U.S. State Solar Debate: Will SRECs Create Unhealthy Market Concentration?

Stephen Lacey, Staff Writer
May 01, 2008 | 43 Comments

A growing divide is occurring within the solar industry over how best to incentivize state-level solar programs. At issue is the role that solar renewable energy certificates (SRECs) should play in each market and what their impact will be on how -- and perhaps how many -- companies operate in states such as New Jersey, Maryland and Florida. There are also fears within the industry that SREC programs are benefiting a few large companies at the expense of many smaller companies.

On the surface, developments for solar on the state level are relatively positive: California is moving ahead with its solar initiative after a rocky start; New Jersey is restructuring solar incentives to encourage new market activity after a long slowdown; and states such as New York, Arizona and Ohio are developing Renewable Portfolio Standards (RPS) with significant solar “carve-outs” that require a portion of the RPS to come from solar.

But just beneath the encouraging headlines is a growing philosophical battle over where to take these up-and-coming solar markets: Should the industry rely on a floating market-based mechanism to incentivize projects? Or should states implement a long-term incentive that looks something like a feed-in tariff? While the answer isn't clear cut, it will surely have wide-reaching implications for the future of solar in the U.S.

The Background: Mid-Atlantic Markets in Transition

Shortly after December of 2005, when the New Jersey solar market came to a halt because of a lack of funds to cover up-front rebates, program administrators and industry professionals started looking for a new way to get projects moving again. Eventually, they decided on SRECs.

An SREC represents the value of one megawatt-hour (MWh) of clean electricity generated by a solar system and is traded on the clean power market. Under any RPS, utilities must accrue a certain amount of renewable energy credits to meet their renewable electricity procurement obligations.

An SREC-only program works like this: Instead of relying on up-front payments from the state, owners of solar systems will earn some of their money back by selling certificates to utilities or some other aggregator. From June 2007 through December 2007, the average SREC selling price ranged from US $200-$233. This means that on average, a 10-kilowatt (kW) system will generate an annual return of approximately US $2400, according to figures from the state's Clean Energy Program. New Jersey started a pilot program last March and is currently transitioning into a full SREC-only market, with a plan to completely phase out residential rebates by 2012.

Right now, though, the only new projects that are getting developed in New Jersey are large commercial systems. Rebates have dried up (all funds through 2008 had been spent by May of last year, effectively halting any new market activity) and smaller businesses are having trouble getting financing for projects under the new program because its current structure, with a fluctuating market price for SRECS, is considered too risky by lenders. As a result, many people in the industry expect the state to fall well short of its solar goals through 2009.

“In New Jersey there's a lot of concern that the residential sector, while it may not be completely shut out, is in big trouble,” says Lyle Rawlings, secretary of New Jersey at the Mid-Atlantic Solar Energy Industries Association. “We need to do better at creating a system where small businesses and small projects can play the game. That's not the case right now.”

Meanwhile in Maryland, a similar transition is taking place. Last year the legislature passed an SREC-only incentive structure to replace the floundering solar rebate program that was created in 2005. While New Jersey changed its rebate structure because of lack of money due to the program's popularity, Maryland faced the opposite problem: Its solar program wasn't popular enough. Maryland's rebates only covered about 20% of a system's cost as opposed to rebates in New Jersey that covered up to 60% of a system's cost.

When crafting the latest solar legislation, lawmakers in Maryland couldn't agree on funding levels for a residential program, so they opted for an SREC-only incentive structure for systems above 10 kW and left systems below 10 kW for another legislative session. Some smaller businesses in the state successfully restored the old grant program for residential projects, but the fund only has about $590,000 for 2008. According to Ted Middleton, managing member of the Maryland-based integration company Sun Net Zero, assuming each applicant takes the maximum benefit, that leaves room for about 59 installations in a state with 2 million rooftops.

“The small systems just got completely left off the table,” says Middleton. “The state just said, '[The SREC program is] too difficult, too risky for us to do, so we're not going to touch them.'”

It is expected that residential installations will be included in the Maryland SREC program starting in 2010. Until then, as is happening in New Jersey, the state is focusing mostly on the commercial sector. This has caused major unrest within the industry as small- to mid-sized businesses fear that the SREC incentive structure — as currently designed — is propping up large companies while threatening to eliminate many businesses in the residential sector.

As SREC Markets Form, Concerns Over Market Concentration Grow

The current SREC markets in New Jersey and Maryland are “floating,” meaning there is no floor price or other method to securitize a certificate. Many industry professionals — while careful not to blame any person or organization in particular — say this type of system is shortsighted, non-transparent and too complicated.

“I commend the New Jersey Board of Public Utilities (BPU) for the steps they are taking. But the market, without some way to securitize the RECs, is fundamentally flawed. It's like setting off Wall Street without the SEC [Securities and Exchange Commission]. That's what they're in the process of doing,” says Bill Hoey, President of NJ Solar Power, a commercial and residential installation company based in Beachwood, New Jersey.

Proponents of a floating SREC incentive structure say that a free market-based mechanism puts every company on a level playing field. If a company doesn't have a competitive business model and can't meet the commodity price for solar, it probably doesn't belong in the market, says Chris Cook, senior vice president of regulatory affairs and new markets for SunEdison, the largest provider of power purchase agreements in North America. Right now, he says, large commercial solar is most cost-effective, so it makes sense that states would put a heavier focus on that sector.

“If a residential system is 20% more expensive to install in totality than a competing commercial, well then it goes back to the residential customer. The expectation would be that, like anything else, it's more expensive to put anything on residential than it is on commercial. You're expected to pay more for it,” says Cook. “Why would we prop up one sector if it's not cost-competitive?”

No one disagrees that residential solar is more expensive than commercial; economies of scale will always dictate that. But the idea that these two sectors should compete head-to-head with one another is making many people apprehensive about “unhealthy market concentration” in states with floating SRECs, says Sun Net Zero's Middleton.

