Solar: At what cost?

Brandon Presley said he couldn't have found a solar farm "with a SWAT team and a search warrant," when he was elected to the Mississippi Public Service Commission in 2007. Today his state is among the fastest-growing solar markets in the U.S., according to GTM Research. How is this possible? After billions in government subsidies, regulations compelling utilities to increase production from renewable energy sources, state rebates, tax credits and more, it may pencil. Maybe.

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The glow of cities on the west coast of the U.S. Elements of this image furnished by NASA

Finding cheaper sources of power is a no-brainer in any circle. Many in the solar business have learned that to get communities, investors and utilities on board, the conversation must center on economics.

And so it has. Highly regulated utilities mandated to diversify their portfolios with renewables drove last year’s growth in solar as technological improvements and government subsidies continued to drive the cost down by nearly 80 percent since 2010 to 6 cents per kilowatt-hour. This brought solar’s capitalized cost within reach of coal (3.3 cents) and natural gas (3.5 cents) according to the U.S. Energy Information Administration (EIA).

As federal, state and other agencies continue to bet on solar, the cost of renewables is catching the gaze of property owners with deals that fit the sweet spot of government, utility and lending programs. The great hope is that solar technology’s slow crawl toward return on investment will someday catch up with that of fossil-based energy. It may take a while.

The falling price of natural gas, due largely to the shale industry catapulting the U.S. to the world’s leadership in production, pushes the economic case for solar even further down the road. For now and through 2021, U.S. taxpayers will continue to fund the wager on the promise of an eventual financial return on solar.

In 2015, the Institute for Energy Research and the University of Texas calculated energy subsidies by cost per kilowatt hour (KWh) specifically targeting those resources used to produce electricity.

Between 2010 and 2016, solar subsidies ranged between 88 and 10 cents per kWh and for wind, between 5.7 and 1.3 cents per kWh. Subsidies for coal, natural gas and nuclear were between 0.05 and 0.2 cents.

Solar often gets even more of a boost at the state level. The largest producer of solar energy today is California, creating almost half of the nation’s total solar energy according to the EIA. In 2016, solar represented over 13 percent of that state’s total energy production, still well below its goal of obtaining 50 percent of all of its electricity from renewable sources by 2030.

California doubles down

California is now set to spend $1 billion over the next decade on incentives for landlords to install rooftop solar panels on apartment buildings housing low-income residents. The program will be funded by the state’s climate-change program.

This new program was developed in part to address criticism that California’s climate-change program was not helping the poor and working class, who were instead paying to subsidize the electric vehicles and solar panels of the wealthy.

To qualify for the Solar on Multifamily Affordable Housing program, an apartment building must include at least five subsidized units and either be inhabited by families earning no more than 60 percent of the area’s typical income or be located in a “disadvantaged” area. At least 51 percent of the utility savings must go to the residents.

The bill creating this program was signed into law in 2015. The regulations implementing it were only recently approved by the California Public Utilities Commission however, and installations are expected to start this year.

Subsidies and energy costs

There is no shortage of programs that financially reward renewables that may someday pencil on their own. These programs are good at incentivizing green energy production but they also increase the total cost of the electricity generated. This is hidden from the rate payer because some of the cost in providing this electricity is being spread across all of the taxpayers who ultimately pay for the subsidy.

The benefit to the taxpayer comes from the reduction in the need to burn fossil fuels and the attendant reduction in pollution. Taxpayers may also be boot-strapping an industry that may someday be able to compete with fossil fuel-based electricity generation without subsidy. When, or if, this will happen remain unknown.