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California is the number one U.S. state for solar power generation —
not a surprise. The country’s most populous state, with an inclination
for progressive environmental policies also happens to enjoy sun in
abundance.
What state might be number two? Surely some other large southerly state. Arizona? Maybe sunshine-state Florida?
Not even close. Number two for solar electric power, and number one in
total solar installations on a per capita basis, is small and
not-so-sunny New Jersey, more known environment-wise for its abundance
of Superfund sites. What’s perhaps most remarkable is how quickly the
state got to the runner-up spot, from six solar installations only
seven years ago to 4,340 today. Even in the throes of the recession,
solar installers (120 of them today, versus two at the turn of the
millennium) are reporting booming business.
“It’s just really taken off,” says Dan Potkay, president of New Jersey-based Brite Idea Energy, a solar installation company. Solar panels are not only appearing on residential rooftops, but on schools, churches, convention centers, and gyms, and as electricity-generating roofs over stretches of paved parking lots. Ground-mounted farms of solar panels are even planned for at least two of those infamous (albeit now cleaned-up) New Jersey Superfund landfills.
That all still pales in comparison to the solar revolution in Germany.
Since it began a major push in 2000, Germany has become the most
solar-powered nation in the world. With about one-fourth the United
States’ population, it has six times more solar installed, including
more than 300,000 residential rooftop systems, along with
multi-megawatt commercial systems. That amounts to half the world’s
total solar capacity — and in a country that enjoys sunshine about on a
par with Oregon.
There’s a lesson here. The solar booms in Germany and New Jersey were
not about abundant sunshine, but about subsidies. Both the European
nation and the northeastern U.S. state kick-started their programs by
providing early adopters with solid guarantees of economic returns on
their investments. Taxes were not raised to accomplish this. Instead,
utilities were allowed to raise rates minimally on all rate payers in
order to subsidize those who were ready to move on installing solar
systems.
In theory, subsidized sales lead to growing manufacturing scales and
falling costs and, eventually, a day when renewables can compete
directly with dirtier, and often imported, fossil fuels. Solar remains
expensive compared to fossil-fuel-based energy, but theory and reality
have continued to converge, with prices dropping by about 20 percent
with each doubling of world production, moving steadily toward parity
with dirtier fuels.
In a world threatened economically as well as environmentally by rising
greenhouse gas emissions, dozens of other nations and several U.S.
states have also begun to turn to various subsidy schemes for
renewables, many of them using Germany’s approach as a model.
Although it also began with a version of straight-up subsidies, New Jersey has turned to a different approach, issuing credits that can be traded like stocks or bonds on a free-floating market. A few other states, and Great Britain, have attempted more modest versions of this market-based model, but New Jersey’s is the most aggressive attempt yet. And while the state’s solar boom is still on, the effort is too new for anyone to know if the approach will prove as successful as Germany’s over the long run.
The Germans built their world-beating program for solar and other renewables around a direct subsidy called a feed-in tariff. The approach is simple and straightforward: install solar panels on your roof, pump the power into the grid, and for 20 years you’ll get a guaranteed payment for each kilowatt hour you feed in; with solar, that’s presently about five times the going wholesale rate for nuclear power. Wait a year or two to install your system, and, assuming solar costs have fallen, expect a slightly smaller payment, although still a level and predictable sum.
Since Germany began its aggressive push, several other nations,
including 17 other European states and more than 20 other nations
around the world have adopted or announced feed-in tariffs, including,
just weeks ago, China. The province of Ontario and a small scattering
of U.S. states and even two American cities have adopted versions of
the tariff approach.
Program designs, though, vary by nation, state or province, or city. Some attempts have been more successful than others.
Spain offers a bit of both triumph and trouble. In 2007 it mandated
high tariff payments that turned out to be so generous that they
quickly blew up a solar bubble. Although the government originally
projected that the program would lead to 400 megawatts of installations
by 2010, the program’s first 18 months saw 3,000 megawatts installed in
the sunny nation. With no provision to automatically step down the
tariff if it proved to be overly generous, Spain almost instantly blew
past even Germany, becoming the world’s largest solar market for 2008,
but at a cost to utilities of some $26 billion.
The world’s solar panel manufacturers, including a host of new
companies in China, went boom mode themselves, cranking out shipments
just for Spain that were large enough to fill entire container ships.
But because costs for the program were rising far more than planned, by
the summer of 2008 the Spanish government announced it would cut the
tariff by 30 percent. It also put a firm cap of 500 megawatts on
installations for all of 2009. Boom became sudden bust. In the midst of
a developing world recession, 20,000 jobs in Spain’s nascent solar
industry vanished.
