- To maximize job creation, spending on renewable energy envisioned in the economic stimulus bill should be targeted at distributed generation projects, which use local labor for installation and increase the efficiency and reliability of power supply.
- Of the renewable energy sources, solar photovoltaic (PV) power is best suited to realize the potential of distributed and renewable energy generation. It matches peak energy demand most closely and offers the best opportunity to substitute expensive, centrally-generated electricity.
- Direct federal procurement and renewable energy loan guarantees, grants, and tax credits should favor smaller, distributed PV installations connected to the local distribution grid or generating electricity directly at the point of consumption.
- A significant share of the stimulus bill’s funding for modernizing the electricity grid should go to installing the electrical gear and smart power electronics and communication devices necessary for integration of distributed PV systems into the grid and better management of onsite generation, storage and use of energy.
One of the new Administration’s key policy initiatives is support for renewable energy as a way to create jobs, strengthen America’s energy and national security, and combat climate change. Towards these goals, the economic stimulus bill signed into law by President Obama on February 17th includes $41.3 billion in direct renewable energy and energy efficiency spending and tax credits. That spending should be administered in a manner that not only creates jobs in the short term, but also lays foundations for a new energy infrastructure to secure America’s economic growth.
In the electric power sector, this dual objective is best served by increased support for distributed renewable energy generation, which combines the inherent advantages of locally produced electricity with the economic and environmental benefits of renewable energy. Such generation requires local labor for installation, eliminates long-distance transmission and distribution costs, increases the security and flexibility of the power supply, and uses clean, free energy sources that do no environmental harm.
The renewable energy technology best suited to realize the potential of distributed and renewable energy generation is solar photovoltaic (PV) power. In our opinion, distributed PV projects deserve a disproportionate share of the stimulus bill’s funding for renewable energy.
Here Comes the Sun
PV installations are comprised of solar panels made of polysilicon or other semi-conductor materials that convert sunlight directly into electricity. They can be installed on commercial and residential roofs, integrated in building façades or placed on the ground. Because PV systems can generate power directly at, or close to, its point of consumption—in contrast to wind farms or geothermal power stations, which are by definition located at the energy source—they eliminate long-distance transmission and distribution costs (as high as 30% of electricity’s retail cost) and reduce line losses in transporting centrally generated power from remote locations (as high as 8% of the generated electricity). PV systems can be deployed in modular sizes ranging from several kilowatts (necessary to power a house) to several megawatts (necessary to power a business or neighborhood) to tens of megawatts (necessary to power municipalities or large industrial customers). Building integrated PV systems, which replace conventional building materials and become part of the building “skin,” are especially well-suited to help meet energy demand, more than 50% of which originates from buildings and their processes. Electricity generated by PV installations matches peak consumer demand better than any other intermittent renewable energy source. This makes solar electricity more valuable, as it runsmore reliably during peak demand periods when electricity is most expensive for utilities to source.
With their smaller size and increased number of sites and customers, PV systems require more labor to market, design, and install than wind, concentrated solar thermal, biomass or geothermal power plants. They can be engineered and installed by small electrical, roofing or construction companies, whose workers can learn the required skills relatively quickly. To maximize job creation and capture solar PV’s distributed generation advantages, the loan guarantees and Treasury Department energy grants for renewable energy projects included in the economic stimulus bill should be focused primarily on smaller-size systems (e.g., less than 20 MW) connected to the secondary, low-voltage distribution grid or generating electricity directly at the point of consumption. Given that 60%–80% of net new U.S. jobs during the last decade were created by small businesses and that the federal government is the largest utility customer (spending $6 billion annually), the direct federal procurement of PV installations, also envisioned in the economic stimulus bill, should favor small PV installers and building integrated PV projects that are likely to create the most jobs and aid the struggling building industry. Is Solar Really That Expensive?
Critics of public spending on solar PV projects usually point to two major obstacles to its viability as a significant, reliable electricity source: high installed costs, which translate into a high levelized cost of electricity, and the inherently intermittent nature of solar power, which requires backup capacity when the sun isn’t shining.