“Everybody's lumped into one category. You've got Wal-Mart and Harry Homeowner all sitting in the same camp,” he says. “Well, Wal-Mart's going to win that argument every single time. So you've got to distinguish customers by categories, otherwise the better, faster, cheaper rule will always apply across the board, which is that the Big Box Integrators are going to just take the whole market...Some people believe there is potential for gaming the system.”

MSEIA's Rawlings hears the same concerns. He says that a lot of businesses in New Jersey are worried about the emergence of "solar utilities."

"There may be some benefit in the short-term. But if there is unhealthy control over the market then the benefits of competition are out the window and you can lose the ability of using competition to continue lowering the price," he says.

This past January, SunEdison announced a deal with Constellation Energy — Maryland's biggest utility — to provide 30% of the utility's needed RECs in 2008 and 60% of its RECs in 2009. (Because SunEdison arranges power purchase agreements, it owns and operates the systems it installs, and therefore owns the SRECs). Due to the volume of SRECS that SunEdison can generate, the company can aggregate those RECs and potentially sell them at a much lower price than other companies. Many onlookers in the industry point to the deal with Constellation Energy as direct evidence that the market may be creating a solar monopoly or oligopoly. But SunEdison's Cook says that's just plain false.

“I don't think we're better placed than anyone else. We've simply tried to make our business model work in whatever market we're involved in. I think those concerns [about monopolization] are coming from people with rigid business models who can't adapt to the changing markets,” Cook says. “We work with what we have.”

Moving Forward: What Should the Market Look Like?

The dispute over the structure of these solar markets highlights two starkly different philosophies on how to build the industry: One side believes in a “top down” approach by focusing on the commercial sector and eventually passing savings on to residential customers, while the other side believes in a “bottom up” approach, by which incentives are structured to encourage growth in all sectors and thus create a more diverse, distributed industry.

As cash-strapped governments look to reduce their financial responsibility to solar and other renewable energy programs, the push for SRECs has gotten stronger. But there's another policy option gaining ground that takes the state's fiscal role off the table: feed-in tariffs (FITs). Indeed, many of the recent calls for a FIT have come from businesses concerned about SREC-dependent markets.

A FIT — which most people know as the mechanism that started Germany's solar boom — offers anyone with a solar system (or any renewable energy system) a fixed payment for the electricity generated by that system. The incentive is designed to provide the system owner a “reasonable rate of return.” Instead of relying on the state, utilities provide the incentives by charging all ratepayers a few extra dollars on their monthly bills. Supporters of FITs say they provide long-term stability, which in turn reduces capital costs and allows for a much more diverse group of companies and individuals to invest in solar.

Over the past year, a number of states have passed or considered FITs, including California, Delaware, Hawaii, Illinois and Michigan. In March, Washington-state Congressman Jay Inslee proposed a national feed law, called the “Clean Energy Buy Back Act.” And over the last month, a large group of companies and two industry associations have come out in support of FITs for both the national and state levels.

No one believes that FITs are still possible in New Jersey and Maryland. Those states are firmly committed to an SREC market. But as the industry focuses its attention on Florida, Pennsylvania and other states where SREC markets are being crafted, FIT supporters hope to influence the policy debate and move solar programs in a different direction.

“We're seeing many people in the industry agreeing that a short-term commodity-driven SREC won't work — at least how it is currently being developed,” says John Burges, an energy investor based in Florida who has closely watched the SREC market debate in his state. “Now there's a real push to change course and try to build a more simple, stable, democratic approach to developing solar and other renewables.”

Not everyone is convinced. Jim Torpey, director of market development for SunPower Corporation, thinks that it would be a mistake to push for FITs in the U.S. One of the main reasons, he says, is that in order to have a FIT that works, the incentive level must be far above retail electricity prices. If they are too low, there won't be much development at all.

“There's a different political climate in Europe than in the United States. In the U.S., because of a lot of push back from other interest groups, you may end up getting a rate that's too low and you may not be able to get projects built,” says Torpey. “Anyone who's gone on a state by state basis and had to deal with an intervention in a [utility] rate case knows it's a very labor intensive process.”

The beauty of the SREC market, say proponents, is that it adapts immediately to reflect factors such as market demand and technology improvements, with no government meddling needed.

Instead of jumping to FITs, there are a number of issues that can be resolved within the REC markets that would level the playing field for smaller businesses, says Torpey. That could include guaranteed long-term contracts, setting up a state-wide aggregator to bundle SRECs from smaller systems, and getting rid of financially burdensome metering requirements for systems under 10 kW. But even with those mechanisms in place, he concedes that it may be more beneficial for states to start with a simple rebate program.

“Are SREC markets always the way to go? No. There are still plenty of kinks to be worked out. But I think they are an excellent way to incentivize the market at a reduced cost to the state. Sometimes it may just be better to nudge the market with a rebate program,” says Torpey.

Some critics of SREC markets say they are too complicated. Rather than adding more convoluted fixes to the system, implementing a FIT — or something like it — will provide payback options as simple as rebates and develop the commerical and residential markets rapidly, they say.

The idea behind the current transition in certain states is to build a solar market with as little financial assistance from the government as possible. The broken rebate programs in New Jersey and Maryland illustrate the need to move beyond such methods. So as the industry figures out the best way to change course, these two very different policies — SRECs and FITs — will be at the center of the conversation.

Of course, there are many other payback options for solar on the table. The reality is much more nuanced than a pure FIT law versus a pure SREC law. But the two policies are a metaphor for the growing divide in perception within the industry over how some states are developing their solar markets: Some people would say democratically, other people would say autocratically.

Whatever the solution to the issue, says Middleton, the Maryland-based integrator, a good solar policy should benefit all types of businesses, create more jobs and encourage a wide range of economic activity. That's what the industry has promised; but he doesn't believe that is being done today.

