Solar Industry Growing, But State Policies Key to Future Success

ANCHORAGE, ALASKA—The solar electricity industry in the United States has seen dramatic growth in the past few years. But some believe states could be doing more with policy to put solar on a more level playing field with electricity produced by fossil fuels.
That’s what two consultants told attendees Aug. 13 at a daylong policy academy during the recent CSG National and CSG West Annual Meeting in Anchorage, Alaska. Chad Laurent and Jayson Uppal of the Meister Consultants Group, a Boston-based international sustainability consulting firm, provided an overview of the state of the industry and considerations for policymakers.
“The solar market has grown significantly over the past six, seven years from under $2 billion in size in 2006 to almost $14 billion in size in 2013,” said Uppal. “In 2013, the U.S. solar industry installed 131,000 new solar installations and 94 percent of those were residential projects. So we’re definitely seeing significant growth in solar and particularly on the distributed side.”
With that market growth has come steady growth in the number of solar jobs, Uppal said.
“By the end of 2013, we had over 140,000 solar jobs,” he said. “Employment has been growing at a rate of about 13 percent, outpacing average employment growth across the U.S. economy. So it can be an incredibly important job creator.”
Since many of the jobs involve the local installation of solar photovoltaic cells in residences and businesses, they can’t be outsourced, which is an added benefit, Uppal said. The growth of solar through public policy comes with plenty of other benefits, the consultants told Anchorage attendees. Among them: the reduction and stabilization of energy costs, environmental and public health benefits, energy independence and resilience and additional benefits to energy utilities.
Solar even can provide businesses and government the opportunity to make use of underutilized spaces such as the expansive rooftops of big box stores, large parking lots and even public landfills.
“We can take advantage of the solar resources that are provided to us and create more value in these spaces,” Uppal said. “Ikea … (is) close to 100 percent of all their stores having solar on their roof. Walmart, Kohl’s, Staples—all these big box stores are adopting solar for economic reasons. It’s good business for them.”
Despite these benefits, one significant factor continues to hold back solar.
“The cost to produce energy from solar is more expensive in most parts of the country than the retail price of electricity, except for maybe parts of the Southwest and Hawaii, … where they have very high energy costs,” said Uppal. “A lot of states have adopted subsidies and policies that help make solar costs competitive today.”
The incentive currently available in most states is something called net metering.
Laurent described how the policy works: “You’re producing power during the day. You produce more than you need. At night, you’re still connected to the grid but net metering allows you to apply the credits to your bill at a later time so that you’re able to take the full amount of energy that you
produced from your solar (photovoltaic) system and apply that to your electric bill.” 
More than 93 percent of all the solar-distributed generation that’s been installed across the country has been under a net metering regime, Laurent said. States differ in how they design and apply policy and how successful it is in driving additional solar installations. 
But states and utilities also have discovered net metering alone typically is not enough to promote a lot of solar development within a state and bring its costs more in line with those of fossil fuel-produced electricity.
“If net metering only gets you to four or five cents and you really need 13 cents for solar to make sense, your market isn’t really going to grow that fast,” Laurent said. “So states have added a number of additional incentives on top of net metering to get solar growth within their state.”
Among them, renewable portfolio standards, under which 29 states now require the increased production of energy from renewable energy sources by a certain date. A handful of states also have tried state tax credits, property tax exemptions, sales tax exemptions and state loan programs to encourage solar growth. 
Another strategy first used in Germany in 1990 and more recently in states like California, Florida, New York, Tennessee and Texas is called the feed-in tariff.
“What a feed-in tariff does is it says ‘OK, what is the cost to generate solar?’” Laurent said. “It’s more expensive than fossil fuels, but what is that cost plus a reasonable rate of return to the homeowner or the business that decides to install solar? Utilities are required to enter into a long-term contract for 20 years at that rate of the feed-in tariff and so it makes the financing costs similar to the financing costs of fossil fuel plants that enter into those types of 20-year agreements. A solar (photovoltaic) system will last between 20 and 30 years. So fixed price, long-term contract, guaranteed purchase from the utility and the price is set at the cost of generation rather than at an avoided cost or a retail cost.”
Many believe greater use of the feed-in tariff and other tools may be required to further grow the solar market here and allow the United States to compete globally with the biggest solar adopters.
“We’re currently in fourth place (in the world) in terms of our total installed (solar) capacity,” said Uppal. “We’re behind China, Italy and Germany. Germany … (has) about a quarter of the installed capacity. What’s really interesting about this … is that Germany actually has a solar resource that’s worse than Alaska’s, so it’s pretty amazing that they were able to install as much solar as they have and it really is a testament to policy and where policy can get you in terms of your market if that’s the path that you choose.”
As further testament to that idea, Laurent cited the fact that the top 10 states— California, Arizona, New Jersey, North Carolina, Nevada, Massachusetts, Hawaii, Colorado, New York and New Mexico—account for more than 85 percent of total U.S. solar electricity capacity and are, coincidentally, the states with the most cutting-edge solar policies. 
“Solar … is a policy-driven market,” he said. “Those states that have their own policies put forward in terms of solar are those states that have driven the market forward. Those states that just rely on the federal policy or other state policies that aren’t as aggressive have not seen that type of solar growth. So it really is a policy choice in a policy-driven market.”
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