Investor-owned utilities in the United States have made increased investments in the electricity distribution system over the past two decades, according to data compiled by the U.S. Energy Information Administration. Investments are down from a peak of $20 billion in 2012, but 2013 levels are still higher than spending in the 1990s and early 2000s.
The rise in investments comes despite stagnating electricity load growth. According to the EIA, electricity sales declined in four of the five years between 2008 and 2012.
Utilities will need not only to invest more in the distribution system in the coming years as it continues to age and get hit by increasingly severe storms, but also to accommodate a growing amount of distributed generation.
After a lull of several decades, utility spending on transmission systems has also recently increased. A separate EIA report found that investments by investor-owned utilities increased fivefold over the last fifteen years. But more is likely needed, as 70 percent of the grid's transmission lines and power transformers are more than 25 years old and the average power plant is more than 30 years old.
Overall, America is woefully behind in making necessary maintenance and upgrades across its infrastructure systems. In its most recent report card, the American Society of Civil Engineers estimates there's a $94 billion investment gap for both the distribution system and transmission system.
Reliability concerns have been a key driver of new spending. Since 1980, the U.S. has sustained 144 weather-related disasters, with total damage costs exceeding $1 trillion, according to the U.S. Department of Commerce. Seven of the ten costliest storms in U.S. history took place between 2004 and 2012.
Superstorm Sandy, the second-costliest cyclone to hit the U.S. since 1990, knocked out power to 8.5 million customers and caused an estimated $65 billion in damages. Greentech Media explored how the storm is prompting utilities to invest differently in a recently released e-book.
The majority of the spending on distribution in recent years has been targeted at hardening the system against weather-related outages. This includes investments in burying vital power lines, installing smart-grid technologies to stop outages from spreading, and replacing or improving the design of vulnerable equipment, such as elevating substations in flood-prone areas.
But it’s not all about protecting the system. Smart grid technologies like advanced meters are also being adopted to allow customers to participate in demand response. And advanced voltage-regulating components are being used to allow communities to have their own solar arrays and other types of distributed generation.
With load growth increasing at a very slow pace, utilities have an opportunity to shift their capital spending from new generation toward investments in modernizing the distribution system to allow for more distributed generation, electric vehicles and other assets.
Edison International president and CEO Ted Craver said at a PJM event this week that Southern California Edison is focusing on investments in the distribution system.
“I think one of the key ways to really help [California] achieve its greenhouse gas policies is to invest in the distribution system so it’s capable of absorbing more in the way of distributed energy resources,” said Craver. “Not just rooftop solar, but also storage and energy efficiency and demand response programs.”
Ernest Moniz is an all-of-the above kind of energy secretary. He's a supporter of advanced nuclear, natural gas, carbon sequestration and all kinds of renewables -- and has the diverse funding at the Department of Energy to show for it.
But there's one technology that he's been giving a lot of special attention: solar.
"I think solar is in a good place," said Moniz, standing amidst a 6.4-megawatt solar installation on the roof of the Mandalay Bay convention center in Las Vegas on Wednesday. "I think we're there."
Well, not all the way there.
Just an hour before climbing onto the roof of the MGM Grand building, Moniz was at the Solar Power International conference, where he unveiled $53 million in new investments through the SunShot Initiative designed to drop the cost of solar manufacturing and deployment.
Talking with reporters after his speech, Moniz described the SunShot Initiative as one of the most crucial pieces of the DOE's solar strategy.
"There are lot of new ideas -- not only on the technology side, but on the marketing side. And the more we get solar out there, the more the costs will get driven lower and lower," he said.
Since 2011, the SunShot Initiative has invested $250 million to $270 million yearly in companies working to strip the production and installation cost out of photovoltaics and concentrating solar power. By the end of the decade, the DOE hopes to drop the average levelized cost of solar in America to $0.06 per kilowatt-hour.
The latest funding round from SunShot targets nearly every kind of actor across the PV industry: more than three dozen universities, cell and panel manufacturers, software firms and balance-of-system technology vendors.
But the investment also raises another question about how the DOE supports companies. Would some of the companies supported by the SunShot incubator be doing what they won money for, even without government support?
For example, Mosaic won a $650,000 award to develop a solar loan product and sales platform for installers -- a move it was already making before ever getting SunShot money. Mosaic already got $2 million from SunShot to develop its crowdsourcing platform, which it's now moving away from in order to focus on loans.
The distributed storage developer Stem also pulled in $875,000 to build a software platform for managing battery systems -- again, something that was already seemingly part of its organic business.
That's not to say that these companies aren't doing something innovative or beneficial to the industry. The question is whether they'd be doing it outside of SunShot.
"We approach all the awards in a very methodical and consistent manner," said Minh Le, director of the Solar Energy Technologies office at the DOE. He said it's statistically harder to get a SunShot award than to get admitted to Stanford, and that all applications are rigorously reviewed to determine market need.
Le responded to GTM's questions about whether government help actually promotes projects that wouldn't otherwise get done.
"SunShot incentivizes companies to pursue more ambitious goals than they otherwise might do on their own. The goals outlined in a given funding application are often adjusted throughout our award negotiation process in order to maximize the impact of the project," he said.
Le also said the DOE funds are matched by recipients, which gives both parties an incentive to maximize the investment.
"Our awardees commit to sharing the cost of these projects from the beginning, and this combination of public funds and previously agreed upon private cost share funds ensures that all parties are devoted to the project’s ultimate success," he explained.
The department awarded $14 million to twenty businesses in its latest incubator round, the majority of which are developing software platforms for streamlining projects, acquiring customers or analyzing the grid. Some are more mature and might well have developed a product without government help. Others, like the startup Faraday, which received $1 million from SunShot, are using the money to build capabilities they otherwise wouldn't have had.
Faraday is creating multi-channel marketing software based on machine learning that enables installers, financiers and manufacturers to target customers based on income, credit score, roofing size, age, income -- any factor that might be relevant to their sales. Faraday has been able to expand from four people to eight people with money from DOE.
"SunShot was a big part of helping build our model and start approaching installers," said Robbie Adler, Faraday's president and co-founder.
On the R&D and manufacturing front, SunShot is also giving nearly $40 million in awards to U.S. manufacturers and universities to try out new types of semiconductors, deposition tools, glass coating and high-efficiency cell structures -- projects that are far more likely to need government support at an early stage.
Le pointed to Suniva, the high-efficiency crystalline silicon solar cell manufacturer based in Georgia, as an example of how SunShot thinks about technology investments. Because of DOE's previous investments in Varian Semiconductor, which is partnering with Suniva, Le said it helped the manufacturer boost the efficiency of its cells. Suniva is now building a 200-megawatt production facility in Michigan to scale the technology.
"DOE supported the underlying technology in many phases. We created a tool set to allow it to come into fruition. We look at this from a pipeline standpoint," said Le.