“Maryland's law right now is built for very, very big solar integrators and no one short of that,” he says. “I think the overriding goal is to build an industry full of companies from front to back, little to big,” he says. “After all, small businesses are the country's largest provider of jobs.”

[Editors note: We're testing out varied lengths of our articles. What do you think about the length of this article? Let us know by e-mailing feedback@renewableenergyworld.com.]

To hear an in-depth audio version of this story, listen to this week's "Inside Renewable Energy" podcast.

"I commend the New Jersey Board of Public Utilities (BPU) for the steps they are taking. But the market, without some way to securitize the RECs, is fundamentally flawed. It's like setting off Wall Street without the SEC [Securities and Exchange Commission]. That's what they're in the process of doing." -- Bill Hoey, President, NJ Solar Power, a commercial and residential installation company based in Beachwood, New Jersey.

43 Comments

Brendan Gallivan
May 22, 2008

Ben,

I think I'm in agreement with you. The thing that bugs me the most is to see people put in any kind of RE without first doing due diligence to reduce their energy consumption.

Building a small home and making very energy efficient is much more effective (both economically and financially) that putting PV and a wind turbine with a new 5,000 sq. ft. home with high energy consumption. Even on existing homes, investing in energy efficiency is much more cost effective than installing RE.

That said, I think there are other benefits to PV that might not be as inherent in other, possibly purely more cost effective RE, including reducing load on the grid, providing peak load offset. These factors can reduce maintenance, wear and even reduce the need to build new transfer stations or even new power plants. Remember that while homes with PV installation might not be contributing as much to maintenance on the grid, they are also reducing the load and contributing to peak load offset, which can reduce cost for the electricity companies, which should be passed on to rate payers (but probably is not).

I guess what I am saying is that there are numerous factors to consider when looking at the overall costs of different forms of RE.

Thanks.

diane moss
May 9, 2008

"If the astonishing rate impact of FIT policies were acceptable in the US, the sky would indeed be the limit; those of us who work every day to advance renewables have found it is not - perhaps why 26 states have installed RPS that have built gigawatts of renewables, while FIT continues at zero states, zero MW."

What astonishing rate impact? In Germany, electricity rates increased on average about a dollar per person per month for the first years of the FIT. After the first few years, utility companies started to crop up that sell 100% renewable energy at cheaper rates than conventional energy utility companies. How do I know? My husband is German and follows energy policy very closely, as do I.

Ben Gatti
May 8, 2008

Brendan,
Mine is not a criticism of subsidies for RE. However, I am growing increasingly wary of the arguments for subsidizing residential PV - because the subsidy is inherently regressive: The benefits fall to the richest, while the costs are borne only in part by the taxpayers general, in greater part by those left to pay for the grid. - Which we can assume are least able to afford PV.

I am far more in favor of taxpayer subsidies being used to install the LOWEST COST RE. Residential PV is not the lowest cost - rather it includes an artificial wealth-shifting component called "net-metering" in which the legitimate costs of the grid system are shifted away from the wealthiest class of customers.

I would like to see a real business case in which this use of tax and policy subsidies is 1. the most carbon-effective use of funds, and 2. ends in a non regressive and sustainable state.

If we project Residential PV to 50% saturation, it is safe to assume the 50% would be the top 50% income bracket; it is equally safe to assume that the power poles would rot, blow down, and get struck by lightening at the same rate; and that the costs of monitoring, regulating, and generating nighttime power would remain the same; However it is also safe to assume that under net-metering, these costs would be borne by the 50% at the lower economic bracket who cannot afford PV.

Show me this isn't the case. Not by arguing that oil companies are the Great Satan. By direct attack on the stated concerns.

Until then, I am more persuaded that Lowest Cost RE should be subsidized in a way which benefits all consumers rather than the richest.

Ben

Brendan Gallivan
May 7, 2008

I find it interesting that there is such a deep discussion of the effects of RE subsidies on the rich, middle class or poor, when the size of these subsidies and their effects are minuscule compared with other issues, including education, health care and child care. Do you really think a couple million in RE subsidies (if they are even that high in your state) are really keeping the poor - poor and the rich - rich?
And as someone noted above, let's address the huge subsidies for oil & gas before we start picking apart the relatively middling subsidies for RE.
Brendan

Brendan Gallivan
May 7, 2008

In response to energy footprint or payback time for PV, its in the range of probably 2-5 years. See link here: http://www.environmental-expert.com/resultEachPressRelease.aspx?cid=8819&codi=31222&idproducttype=8≤vel=0

Paul Johnson
May 6, 2008

Sorry for the delay in responding John. While my house if full of energy star appliances and CFLs, there have been no rebates. If the rebate was driven strictly by the utility because they wanted to avoid the investment in a new power plant then I would support it. If it was driven by policy then I'm not a fan.

Ben Gatti
May 5, 2008

Thomas,
a simplistic return on energy - ignores the goal of GHG reduction. Energy is not a fungible commodity as it cannot be stored. The question is how long does it take for residential PV to become net carbon neutral?

It is unchallenged that the carbon components of manufacture depend on the means of production. Also, the carbon offsets must be based on the real carbon offsets effected by operating the panels. How, for example does NOT purchasing nuclear power from an existing plant, reduce carbon.

I submit that a PV panel install on a nuclear powered utility region will never pay-back the carbon costs of manufacture.

That money would be far better spent insulating heavy users of AC in coal-powered regions, like say tennesee valley.

Perhaps by as much as 100 to 1.

Ben

Thomas Yurysta
May 4, 2008

Regarding the discussion on how long it takes a solar panel to produce the energy consumed in its manufacture:

Panels manufactured with traditional silicon ingot techniques about 3 yrs.

Panels manufactured with string ribbon technology (Evergreen) about 1.5yrs.

Source of this data is direct from module manufacturers. These numbers are also slightly dated and so may be better now.

Jim Berry
May 3, 2008

John,

You got your numbers down pretty good for Solar PV.

