THE SUN SHINES EVERYWHERE, and bountiful sunlight could provide the energy to power a skyline dotted with dispersed solar-power plants. This vision seems imminent. Utility giant Southern California Edison, Rosemead, recently announced it will install solar arrays on hundreds of commercial rooftops as part of a massive solar project. With a project price of $3,500 per kilowatt for 250 megawatts, the power from this project promises to be competitive with retail electric rates in California and several other U.S. states. The era of competitive, decentralized solar is here, right? Well, not so fast. At just about the same time as this historic announcement, several other utilities were announcing the pending construction of solar plants providing 10 times the electrical capacity of of the decentralized rooftop project, also serving California customers. However, these plants would be located hundreds of miles away in remote deserts. One or two solar-power-tower generators could alone be double or triple the size of the Southern California Edison rooftop project. As Figure 1, page 64, indicates, centralized solar is poised to develop much more rapidly than decentralized solar.
Some may argue, the more the merrier. After all, solar energy virtually is non-polluting no matter where it is harnessed. But there’s not a level playing field for centralized, concentrating solar power, or CSP, and decentralized generation of solar electricity.
CSP is not bad. It certainly is superior to fossil-fuel power generation. Round-the-clock generation from CSP sources could allow renewable electricity to displace all types of fossil-fuel power, including coal, instead of just peak power, like natural gas, which is what wind-generated electricity replaces. In addition, CSP storage currently costs one-tenth of photovoltaic battery storage. Decentralized solar in the form of PV has flexibility that CSP lacks. It can be mounted on unoccupied rooftops, building façades or even integrated into a structure. An innovation from Cambridge-based Massachusetts Institute of Technology promises low-cost, commercialized, in-window PV generation within three years. And as the Southern California Edison proposal shows, the cost of dispersed solar PV has dropped nearly 50 percent in the past 10 years.
Smaller, decentralized solar also enables local ownership while centralized CSP inhibits it. CSP plants often are built in remote virgin desert regions and their costs include significant additions and upgrades to the transmission system. Building transmission for an immense power-tower project, for example, will require as much as $600 million to create sufficient capacity to move the electricity 200 miles (322 km). In addition, CSP plants consume a fair amount of water to keep mirrors clean and equipment cool. For instance, Solar One, Boulder City, Nev., requires as much water as 1,000 homes each year. Decentralized solar power can be owned by individuals, businesses and cooperatives. The recent “Dispersed Renewable Generation Transmission Study,” sponsored by the Minnesota Department of Commerce, St. Paul, found that 600 MW—almost the same as is generated by one power tower—of dispersed, renewable power could be added to the grid with no additional transmission expenses. Local ownership also increases responsibility for energy use. When individuals produce their own electricity, they have an incentive to balance their consumption with their generation.
The economic benefits of developing solar power also are higher with local ownership because the revenues from selling electricity accrue to individual owners and then continue to circulate in the local economy. According to several economic studies, including “Community vs. Corporate Wind: Does It Matter Who Develops the Wind in Big Stone County, MN?” by Arne Kildegaard and Josephine Myers-Kuykindall, locally owned wind projects have a 25 to 200 percent greater economic impact than absentee-owned ones, and the same impact likely holds for locally owned solar projects. It should be mentioned that CSP plants could be dispersed to garner the advantages of local generation and ownership. For example, eSolar, Pasadena, Calif., is proposing multiple 33 MW solar-power-tower plants across California. Although this proposal doesn’t use existing rooftops like the Southern California Edison solar PV project, it would allow CSP plants to serve local demand instead of using long-distance transmission.
COMMERCIAL SOLAR INCENTIVES
The popularity of absentee-owned CSP plants is largely because of federal solar incentives that discourage the small-scale, residential development that typifies solar PV. The primary problem is the form of the incentive: a tax credit. Most people owe some taxes but rarely enough to use the full tax credit the way a large corporation or institutional investor can. The problem persists on the micro level. Consider two identical 2-kW rooftop solar arrays, one installed by Harry Homeowner and the other by Bob Businessman. Harry gets the maximum $2,000 for residential solar panels from the Investment Tax Credit. Bob gets almost $5,000 from the tax credit and also can depreciate the value of the panels for another tax benefit worth around $2,000. The commercial installation gets three times the incentive as the residential one but both provide the same amount of clean, renewable power. Some solar companies have introduced a work-around of this obstacle by installing a company-owned rooftop array and selling the electricity to the resident or leasing the panels on long-term contracts. It would be far better if Congress would change the tax incentive to be more fair to residential arrays owned by homeowners and respect the non-economic benefits of ownership, dispersed generation or energy storage.
NEW RULES FOR SOLAR
The rules and incentives for solar-power generation have to change. The rules should encourage the use of existing infrastructure, as they do in Germany. The most successful solar market in the world, Germany pays 10 Euro cents per kW-hour more for rooftop solar than freestanding and an additional 5 Euro cents for building façade solar panels. The rules also should blend new construction with energy production. In 2011, California’s Million Solar Roofs law will require home developers with projects of more than 50 units to offer solar installations to customers. Rules like these leverage the ability of PV to use existing-building and -transmission infrastructure, reducing the cost of solar power.
Current incentives for decentralized solar also must be amended. A first step is switching away from a tax credit. The tax-credit cap for residential solar puts an artificial limit on the market for dispersed solar. Even the tax credit itself is limiting, requiring aspiring solar developers to be tax-liability rich. Instead of penalizing consumers, the rules of solar power should focus incentives on producers. Payments per kWh reward renewable-energy production. California already is moving in this direction, amending its solar program to provide performance-based incentives for installations of more than 100 kW, peaking at 39 cents per kWh in addition to the 30 percent federal tax credit.
Germany uses a feed-in tariff to provide a simple, fair and transparent payment for each kWh of solar power. The best incentive could be a feed-in law focused on local ownership, providing incentive payments for locally owned solar installations commensurate with the economic benefits of local ownership, innovating solar-integration techniques and dispersed generation. To change the rules at the federal level, write your senators and representatives and tell them to support the Renewable Energy Jobs and Security Act, which is sponsored by Rep. Jay Inslee (D-Wash.) and would establish a national feed-in tariff for small-scale energy projects. At the state level, get in touch with a representative who serves on an energy or environmental committee and pitch a state feed-in tariff. Let him or her know that states don't need to wait for federal action to help level the playing field for centralized and decentralized solar power.
JOHN FARRELL is a research associate with the Institute for Local Self-Reliance, Minneapolis. He researches the economies of scale and ownership of renewable energy for the New Rules Project at ILSR. He can be reached at email@example.com or (612) 379-3815, ext. 210.