So are all the funds supporting companies that absolutely need government money to build new products? That's very hard to determine, particularly on the software side. But DOE says it provides guidance and financial support to companies in a way that helps them deliver better products than if they were on their own.
According to Le, SunShot investments have leveraged at least $2.3 billion in follow-on capital from the private sector -- a sign that DOE has invested in the right places.
It may come as a surprise to some, but David Owens, executive VP of the Edison Electric Institute, and Ralph Cavanagh, co-director of the Natural Resources Defense Council’s energy program, seem to have a lot in common.
Owens leads the trade group representing the nation's investor-owned utilities; Cavanagh is an attorney with an environmental organization that heavily influenced the new EPA carbon rules. But the two do share similar perspectives on certain contentious issues.
“I’m sometimes surprised that he and I do agree on many things,” said Owens, speaking at a PJM Interconnection grid event this week in Washington, D.C.
Both men argued in favor of decoupling utilities' rates of return from electricity sales, agreed that utilities should be distribution system operators managing distributed generation, and also advocated for policies that ensure solar customers pay their fair share of grid costs.
The two also agree about the need to evolve the grid and enable customers to generate and sell their own energy generation or energy efficiency.
“The utility business model is a model that’s got to understand and deal with the changes that are taking place, because the customer wants the ability to reduce energy, the customer wants green energy, and the utility has the responsibility of keeping the lines open,” said Owens.
As the adoption of distributed energy resources and energy efficiency increase, both Owens and Cavanagh said there’s a vital need for regulatory policies that support fair and adequate cost recovery to support the emerging grid.
The first step is to decouple utilities’ revenues from volumetric energy sales so they can focus on meeting customers' energy service needs, rather than just selling more electricity. The recovery of utilities’ non-fuel costs, therefore, should also reflect the costs of maintaining and improving the electricity grid.
The next step is for regulators to break the linkage between fuel and non-fuel costs. As more customers go solar, there still needs to be spinning reserve available to fulfill customer demand when the power supply is not available. Monitors, sensors and other technologies are also required to make sure that power supply is reliable. Electricity prices need to be unbundled to properly reflect those grid-related services to consumers, said Owens.
As generation assets on the grid become more diffuse, there also needs to be some entity designated to oversee integration and reliability. That entity has to understand the existing network, be able to make decisions quickly at a systems level, and also attract institutional investment for grid enhancements.
“I call that 'the distribution system operator,'” said Owens. “I think the utilities are in the best position to do that.”
Cavanagh agreed that utilities are best suited to manage the evolving grid. “I am actually glad to see utilities aiming for this role,” he said. “Most of them are performing it already.”
But when it comes to distributed resources and energy efficiency, he added, it will be critical that the utility avoids favoring its own products at the expense of competitors.
Because of that risk, some stakeholders in the power industry are pushing to create an independent body in New York that operates like a regional transmission operator. Without it, some believe utilities might still have an incentive to prevent third parties from accessing the grid.
However, Cavanaugh disagreed. “Some think the alternative is bypass the utilities, isolate them and destroy them,” he said.
But, Cavanagh argued, “You’ll get more energy efficiency; you’ll get more distributed resources if utilities are motivated to promote them."
While that may be true in theory, clashes over solar net metering prove that the reality is far more complicated. And this is where the consensus between Owens and Cavanagh started to break down.
According to Cavanagh, a minimum bill is the most attractive way to make up for utility grid costs. High fixed charges, for which utilities are generally advocating, erode the benefits from saving energy and potentially kill the economics of rooftop solar, he said.
But Owens wasn’t sold on the minimum bill idea. “I don’t know whether I can fully agree that a minimum bill is fully compensatory to the investment [utilities are] making in enhancing the grid,” he said.
For Owens, it comes down to the individual customer. If a rooftop solar facility is producing power at peak times, it should be compensated for it, he said. But if that facility is using the grid for significant backup, or if the project requires major new investments in the grid, then the customer needs to pay more than others.
“I don’t agree [that you should] say to a rooftop facility, ‘You’re reducing carbon, so let me pay you for that externality.’ I have great difficulty with that concept,” he added. “And with all due respect, most of the value-of-solar tariffs I’ve looked at -- that’s really what they do.”
“It turns out that the retail rate is lower than the value-of-solar rate. I think that’s totally absurd,” said Owens. “That’s a false and a distorted price signal that you’re giving to the customer, and you’re not making any contribution to the grid. And more importantly, you’re unreasonably shifting costs to those who do not have rooftop solar.”
However, others at the PJM event argued that the solar industry could help customers better understand the value of the grid.
“We’ve had very, very good success at getting people to recognize the value of the grid, primarily because [the solar industry] is the facilitator of them having their distributed energy resource,” said Richard Rosenblum, the recently retired president and CEO of Hawaiian Electric.
In Hawaii, many customers come into contact with solar installers far more often than with the utility. No matter how many people Rosenblum said he dispatched to deal with customers, solar companies always had ten times more -- all because they have a profit motive. By partnering with the solar industry, Hawaiian Electric was able to educate customers about how the grid works, the problems facing the grid, and what the grid can offer them.
“It’s surprising how well and how easily it’s been picked up,” said Rosenblum.
As mumbles of skepticism broke out in the audience, he added, “It may seem odd, but it works.”
When asked whether he thought the solar industry could help customers come to better appreciate the value of the grid, Owens said, “I think so too.”
In 2012, China's Hanergy, the owner of gigawatts' worth of hydropower, wind and solar assets, acquired MiaSolé, a technologically accomplished, CIGS thin-film solar firm. The reported sales price was $30 million, according to documents obtained by the San Francisco Chronicle, as well as a GTM source close to the deal, though the New York Times reported the sale price as approximately $100 million. MiaSolé had raised in the neighborhood of $500 million in VC funding from Voyageur Mutual Funds III, Kleiner Perkins, Firelake Capital, and VantagePoint Venture Partners.
In 2013, that same Hanergy acquired gallium-arsenide solar developer Alta Devices for an undisclosed amount. Alta has set records for PV efficiency, boasting NREL-verified 28.8 percent cell efficiencies for a single-junction solar cell and 30.8 percent for a dual-junction cell. The firm raised more than $120 million from Kleiner Perkins, NEA, August Capital, et al. By using an epitaxial lift-off technique pioneered by Eli Yablonovitch, the firm can produce flexible layers of GaAs that are 1 micron thick. Substrate reuse and cost are issues in this type of technology, as evidenced by the experiences of both Crystal Solar and Solexel.
Alta and MiaSolé joined CIGS firms Solibro and Global Solar Energy under the Hanergy roof.
On Wednesday at Solar Power International in Las Vegas, GTM spoke with MiaSolé's Application Technologist and Business Development Manager Michael Gumm about the company's flexible solar modules from its MiaSolé acquisition.
