This piece was first published in Forbes on April 25, 2020. It is reprinted with their permission.
Last year solar power accounted for 40% of new electricity generating capacity in the United States and directly employed 250,000. The industry’s transformation over the course of a decade from cottage business to one of the most dynamic growth sectors of the economy has been driven by the familiar catalysts of falling costs and supportive state and federal clean energy policies. Yet this year solar power’s growth outlook is far less optimistic, due to the larger economic impact of COVID-19. Bloomberg New Energy Finance expects the volume of new solar projects to fall 30% or more in 2020, while the solar industry itself forecasts a decline in rooftop solar of up to 70% in the second quarter.
The downturn in new solar business hurts in two ways. Falling demand for new solar generation translates into more furloughed workers in the midst of an unprecedented employment crisis. In March and April big residential solar companies have collectively laid off thousands as business slowed, and the Solar Energy Industry Association says up to half of solar workers could lose their jobs.
Solar’s decline isn’t unique, but it hurts all the more because the industry exists at the nexus of green jobs and climate solutions. Clean energy is one of the clear and inevitable growth industries of the future. In this light, the failure of Congress to extend a key tax credit for renewable energy in recent stimulus packages, and leverage the existing program to limit near-term economic decline and incentivize future growth, looks particularly self-defeating.
Anne Hoskins, chief policy officer at Sunrun, recently sat down to discuss the impact of COVID on the residential solar power sector. She also offered her view on a broad set of policy solutions to get the industry back on track.
Extension of the ITC Is a No-Brainer
The investment tax credit and net metering have been the key drivers of residential solar growth. The ITC is currently on the glide path to oblivion for individual homeowners, with the value of the incentive declining from 30% of the cost of a new system to 26% at the start of this year. In 2021 the ITC will fall to 22% before disappearing altogether for homeowners in 2022, although businesses will still have access to the 10% break in perpetuity.
“The investment tax credit has fueled solar leasing, and has also resulted in large job creation,” says Hoskins. “Here is a policy that we know how to use, that will put capital in the hands of companies that know how to use it, while putting people to work and bringing a valuable product to the public.”
For sure, the solar industry saw the ITC phase down coming well before the coronavirus hit. Yet the existing timeframe for the ITC’s diminution “would be a very significant reduction at the absolute worst time,” says Hoskins.
It’s a given that corporate demand for tax relief will fall as profits diminish in 2020 and likely into 2021. The result will be less investment, directly from solar developers or third parties, to fund the upfront costs of new systems.
Yet the credit is a perfect tool for economic recovery. And, as more economists foresee a drawn out return to normalcy, rather than a quick, V-shaped rebound, long-term support of an industry with staying power makes sense.
Soft Costs Are the New Frontier
The price of solar power has fallen 70% since 2010, but that’s just for the equipment. Soft costs arise from the permitting process and from time and effort required to interconnect with the local electric utility. Soft costs can add $1 per watt, or about one third on top of the price of a rooftop system.
“Something that’s come to light for us, and that we’ve worked on in these last weeks with COVID, has been that it’s really forced us to push forward on those soft cost issues,” Hoskins says. “This isn’t really on a cost basis, it’s just out of necessity.”
“We’ve reached out and had a lot of success with permitting offices, exploring ways that are less burdensome to provide them necessary information and reduce the timeline, because it’s the timeline that also makes these projects quite costly.”
She points out that automated processes for permitting and interconnection cut soft costs by a third in Germany and Australia. In the U.S., the National Renewable Energy Laboratory is developing SolarAPP, an online permitting tool that will be trialed this year. The technology will standardize the permitting process and have the criteria for safety and code compliance built in.
“The plan is to make the app available for free for permitting offices around the country, with the hope that this will really simplify the process both for public officials as well as the solar companies. “
“But the area that’s going to be my next priority is to work with the utilities to find a faster way to do the interconnection,” Hoskins says. “California utilities are really very good on interconnection. They automated a few years back and they can go through the process in a couple of days. We have other utilities where it’s weeks, and that just doesn’t make sense.”
“Hopefully, we can make this a more efficient process.”
Clean Energy and Utility Interests Must Align
More often than not, electric utilities have viewed distributed energy like rooftop solar as a threat to their bottom line. The reason is simple. Monopoly utilities grow profits by investing in new infrastructure and earning a guaranteed rate of return, bestowed by a given state’s public utilities commission, for their effort. But distributed solar cuts both electricity sales and the need for utilities to make new capital investment in generation and powerlines.
This fundamental tension has driven utilities to increasingly push back on net metering in a drive to slow solar growth. Utilities have also argued that the intermittency of solar threatens electric grid stability, and that wealthy solar first adopters end up paying less for grid maintenance as their purchases of electricity fall, effectively shifting grid costs to lower income groups.
These arguments, while not unfounded, conveniently overlook the resiliency that distributed energy can bring to the grid. In 2015 in Hawaii, regulators cut net metering only to bring it back in revised form two years later, in good part due to utilities’ realization that consumers would respond by purchasing storage batteries and disconnecting from the grid, taking the resiliency that their distributed power systems provide along.
“When you get enough solar you’re also able to replace the need for very expensive transmission and distribution upgrades,” says Hoskins. “There are many studies that have shown net positive benefit, not just for the resident who owns solar, but for all rate payers.”
Last year Hawaiian Electric won a utility of the year award for its efforts to expand solar. The utility operates under an incentive structure geared toward rewarding efficiency and the proliferation of clean energy, both in service of meeting the state’s goal of 100% clean energy by 2045.
“In my view, there’s a role for distribution utilities to be essentially distribution system operators, in the way that we have regional transmission operators (RTOs) at the wholesale level,” she says. “You’re going to start to have this ecosystem where there are many, many players who are all trying to continue to improve and offer new services to customers. And, so we should have, I’d say, somebody conducting that orchestra. And that should be our utilities.”
“Look, we need to have a core distribution system, and it’s certainly not our view that we want everybody operating their own utility in their house. But we do very firmly believe that the approach should be grid services and integration. We’re going to need strong leadership from regulators to push this forward.”
Under Crisis, Ensure Open Communications
A final impact of COVID is felt in statehouses around the country.
“Due to COVID, many of the legislative and regulatory proceedings have been either been put on hold or scaled down. We want to make sure that there’s still going to be an opportunity for advocates across the board to give input into what are really critical policy decisions,” Hoskins says.
“We have to find a way that we’re going to be able to have stakeholder proceedings, if these restrictions have to continue for any extended period.”