In North America, tariffs have been slower to take off. But this year
Ontario modified a modest existing tariff program to make it more
attractive. And the city of Sacramento’s municipal utility has a
limited program, as does the municipal utility for the city of
Gainesville, Florida. Vermont, Washington, and California have
instituted tariff programs at the state level (but in California only
for commercial-size projects), and several other states are discussing
this approach.
Feed-in tariffs aren’t the only subsidies now in play in the United
States. There is no national tariff program (a bill has been introduced
in Congress, but passage seems unlikely), but the 2009 stimulus bill
extends a hefty 30 percent federal tax credit to solar customers
through 2016. Commercial installations also can be depreciated for tax
purposes on an accelerated basis.
Among the states, which regulate their own electric utilities, there’s a dizzying hodgepodge of approaches to providing solar and other renewable energy incentives, of both the stick and carrot variety. Stick-wise, more than two dozen states have developed “renewable portfolio standards” that require their utilities to hit certain targets — x percent of generation from renewable sources by year y — for instance. A few offer rebates on installed solar systems; in California, for example,, homeowners are eligible for rebates under the state’s “million solar roof” initiative.
Most states allow “net metering,” meaning utilities must buy back
unused power (electricity generated, say, on an afternoon when a house
is unoccupied). It means that the owner’s meter can, essentially, spin
backwards when there is excess power. (Although in some states the
owner receives only the wholesale, not retail, rate; in general a
monthly or annual electric bill can only go down as far as zero owed).
New Jersey’s continuing solar boom depends most heavily on its
alternative approach to subsidies. When the state kicked off its solar
program in 2002, it relied on a small “societal benefits” charge on all
ratepayers’ bills to provide a simple, straightforward rebate that
amounted to about 60 percent on solar installations, combined with a
full retail net metering (backwards-meter) mandate. But by 2007, the
program had become so popular that it was overwhelming available funds.
In the hope that market efficiencies could help control costs over
time, the state has turned not to a tariff-style guarantee, but to a
complex approach that relies on a floating, market for tradable solar
renewable energy credits (SRECs).
An oversimplified version: install a solar system on your roof (or
install a commercial system on a warehouse or in a field) and each year
you’ll earn SRECs based on how much power your system generates
annually — one credit for each 1,000 kilowatt hours. You can then turn
around and sell your credits back to companies that generate power for
the state’s grid. The companies can use the SRECs to help them meet
state renewable portfolio standards that steadily ramp up to a mandate
requiring that 22.5 percent of their energy come from renewables by
2021.
The credits are actually sold by brokers on an electronic market, like
stocks or bonds, at whatever price the market will bear. At the moment,
the market is bearing a fabulous price. It takes a calculator to work
through the complexities, but with SRECs currently selling for just
under $700, and the federal tax credit as well as a reduced state
rebate in play, a homeowner in the state can pay for a solar system in
four years or less.
After the system is paid for, there’s the promise of not only free,
clean energy but of SREC profits for years to come. (SRECs are expected
to decline in value over time, but could still be worth multiple
thousands of dollars annually to the owner of a residential solar
system, and far more to owners of large commercial installations.)
Some other states, including Maryland, Delaware, and Pennsylvania have
also begun to turn to SRECs, although so far those programs are
providing a far less generous payout: in the $200 to $250 range. (The
divergence appears to be occurring mostly because New Jersey is
wielding a bigger stick, assessing a high “alternative” charge as a de
facto penalty if companies do not hit their benchmarks.)
In an email, Doyal Siddell, chief spokesman for New Jersey’s Public Utility Commission suggested that his agency had decided the SREC approach was a way to avoid the “significant downsides” of German or Spanish-style tariffs “with regard to cost exposure to ratepayers, budgeting for uncertain expenditures and... inflexibility in adjusting to market changes such as falling equipment costs.”
But at least one industry insider is skeptical that it will be a real improvement.
Dolores Phillips, executive director of the Mid-Atlantic Solar
Industries Association, a regional trade group, worries that New
Jersey’s SREC market makes the economics of going solar too
unpredictable, suggesting that the alluring SREC-based economics of
2009, especially at New Jersey’s high rates, could be a “fluke.”
Phillips pointed to a May, 2009 report by the U.S. Department of
Energy’s National Renewable Energy Laboratory (NREL) that cited
“stability and certainty” as key benefits of feed-in tariffs. In
particular, the NREL study noted that since risk raises the cost of
financing, a safe, predictable income stream means lower costs overall.
Clearly, properly-designed, feed-in tariffs had the desired effect in
Germany, ramping up manufacturing and, in doing so, driving down costs.
It’s simply too soon to tell if the U.S. states moving toward a
market-based approach are onto something better.