Flexible solar panels have the same advantages always claimed for this form factor: light weight, less labor, no racking, better wind and earthquake performance, and the ability be attached directly to the roof with an adhesive. The company's website estimates a 20 percent savings in balance-of-system costs compared to racked glass-sandwich modules. Hanergy claims a glass-module efficiency of more than 16 percent.
I asked Gumm to address why defunct flexible PV firm United Ovonic was not able to make a go at this application, setting aside issues of quality, price and performance. Gumm said, "[United Ovonic parent company] ECD didn't control how its product was used." Selling through distributors, ECD had "no idea who was installing the product."
"In our case, we're working with major roofing manufacturers to sell modules to their contractors," said Gumm, adding, "Their contractors know how to exert quality control in adhesives and in methods of applying and handling" the flexible solar module. The peel-and-stick module comes with a 25-year power warranty, a 25-year adhesive warranty and a five-year workmanship warranty. The modules, however, cost more in terms of dollars-per-watt than crystalline silicon.
At .51 pounds per square foot, the weight of the panels is one-third the weight of racked crystalline-silicon panels and one-fifth the weight of ballasted crystalline-silicon panels. Gumm asserts that many commercial roofs in California are "made with glue-laminated beams and plywood decks. They won't hold a lot of weight."
He said that for buildings in high wind zones, "Our product has the same wind rating as a roofing system." Gumm suggests that new roofing certifications and requirements from Factory Mutual on load and wind uplift could provide a big advantage for Hanergy. Factory Mutual is the testing lab for building insurance issues that set the standards cited by architects and building designers.
According to Gumm, "The FLEX gen1 production rate is 5 megawatts, the gen2 plant opening early Q-1 2015 is 300 megawatts. We have 90 megawatts of Miasole glass modules installed worldwide. Both glass and flexible use the same cell technology."
Meanwhile, that other Hanergy purchase, Alta Devices, announced an effort with VC-funded Airware that allows builders of small unmanned aerial vehicles to better integrate solar power on the aircraft. Airware provides hardware and software for developing commercial drones. The company has a beta program underway with commercial drone firms Delta Drone and Cyber Technology and $40 million from Andreessen Horowitz, Google Ventures, First Round Capital, Felicis Ventures seed, Firelake Capital, RRE Ventures, Shasta Ventures, et al.
We'll keep track of the progress made by Hanergy on these fronts.
Back in 2012, MiaSolé's VP of Process Technology, Atiye Bayman, presented to the Silicon Valley IEEE PV Chapter and highlighted the solar panel vendor's use of physical vapor deposition throughout the entire production process.
Here are the slides from that presentation.
MiaSolé's thin film stack rests on a 50-micron stainless steel foil substrate. The stainless steel allows processing at high temperatures and allows the potential for flexible panels. Bayman stressed that product success is tied to LCOE and the ability to maximize energy generation. The cadmium sulfide (CdS) buffer layer is sputtered. Bayman noted that sputtered CdS is very rare, saying, "We had to learn how to sputter CdS on CIGS and then do the work to optimize thickness and transparency."
The thin film stack is produced in a "single-pass deposition" using a single tool that is entirely PVD. The stack is created in 60 minutes from roll to flash-tested cells. Production is not in a clean-room environment.
The cell interconnect tape has wires weaved onto it that make contact with the top electrode. According to Bayman, the interconnect tape provides a low-resistance connection with no solder, no screen printing, and no welds.
A liquid edge seal keeps moisture away from the 88 cells that consist of two serial-connected strings of 44 cells. There is one bypass diode for every two cells and one positive and one negative junction box per panel. That makes one bypass diode for every 3 watts versus one for every 80 watts for crystalline silicon modules.
Bayman cited an average module efficiency of 13.5 percent, with more than half of the production greater than 13.5 percent efficiency. She claimed that all-PVD processing means faster cycles of learning limited mostly by the time needed to analyze the material.
The all-PVD machine in the slide below has a footprint of approximately 45 feet by 45 feet.
Contaminants in CIGS correlate with defects. Defect density also correlates with open circuit voltage. Sources of contamination include the stainless steel, nickel, iron and chromium, and other materials.
The best module produced on the current production equipment had an efficiency of 14.3 percent. Bayman expects to see 15.5 percent in 2013 and 16 percent in 2014.
Germany has put itself on the world map in the past decade as an early adopter of energy generation from renewable sources. In 2013, 25% of the country’s energy came from renewable sources -- the highest percentage in the world. By 2050, as part of the country’s Energiewende (or “energy transition”), Germany expects this number to be at 80%. This is an incredibly ambitious goal, as Germans and the rest of the world will agree, but the country is preparing now to make this happen.
As part of the Transatlantic Program hosted by the German American Chamber of Commerce, I had the incredible opportunity to meet with many of Germany’s energy influencers and to learn directly about how Germany is transitioning to carbon-free energy. It hasn’t all been smooth sailing, but there are key lessons that the U.S. and the rest of the world can learn from both Germany’s successes and its plans for improvements.
The Bundesnetzagentur in Bonn is Germany’s Federal Network Agency for electricity, gas, telecommunications, post, and railway, and it has many insights to share about the how such high rates of renewable penetration have been possible. In particular, the agency attributes this achievement to policy, and more specifically, to three aspects of the current renewable energy policy in Germany: guaranteed grid and market access for renewables, priority dispatch of renewables over conventional generators, and guaranteed financial support for twenty years through the feed-in tariff. These three attributes have provided great incentives for installers of renewable energy, paving the way in some cases for high profit as competition from solar producers caused panel prices to drop rapidly. This is a key lesson the U.S. can learn from Germany: consistent policy is critical for a similar large-scale transition to renewables, and it’s currently missing in our market.
Though policy incentives are often criticized, predictability of returns throughout the expected life of renewable equipment is essential in the early years for a transition of this size. With policies that are inconsistent or even disappear from state to state and year to year, individuals, businesses, and even utilities are hesitant about investment in newer technologies. Germany’s foresight on this front has resulted in solar capital costs that have reached grid parity -- a great thing that much of the world can take advantage of as we follow suit.
The transition to renewables has not been all smooth sailing for Germany. The sudden drop in solar prices as the German market was flooded by low-cost Chinese suppliers was not anticipated. In addition, the large influx of intermittent sources has made grid management difficult. What's more, only 5% of the renewable capacity on the German market is owned by the primary utilities, with the rest being owned by individuals, communities, industry, and smaller utilities. The complexity of planning for these widely dispersed sources (which are guaranteed access to the grid), and existing baseload plants like nuclear or coal that are difficult to shut down quickly, resulted in a perfect storm of sorts, with overproduction of supply and negative pricing on the spot market. This actually caused demand to increase in order to balance supply and demand on the grid and to stabilize the voltage and frequency output of the system.
