Solar Takes a Backseat in National Climate and Energy Bill

Here we are in May, with Obama’s first 100 days behind him and Congress assiduously debating his clean energy plan. The President's plan includes three major components: global warming policy (cap and trade), a national requirement for utilities to produce a certain percentage of their power from renewables (Renewable Portfolio Standard), and much-needed improvements to our antiquated transmission system.

Does this sweeping new plan include provisions to make solar energy, which currently accounts for 1/10th of one percent of our electricity supply, a substantial part of the nation’s energy mix?  The accurate answer is nuanced, but the short answer is no.

Federal Renewable Electricity Standard (RES)

The Obama Administration supports a policy requiring that 25 percent of our electricity demand be met by renewable energy by 2025.  In March, Representatives Waxman (D-30th CA) and Markey (D-7th MA) released their 600 page energy bill, which after weeks of negotiations contains a watered-down RES target of 20 percent standard by 2020, with up to 15 percent of electricity sales coming from renewable sources and 5 percent through efficiency.

Senator Bingaman (D- NM), Chair of the Senate Energy and Natural Resources (E&NR) Committee, is working on a similar goal of 20 percent renewable by 2021, with energy efficiency also able to satisfy a quarter of that requirement. Bingaman’s RES proposal faces stiff opposition, with the real possibility of unanimous Republican opposition. As an indicator, Republican ranking member on the E&NR, Senator Murkowski (R-AK) is calling for a 15 percent goal that could be satisfied with nuclear energy, more hydroelectricity and unlimited use of efficiency measures. 

Nearly any policy action that encourages more renewable energy is A-OK with us. We support the House and Senate’s federal RES goal, though significantly weakened, because it sets an important tone for the country and will directly lead to new wind and biomass development, all important steps on the path to a new clean energy future.  However, as currently written, none of the pending RES policies will deploy significant amounts of solar. According to the Department of Energy’s analysis of that 25 percent RES by 2025, which again is much stronger than the compromise goals emerging from Committees, the federal RES structure could lead to a 35 percent increase in solar compared to a 678 percent increase in wind.  When you’re starting at 0.001 percent, 35 percent growth doesn’t amount to much.

Under the current RES proposals states would be able to buy and sell “renewable energy credits”(RECs) in a federal REC market.  In this marketplace, cheap wind from Montana could be sold by the Montana-Dakota Utility Company and bought by Southern Company to satisfy Georgia’s RES requirements.  As a result, renewable energy development will be greatly weighted toward more mature least-cost renewable energy options. That is good news for winning the votes of those worried about the near-term price tag, and it is great mechanism to bring wind and biomass to the grid.

But by focusing entirely on the inputs, it doesn’t recognize the value of the results: solar energy production during day-time hours to supplement night-time wind generation, for example. Or the contribution of solar generation during the hours of the day when electricity costs are higher. Or the immense economic and job creation benefits of both distributed and central station solar. Solar that’s installed on rooftops and within the distribution grid also avoids costly investment in transmission and distribution system expansion and upgrades.  Not to mention that solar is the most abundant free source of energy available and the cost for both distributed and central-station solar generation is expected to drop significantly with higher levels of deployment. If we are serious about weaning our nation off fossil fuels and creating a stronger, more secure new energy economy, diversification of renewables will be crucial to maintaining a reliable electricity supply. 

The Solar Energy Industries Association spent the last six months urging Congress to add solar specific provisions to the draft RES bills, namely a distributed generation carve-out to support rooftop solar, inclusion of solar hot water among the qualifying technologies and accomodations for utility-scale solar. The solar set-aside is a policy mechanism in use today in fifteen states, and one that has proven effective in kick-starting robust new solar markets.

Instead, a “REC multiplier” for distributed generation is emerging as the favored solar mechanism in the federal bills under consideration.  With a three times multiplier, one megawatt  hour of distributed solar would be treated as three megawatts of wind, biomass, geothermal  or hydro in the REC market. If past experience at the state level proves anything (think Arizona and New Mexico), the multiplier will do little to encourage distributed solar as there’s still little incentive to invest in the early-market, higher-cost energy option.  Without a direct carve out to encourage this initial investment in distributed solar, it will take much longer to realize the economies of scale cost reductions projected for this valuable energy resource.  A further downside to credit multipliers is that they dilute the goal, an outcome that undermines the original intent of the policy. One megawatt counting as three reduces the total amount of renewable energy in the mix, an outcome that undermines the original intent of the policy.

Climate Change Policy

The Waxman-Markey energy bill also includes a carbon reduction plan.  The goal would be to set an “economy-wide” carbon limit and then auction or distribute carbon emissions credits, also referred to as allowances, equal to that limit. Through trading of the credits, and gradual tightening of the overall cap, the plan aims to reduce total greenhouse gas (GHG) emissions 17 percent below 2005 levels by 2020 and 85 percent below 2005 levels by 2050.  

