A National Solar PV Incentive Needed

I’m hopeful that we are on the threshold of the solar century. As a solar enthusiast since childhood, I know the sun could supply most of our energy needs. As a consultant, I work for a start-up making solar windows where I see the real economic potential to reduce the installed cost of solar by integrating photovoltaic (PV) into the building structure/envelope. In the coming decade solar could be as transformative, pervasive and essential to our economy as cell phones were in the ’90s and the internet is today. If we wish to reap the rewards of this new industry we need to invest now in developing the market, we have already ceded our leadership position to Japan, Germany and most recently China.

The confluence of rising fossil fuel prices, international competition over access to fossil fuel resources, rising global instability and grassroots concern about CO2 pollution make now the perfect moment to set forth a comprehensive national solar incentive that positions the U.S. to develop our abundant renewable solar resource. The countries that have created a stable, long-term, solar energy incentive are the ones that attract the capital investment and create the jobs throughout the solar supply chain, as Japan and now Germany have shown. There are compelling reasons why a national solar incentive program would generate significant benefits across the country. The primary benefit would be to stimulate the innovation and investments (money & jobs) in the U.S. solar supply chain to support significant annual capacity additions. One short-term but import benefit would be to signal to the world our commitment to supporting renewable/low carbon energy sources. Longer term benefits include energy diversification and reduced reliance on fossil fuel imports.

What would a national policy look like and how much would it cost? Two elements are critical: a nation-wide solar production incentive set at 10 cents per kWh (paid annually for 20 years) and a national net-metering law. The net-metering law ensures that PV owners get full credit for all the energy they produce, ranging from about 8-16 cents per kWh across the country, while the production incentive provides a modest yet stable return to the PV owner. This incentive would end when the U.S. has installed 20 gigawatts (GW) of PV, approximately 1% of U.S. electric demand (the U.S. now has ~ 0.5 GW of PV installed).

The cost of this program would be under $200 million per year in the first couple years, and grow to just over $4 billion per year once 20 GW of solar is installed. If we doubled the amount of solar installed each year, it would take nearly six years before the U.S. could install 20 GW. In total, the 20-year cost of the incentive would be ~ $80 billion, less than 1% of what Americans will pay for electricity over this period.

By creating this national solar incentive the U.S. could provide the kind of long-term stable incentive that the solar industry has repeatedly asked for, and what Japan and Germany’s feed-in-tariff have demonstrated leads to reductions in the installed cost of solar. Based on the historical rate of solar cost reductions, installing 20 GW of PV in the U.S. will put solar on the threshold of grid parity in the coming decade.

Although some might suggest a higher national incentive, the $0.10 kWh level and national net metering should be sufficient incentive if combined with local or regional incentives to ensure that the U.S. installs 20 GW of PV within the decade. A higher national incentive might stimulate demand faster than supply can ramp up, leading to temporary supply disruptions and price increases like we currently see in silicon the primary feedstock of today’s solar cells, due to Germany’s high incentive level.

Taken together the proposed incentive plus net metering would ensure that anywhere in the U.S., solar panel owners will receive 18-26 cents/kWh of power generated. Assuming a midrange 22 cents/kWh, a solar regime with 5 hours of average sunlight (equivalent to 1800 kWh/yr, a level common in the western U.S.), and an $8/W installed system price will generate a 5% annual return, about what investors expect from low risk investments like U.S. bonds. As the price of solar falls to $5/W installed, areas with as little as 3 hours of average daily sunlight (common throughout the U.S.) would generate a 5% return. Hopefully states and other local regions will continue to provide additional incentives. Combining a national solar incentive as described above with California’s exciting solar incentive would provide panel owners with annual returns of 10% or more.

Daniel Simon works as an optics consultant for SunPhocus, a start-up creating BIPV window products utilizing holographic concentrator technology. The company is located on the campus of the Illinois Institute of Technology in Chicago, IL.

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