of Energy’s (DOE) Sunshot Program, Georgia Tech Research Institute, Interstate Renewable Energy Council (IREC), Navigant Consulting and the Promethius Institute were just a few of the more than 400 attendees. They all had something in common: they were confident that the price of solar is becoming competitive enough for solar to take its place alongside other forms of energy generation.  In fact, Kevin Lynn of DOE indicated that innovation continues to propel the cost of solar technologies down to levels previously unheard of: $1 per Watt, with a goal of 6¢ per kilowatt hour (kWh).  Meanwhile, the cost of coal increased 19% from 2010 to 2011. Now is the time for Southeastern utilities to acknowledge that low prices and low emissions are compatible.

Solar Investments are Now Bankable
On the utility-scale side, Andrew Kinross of Navigant used the example of the 550 MW, $2 Billion Topaz Solar Farm, financed by First Solar and Warren Buffet’s MidAmerican Energy Holdings. The utlity-scale solar PPA model: MidAmerican took a 50% equity position in the project and secured it with a 25 year Purchase Power Agreement (PPA) with Pacific Gas and Electric (PG&E). Having the PPA in place lowers project risk from an investor’s point of view since they have a guaranteed return.

In 2011, the residential solar market grew to over $2 billion.  This growth was driven primarily by 3rd party providers, who gravitate toward states that offer a variety of incentives to help facilitate customer acceptance of this new technology.  At the very least, the regulatory framework in each state has to authorize 3rd party PPAs.  Here are some current models:

  • The 3rd party provider model:  the provider offers residential solar systems with zero money down and an easy-to-understand residential lease or PPA.
  • The community solar model:  even if your home doesn’t have optimum exposure to the sun or even if you live in a multi-residential building,  this community solar model, provides an opportunity for the entire community to invest in an off-site solar installation and buy a “slice” of the system.
  • The Morris model: originated in Morris County, NJ.  The Morris model involves a partnership between a municipality and a solar energy company.  The municipality issues a low interest rate bond; the solar company builds, owns and operates the solar system.  The solar company then sells the energy back to the municipality at a discounted rate.

TVA and Georgia Power offer programs under which these types of financing arrangements may take place to a limited degree, but they have not made the case for investor groups to consider the region’s states solar-friendly.

  • TVA’s Green Power Providers (GPP) — formerly Generation Partners — initiative is funded solely by their Green Power Switch (GPS) program.  GPS is a voluntary program enabling customers to buy electricity generated by a renewable energy source. Projects under the GPP program receive premiums of 12 cents above the retail rate for the first ten years, curtailed to retail rate for the balance of the 20-year contract. This program has enabled 33 MW of solar installations, with an additional 76 MW in various stages of completion.  However, while GPS enables GPP, it also has the effect of creating a dollar cap on the program.
  • TVA introduced the Solar Solutions Initiative in April 2012, a two year, 20 MW pilot for larger projects, with premiums ranging from 6 cents for systems up to 200 kW and 4 cents above retail rates for systems over 200 kW.  Patty West, TVA’s Renewable Energy Programs Director says that the 20 MW cap may be increased, depending on how the pilot goes.
  • Georgia Power’s Solar Buyback program is a small scale program modeled on TVA’s, i.e. capped by voluntary donations. They recently signed contracts for two large solar projects, the 30 MW Simon Solar Farm to be developed by Silicon Ranch, and a 20 MW contract for solar installations at multiple locations developed by Solar Design and Development.

Technological Advances Cut Solar Costs
None of this market growth would have happened unless the industry continued to strive for technological excellence.  The goal continues to be to lower prices through better science, rather than by squeezing profit margins. Solar module efficiency is just one way to cut consumer costs. Joe Goodman of Georgia Tech showed conference participants how sun-tracking studies have helped improve component pricing.  Industry experts are also looking at how reducing non-technical barriers to both residential and commercial solar projects can help reduce costs. Dr. Bruce Tonn, of the Howard Baker Center at the University of Tennessee, is heading up DOE’s Rooftop Solar Challenge, which is part of the SunShot initiative. The Solar Rooftop Challenge is taking a close look at permitting, net metering standards, zoning and interconnection barriers.  The goal is to document barriers to market entry, get our utilities to streamline these processes and encourage wider use of solar energy.

Having the Right Regulatory Framework
Neither the utility-scale nor the residential investment approaches discussed at the Solar Solutions conference are as prevalent in our Southeastern states as they are in other regions in the US.  To the degree that these investment approaches do exist, it is only on a limited basis. The reason these models are not delivering here, is primarily because states like Florida, Georgia, South Carolina and Tennessee have not put any requirements in place for utilities to introduce renewable energy into their mix of generation resources.  By way of contrast, in 29 states and Washington, D.C, utilities operate under a framework known as Renewable Portfolio Standards (RPS).  To put it simply, RPS requires utilities to include a percentage of renewables in their generation resources.  The RPS enacted in California requires renewable energy to account for 33% of utilities’ total resources by 2020.   While North Carolina does have an RPS, it is one of the smallest in the country with only a 12.5% requirement for utilities to install renewable resources, of which only a 0.2% carve out must be solar.  So far, solar programs in the Southeast account for 0.05% -0.44% of total generation in each state.  Our utilities refuse to include renewable resources as a significant percentage of their total generation resources.

At the end of the conference participants were left with an impression of hope for the future of solar, tempered by the realization that we have to do more.  The message was loud and clear: low emissions are low cost.  One day soon, price will move even our Southeastern utilities to make the shift — away from coal and nuclear and in the direction of solar resources.  Think about it, for all the money it takes to get a nuclear plant up and running, how much solar could we install instead?

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