Question: You spent $26,000 on how big a system in what year?
Question: Do your figures for solar system include any loans? I have heard some very negative stories about Solar PV systems and financing.

When comparing power prices, this is always a tricky issue. There seems to be no universal practice and it makes comparing power prices difficult.

Thomas Schmidt
May 2, 2008

Whos name is on that coin?
Ceasers.
Then give that unto Ceaser which is his, but give unto God that which is rightfully his, your eternal soul.

Your probably going "WHAT!" right about now. What does that have to do with anything?

All of this money you all keep talking about spending on renewable energies, it belongs to the United States govenrment first and foremost. As Americans we get the privillage of using this money, not a consitutional right.
The truly sad part about all of this is...
The human race does not need all of this energy to live on the planet Earth. We are deluding ourselves into beliving this to be true when it is not.
Does this sound familiar?
We can look back through time and find where this is not the first time that mankind has been decived by other men.
Every heard of the Nephilim? How about the Illuminati?
We as humans are the weapons in a war for the planet Earth but no matter which side wins, I fear the Earth, and in turn, the human race will lose.
Pity about Earth.

R t
May 2, 2008

What is needed is cost effective PV, not charity for people with money. All of these plans have the same goal, take from the many and give to the few. The current feudal system.

When PV systems start producing more energy that it took to produce them that will be a start in the right direction.

John Briggs
May 2, 2008

Art,
I think we should retire the claim that there is more embodied energy in PV systems than they will produce.
PV systems pay for themselves in 7 to 25 years. This means that they produce enough value to pay for the energy used to produce them, deliver them, and install them on the roof.
I totally respect your dislike of subsidies and understand your argument about the taking from one industry and giving to another. But we should use other arguments to support this point of view. It is true that, for now, PV electricity is more expensive than coal-based, or natural gas-based power. But it is flatly untrue that there is more embodied energy in PV systems then they will ever produce. If that were true, the systems would never pay for themselves. But the systems do pay for themselves.
Thanks
John C. Briggs

John Briggs
May 2, 2008

The REC system here is Massachusetts is getting worse for small PV systems. Honestly, I don't understand the system of collecting RECs, but here is what I do know.

The market value of RECs is 6 cents/KWH. However, as a small producer, I cannot get 6 cents/KWH. I have to go through a middleman (Mass Energy) that will only pay me 3 cents/KWH. This is a ridiculously small number.

For now, I am holding on to my RECs as a form of protest (not that anyone cares). I think that whatever the values of RECs is (which is set by the state RPS fines), the small producer should have a way to get that value to help offset the high price of solar electricity. Some middleman should not be getting the value.

If the state decides to have no RECs, that is fine with me. But if there are RECs, small producers should be able to get the full value of the RECs.

Thanks
John C. Briggs

Paul Johnson
May 2, 2008

You could always be in a state that doesn't offer any RECs.

I personally don't want or like RECs. Like Art I don't want to take tax money from several to pay for my system. If I can't afford it, I shouldn't be buying it.

Besides, my money would probably be better spent on a more efficient AC system as opposed to a solar PV system.

John Briggs
May 2, 2008

Paul,
I am curious if you have ever purchased an EnergyStar product (dishwasher, clotheswasher, refrig, CFL, etc.) and gotten a rebate from you local utility. Do you object to these rebate programs as well? They help promote conservation.
Thanks
John C. Briggs

Jeffrey Viola
May 2, 2008

I live in New Jersey, and it has been disheartening to say the least, to see a Government program canceled BECAUSE it was "too succesful".
To claim that SREC's create a level playing field is nonsense: Even if I as a Homeowner installed the exact sized system as a Business, the business will have the advantage of being able to writeoff the investment via Depreciation and other corporate tax credits. I can't even deduct the interest on a loan if I borrowed money to finance a PV system.
What's lacking is a unified approach and plan for alternative energy in the United States - which is to say that as usual, we have a patchwork of laws, regulations, and incentives on a State by State basis. As this is just "how it is" in a country as diverse and large geographically as the US is, it will take some true thinking outside the box to change things.
Perhaps we could have a funding program similar to that of the highly successful Student Loan Program: homeowners could obtain Govt. backed low interest funding based on their credit worthiness and promise to repay with any revenue from electricity sales being applied to the Loan. Or how about Govt. backed "AE Bonds" with funds financing small alternative energy systems ? People who purchased them would know that they are funding AE and nothing else.
Just a thought......

R t
May 2, 2008

John,

You say the systems pay for themselves in 7-25 years. Is that after the charity? Some case studies I have read show a break even scenario - they eventually get out what they paid. I say invest the money and spend the interest on your power bill.

You say the systems produce more energy than it took to create them. This appears to be a he said - she said situation. I can't quote a source but I understand making silicon ingots is very energy intensive. You also quote no source. I still believe I am correct but finding numbers from unbiased sources is a real challenge.

Sorry if I don't reply again. This site doesn't notify you when there has been a response to a thread to which you have contributed. Ubuntu forums has an excellent system but most sites do not. Too bad since I enjoy the discussion.

Tom Warda
May 2, 2008

Listening to this debate over the subsidized aspects of growing the solar industry on a level playing field is as frustrating as the debates on healthcare, education and the war. Sad fact is that our representatives need to do a better job of representing us. In the meantime we live in an instant gradification society that is unwilling to invest into the future.

Slamming Sun Edison for finding and exploiting an opportunity within an industry that is under the radar screen is both futile and unproductive. We should emulate them for finding a kink in the armor and emulate them.

I believe that we can best alter our future by adjusting in the present. I believe that there are several ways that small installers can optimize and then economize their businesses. Co-oping there purchases to increase their buying power, using more effective mounting systems that have a lower material price as well as a lower labor cost. Streamlining their sales and marketing efforts and concentrating their effective specialties.

