The current rate case conflict between the solar industry and the electric utilities, centers around utility regulation and the traditional business model of utility investing in fuel generation and transmission. The utility then asks the regulating body (the PRC in New Mexico) to approve a rate case which consists of the costs plus a 10% profit.
Since the electric utility companies’ revenue is tied to retail sales (customer rates), anything that reduces that return, like increased efficiency or solar electric power, becomes a bottom line problem. When the legislature mandated the utilities add renewable energy to their portfolio, the utilities complied. It has set up a conflict. The PRC wants to keep rates low for consumers, the legislators want more renewable energy, and the utilities need to recover large investments in infrastructure and fuel costs.
Currently, rate increases are the only way to recover costs. If fuel costs keep going up, and the utilities keep building more plants, then everything runs according to plan. But today, new technologies like solar and LED lights threaten this old model. When customers invest in energy efficiency and solar energy, it results in cost savings for the customer, but reduces revenue for the utilities. As a result, utilities see a bleak financial future and try to come up with fixes that will pass the PRC. Unfortunately, these fixes can be bad for the industry, but the days when it could be drowned in the bathtub have passed. In the end, we think solar and energy efficiency is hear to stay, so the electric utility has to find other ways to make up for their lost revenue by changing their business model.
*This is part 1 of a series on energy utilities, new technologies and the resulting problems caused by this conflict. We will be running this series through out the next few weeks. and suggesting possible solutions to this conflict. We welcome your input and ideas on the subject. Please comment below. Thank you
Congress strikes deal to extend wind and solar tax credits, that were set to expire at the end of 2016 and lift the oil export ban. The ITC extension continues the 30% federal tax credits through 2019.
*Please note this is dependent on veto or pass of the entire federal spending bill. Unless Congress wants another government shutdown, in an election year, this looks like it will pass.
Solar facilities that begin construction before 2020 could qualify for the full 30% ITC under the tentative deal, according to Gregory Jenner, the co-chair of the Stoel Rives energy team, but the credits would phase out after that.
“If construction begins in 2020, the facility qualifies for a 26% credit,” he wrote. “If construction begins in 2021, the facility qualifies for a 22% credit.”
Facilities with construction starting after 2021 — or if construction begins before 2022 but the facility is not placed in service before 2024 — would qualify for a 10% credit. Residential solar systems would receive the same credits, but they would apply when the system is placed in service, rather than when construction began, according to Jenner, a former Treasury Department tax official.
This will make a big difference in many states in residential rack re-sale(s) and commercial racking too.
Continued from An Overview of the Photovoltaic Industry part 3 Click here
Another major complicating factor to the solar electric industry is that capital market(s) are always in search of financial bubbles to exploit; where the goal of investment is to privatize the profits and social the costs. Throwing large amounts of investment money at this “new technology” has led to the commoditization of solar technology, this has produced many systems installed by larger, “big box store type” national solar franchises whose business model of providing solar equipment “leases” has been questioned by many, as they typically are more expensive than a system purchased outright. These leases almost make the re-selling of a home with a solar lease very difficult.
Almost without exception, all the market forces are moving in the direction of product innovation and using less raw materials – and lower costs. This process continues at an un-abated pace, as this is a new developing industry that is certainly not mature. Unlike developed industries, the photovoltaic industry has virtually no entrenched powerful controlling interests – to retard the rate of change or control its direction or rate of adoption. Utilities are under the direction of public regulation authorities and because of laws like PURPA, Utilities cannot stop widespread PV adoption – now that these systems are widely affordable and 43 states have adopted net metering, though Hawaii has reached a limit previously set.
Today, the most rapidly growing segment of this photovoltaic electricity production is the utility mega-watt scale solar farms, using N-S horizontal trackers and large fixed angle ground mounts – (this utility market has recently seen the most growth in sheer numbers of PV watts installed).
What will this industry look like 3 or 5 years from now?
Coupling these systems with reserve batteries banks on the large or residential level has offered promises of future advancements, but currently the battery bank option is not providing economic quantifiable advantages. Many years may pass before the price of battery banks drop far enough, to be more than an expensive added feature and provide a real economic advantage to and end user.
