Regulations Against Solar Power
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originally posted at:
http://www.businessweek.com/print/technology/content/jul2007/tc20070710_273201.htm

Congress Needs to Take a Shine to Solar

Momentum to create domestic sources of renewable energy is growing. But to make it catch fire nationwide, Washington must pass legislation

by Travis Bradford

Are traditional energy utilities casting a shadow on solar power? Nationwide, nearly one megawatt (1,000 kilowatts) of new solar energy capacity is being installed per business day. Yet it's not happening uniformly across the country, not even in many states where sunshine is abundant or where the nation's fastest population growth is driving more demand for all kinds of electricity.

Take Arizona. With nearly 300 days of sunshine a year, Arizona leaders put in place legislation that requires traditional utilities to generate 15% of their electricity from solar and other renewable energies. Despite such clear legislative mandates, the state's utility regulator, the Arizona Corporation Commission (ACC), is considering rules that may stifle the deployment of solar systems in one of the nation's sunniest states. The ACC's proposed rules for supplying extra solar power to the local utility's electrical grid would effectively discourage a large retailer or even a smaller business from installing more than 100 kilowatts of solar panel capacity on its property. That's because there would be little payoff for that business in selling any more than 100 kilowatts of unused electricity produced during off-peak hours for that business. With such a cap, only businesses with very small physical buildings will consider deploying solar, and most of the effective solar demand will go unmet in Arizona.

Bogged Down by Rules

Why, despite its legislated goal to increase the use of renewable energy, would Arizona prevent its own solar industry from doing business within its borders? This is just one example of the exceedingly complex state-by-state rules governing not just interconnection, but the accounting for the electricity supplied to that grid by would-be solar producers and the rates they're paid for it. This complexity effectively deters businesses and home owners from installing solar power-generation systems. This, in turn, hurts demand for solar-energy service providers such as Sun Edison and solar panel makers such as BP Solar, First Solar (FSLR), and Evergreen Solar (ESLR).

In June, the U.S. Senate had a chance to speed the deployment of solar energy. Yet, in a surprising compromise on the federal energy bill, the Senate abandoned a provision to encourage nationwide deployment of most forms of renewable energy. Bowing to lobbying pressure and the political realities of compromise, the Senate jettisoned a comprehensive $32 billion package of incentives that would have dramatically improved the prospect of solving our nation's addiction to fossil fuels. These incentives for clean energy were to be paid for by reductions in subsidies given to oil producers.

The Senate's failure to truly support solar is highly disappointing. Yet the momentum toward creating cheaper, cleaner, and domestic sources of vital energy from renewable sources continues to grow. The prospect—and demand—for future renewable energy legislation still exists. However, the raw political power displayed by fossil fuel producers during the energy bill debate adds new urgency to the discussion of how to create rules and incentives that strengthen the commercialization of renewable energy. Those decisions will define our future as we grapple with accelerating energy, economic, security, and environmental challenges.

Monopoly-as-Usual?

The best way to create cheaper and cleaner domestic power is to facilitate competition from renewable energy sources. To do this, we must address some structural issues revealed during the energy bill debate. For starters, we need to decide who should be allowed to provide renewable energy solutions to U.S. citizens and businesses. The current setup threatens to enable only traditional utilities to deploy new technologies rather than opening the way for new providers and even users themselves to become power suppliers. Are we interested in creating energy competition, or are we satisfied with monopoly-as-usual?

In the failed Senate bill, Congress was on the verge of putting real meaning to renewable energy competition with the proposed extension of the federal tax incentives for solar energy. Set to expire at the end of 2008, the 30% tax credit would have been extended to the end of 2016 and modified to allow electric utilities themselves to claim the credit, opening the door for them to participate in the commercial deployment of solar energy.

Best Practices

Yet even if it had passed into law, that provision would not have been sufficient to break down barriers to creating real market competition from solar energy. The reason: Today, many traditional utilities would still be able to exploit regulatory and structural obstacles that slow or block third-party providers of solar energy from selling their excess electricity. These include inconsistent, state-by-state rules governing how solar producers can connect to the traditional grid, as well as the varying limits on the solar capacity. The result is that Staples (SPLS), Wal-Mart (WMT), and other companies are deploying solar rooftop systems in California and New Jersey, where the rules are favorable, but won't do the same in Arizona.

In other words, when a state gives its traditional utilities an unambiguous signal about the need for more solar energy, such as it has in California and Colorado, the result is aggressive deployment. In such states, traditional energy providers are setting a strong example by adopting best practices for interconnection and metering with solar energy. Notably, by 2008, Xcel Energy will actually purchase power from an 8.22-megawatt solar plant being built in Alamosa, Colo.

But when the rules are not clear, as in Arizona and even Florida (the Sunshine State), very little solar generating capacity is deployed. Should utilities be allowed to take advantage of tax credits for deploying their own solar capacity while this regulatory patchwork remains in place, the effect would be to empower them to capture market share with one hand while keeping competition out with the other.

To avert such an outcome, Congress needs to adopt national best practices for interconnection, metering, and rates similar to those implemented in Colorado, New Jersey, Maryland, and California. In short, if utilities are going to be allowed federal tax incentives to enter the solar market, then that market should be open to anyone else wanting to serve it. Let's get on with using this moment in history to create an energy policy that promotes competition and speeds the deployment of clean, cheap, local sources of energy rather than encouraging more of the same from last century's lobbyists.

Travis Bradford, author of Solar Revolution (MIT Press, 2006), is the founder and president of the Prometheus Institute for Sustainable Development in Cambridge, Mass