Germany is now adjusting its incentive structure to adapt to these unforeseen effects. The feed-in tariff will soon become a feed-in premium, so eligible producers of renewable energy will need to bid their production into the market just like all other providers. They will then receive a bonus or premium price over the resulting market price. In this way, all generators have an incentive to curtail production when the market price and demand are both low (thus avoiding negative pricing) and to produce when the price (and demand) is high.
Though Germany went through some growing pains to arrive at this stronger footing, it has also paved the way for greater understanding and policy structures for other markets. As other nations look to implement a similar transition, we have a head start with Germany's lessons learned, and we can structure incentives that are implemented in a way that rewards responsible installation and management of clean technology projects.
Despite the challenges, Germany’s negative pricing phenomenon led to the need for very creative energy solutions. The country has been able to achieve unparalleled development and deployment of new and emerging energy technologies, many of which now have strong potential to scale. Our delegation met with many of these new companies, and it was exciting to see what’s on the horizon:
Though the technology and progress enabled by the Energiewende is incredible to behold, it still comes at a cost. The renewable feed-in tariff is funded by ratepayers, and many in Germany agree that its implementation created excessive windfalls for some. Though the rate of the FIT is declining for new installations, projects that are already operational are still reaping massive benefits. With all of its ups and downs along the way, Germany is leading the world in the energy transition, and we can all learn from its experience.
Katrina Prutzman leads the system design team at UGE and recently returned from the Transatlantic Program for Young Technology Leaders.
Panasonic Enterprise Solutions Company announced this week it's partnering with Powertree Services Inc. to build out 68 electric-vehicle charging stations combined with solar systems and battery storage at multi-unit residences in San Francisco.
The project provides several benefits to building owners. They can offer residents convenient EV charging powered by on-site PV panels. And the solar system, combined with batteries, can provide backup power in the event of a grid outage. The batteries also enable a more streamlined EV charger installation process by either deferring or eliminating the need for expensive electrical system upgrades at the housing facility.
“Owners of multi-tenant apartment and mixed-use buildings face a rising demand from tenants, drivers and new regulations that combine to require them to install, manage, upgrade electric charging facilities and support electric vehicles,” said Stacey Reineccius, founder and CEO of Powertree, a private owner-operator of integrated solar PV generation, EV charging and grid-interactive energy storage.
The utility, Pacific Gas and Electric, could also benefit. The combination of solar and storage will help to smooth the spike in demand from high-power EV charging and provide ancillary services to support the grid.
“That’s why we feel our solution is a bit unique. It’s not only handling EV charging requirements without the burden of installing chargers, but also offering those utility grid services,” said Jon Ethington, project manager for Panasonic.
Bringing together three solutions -- vehicle charging with solar and battery backup -- “has multiple benefits for every stakeholder, be it EV customers, the building owner, or the utility,” he added.
Earlier this month, NRG eVgo partnered with Green Charge Networks to deploy distributed energy storage at eVgo’s Freedom Stations. The integrated systems allow end users to reduce consumption and avoid high demand charges during peak times, but are targeted at commercial buildings and won't necessarily include solar generation.
The 68 hybrid stations by Panasonic-Powertree are already under construction and scheduled for completion by April 2015.
Partnering with entrepreneurs like Reineccius at Powertree has proven “very effective” at expanding the firm's clean energy offerings, said Ethington. Panasonic’s partners can benefit from things like better buying power for new components, long-term financing and greater reach. Panasonic, meanwhile, moves closer to its goal of becoming the leader in green innovation in the electronics industry by 2018.
The company has already made great strides to that end. Panasonic has partnered with Tesla Motors to build the $5 billion Giga battery factory in Nevada. It tops the list of smart grid patent holders. And, through joint project development with financier Coronal Group, Panasonic has grown its aggregate installed capacity of solar from 2 megawatts to more than 100 megawatts in just a couple of years' time.
“Our focus is really on helping customers, end users, developers, installation partners and the like, from Canada down through South America, to really be successful and enable their product vision,” said Ethington. “We bring our full end-to-end project lifecycle development, engineering, project delivery and construction [knowledge], all the way through twenty-years-plus operation and maintenance with financing and support.”
That's the message Panasonic is driving home at this year’s Solar Power International conference.
The 20th-century electric grid is an extraordinary feat of engineering that has been a core driver of economic progress in developed countries. But it's finally starting to show its limitations in the 21st century.
The grid of the past valued what was once necessary: centralization, powerful and cheap fossil fuels, and a regulatory compact that allowed monopoly utilities to serve the widest area possible.
But the emerging grid -- or at least the grid that people hope will emerge -- values an entirely new set of objectives: environmental performance, two-way communication, more business competition and more consumer technology choice.
Those two paradigms are often diametrically opposed to one another, which is why traditional utilities and advocates of change are now clashing like never before.
But what if we could build the grid all over again for a fully developed economy with the IT and energy technologies available today? Many organizations and thought leaders are asking that question. Siemens even built an online game around the concept.
In response to the growing conflict between the solar industry and utilities, the Solar Electric Power Association (SEPA) also decided to ask the question at this week's Solar Power International conference.
The organization said it would soon start soliciting ideas from power companies, think tanks, engineers, vendors and anyone else with ideas for how to restructure the grid to handle today's new energy technologies.
SEPA rolled out a cryptic new website promoting the concept, which it calls the 51st State.
"The 51st State is a place with no predefined electricity market. There are no rules, no market designs, no policies, no subsidies for any type of energy resource. There is a grid to deliver electric power from a variety of sources, including solar. Most of all, there are customers," reads the website.
SEPA will start taking applications in late November. Over the following months, an independent panel of experts will sift through the plans and pick the best five. The ideas will then be promoted by the organization at events and regulatory meetings.
SEPA is a nonprofit focused on educating utilities about solar. It doesn't take policy positions as its cousin, the Solar Energy Industries Association, does. Mike Taylor, SEPA's director of research, said the 51st State competition is a natural extension of its mission.
"We’re unlikely to take sides. We see our role on this as creating a dialogue and forum. This kind of crowdsourcing can help change the nature of the conversation," he said.
Taylor said he's eager to see the broad range of ideas proposed.
"It could be anything. Some might want to see a variation of the current system. Another person might want to blow up the entire utility industry. Others may want to do what New York is doing to reform utilities -- there are so many options."
What would you do?
SEPA will start accepting plans on November 17. Start sharpening your pencils.
I like data. There, I said it. Actually, I love data, so this piece will contain quite a few numbers and charts looking at how we should make the transition to a predominantly renewable energy economy here in the U.S. There are many reasons to make this transition, but I’ll take as a given that we should make this transition, focusing instead on how we can best do this.
For those who are allergic to numbers, let me sum up the conclusions here in the beginning. If we are to be successful in mitigating climate change and achieving a sustainable and independent energy system, we need to ride the waves already coming our way and do our best to start new waves where we have the power to do so.
