Bigger Subsidies Make Bigger Solar a Bad Bet

Americans seem unable to resist big things, and solar power plants are no exception. There may be no reasoning with an affinity for all things “super sized,” but the economics of large scale solar projects (and the unwelcome public scrutiny) should bury the notion that bigger is better for solar.

In fact, smaller scale solar and the right solar policy could get more solar for the dollar and more public support for renewable energy.

There are three problems with large-scale solar (100 megawatts and up).  First, no solar power plant of this size has ever been constructed without a government loan guarantee.  The 250-megawatt California Solar Ranch is an example, and the project was recently targeted in a New York Times expose on subsidies for large solar power.  The loan guarantee is extremely valuable to NRG, the project owner, so much so that its chief executive was rather hyperbolic when describing the opportunity to investors:

“I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” he said in a recent interview. “It is just filling the desert with panels.”

So far, the federal Department of Energy has provided loan guarantees to 16 large-scale solar power plants. The benefits for the California Solar Ranch (and likely other federally-backed large solar projects) also include lower interest rates (3.5% rather than 7%).  No comparable subsidy exists for small-scale solar, despite there being many times more solar electricity coming off distributed solar projects (20 megawatts and smaller) than large solar plants.  The irony is that these large loan guarantees typically back large corporations with deep pockets like NRG, whereas small-scale solar projects are frequently financed without comparable federal largess by individual homeowners or small businesses.

The second problem with large-scale solar is that it has a minimal cost advantage over small-scale solar.  According to the LBNL Tracking the Sun report for 2010, there are economies of scale for solar power projects.  But residential solar is installed for as little as $4.40 per Watt as part of a group purchase program in Los Angeles, whereas utility-scale solar is only marginally better at $3.75 per Watt in mid-2011, a difference of about 3 cents per kilowatt-hour.  But in Germany, small solar (up to 100 kilowatts) is installed at an average price of $3.20 per Watt, besting large-scale American solar.

There’s also the question of speed.  A small-scale solar project can be operational in months, but the California Solar Ranch has been in development since mid-2008.  Another large-scale solar project, the 280-megawatt Mojave Solar concentrating solar thermal power plant, has been in development for five years (as with most concentrating solar thermal power plants, it takes much longer to develop).  For perspective, the U.S. has installed 1,600 megawatts of smaller-scale solar over the past three years, the Germans have installed 12,000 megawatts.  J.R. DeShazo, director of UCLA’s Luskin Center for Innovation explains why small-scale solar can deploy faster (especially with the right policy).

Distributed solar has an edge in the speed with which it will respond to financial incentives...The private sector will begin to install solar panels in response to a feed-in tariff much more quickly than developers of large solar projects can negotiate power-purchase agreements with utilities and win regulatory approval from the government.

The Solar Electric Power Association has identified barriers to speedy deployment of large-scale (greater than 50-megawatt) solar power plants:

PV projects, which ranged in size from 1-kilowatt residential installations to 48-megawatt power plants, have much shorter planning horizons and project completion times, along with lesser siting, permitting, financing and transmission requirements at these small- and medium-sized scales.

However, larger PV and CSP projects (those greater than 50 MW) require overcoming financing, siting/permitting, and transmission barriers that might emerge at these larger sizes. [emphasis added]

Ultimately, it’s a question of picking winners: large corporations or the average citizen.  Subsidies for solar that are only for big projects and big corporations don’t generate popular support for solar.  In fact, the desert location of these power plants is often a point of contention.

In contrast, when solar policies support local ownership of solar, the average rooftop PV system generates two solar voters and greater support for favorable solar energy policy as well as electricity.  This political value has been captured in a German study of attitudes toward more wind power, focusing on two towns with nearby wind projects, one locally owned and the other not.  Support for expanding local wind energy is 40 points higher when existing projects are locally owned, and overwhelmingly negative when they are not.

The German energy program plays off the popularity of local ownership, with their easy-to-use feed-in tariff allowing anyone to become a clean energy producer by offering a guaranteed, long-term contract at an attractive price.  Half of their 53,000-megawatt renewable energy market is locally owned, making their clean energy policies nearly inviolate despite the (completely transparent) cost increase to German ratepayers.

The German program is also equitable, offering contract prices based on project size, helping democratize their energy system by letting any citizen participate.  The big boys can play, but without additional handouts.

Big solar projects shine with big numbers, but if Americans are serious about solar power they should support policies for smaller scale.  Otherwise, the clean energy future may look a lot like the dirty energy past, with big companies in charge and ordinary citizens left holding the bag.

This post originally appeared on Energy Self-Reliant States, a resource of the Institute for Local Self-Reliance's New Rules Project.