Cloudy Forecast for Renewable Future?

The problem is what John F. Kennedy articulated eloquently in his speech on civil defense on May 25, 1961: that this “assumes rational calculations by rational men. And the history of this planet, and particularly the history of the 20th century, is sufficient to remind us of the possibilities of an irrational attack, a miscalculation, an accidental war, or a war of escalation in which the stakes by each side gradually increase to the point of maximum danger which cannot be either foreseen or deterred.” Peace time cannot escape the same fate either – that irrational decisions or unintended consequences of well-meaning decisions end up driving the course of history. So, rather than come up with new predictions, I take up one rather well-established statement and examine how human behavior can change the anticipated course these are expected to take.

Solar power will continue its near-exponential growth across all sectors

The above graph comes from SEIA, as of 3^rd Quarter of 2019.  Even if we ignore the spike in 2016, the pattern is pretty much exponential over the last eight to ten years, and it would be reasonable to conclude that the growth will continue. Except: the consensus is that this growth is going to slow down, if not stall over the next 3 years, and hitting highs no earlier than 2023. There are several reasons for this anticipated decline, all of which are consequences of legislative policy at the federal and local level:

1. The investment tax credit is scheduled to be reduced from 30% in 2019 to 26% in 2020, 22% in 2021 and 10% for commercial installations and 0% for residential in 2022.  There were several attempts at extending the full credit of 30% by stakeholders; however, the budget compromise of December 2019 let the original tax credit schedule stand. Since the tax credits were introduced in 2006, the solar power installations have grown at an annual rate of 52%[i]. The old adage questions the wisdom of getting off a winning horse, but life isn’t rational.
2. In January 2018, the federal government imposed a tariff of 30% on imported solar cells, declining each year by 5% to 15% in 2021. The price of solar cells declined dramatically over the last decade, and continue their decline, but much more slowly. The combination of the decrease in tax credits and tariffs will have an obvious effect on new installations.
3. California became the first part of the world (as it often is) to pass a law that mandates solar panels or participation in community solar programs for most new homes. It remains to see how this is going to affect the pace and price of the solar installations across the country.
4. Community solar gardens have recently been the focus of significant activity – 40 states of the US have at least one community solar project underway.  The activity picked up speed after the 2018 elections where several governorships changed hands. One of the long-standing and older programs is still seen as the best: in Minnesota[ii], based on the virtual net metering model:

1. The community solar business models are still evolving, and there are significant challenges facing the providers as well as subscribers. The traditional net metering (or virtual net metering) models are being replaced with other calculations which claim to reflect the true value of distributed generation better. The impact of these new calculation algorithms for credits to customers remains to be seen.
2. One of the big challenges in the community solar world is the “back-office” operational challenge. Many of the utilities do not have the systems to process the credits and allocate them to the subscribers in an accurate and timely fashion. Recently, New York Public Service Commission issued an order implementing utility consolidated billing on an opt-in basis – a methodology similar to retail energy suppliers in the deregulated state. However, the only business model supported under this method is a discount-off-credit algorithm: i.e. the community solar service provider (CSSP) will notify the percentage of the net credit that is passed on to the subscriber; the utility will calculate that credit and put it on the customer’s bill. There are two problems with that:
   1. There are many different considerations that go into a community solar project: financial terms of the initial investment, the state-by-state regulations regarding customer acquisition, the allocation of credit, preferences for certain segments of the population (e.g. residency requirements, low-to-middle income preferences etc.). This is exactly the reason why there are multiple business models for cost recovery and revenue generation. To dictate that only one formula – namely savings off credits - may not allow CSSPs the flexibility to manage their own investment risks – thus resulting in risk premiums that eat into customers’ savings.
   2. The credit is entirely based on production credits, and so makes no allowance for innovative offerings of technologies such as demand reduction and storage to be combined with the solar offering to the customer. Imagine if you will that the only allowable rates for telecom business will be savings off the incumbent’s cost per minute. How many of the non-minutes per call product offerings – cameras, music, internet connectivity, music and for the current generation, their entire lifestyle – would have been possible? Innovations cannot thrive in an environment  where old systems, business models and plain old thinking are the driving forces.

Finally, there are some rather disturbing trends in legislative policy that might also affect the growth of renewable energy – though we expect the impact to be very much localized to some states.

In Florida, after the controversial ballot initiative failed in 2016, progress has been slow – ironic, considering every license plate from there announces the glory of the Sunshine State[iii]. And in the first week of this year, another ballot initiative that would have opened up the electricity market to retail competition was killed by the Florida Supreme Court[iv] - based on the argument that the summary submitted was misleading on the issue of sale of energy by consumers.

In Ohio, the House Bills 6 and 247 are effectively dealing blows to renewable energy and energy choice in order to favor fossil fuel and nuclear technologies.

I could go on, but I won’t. To paraphrase Mark Twain, no law-abiding citizen is safe when the legislature is in session, or for that matter when the regulatory agencies are taking an activist role as opposed to implementation role – especially in an election year.

Remember to wear those seat belts, and good luck!

[i] https://www.seia.org/initiatives/solar-investment-tax-credit-itc

[ii] https://ilsr.org/minnesotas-community-solar-program/

[iii] https://ilsr.org/2019-community-power-scorecard/?gclid=CjwKCAiA35rxBRAWEiwADqB371g3QSzq0uF2WvHf8AZWTsFOGA2YInctNaw4WbRjE1aUWZZquZN6WhoCk1oQAvD_BwE#maps

[iv] http://www.energychoicematters.com/stories/20200109a.html