The biggest wave by far, which is already underneath us and swelling, is solar power. We need to ride this wave as far as it will go -- and it will go far. The cost of solar power has plummeted in the last few years by more than 50 percent, and we are already seeing solar power costs at or below the cost of utility power in an increasing number of jurisdictions; this is generally known as “grid parity.” A recent report (see p. 7) found that Germany, Italy and Spain are now at grid parity for solar PV and many other countries are close.
We may as well call the point at which solar power reaches grid parity in a majority of jurisdictions around the world the “solar singularity.” When this moment is reached, solar power will take off and become the dominant power source relatively quickly. My feeling is that we’ll see solar reach half or more of our power supply in the U.S. sometime in the 2030s. That’s still a ways off, but pretty soon in terms of energy transitions.
I argued recently that we are already effectively at the halfway point to solar ubiquity because we reached 1 percent of new power plant installations from solar in 2013. As strange as it sounds at first blush, 1 percent is halfway in terms of the doublings required to get from nothing to 1 percent and from 1 percent to 100 percent. So in terms of the time required, we may indeed be halfway to solar dominance. This is an example of Kurzweil’s law of accelerating returns. Time will tell if I’m right.
The next big wave is energy storage. It’s nowhere near as certain as the solar wave, and its swell is now only barely perceptible. But with the right policy support and an army of smart entrepreneurs, this energy storage wave will be just as rideable as the solar wave. Germany is leading the way (again) on installations, with more than 4,000 residential PV-plus-battery systems installed in the first year of a new storage rebate program. California is arguably leading the way on the utility-scale side. Energy storage will be key for integrating variable renewables like solar and wind into our grids as penetration reaches high levels (we won’t need it for a number of years, but by planning now for when we do need it, we will make the transition that much smoother).
Energy storage is more useful for the grid than natural-gas backup power because energy storage devices can go both ways: they can absorb and dispatch power to the grid, whereas natural-gas plants can only dispatch. So it’s two for the price of one when it comes to energy storage. The price, however, is the catch for now: even though research suggests that energy storage may already be cost-effective when we properly account for the benefits to the grid, most observers would agree that there’s still a lot of room for energy storage costs to come down. My feeling, admittedly tinged with optimism, is that we’ll see the same trend in the energy storage business that we’ve seen in solar in the last five years, with strong demand prompting a huge ramp in production and thus big drops in price.
The last wave I’ll mention here is the energy efficiency wave. We use energy very wastefully because, frankly, energy is still really cheap. In the U.S., we waste well over half of all the energy that is actually available in our system (see Figure 1). And when we consider the potential for conservation and behavior change to reduce energy use even further, we could, it seems, be just as productive as we are today on an energy budget that is approximately half of what we currently use.
For the western half of the U.S., a grid consisting of large amounts of solar, wind, hydro and biomass that is backed up with energy storage and flexible natural-gas plants could readily provide all or a large part of the power we need to maintain and grow a modern economy. Other parts of the U.S., particularly the South, don’t have quite the renewable energy endowment that the Western U.S. has, or even the Northeast. However, high-voltage DC power lines are an option for areas without an abundance of renewable energy. While distributed energy and localized grids are to be preferred, I’d rather see renewables supply the South via power lines from Texas and the Midwest, or from large offshore wind farms in the Atlantic, than see the South continue with its coal-dominated power mix in perpetuity.
Ok, let’s talk numbers. I’m going to describe a plausible pathway for the U.S. to become a predominantly renewable energy economy by 2035 to 2040. I stress “plausible” because, of course, this kind of forecasting is generally an exercise in futility due to so many unpredictable variables. But that shouldn’t stop us from trying. I’ll describe what the U.S. currently uses for electricity, transportation and other types of energy today and then project forward to 2040. Then I’m going to show in broad terms how we could reasonably make the transition to a predominantly renewable energy system by 2040.
I’m going to use “quads” as my common unit, which is short for a quadrillion British thermal units (Btu). Quads are commonly used when talking about large-scale energy use, such as in the context of an entire nation's energy budget. For example, the U.S. used about 97 quads of energy in 2013 (see Figure 1).
FIGURE 1: U.S. Energy Flow Chart, 2013
We can follow Figure 1 and group the various end uses of energy into four sectors, which we’ll tackle below: 1) transportation; 2) industrial; 3) commercial; and 4) residential.
We see from this same chart that petroleum is the single largest energy source in the U.S., followed by natural gas and then coal. Renewable energy is still a relatively tiny share of the whole, even if we include large hydro, which isn’t even considered renewable in some jurisdictions, like California, due to its environmentally-damaging impact.
Another major takeaway from this chart is the pronounced inefficiency in our energy use. A total of 59 quads is “rejected,” that is, wasted. Only 38.4 quads are used productively. This poses a big opportunity to use energy more efficiently.
Looking ahead, the Energy Information Administration projects a 30 percent increase in vehicle-miles traveled by 2040, according to the EIA Annual Energy Outlook 2014. However, projected increases in fuel economy more than offset this increase in driving, and the net result in EIA’s forecast is actually a decline in transportation fuel demand by 2040, falling from 26.7 quads in 2012 to 25.5 in 2040.
In its reference case, the EIA projects that electricity consumption will grow 0.9 percent per year through 2040 and that natural-gas consumption grows by about 0.8 percent per year through 2040, with industrial use of natural gas in chemical production showing the strongest growth.
In sum, EIA expects U.S. energy consumption to increase to about 106 quads by 2040, from 97 quads in 2013, an increase of 9 percent.
I’m going to define a “predominantly renewable energy economy” as one with 80 percent or more renewable energy, which includes renewable electricity, biogas and biofuels. No, it doesn’t include nuclear. This makes the magic number to reach by 2040 or sooner about 85 quads (80 percent of 106 quads).
So how do we get to 85 quads from renewables?
First, I disagree with EIA about the likely trajectory of U.S. petroleum demand. Based on the arguments I set forth in Part 1 of this series, I believe there is a very good case for lower U.S. oil production than the EIA projects in the longer term. This will lead to higher prices and a significantly lower energy content of produced barrels, because unconventional oils contain less energy per barrel than conventional oil. The main points I made in Part 1 concerned 1) much higher than normal decline rates for unconventional oil wells; 2) the apparent failure to consider the lower energy content of unconventional oil, which reduces the available energy EIA projects by as much as 30 percent; and 3) the failure to consider the global impact of dramatically declining net oil exports as major oil exporters use ever larger portions of oil that they produce while their oil production declines over time.
The EIA already includes in its forecasts an increasingly efficient economy, because this has been the long-term trend. EIA projects a 2 percent decline in energy intensity per year through 2040. This means that our economy will produce the same goods and services each year with 2 percent less energy.