The climate plan in the Waxman-Markey Discussion Draft is the result of years of negotiations and vetting. More than 300 people have testified at over 40 days of hearings in the E&C Committee alone on this plan over the past two Congresses. Even with all of the coalition building of the last decade, Waxman faces a serious challenge just to move the bill out of the E&C Committee. If the skeptics are wrong and this plan passes through Committee and becomes law, will it help deploy solar?  Unlikely.

Much like the RES, the carbon cap and trade will encourage short-term, least-cost implementation mechanisms, ignoring the other tremendous benefits solar offers.

In his carbon plan, Obama originally called for auctioning all emissions allowances. Carbon-intensive industries would be required to pay for their original allotment of carbon credits, and the government would use the auction revenues to develop low-carbon alternatives. However, legislators looking for votes understand that a compromise on that position is necessary. Sponsors of the Waxman-Markey legislation appear to have settled on a deal that would give away as much as 59 percent of the credits for free: 44 percent for the local distribution companies that service the electric and natural gas utility industries, and 15 percent for heavy industries deemed especially vulnerable to international trade.  Only15 percent of the emissions allowances would be auctioned, with the proceeds going to compensate the public for higher energy costs.

If there is an auction of any allowances by the time the bill is passed into law, the solar community is asking that 5 percent of the auction proceeds be set-aside into a solar technology deployment fund. It remains to be seen whether this provision will be contained in the Waxman-Markey draft. But one thing is certain, giving credits away for free means fewer federal dollars to be invested in efficiency, transmission and renewable energy programs.  

The role that solar and renewable energy generation plays in the new carbon market also remains in question. Solar advocates assert that solar generators, whether roof-top solar owners or large-scale concentrating solar power plants, should either receive some portion of the carbon credits allotted, or the overall cap should be lowered to account for renewable energy projects.

Both options are designed to ensure real reduction in overall GHG levels from investment in solar generation. Unless we account for renewable energy generation when implementing the program, carbon-emitting generators could meet their requirements by taking credit for emission reductions from renewable energy projects that are already developed. A situation that amounts to zero progress on carbon reduction.  The latest Waxman-Markey bill would in fact allocate some allowances to states for investments in renewable energy and energy efficiency.

Transmission

There are around 7,000 MW of large-scale solar projects under contract in the U.S. today, mostly in the American southwest.  One of the most significant barriers facing these projects is access to available and affordable transmission capacity; the infrastructure that moves those valuable clean electrons to the communities where they are needed.

The current system for planning, siting, permitting and funding transmission development was designed for the 20th century electric industry; although some might argue it is best suited for the 1800s. This model assumes a relatively limited number of centralized, dispatchable power plants delivering electricity within a utility’s service territory.  Solar and other renewables need a 21st century solution for transmission that looks beyond state borders to support the nation’s renewable energy goals.

Both the Senate and the House of Representatives are currently considering several bills — including Senator Bingaman’s transmission bill  and Representative Inslee’s bill — that address these issues of transmission planning, siting and cost recovery.  All of the bills establish some level of oversight for planning and permitting by the Federal Energy Regulatory Commission (FERC), with varying degrees of state or regional responsibility. This federal oversight should help the country develop the most cost-effective and reliable national transmission system possible as quickly as possible, and will help tap the massive potential for central station solar farms by linking the areas with the best generating potential to load.

Another solar-friendly element included in many of the bills directly addresses the challenge of cost. Who pays for these critical lifelines of our new energy future? Well, all electric consumers benefit from increased renewables in the general energy mix — for everything from increased energy security, to stabilizing the cost for electricity, to mitigating the impacts of global climate change. Therefore the cost of new transmission should rightfully be spread across all ratepayers in what’s known as “interconnection-wide cost recovery.”

There are many important details still being debated in the proposed transmission legislation. How much, if any, non-renewable energy should be allowed to use the new transmission superhighway? Which agencies should be designated as lead for environmental review? The devil is in the details, and once the energy bill is passed, the real work will begin. Implementation will no doubt bring a new set of challenges, but it’s an exciting first step on the road to a new grid capable of incorporating solar into our national energy mix at an entirely new scale.

Conclusion

While transmission reform will likely lead to more central station solar development, we remain skeptical that current versions of either the RES or a carbon cap and trade policy will lead to significant solar deployment.  The pending bill has proven that a new, cleaner energy future is a national priority.  That in itself is progress. But a “sweeping” federal energy bill that fails to deploy a portfolio of renewable energy options is an underwhelming outcome, ill-equipped to help us meet the challenges at hand.

However, there is a silver lining. States, the traditional hot-spots of solar progress, are not waiting for the federal government to solve our energy challenges. Policies that unleash solar’s many economic and environmental benefits — solar carve-outs within RES’s, net metering, interconnection, fair utility rates, sales and property tax abatements and exemptions — are passing at the state level.  While all signs indicate that this federal energy bill will set a floor for solar energy deployment, we expect to see pioneering work from states and cities as they continue to raise the ceiling.

Annie Carmichael and Jim Baak are part of the Vote Solar Initiative. Carmichael is the director of federal solar policy and Baak is the director of utility-scale solar policy.