I know that this sounds like "pie in the sky" fluff. But almost all of the other trade industries have already gone through this adjustment and remove 10 to 30 percent of their opperating cost. That translates into 10 to 30 percent more profit or 10 to 30 percent more opportunity.

Very few products and services are sold soley on price.....but it helps.

Ben Gatti
May 2, 2008

To Jim, and Briggs,

I would like to hear a better rationalized argument in support of your rather thinly defended positions - that more residential PV is among the better investments a society can make regarding pollution.

My view is increasingly changing from "Subsidize will help find the solution" to "PV subsidies will stroke rich egos at great cost to the poor."

I submit that we, as environmentalists, may lose a moral high ground if we blindly endorse every program with the consonants "PV" in them.

- So tell me -
How are the poor not worse off, if the richest 30% take subsidies and stop contributing to the shared costs of a grid, they continue to utilize?
Do the costs of running a grid - costs of storm damage, old poles etc... go DOWN when the richest 30% indulge in net-metering?

What if residential PV is the very most expensive means of generating clean energy, and we are spending limited resources in the least effective technology? What if Wind, Tidal, CSP and utility scale plants are cheaper - Aren't the poor better served if taxes are used more efficiently and the benefits are shared by all, rather than given mostly to the rich at the expense of the poor?

(And to Briggs' argument that economic payback = energy payback - they are not the same, due largely to the artificial value of presumably green energy. Arguably the only component of PV which is green energy is the portion generated after energy neutrality).

Let's be rational...
Ben

John Briggs
May 2, 2008

Art,
Since I have recently purchased a PV solar system, I am my own source for this information. I can tell you the payback period with or without subsidy for my system.

For my system, the payback is 15 years with subsidy and 25 years without subsidy, assuming no increase in the price of electricity.

The system costs $26,000. That includes the cost of material, installation, and all the energy needed to make the materials and to perform the installation. So the value of the energy embodied in the PV system is less than $26,000.

The PV system generates $26,000 over the 15 to 25 year payback (assuming no increase in electricity prices). Therefore it necessarily creates more value in electricity than the value of the energy used to make and install the system (which is necessarily less than $26,000.)

I hope this is clear. If the system can "pay for itself", it necessarily produces more energy than it took to make the materials in the first place.

As far as the so-called "studies" are concerned, I have seen them too. It is hard to know how they get their numbers for the embodied energy. However, I think they miss the point that if there was more embodied energy in the solar panels then they would produce, then the panels would never pay for themselves. However, the panels do pay for themselves, over a very long term.

If you are saying the panels are a bad investment, than may be true (but we should revisit this 10 years from now). If you are saying they should not be subsidized, that may be true as well.

I guess the larger question is whether the government should create financial incentives for anything (CFLs, solar panels, insulation), or let the free market deal with all this. I really don't know the answer.

BTW, in Massachusetts the rebate is paid for with a $0.0005/KWH (5/100 of a penny) fee. So I don't think this is a big investment for the ratepayer.
Thanks
John C. Briggs

John Briggs
May 2, 2008

Ben,
As I have already stated, the PV panels do pay for themselves for home owners even without RECs and without subsidies. It just takes a long time. I only bring this up to counter the energy balance arguments.

By the way, the only reason this works is Net Metering for home owners. So I get sell energy at 19 cent/KWH during the days and buy it back at night at the same 19cent/KWH. If I could only sell at 6cent/KWH then you are right, this would be a very different situation.

I suppose it may be true that when I pay only $1.66 this month for my electric bill, I may not be doing my fair share to support the electricity utility system. However, until there are large numbers of people using solar, I don't think this will be much of an issue. We can cross that bridge when we come to it.

There are some things I think we can agree on here. Residential solar is the most expensive form of renewable energy. These systems get installed at about $10/watt (no subsidy) versus closer to $5/watt for commercial solar PV. Also PV in general is less cost effective than wind. So if the goal is to get the most KWH/$ than residential PV does not make sense.

As far as the "rich" versus the "poor" argument goes, this seems a bit to abstract. I would venture a guess that high income people use more electricity than lower income people. As a result, higher income people are necessarily contributing more to any ratepayer system for subsidizing these programs. So I suspect this is more a case of one group of rich people subsidizing another group of rich people. Also, in Massachusetts the rebate is paid for with a $0.0005/KWH (5/100 of a penny) fee. I don't think this is impoverishing too many people.

Thanks
John C. Briggs

John Briggs
May 2, 2008

Ben,
I do have a story that supports your frustration.

One of my neighbors installed a 5KW PV system at a cost of $36,000 (before subsidy). A large rebate ($16,000) was given to him to help pay for the system. This money came from the ratepayers.

What is disappointing to me, is that this large system only supplies 50% of his electricity needs. He made no effort to do any conservation. In my experience, he could have reduced his electricity needs by 50% for much less than $36,000 and it would have been a much better investment for him and the ratepayers.

This is a very disappointing usage of a limited resource of dollars.
Thanks
John C. Briggs

Ben Gatti
May 2, 2008

John,
This argument that "Paying" for itself is proof that the energy is net positive is unpersuasive. You are "paying" for the solar panels by avoiding the "Retail" cost of electricity delivered to your address; when the production of the panels would have incurred a lower commercial rate. People poorer than yourself are being forced to pay for your pole, so you can avoid the real costs of consuming energy at night for example.

I suggest that your $6K and the $10K from the poor taxpayers, which is now on top of your house, would have done more for the environment and the economy if it were invested in a wind-turbine production plant (for example) or nearly any locally built utility plant.

That's my thesis, I welcome a challenging argument.

Ben Gatti
May 2, 2008

John,
To your prior post - exactly - and well put.
It would seem that every dollar spent on a PV system would be better spent on insulation and commercial skylights. That dollar would create more jobs, offset more energy, and provide greater environmental benefits than any comparable PV system.