FIGURE 2: EIA’s Energy Intensity Projections
Source: EIA AEO 2014
However, due to the factors mentioned above, it seems likely to me that we’re going to see substantially more price-induced energy conservation than the EIA projects by 2040. Moreover, as we shift to electricity as a major transportation fuel, a large increase in efficiency is achieved because electric vehicles are two to three times more efficient than conventional cars in converting energy into motion. Accordingly, I’m going to assume that 25 percent of the 85 quads will be met by additional conservation and efficiency that is not included in EIA’s current forecast. This brings us to 64 quads as the magic number to achieve by 2040.
Let’s start with the hard part first. Shifting to a predominantly renewable electricity system seems almost inevitable at this point. The transportation sector is a tougher nut to crack because we’re still so dependent on petroleum. Electrification is the key, however, to weaning us from petroleum, as well as from coal and natural gas. There are a ton of other ways to reduce petroleum demand -- hybrid cars, smaller and more efficient cars, biking, walking more, carpooling, increasing busing and train routes, smarter urban planning, etc. -- but to actually get us off petroleum, we should look primarily to the electrification of vehicles. I won’t rehash the arguments here, but I covered the debate over electric vehicles vs. fuel cell vehicles here. In sum, I don’t see fuel cell vehicles as a significant player in our future.
EIA, as mentioned, projects 25.5 quads will be needed for transportation energy by 2040, but this forecast includes only a small amount of electrification. Based on the logic described above, to account for increased price-induced conservation and improved efficiency, I reduce this figure by 25 percent to 19.1 quads. This means that higher petroleum prices will induce a stronger shift away from traditional vehicles, and away from driving more generally, than EIA currently projects.
While biofuels like ethanol and biodiesel are far from perfect solutions, we can’t ignore that they have in fact grown rapidly in recent years and are probably here to stay. Ethanol now provides about 1 million barrels of fuel per day in the U.S., which, after adjusting for energy content, is equivalent to about 700,000 barrels per day of oil, or about 3.7 percent of U.S. consumption. Assuming only that biofuels production stays constant, subtracting this amount from 19.1 results in a total of 18.4 quads needed for transportation energy by 2040.
Since I’ve defined a renewable energy economy as one that gets 80 percent or more of its power from renewables, we can reduce this 18.4 quads to 14.7 quads, which assumes that 20 percent of transportation will still come from fossil fuels by 2040. Since this column is an outline, I’m going to forecast at this point that this 14.7 quads will come entirely from electricity due to relatively rapid electrification of transportation through various types of electric vehicles. This point is, of course, highly debatable and uncertain, but, again, I think it’s plausible, given the trends we’re seeing today. We have 26 years to get there.
The astounding thing about electric vehicles is that they use energy about three times more efficiently than internal combustion engine vehicles. So switching our fleet to EVs entirely by 2040 would allow us to meet all 80 percent of our transportation needs with only about 5 quads of electricity. (If you don’t believe me, feel free to double-check my math.)
Electrifying our transportation sector also allows us to focus on how we produce electricity in our country as the key task for transitioning off fossil fuels economy-wide, which we discuss next.
We currently produce most of our electricity from coal, but an increasing share comes from natural gas and renewables. Nuclear power’s share is significant but slowly shrinking. In 2013, the EIA stated that the U.S. obtained 41 percent electricity from coal (down from more than 50 percent just a few years ago), 26 percent from natural gas, 19 percent from nuclear, 13 percent from renewables (which includes large hydro), and 1 percent from petroleum.
FIGURE 3: Sources of U.S. Electricity Production (Trillion Kilowatt-Hours)
Source: EIA AEO, 2014
By 2040, the EIA projects that the mix will change to 32 percent coal, 35 percent natural gas, and 16 percent each for nuclear and renewables. I think these projections are way off, due largely to the within-reach “solar singularity.”
EIA has often been wrong when it comes to projecting both renewable energy growth and fossil fuel production. In the case of renewables, the agency has almost always been too pessimistic (here’s a study of the International Energy Agency’s projections, which generally closely mirror the EIA’s projections and vice versa). In the case of fossil fuels, however, the EIA is generally too optimistic. (The last few years have shifted EIA’s record on fossil fuels because the shale gas and oil revolutions have surprised almost everyone.)
Converting the EIA’s numbers into quads, we arrive at a revised forecast of 12.6 quads of electricity consumption in the U.S. by 2040, which includes my standard 25 percent reduction due to additional price-induced conservation and efficiency. Reducing that figure by 20 percent (allowing for our 80 percent definition of a “predominantly renewable energy economy”) brings it down to 10 quads. But we need to add in our shifted transportation electricity demand (5 quads), and this brings our total renewable electricity goal to 15 quads.
I’m going to be bold and project, based on today’s growth rates of solar and the almost-here grid parity for solar around the country, that we’ll see solar grow to 50 percent of all electricity supply by 2035-2040, including our shifted transportation energy demand. This isn’t just a wild guess. It’s based on a projected growth rate of 30 percent per year from 2013 onward.
Actually, 30 percent is a significantly lower growth rate than we’ve seen in the last five years (a period with an average 54 percent growth rate in solar electricity produced), but we should expect the rate to slow down over time, since this is an almost universal pattern for the diffusion of new technology.
The 30 percent growth figure is admittedly a guess, but it’s an educated guess based on the many positive trends in the solar industry and the fact that solar is so scalable and modular. Some areas of Australia have reached 25 percent or higher residential penetration rates for solar in just a few years -- the highest in the world -- and there’s no reason to think that we can’t achieve similarly fast penetration in the U.S. once the tipping point has been reached. The U.S. only has about 0.3 percent of solar penetration in 2014, but with steady growth rates, this small base grows rapidly, spurred by low cost and massive scalability.
Wind power growth is less certain, for a variety of reasons, including the fact that wind resources aren't as widely available as solar resources, as well as the additional permitting hurdles that exist for wind turbines as opposed to flat solar panels. Also, the annual growth rate of wind in recent years has been highly variable. Average growth for wind power in the U.S. over the last five years has been 25 percent. If we project only half that annual growth from 2013 onward (12.5 percent), we get to about 10 quads of wind power by the late 2030s. This leaves some wiggle room, as with solar, for lower growth rates to still meet the projections for 80 percent renewables.
So under these projected growth rates, wind and solar could bring us to about 80 percent of all electricity consumed by 2035 to 2040, leaving 20 percent to be provided by other renewables and/or natural gas and storage, and possibly some remaining nuclear plants. The 15 quads of total electricity demand by 2040, including the shifted transportation energy, could, then, come from wind and solar backed up with battery storage, baseload renewables and residual conventional power sources.
Biomass and geothermal are important renewable energy technologies, particularly because they’re generally baseload sources, that is, they can produce power when needed. Biomass, geothermal and small hydro could probably provide the 20 percent of remaining electricity needs by 2040, which would allow elimination of all fossil fuels in the electricity sector. Additional incentives will likely be needed for these technologies because they’re currently not growing very fast, for a variety of reasons. Given the technical potential for these resources, however, and given the many examples around the world of how smart incentives can help bring new technologies to scale, there is a strong argument to be made in favor of providing additional incentives for these baseload renewables.
