As Decembers go, the last month of 2015 could hardly have been more monumental for the clean energy industry. The landmark global climate agreement reached at the COP21 negotiations in Paris – what former Sierra Club executive director Carl Pope called “the miracle on the Seine” – saw 195 nations commit to reducing CO2 emissions, and accelerate the transition to a clean-energy economy, for the first time. Less than a week later, the U.S. Congress passed five-year extensions of federal tax credits for the wind and solar power industries, a move that few observers thought possible even a few weeks earlier.
But the holiday season did not bring exclusively good tidings to clean-energy purveyors and advocates. On Dec. 22, the Nevada Public Utilities Commission (PUC) voted to cut the state’s net metering credits for solar PV users by 75 percent, and to do so right away (Jan. 1) for existing solar customers, an unprecedented move. As a result, the nation’s two largest residential solar installers, SolarCity and Vivint, said they would end new installations in Nevada, the nation’s 10th largest residential solar market, and No. 3 Sunrun is said to be considering the same.
As the New Year gets underway, the Nevada PUC’s action served notice that the transition to a clean-energy economy, despite big reasons for optimism from Paris and (of all places) Capitol Hill, will continue to face challenges as the battle between the interests of incumbents and those of new entrants unfolds. The solar industry’s battles over states’ net metering policies are just one aspect (albeit a very prominent and contentious one) of the massive transformation of the utility industry model as distributed energy resources, energy storage, electric vehicles, and other 21st century technologies proliferate.
As it was last year, this transformation will continue to be one of the big stories of 2016, with states like New York, California, Hawaii, Massachusetts, Illinois, and Texas taking prominent roles in industry and regulatory reform. At Clean Edge, we’re excited to be collaborating with the industry coalition and nonprofit GridWise Alliance on the third annual Grid Modernization Index, a comprehensive benchmarking report that tracks all 50 states and Washington D.C. on their grid modernization progress; it will be released later in January.
The Nevada net metering controversy reveals a competitive dynamic that we’ll see playing out even more in 2016 – not clean energy vs. fossil fuels, but distributed renewables vs. utility scale. In the celebrity-obsessed media, some news accounts called the PUC decision “a victory for Warren Buffett over Elon Musk.” Buffett owns Nevada’s largest utility NV Energy, which, along with his other utilities like Mid-American Energy, have been leaders in deploying utility-scale wind and more recently, solar.
NV Energy, for example, signed a power purchase agreement last summer to buy energy from a First Solar 100-MW solar plant for 3.87 cents/kwh, one of the lowest rates ever for solar power. Having an icon of Buffett’s stature and bankroll as a clean-energy champion has been a big plus on the world stage, but he’s made no secret of his opposition to net metering. Industry disruptions always shift competitive dynamics, and the volatile issue of net metering will surely be one of 2016’s big stories.
The extensions of the production tax credit (PTC) for wind and investment tax credit (ITC) for solar, part of the omnibus federal budget legislation, did come with a political-compromise price: the lifting of the 40-year ban on exporting U.S. crude oil. While some observers called this a “poison pill,” my gut feeling is that, on balance, it’s better to have all three of these things than none of them. It’s very hard (and not my field of expertise anyway) to predict how much new domestic oil drilling will result from lifting the export ban, particularly at a time of depressed oil prices. But we do know that the U.S. solar industry would have taken a major hit in 2017-18 if the ITC began to phase out.
At Greentech Media’s annual U.S. Solar Market Insight conference in early November, GTM senior VP of research Shayle Kann predicted that installed solar costs (without the ITC) would see their first prolonged increase in nearly two decades during those years, potentially putting the brakes on the all-important path to grid parity with natural gas and (to a thankfully lesser extent) coal-fired power. (A recent study by Deloitte showed how challenging the grid parity goal would be in the next 10-15 years without the tax credits.)
The consensus industry view at the Greentech conference was that the ITC’s demise was a done deal, so much so that Sunrun CEO Lynn Jurich, one of the few optimists, admonished her colleagues for creating “a self-fulfilling prophecy” of losing the tax credit. In the end she was right, and I hope she made a happy toast to the New Year. In my book, keeping these critical policy levers for accelerating the growth of clean energy generation – particularly at utility scale – outweighs the negatives of yet another offering to the oil industry.
By helping maintain downward price pressure for wind and solar, the tax credits help ensure that another positive trend – setting and achieving the goal of 100 percent renewable energy – will continue to grow in 2016. In late 2015, two major U.S. cities, San Diego and Las Vegas, announced plans to go 100 percent renewable for city operations, joining the ever-burgeoning ranks of governments and corporations pursuing this historic goal. On Jan. 12, Clean Edge will host a webinar on governments at the forefront of this trend.
Clean Edge celebrated its 15th anniversary last year, and what a pivotal year it was for clean energy. We eagerly await the full-year statistics on renewables growth, but through the first three quarters of 2015, renewables accounted for 60 percent of new generation capacity additions in the U.S., and in some months it was 100 percent. They also passed another milestone: wind, solar, biomass, and geothermal capacity in the U.S. now exceeds that of hydropower for the first time.
Encouraging trends, for sure, as we head into 2016. It is also a U.S. presidential election year, with potential results that could seriously derail clean-energy and climate action, but there are signs that our energy future could finally be a campaign issue. In a Reuters/Ipsos poll after the Paris agreement, a clear majority of Republicans (58 percent) said they approved of U.S. efforts to work with other nations to limit global warming (91 percent of Democrats approved). The clean-energy revolution is already transforming utilities, grid operators, corporations, and state and city governments. If it can even transform election-year politics, it will be powerful indeed.
This article was originally published by Clean Edge and was republished with permission.
Information contained in this article is not intended to be investment advice or used as a guide to investing.
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