The argument for subsidizing PV is that it encourages private individuals such as yourself to invest in new technology which might provide a solution. It is becoming increasingly clear however that PV will not provide a solution in a timely manner. It is my belief that we need to stop subsidizing the wrong answers and increase the search for solutions which can intercept climate change.

I think Solar is part of the solution, but rooftop solar is not. It is not tracked, it is not concentrated, it is not 40% efficient and IMO these are critical aspects of intercepting climate change with Solar Energy.

Ben

John Briggs
May 2, 2008

Ben,
Good point about the avoided cost rate of $0.19/KWH versus $0.07 commercial rate. Let me see if I can run the number, just for the cost of the panels (not installation)

$12,800.00 cost of panels
4000 KWH/year
$0.07 $/KWH
$280.00 $/year
46 years/payback

If the entire retail cost of the panels was energy (it is not) than the energy balance would be net positive after 46 year (unlikely that they would be in service that long).

However, only a small fraction of the retail price is associated with energy. These type of products typically have 50% market-up at retail, so that will make the energy balance neutral after 23 years (assuming the total manufacturing cost is energy).

But clearly, energy is only a fraction of the manufacturing cost. Let's generously assume, energy is 50% of the cost of manufacturing, then energy balance is achieved after 11.5 years.
Thanks
John C. Briggs

John Briggs
May 2, 2008

Ben,
I really don't know what the government should or should not be subsidizing, but I know I spent about $4000 on conservation that reduced my consumption by 700KWH/month and $26,000 on PV that reduced it by 350KWH/month. So clearly conservation is much better investment.

Somehow, conservation is a more difficult sell.

I think Solar PV is convenient because you can pickup the phone, someone comes, you write a check, and you are done.

Conserving electricity (for me) took months of discovery of many appliances in my house. I had to look for more energy efficient alternative and battle each appliance one by one. This was much less straightforward. Also, I think it is less "sexy" than solar panels. I don't know if you know what I mean.

But I still don't know if your problem is with the subsidy, or how it is used. So I know you are opposed to residential solar PV. But is it OK to hit-up ratepayers to help purchase new lightbulbs, refrig, dishwashers, etc? Or should everyone "pay their own way."

Thanks
John C. Briggs

Jim Fitzgerald
May 2, 2008

Ben,

If you were referring to me in comment 15 above, you seem to have attributed a position to me that I have not taken. I do not advance or defend the idea that more residential PV is among the better investments a society can make regarding pollution. I simply do not know if this view is correct or not. I am in favor of residential PV systems, but it would not surprise me if they are not among the better investments a society can make regarding pollution.

Beyond that I think you raise some excellent points in your comment and would be interested in reading opposing views.

Ben Gatti
May 2, 2008

John,
I appreciate the engaged response.
Rather than challenge the numbers as speculative; I'd rather propose that the key metric is not the money, and may not even be the energy - it might better be viewed as the carbon or eco-footprint.

The question of this thread might be stated: Are rooftop PV panels eco-positive or eco-negative? I think we all agree that insulation is the better investment.

To be eco-positive, they would need to use less carbon in their making than they offset in their useful life. We need to know for example - was the energy used from coal, NG, nuclear or RE? Were the chemicals dumped in a water table somewhere? and was the energy load off-peak and demand-responsive, or was it part of the peak demand problem which brings less efficient power plants on-line and requires huge operating surpluses?

As for generation: are these panels idling a coal plant, or just not purchasing power from a nuclear plant which is running in any event?

My guess is we don't have much of this information, but if we had a carbon tax, then the economic advantage of implementing PV on the rooftop and the ecologic advantages would be aligned. In coal-regions, people could purchase PV produced near hydro-plants in early spring and maximize the ecological effect of their PV. My guess for the moment however is that PV is net-negative, and it is certainly less beneficial than insulation or skylights; which is to say, it is really not a viable solution for anything other than greenwashing celebrities.

Ben Gatti
May 2, 2008

John,
As for subsidizing more efficient appliances...or insulation; I have a strong suspicion that subsidization of consumption increases consumption. If I install R30 in the poorest house in the city - will the tenants just open the windows and run the air-conditioning? On the other hand if I tax energy, everyone will conserve. I am persuaded that a Carbon tax will have real results while subsidizing the consumption of anything (including PV panels) will only breed unnecessary consumption.

The taxes should be used to create jobs so the poor can be employed making more efficient appliances which they can then afford to buy.

John Briggs
May 2, 2008

Ben,
It would be pretty sad if the solar PV on my roof was just carbon neutral, or eco-neutral over its lifetime. I tend to think PV is a little better than that, but it is difficult to know. It will depend a lot on how long the panels stay in service.
But for myself and my household, I have gone from 1000KWH/month down to about 0KWH/month. I have to believe this is improvement in terms of the environmental impact. If I could get an plug-in electric vehicle and get a bigger solar array to power it, I think I would do that too. I hope no-one finds that I would actually be more eco-friendly driving a Hummer (I have heard this claim too).

At the moment, I am really more concerned about the growth in electricity consumption than the success of Renewable Electricity production. I think growth in consumption is undermining all the RE efforts.

To that, I have a question. What do you think about a tiered electricity rate.
400KWH/month @ $0.17/KWH
800KWH/month @$0.22/KWH
1200KWH/month @$0.28/KWH
So the more you use in your house, the higher the rate you will pay. Maybe this is already being done.
I think this will "tax the rich" in a way and also encourage conservation. This is the way my water bill is structured. The rate more than doubles depending on how much you use. I think it is supposed to tax the rich to pay for the poor.
Thanks
John C. Briggs

Ben Gatti
May 2, 2008

John
(Re: Solar is Sexy - better solutions are not)
I do know what you mean. I developed a room scanner which was very cheap and provided an IR image of the room, for the purpose of conservation; but I suspect the market for such is limited. The State will spend oodles on Solar, but what will they spend on a program to loan-out a scanner, and locate the lowest hanging fruit on the grid?

