Commentary: Three steps to a solar-powered economy

Nick Hylla is the executive director of the Midwest Renewable Energy Association.

Nick Hylla is the executive director of the Midwest Renewable Energy Association.

In many ways, solar energy has greatly exceeded expectations over the past decade.

With 7.3 Gigawatts installed in the US in 2015, solar made up 29.5% of all new generation capacity added. Globally, the industry attracted nearly $230 billion in new investments with the US and China leading the way.

This created a solar jobs boom in the US with more than 200,000 workers currently employed full time (>15,000 of which are in the upper Midwest). Job growth in the solar industry is 12 times faster than US total job growth and total employment now exceeds that of the oil and gas sector.

This type of growth is not surprising. With no moving parts and more than 50 years of field experience, solar photovoltaic (PV) systems are modular, scalable, reliable, predictable, and bankable.

The recent, rapid growth has not come without challenges. Solyndra and SunEdison may first come to mind, but these corporate collapses were more indicative of faulty business models than any fundamental problems in the industry. Yes, we need to stay serious about supporting domestic manufacturing of PV products in the US if we want to get the full economic benefit of a growing clean energy economy. And yes, we need to be mindful of the pitfalls of rapid growth in an industry that is still developing business models that can remain profitable as we redefine how we produce and use energy.

There are serious challenges facing the solar industry however. And they are much more aligned with the structural challenges faced by the broader US economy, namely equity and access. If we want a future powered by local, clean, reliable, and affordable electricity, we’ll need to work in partnership to ensure that the benefits of this new market are accessible to everyone interested. We can start with the following three steps:

Step 1 – Ensure that solar energy benefits all ratepayers

Today, most utility investors see a big downside to rapidly growing home and business investments in PV. The simplified view, commonly referred to as the ‘utility death spiral,’ is that as energy efficiency and distributed energy resources like solar reduce energy consumption, everyone else will need to pay the bill. Meaning that at some theoretical point in the future, the revenue stream from energy payments won’t be able to cover the costs of maintaining the grid. Costs will then have to be shifted to other ratepayers through increased charges making investments in things like solar even more economical… rinse, wash, repeat, death spiral.

To avoid this bleak forecast, utilities across the country have been advancing a variety of new and complicated rate proposals (e.g., increased fixed charges, residential demand charges, fees for solar owners) that protect their returns over the long term. Considering that regulated utilities have been great investments, they have a vast network of well-funded lobbyists, and the investors fear a future of stranded coal and nuclear assets, this is understandable. Given the outsized advantage that these stakeholders enjoy in influencing policy, you might also expect widespread acceptance of these proposals.

On this front, at least to date, this has not been the case. In particular, this is because distributed generation like solar provides myriad benefits at low penetration levels. Solar reduces peak loads, reduces distribution losses, avoids future investment in new generation, and helps protect against energy price inflation. And these benefits, paid for by home and business owners, are free to the utility (though to a utility investor they represent a missed opportunity to make returns on further investments by the utility itself).

In most of the US (and all Midwest states) the percent of total generation that comes from solar is low and the benefits are tangible and proven in analysis conducted on behalf of regulators in states that have chosen to study the issue. This, paired with widespread public support and the demonstrated job creation potential of the solar industry has many regulators, legislators, and utility leaders questioning the conclusions of the ‘death spiral.’

In fact, the challenge of having a clean, profitable equitable 21st century grid has few technical roadblocks. The roadblocks are political and economic.  And many states have already developed and applied valuation methodologies that bring transparency and accountability to the issue, with Minnesota foremost among them. If we are to move forward, regulators and policymakers will need to dedicate themselves to a process that constructively engages stakeholders and defines the true grid value of assets like solar.  This process can inform policies that ensure both customer-owned and utility-owned PV provides the most value to ratepayers.

Step 2 – Transition to Utility 2.0

Over the past four years, the nation’s largest 25 electric utilities collectively spent more than $400 million on lobbying. In many cases, the lobbying (with ratepayer money) was against net metering for solar owners, renewable portfolio standards, and tax incentives for solar energy.  So what if instead of lobbying against clean energy, our nation’s leading utilities engaged in a full force effort to define a clean electricity grid that serves customers and provides the most socio-economic value to society? One utility, Green Mountain Power in Vermont, is doing just that. Their CEO, Mary Powell, recently said of the future energy grid “In our country’s major utility transformations – Telecommunications, Transportation – We don’t see the abandonment and removal of the old system but rather the development of a new primary system with the old system in continual use for support and back-up.”

To Green Mountain Power, this means supporting customer-owned solar, investing in home and business energy efficiency, supporting customer-owned energy storage, electrifying transportation, etc.  All of these technologies are shaking loose critical questions about the wicked problem of un-packaging the regulated utility business model that incentivizes utilities to build new centralized generation.  States like New York and California are digging deep into this issue and many others are not far behind.

One term that seems to capture the degree of visioning required to make this transition is “grid neutrality.” It is similar in concept to “net neutrality” and comes from the same concerns:  Do we want the entities that profit from developing and owning assets on the utility grid to control who else gets to develop and own assets? Managing energy delivery, grid reliability, and resiliency would then be a purely technical construct with compensation based on performance. Theoretically, this would allow for the rational, safe, and affordable expansion of the new energy economy and all of the benefits that come with it.

The conversation about the utility of the future is complicated with many differing views.  One thing however has become clear: It is time to move beyond theoretical.

Step 3 – Make solar accessible to everyone

There is no way around it, transitioning to a new utility business model is and will continue to be a political process. If you are not swayed by the need to ensure that clean energy investments are accessible to all individuals regardless of income level, then I will refer you to a quote from the late, great Muhammad Ali, “If they can make penicillin out of moldy bread, they can sure make something out of you.”

And if you still aren’t persuaded, then the stark politics of leaving 65% of the population completely out of this opportunity should be enough to convince you.

As the installed cost of solar continues to decline, affordable financing becomes more widely available, and public support for solar energy strengthens, more utilities will take interest in helping their members/customers access solar power for long-term energy security. A number of cooperative and municipal utilities in the Midwest are already advancing community solar and on-bill financing programs with their members and national models exist to specifically target low-income households. These programs are demonstrating that energy efficiency and PV can fix energy costs and provide immediate savings for those most in need.

To usher in a new era of local, clean and equitable energy, advancing this support needs to be a national priority and the Midwest is well positioned to take the lead.

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