When comparing the levelized cost of PV electricity to that of other renewable and conventional energy sources, it’s very important to compare apples to apples. While the generation cost of wind or gas-fired electricity could be as low as 5–7 cents per kilowatt hour, and the cost of concentrated solar thermal
power (which converts the sun’s heat into steam that drives conventional steam turbines) could be 8–10 cents, the cost of delivered (retail) electricity from all of these sources is much higher after including transmission and distribution costs, and even higher when time-of-use charges are added. In some parts of California, for example, the retail price of electricity during peak demand is 36 cents, while the cost of onsite PV power, which matches most closely peak consumption during the day and doesn’t require transmission and distribution, is approximately 20 cents, without subsidies, and 15 cents with subsidies. California is, of course, a high electricity price market, but with the cost of solar PV installations coming down significantly as worldwide solar panel production capacity grows and the price of their main raw material, polysilicon, falls, parity with retail (grid) prices in other U.S. electricity markets is growing closer.
Subsidize Now, Benefit Later
Grid parity without subsidies will get even closer if the programs supporting renewable energy generation included in the economic stimulus bill are implemented so as to give preference to distributed PV installations. These programs include: $6 billion in loan guarantees for renewable energy generation and transmission projects, which are expected to support $60 billion in loans for these projects; Treasury Department grants in an amount equal to 30% of the cost of installation, which can be received in lieu of investment tax credit (ITC); and direct federal procurement of renewable energy as part of a $4.5 billion program to convert federal office buildings to ‘green’ facilities. Together with the existing 30% ITC and continuing state-level support for solar projects, these programs can dramatically increase the demand for solar installations and lower their financing costs. This will result in a virtuous cycle of increased investment in PV generation capacity and decreased cost of solar electricity, which will bring the latter to or below grid parity (without subsidies); this, in turn, will stimulate additional investment in PV systems and create more jobs to install them, in the process displacing environmentally harmful fossil fuel generation and improving the reliability of the nation’s electrical grid by increasing the share of distributed generation. Public spending on renewable energy is, in our opinion, better directed at building local, distributed PV generation systems than long-distance transmission lines to bring wind or concentrated solar thermal power from remote locations to the centers of consumption. We differ here from the Obama administration’s plan to lay down more than 3,000 miles of transmission lines to convey renewable energy “coast to coast.”
Save When You Can, Spend When You Need
The other impediment to growth of distributed PV generation is its intermittency. Utilities are quick to point out that for each unit of PV generation capacity they need to provide one unit of backup generation that will deliver power when the sun is unavailable, but electricity demand persists (for example, on a hot, cloudy day when air conditioners are running at full power). There is a solution, however, for this intermittency: energy storage coupled with energy efficiency and demand management. When PV systems—or other intermittent renewable energy sources like wind or concentrated solar thermal—produce more electricity than consumers need, this surplus power can be stored in special large batteries or other energy storage facilities and discharged, with the help of power electronics, at times when sunlight is insufficient or unavailable to meet consumer demand. Energy storage solutions are still at a nascent stage of development and will require public support to scale up to the magnitude and economics needed to support a significant PV distribution infrastructure.
Another “virtual” method of energy storage is the power grid itself. Under “net metering” arrangements, distributed PV systems can feed into the grid the electricity produced in excess of consumption during sunny times and get that electricity back from the grid when the PV system produces below demand. While this virtual storage doesn’t solve the problem of backup capacity, it is critical for deploying large distributed PV generation capacity to help meet an increasing share of peak power demand. In the new federal renewable energy policy, net metering laws and interconnection regulations that govern the connection of distributed PV systems to the grid need to be expanded and standardized across states, and the current limits on PV capacity eligible for net metering—2 MW, in most states—must be lifted.
Energy efficiency and demand management programs can further mitigate solar power’s intermittency handicap by lowering the peak demand for electricity and thus reducing the expensive peak generation capacity that the grid needs to maintain. Public incentives and financing for developing and manufacturing energy storage solutions and deploying energy efficiency and demand management devices can also further augment the job creation impact of distributed PV generation. We believe a significant share of the $4.5 billion allocated in the stimulus bill for modernizing the electricity grid should go to improving the local distribution grid and installing the electrical gear and smart power electronics and communication devices necessary for the integration of distributed PV systems into the grid and better management of onsite generation, storage and use of energy.
To realize the full potential of distributed solar generation, federal support for PV projects should be part of a larger energy policy that (i) redesigns the national power grid to accommodate a growing portion of distributed power, and (ii) dramatically increases the share of electricity generated from renewable sources. The recently passed economic stimulus bill is inherently as much a product of short-term needs and compromises as it is of strategic vision and long-term planning. If properly implemented, however, it can give a strong and necessary jolt to the economy and seed the larger transformational changes leading to an economically stronger, more energy independent, and more environmentally responsible nation.