I think the states are hoping to gin-up a new economy by funding Solar, while they don't see a lot of revenue opportunities in insulation installers - construction workers tend to operate in the underground economy and impose financial burdens on the states health and educational services in excess of their tax contribution; while hi-tech companies operate above-board and attract the kind of demographic which fills state coffers. I think there is pretty high competition amongst states to attract the "right" demographic, and insulation installers are just not a priority.

Is that how you understand it?

John Briggs
May 2, 2008

Ben,
Well, if added taxes fixes the problem, I think we are in good shape. The cost of gasoline has risen dramatically (without added taxes). So I expect we will see a lot of conservation. Perhaps the free market will solve the problem itself.
I do wonder about the impact of a carbon tax. It will put coal at a significant disadvantage. Since coal is a US resource, perhaps those people are out of work. Also, doesn't the carbon tax also hurt the poor.
Thanks
John C. Briggs

John Briggs
May 2, 2008

Ben,
I think you are right about the state interests, but in Massachusetts in may not be as bas as one might think. Currently there are two fees collected

$0.0025/KWH for conservation
$0.0005/KWH for RE systems

So I think the state probably see the right balance. But perhaps you still think it is unproductive for the state to redistribute this money.
Thanks
John C. Briggs

Ben Gatti
May 2, 2008

John,
On taxing the rich to pay for the poor. We should be careful not to cross the line which encourages the middle class to leave the child-rearing to the poor. In my case, we have a small family because our taxes are going to fund some 12-child families. If that were better for our 13 children, fine; but my suspicion is that those 13 children would be better off if they were not disproportionately allocated to the poor.

The problem with tiered rates would seem to be family size (more people, more hot showers). But generally yes, I think a luxury tax on limited resources should apply beyond the necessary threshold. I think every Carbon tax has some component which excludes the barest essentials.

Bear in mind that tiered rates will hurt the poor - augh!
ok - here's the risk: Tiered rates will lower consumption by the Rich. As a consequence the Rich will reduce their share of fixed costs. The poor have already reduced their use as much as possible, so their share of fixed costs will RISE. The fixed costs of the Utility will remain the same, and be allocated increasingly on the poor. Allowing the rich to use as much energy as they can, allows them to absorb more of the fixed costs and reduces the burden for the poor.

I think we should address climate and energy independence by taxing carbon and employing the rich and poor to build utility scale energy projects. This spreads the benefit around in a fair way without tipping to much to either side.

Ben Gatti
May 2, 2008

John,
I think it is increasingly clear that the poor are hugely dis-served by subsidizing residential PV.

Certainly conservation is a better investment where energy and the environment is the rationale - but you take my point about competing for new-economy jobs.

BTW - carbon taxes should not be "new" taxes, they should be "replacement" taxes. Lower income taxes by the same amount. This will benefit those who conserve at the expense of those who driver Hummers.

It will also benefit the economy by reducing the price of exports (since income taxes are not equal from country to country, a lower is an export advantage.)

One potential negative externality of a Carbon taxes would be the rise of even worse - un-regulated fuels - such as the burning of trees for heat. Carbon taxes would have to be fairly imposed on the sale of wood-burning stoves and the like.

John Briggs
May 2, 2008

Ben,
As I read your comments, I long for more careful studies of these effects.

Coming from an affluent area, I see bigger houses, bigger cars and more consumption of all kinds. Also, there is little sensitivity to the cost of energy because all these people can afford it.

Given that, I assume that anything that taxes energy (ratepayer fees, carbon taxes, gas taxes etc) will be paid for by the rich not the poor. You seem to have the opposite guess. Rich people use more and therefore pay more. So I assume any of these taxes will be borne by the rich rather than the poor. But I have no proof of this.

I am also skeptical about taxes, tiered rates, user fees, or anything of the kind reducing consumption. I think public education is more important.

Also, I think additional gas taxes in a democracy are a "non-starter". Look where we are today. We are discussing a federal gas tax holiday. I don't see much willingness to increase taxes on fuel. So I think other solutions are needed. Somehow user fees on electricity don't seem to generate the same angry reaction from voters as a tax (which is what user fees are). I think the same is true for RPS which seems like it must get passes onto the users as an increased rate as well. But it isn't perceived as a tax.

By the way, any fee structure that will cause people to think about having smaller families is probably a good thing as well. So I don't think that is much of a negative for tiered pricing. Hopefully people will learn not to impoverish themselves with large families. However, I don't know if tiered pricing will help reduce consumption or not.

In Massachusetts, there is limited funding for residential solar. There is much more funding for commercial solar and for conservation. So I don't think that residential solar is much of a negative, as long as it is a small part of the mix.
Thanks
John C .Briggs

Phoenix Woman
May 2, 2008

For those concerned about wasting taxpayers' money: Christian Parenti has a good article in The Nation (ZMag version here: http://www.zmag.org/znet/viewArticle/17527) about why the nuclear industry, despite being propped up with tens of billions of dollars every year, is a colossal failure: Wall Street wants no part of new nuke plants, for one thing.

Cut off the $40-odd-billion a year in tax breaks and outright subsidies to Big Nukes and Big Oil (which is pulling in record profits and doesn't need subsidies -- Bush himself said in April of 2005 that oil companies don't need subsidies once oil goes over $50 a barrel, and it's well over twice that now) and we could invest that money in solar and wind arrays and energy efficiency, and be halfway to sustainability inside of ten years.

Ben Gatti
May 2, 2008

John,
Thanks for exploring these theories.

My optimistic side is with you on this - I would like to hope that manipulating the market will lead to all actors acting in the best interests of the environment.

The history of both manipulated markets, and private actors however suggests that the opposite is true. There are ten actors willing to defraud a subsidy for every actor interesting in realizing the goals of the subsidy.

Very soon, the defrauders are a political group ie Ohio farmers, and come to expect the poor to eagerly pay them to /not/ raise sheep, corn, tobacco or what-have-you in exchange for their services of holding the first presidential primary.