Will we really eliminate fossil fuels in electricity generation by 2040? Almost certainly not. But that’s not my point here. My point is to show that we could if we decide we want to, based on plausible growth rates for renewables.
Grid reliability is a major issue when it comes to high penetration of renewables. As discussed briefly in my introduction, we will need large amounts of energy storage to balance a predominantly renewable energy grid. For present purposes, I’m simply going to assume that the nascent energy storage wave I discussed above swells fast enough to allow integration of renewables at the levels I project in this article. This is a very big assumption, and time will tell if I’m way off. Keep in mind, however, that I have allowed 20 percent of electricity to come from non-renewable sources in my definition of a renewable energy economy, and this allows some padding to help balance a high-renewables grid, along with lots of energy storage and interconnected grids for further balancing.
So far we’ve covered petroleum and electricity. This covers the lion’s share of energy use in the four energy consumption sectors of industrial, commercial, residential and transportation energy. It leaves out, however, heating, cooling, and industrial use of natural gas. EIA calculates about 20.8 quads of natural gas use for heating, cooling and industrial processes by 2040. Reducing by 20 percent due to our definition of “predominantly renewable,” we get 16.6 quads that we need to source from additional renewables to get to our goal.
Solar PV’s poor cousin is solar water heating technology. In fact, solar water heating may be more prevalent in the world today than solar PV; it’s just not as sexy. China's solar water heating rivals the rest of the world’s installed PV capacity, with about 118 gigawatts equivalent of solar thermal installed in China by 2010 and significant growth since then.
Solar water heating is growing in the U.S., but not as fast as solar PV. California has had a rebate program for solar water heating for a number of years, but it’s still a relatively small program. A 2007 NREL study found only 0.5 quads of technical potential for SWH in the US. This leaves 16.1 quads to make up. This is a tough sector to source predominantly from renewables, but for present purposes, I’m going to project that a mix of SWH, biomass and renewable electricity can meet these 16.1 quads. This will require a higher growth rate for renewable electricity sources than I have projected above, so it may be the case that natural gas for industrial processes and heating and cooling will take a bit longer to source predominantly from renewables than transportation and electricity.
Here’s a summary of my projected path to 80% renewables (units are quads).
Mark Jacobson and his team at Stanford have completed a huge amount of work in this area. Their draft 2014 paper looking at achieving a 100 percent renewable energy economy by 2050 provides strong support for my projections here, though they don’t see things changing quite as quickly as I do.
Jacobson’s work has been incorporated into a very useful website with nice infographics showing how each state can achieve the transition. Here’s the graphic for California, showing about 50 percent solar and about 35 percent wind by 2050, which includes a 44 percent improvement in energy efficiency.
The National Renewable Energy Laboratory also completed a major study in 2012 looking at what it would take to get to 80 percent renewable electricity by 2050 in the U.S. NREL projects that wind will be the largest single source of electricity, and it also shows a higher percentage of biomass than I’ve calculated here.
I haven’t discussed costs at all. However, it is clear already that transitioning to a fully renewable economy will save tons of money on a net basis. This is counterintuitive to most. Aren’t renewables more expensive? Well, historically they often have been, but that’s changed a lot, and the costs of renewables continue to fall while the costs of fossil fuels generally continue to climb. This means that after the costs of installation and maintenance are accounted for, the savings from zero fuel costs (for most renewables) and a far more efficient economy more than outweigh the initial costs. Jacobson has crunched the numbers, and he and his team project a net savings of $4,500 per year per person in the U.S. When you factor in health benefits from far less pollution, the savings almost double.
Another study from the International Energy Agency projected a net savings of $71 trillion (yes, with a “t”) by 2050 resulting from the investments in new energy technologies required to keep the globe’s temperature from rising more than 2 degrees Celsius. Again, these cost savings result primarily from fuel cost reductions.
We have, then, a number of very compelling arguments that we should shift to a renewable economy, even absent any climate or energy independence benefits: we could and should do it entirely as an economic boost.
It is worth reminding readers that the scenario I’ve sketched should be considered a high petroleum price scenario, based on the factors I’ve outlined above that relate to global oil production, net exports and net energy content. As such, if for whatever reason oil prices remain at or below current levels, it’s very likely that my projections will be off.
Tam Hunt is the owner of Community Renewable Solutions LLC, a renewable energy project development and policy advocacy firm based in Santa Barbara, California and Hilo, Hawaii.
Enphase didn't exhibit at last year's Solar Power International, but the microinverter specialist has traveled to Las Vegas this year with an improved microinverter -- and a bit of a surprise.
Paul Nahi, Enphase's CEO, said the firm's fifth-generation microinverter is its "most technologically advanced microinverter -- this was not even possible to do when we started the company."
He noted that the 275-watt, 97 percent CEC efficiency microinverter "needed to address the complexity of the grid" with reactive power control, volt/VAR and ride-through.
Enphase claims that the new device is Rule 21-ready. (Rule 21 regulates grid-interconnected distributed generation resources, including customer-owned solar.) The unit is also fully bidirectional.
Nahi called the advent of storage "a seminal moment for energy" and the "first time that we are going to be Enphase Energy." He said that the firm is leveraging years of R&D and patents to introduce an energy management system along with a modular plug-and-play battery. The management system looks to combine grid smarts, analytics, communications and energy storage, along with advanced control capabilities and load management.
Enphase co-founder and VP of products and strategic initiatives Raghu Belur spoke of distributed hardware, software and power electronics as an operating system, saying, "We're talking about a larger platform in which storage is an application."
The microinverter leader seems to have looked at the battery problem through a solar module lens -- the poorest-performing battery in a string sets the standard for the performance of the system. Nahi noted that there are "many points of failure in a storage system -- at the inverter, at the charge controller, or at the battery," making storage systems very complex to install, design and manage. He added, "That complexity drives up cost."
According to Belur, after an extensive global search for the right battery chemistry and vendor, Enphase sourced ELIIY Power's lithium-iron-phosphate battery, a chemistry known for its safe operation which is also used by battery vendor A123. Nahi said that ELIIY is "extremely cost-competitive in this space." Belur noted that with all due respect, he is very surprised by the high prices being quoted for batteries from companies like Tesla or SolarCity.
ELIIY Power is a Japanese battery producer supported by Daiwa House, a large Japanese homebuilder.
The 40-pound AC battery, equipped with a bidirectional microinverter, plugs into the Enphase Energy Management System and is designed for residential and commercial applications. The unit provides 1.2 kilowatt-hours of energy storage and 275-watt/500-watt power output. Belur notes that it only takes one person to hang the 16-inch-wide battery on the wall of a garage.