My concern is that environment policy not become a catalyst for a new entitlement class of welfare voters. The economy is strongest when everyone is encouraged by price to contribute the labor where their labor is most valuable, and to experience fully the value of their own conservation.
Manipulated markets mask the price signal and encourage useless contribution, and inefficient consumption. Ironically - the pains of inefficient economies are borne disporportionately by the poorest. I have lived in eastern Europe, so I speak with some first-hand experience when I point out that the poor suffer when economies fail much more than the rich. Inefficient economies destroy a productive middle class - create vast lower classes - which are the more vulnerable when the economy falters.

My concern is that funding PV by forcing the poor to pay an increased portion of the Grid costs is a manipulation of the market with directly observable regressive aspects, not unlike the effect vouchers would have by encouraging white-flights from public schools. I suggest that public funds should be used for public projects, not to decorate the homes of the wealthiest while passing the costs to the poor.

Best,

Jim Fitzgerald
May 1, 2008

A good in depth article.

But I was a little surprised by the comments of Chris Cook, senior vice president of regulatory affairs and new markets for SunEdison. It strikes me that he may have less regard for the residential solar sector as compared to the commercial solar sector. Mr. Cook asked, "[w]hy would we prop up one sector if it's not cost-competitive?"

That's the type of comment I would expect to hear from an oil company executive arguing against tax credits or incentives for solar and wind.

Moreover, the current investment tax credit with a $2,000 cap for residential installations and no cap for commercial installations seems to prop up commercial installations far more then residential ones.

And, aren't residential rate payers a large source of the funds that are incentivizing the solar projects his company develops?

Are SunEdison's views of the residential solar sector the same as Mr. Cook's? If so, I hope they will reconsider those views.

Jim

Colin Murchie
May 1, 2008

Seemingly missing from this description of heroic small installers restoring the grant program is the considerable effort, lobbying expense, and supportive testimony put forward by SunEdison in support of the bill, and our daily work with these installers to make the MD SREC market more accessible.

Astonishingly missing from the description of the SunEdison SREC contract is the "pass-through" of that same contract to small installers at public and highly advantageous terms.

To omit the fact that SunEdison has opened their Constellation contract to MDV-SEIA members is a misleading omission. To portray the effort to enrich the small system grants (and remove sales and property taxes) so as to portray us as an opponent or indifferent, instead of an active and considerable supporter is misleading. To portray the grant budget as $590k when several million more is expected from the RGGI auction this summer is sloppy, and to omit SunEdison's voluminous comments and significant effort on small system REC aggregation vehicles with PSC and MEA is selective. To not address the reasons behind the blowout of the NJ rebate (overly rich incentives to small systems) is distorting, To not interview the growing small installers we work with and replace them with a variety of unsourced "many in the industry" who fear "oligopoly" is simple sock-puppetry.

The Maryland solar RPS passed on the promise that it would have a <1% rate impact. If the astonishing rate impact of FIT policies were acceptable in the US, the sky would indeed be the limit; those of us who work every day to advance renewables have found it is not - perhaps why 26 states have installed RPS that have built gigawatts of renewables, while FIT continues at zero states, zero MW.

Mr. Lacey's history of pro-FIT OpEds is long and distinguished; I have to criticize this one only in being labeled , though not executed, as reporting. The debate is worth having, not cariacturing.

Joe Morinville
May 1, 2008

It is ridiculous to think that small business can ever compete on a level playing field with Wal-Mart and Utility Companies.

They have the money and personnel to determine their need.

They have, in many cases, a standardized model to work from so each system is exactly the same which reduces implementation costs and increases price leveraging.

They have 10000X or more buying power to assist in negotiation.

This is not government money that is being used to offset the cost of Solar. It is tax money that comes out of the pockets of small businesses and individuals as well as Wal-Mart and the Utility Companies.

If Big business wishes to cover my tax and utility bill then I will gladly agree that they should be the sole recipient of the benefits and subsidies. But until then they need to share.

It is an arduous task to implement a small or mid sized system for a small business. Many hours of planning and a significant amount money must be committed prior to a small business taking step one. This work is done at the opportunity cost of the business owners and uses already stretched limited working capital pools.

All Wal-Mart need do is call a company like SunEdison and tell them they want arrays on ten stores and SunEdison will pick up the bill and thank them for the opportunity.

That is not a level playing field.

To me renewable energy symbolizes freedom. Freedom and independence to generate my own fuel and power.

After all of my tax money is spent turning the Grid Green I will still be paying the same master. I will just be paying to use what I have already paid to build.

No matter what the government chooses to do Big Business will reap the lions share simply due to economy of scale. There is no need to tip the scale further in their direction.

I would support a two tiered system, one for under 100kw that offers increased incentives and then whatever other corporate welfare you wish to offer Wal-Mart and the rest.

sean costello
May 1, 2008

Actually, commercial installations and supplier competition together with demand will drive down the overall wholesale price of photovoltaics and therefore will ultimately reduce the price of a residential system.

Only large systems can make a significant impact on current demand of peak electricity anyway. Also, large systems can cost half as much at the levellized energy cost and take less time per watt installed to implement.

If you're a small installer you should probably just move to california anyway. You'll get a good deal on a house, your personal PV system will be cheaper and you'll make at least double than the east coast as a business.

Jesse Broehl
May 1, 2008

Amen. Dead right on the following point....

"If the astonishing rate impact of FIT policies were acceptable in the US, the sky would indeed be the limit; those of us who work every day to advance renewables have found it is not - perhaps why 26 states have installed RPS that have built gigawatts of renewables, while FIT continues at zero states, zero MW."

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Stephen Lacey

I am a reporter with ClimateProgress.org, a blog published by the Center for American Progress. I am former editor and producer for RenewableEnergyWorld.com, where I contributed stories and hosted the Inside Renewable Energy Podcast. Keep...