“Storage is going to be a multi-billion-dollar market, and it will be essential in helping solar gain broader acceptance and higher penetration,” said Belur in a release, adding, "It provides benefits for the system owner, while also helping with grid stability."
Enphase will soon be launching pilot energy storage projects with Lennar Homes, Hawaii Energy Connection and Vivint Solar. The product line rolls out in 2015.
Belur said of the batteries, "We're breaking storage into smaller manageable chunks," adding, "We think we can drive the price down effectively." He continued, "We have abstracted away the chemistry. You can mix and match batteries the way you can mix and match solar panels with microinverters on a roof."
"It's not about defecting from the grid," Nahi said. "If we look at the grid in Australia where PV penetration is high and regulations impose a 'zero-export' rule, the Enphase system is a solution."
Belur suggests, "We are providing the platform for other companies to write their own applications -- the optimization might be for zero export, highest availability or demand charges."
Residential rate structures do not make it easy for energy storage to be economically viable right now in the U.S. Enphase will look at international markets such as Australia to begin building the business.
“The solar industry is dominated by static, isolated systems that do not integrate, communicate, scale or adapt quickly to changes in power generation," said the Enphase CEO, adding, "Enphase is taking a fundamentally different approach to energy management.”
The question of the viability and timing of the energy storage market remains. Some believe the move to ubiquitous energy storage will come sooner than expected. Other studies have suggested that storage is not needed until very high renewables penetration is reached, or that cheap natural gas obviates the need for energy storage.
Enphase will soon find out.
After two controversial attempts to change net metering policy in San Antonio, CPS Energy, the utility serving the city, thinks it has found a new incentive model for solar that local installers can support.
Rather than trying to adjust net metering by adding fees or a new way to calculate solar's value, CPS wants to overhaul solar support structures completely. And it’s looking to the wholesale market for inspiration.
Under a pilot plan proposed earlier this month, CPS would create a competitive bidding process for residential and small commercial power-purchase agreements (PPAs). The systems would be hosted on customer rooftops but connected to the grid on the utility side of the meter. CPS says the plan will drive down pricing, help it account for fixed grid costs and also provide an opportunity to deploy smart inverters for grid support.
“Why does the wholesale market work? Because it’s so predictable,” said Raiford Smith, the vice president of corporate development at CPS. “Power-purchase agreements lock in a utility to buy a certain amount of energy and the developer gets a steady pipeline of work. That's what we modeled it after.”
Net metering also provides that needed consistency, say solar installers. However, CPS and many other utilities argue that net metering payments, which are based on retail rates, do not reflect the cost of maintaining the grid.
CPS Energy’s PPA program would set up an independent body to create a bidding platform and provide customer acquisition support for local installers. Those installers would compete to enter into long-term energy supply contracts with CPS, just as an operator of a large power plant would. Installers would own and maintain the systems, and the customer hosting the system would get a credit on their monthly bill. Installers could also bundle various projects through the third party managing the procurement.
The proposal would strip ownership of solar from customers, which worries many installers. But it would also allow CPS to target low-income customers, thus expanding the market in a more equitable way.
Details about the bidding process, PPA terms and the value of bill credits still need to be worked out. But CPS is touting the plan as a win-win-win for everyone.
“We think we came up with a plan to satisfy all parties,” said Smith. “This allows us to recover fixed grid costs, create stable pricing and a large pipeline of projects for installers, while also reaching new customers with a third-party offering.”
Net metering wouldn’t be replaced immediately. The utility would still offer rebates and pay customers retail rate for solar electricity through at least 2015.
For that reason, the local solar industry hasn’t come out against the plan. But installers are divided -- particularly among those who don't want to see a complete end to net metering or traditional rebates.
“Opinion is split. It’s split between one group of companies that says the plan will severely restrict their ability to make a profit. But another group says it will provide opportunity to develop more projects,” said Lanny Sinkin, executive director of Solar San Antonio, a nonprofit that represents the local solar industry.
Solar San Antonio has come out in favor of running the pilot, but the group is adamant that net metering must stay in place.
Comments from the organization's members range from disgusted to cautious to supportive.
"This is an incredibly concerning development," wrote one member in comments to Solar Antonio. "CPS is suggesting that in a year's time, the only DG solar that would be deployed is that for which the utility has issued an RFP. That is a death knell to the industry."
Another member supported the idea in theory, but worried about utility control over the industry: "In general, I don’t oppose a PPA concept....[but] what appears to be manifesting here is a monopoly, single-provider concept in the distributed arena."
Others expressed the need to be flexible and work with the utility: "As proponents of the equitable expansion of solar energy, we see this as a potential solution."
At this point, there are far more questions than answers about the proposal.
Local installers would need to become third-party service providers able to guarantee the output of a system over fifteen or twenty years in order to maximize the PPA. That adds new business complications related to operations and maintenance. Installers would also need to find investors who can monetize tax credits, thus adding another layer of financing requirements.
CPS Energy will have to create a new bidding platform, which could take up to eight months. And if it takes too long for installers to secure PPAs when the program is up and running, some worry that it will hurt their sales cycles.
Even as some worry about the details, solar advocacy organizations say they're not opposed to the idea of competitive bidding.
"There's nothing wrong with a utility issuing an RFP to buy wholesale solar. In fact, they should be encouraged to do so," said Adam Browning, executive director of Vote Solar. "But doing so should not supplant or replace an energy user's ability to install solar and use the electricity onsite."
Vote Solar recently put out a policy guide outlining its take on how to create fair promotion policies for solar. Keeping policies in place that allow for customer ownership is a central theme.
Long term, that's the main sticking point related to CPS' proposal for wholesale distributed solar. If it's used in conjunction with net metering, the firms that make up San Antonio's solar industry seem willing to go along with the plan. If it completely supplants the policy, they are much less enthusiastic.
Solar San Antonio's Sinkin said he hopes CPS will also consider other pilots, such as on-bill financing or a minimum bill that might help the utility recover fixed costs, while also allowing customers to own their systems.
CPS Energy is not yet ready to kill net metering, but it seems set on the PPA model. The utility hopes the successful bidding process will convince solar installers to eventually move beyond net metering as part of a compromise.
"We wanted to make sure we didn’t have a jarring transition from net metering to this PPA model. We agreed to pilot the PPA through next year. At the same time, we’d concurrently run net metering. This makes sure PPA terms and conditions are workable and the industry can adjust to this new world," said CPS Energy's Smith.
Figuring out exactly what that "new world" will look like is causing a lot of fear among installers. But many seem willing to try the new pilot out and work collaboratively with CPS.
"I believe, based on conversations with the leadership at CPS Energy, that they truly want to become No. 1 in distributed solar. If that is their goal, then they have no motive to use the RFP process to limit deployment," said Sinkin. "Again, we shall see how the PPA unfolds."