Continued from “An Overview of the Photovoltaic Industry part 1″ Click here
Lean engineering principles focused much of these competitive market efforts of doing more, with less. Four examples come to mind:
- Silicon wafer thicknesses (used within PV modules) are only 25% of what they were in the 1990’s.
- A PV module now vs. 2008 (with the same physical dimensions) can produce 25% or more power.
- PV module array mounting systems use significantly less aluminum than 10 years ago.
- PV module mounts now feature integral bonding between metal components for safety.
Finally, at the end of 2016, the nationwide 30% federal income tax incentive will be reduced to only 10% for businesses and eliminated altogether for residential systems. This will immediately reduce the size of the possible customer base and will reduce the affordability of PV systems with the US. Many feel the industry should and will stand on its own, without 3rdparty incentives, but none the less, the market will “feel” a bump in the road that reflects the longer return on investments for these systems.
Many large national solar installation businesses have been set-up in states where electric power is not cheap and who have incentives programs of some type for PV.
Mass produced/ mass installed PV systems are being installed in many states.
- These “kit type systems” function – but on what level?
- Has any real skill been utilized to make the best possible system?
- What is the best type of inverter to be utilized? – Different inverters have different strengths and weaknesses.
- What is the best type of PV module to be used? – PV modules are not generic.
- What type of mounting structure is optimal for a particular roof type? What additional dead load capacity exists for your existing roof? What structural anchors and WATERPROOFING methods are required for your type roof?
- What roof areas should be utilized for module placement – that compliments a building’s solar access orientation?
- Does the module mount physical placement account for ambient shade producing objects at different times of day or at different times of years, etc.? Or has the open exposed roof areas just had modules slapped on them.
- Will the company that provided installation services still be around in two years or 5 years down the road?
Meanwhile traditional monopoly type public electric Utilities are experiencing competition for the first time for their own customer base, by their own customer base. They are now, albeit with some discomfort, aware that things are changing in their business model. In fact, many electric utilities have “seen the light” and are now in full scale efforts to bring all of the benefits of this clean, quiet, fuel-less, sustainable, low maintenance technology “behind their fence”. In the past, residential customers received the benefits directly by fixing the costs of their electricity or some portion, while avoiding electric bills, and while receiving the benefits of any incentives. Utilities are recognizing that their regulated utility business model – that has been road they have travelled on for 70 years is changing direction, and as they do not have direct total control of the course of the changing business model, they must adapt – but to what?
Looking for a tax deductible donation to give to this holiday season? How about #SaveSolarNM, the campaign organized by REIA-NM, the Renewable Energy Industries Association of New Mexico? We are working to create jobs, build an industry, and promote clean renewable energy, while at the same time creating new power solutions for the health and future of all New Mexicans.
What does that mean? It means that REIA-NM is finding solutions to make solar more available to more people, supporting the local renewable energy industry, and contributing to a cleaner, brighter future.
- We engage in legislative action, lobbying for clean energy, and presenting bills to prolong the tax credits.
- We engage utilities to find solutions so more customers can enjoy solar power.
- We engage the public to inform them about issues that affect solar.
- We track technological advancements in renewable energy.
- Our members maintain ethical business practices.
But we can’t do it without you. This year, REIA and it’s coalition of organizations, all working to build and grow clean energy, will be finding ways to grow renewable energy in New Mexico, create more good jobs for New Mexicans, and take advantage of this state’s rich solar and wind resources.
Your tax deductible donations will make this happen. Help #SaveSolarNM today.
Changes in PV (Photovoltaic)
By Daniel Duffield
Some very unique circumstances have enveloped the US photovoltaic industry over the last 8 years. This industry also is somewhat unique, in that unlike manufacturing appliances or automobiles, there is an entire installation service industry associated with it. Further, these systems have to be integrated in full compliance to the local permitting authorities and with full cooperation with the local electric utility, with all of these additional associated plan set authoring, examination review and approval costs.
- The US photovoltaic electrical systems market was incentivized via a 30% federal tax break, When other industries suffered from the US 2008 banking debacle, many businesses jumped into this industry with both feet to take advantage of the stimulated growth of products sales and services from this emerging new market. Some states also instituted an additional Person Income tax incentives or residential solar installations.
- In many states, the public utility regulation authorities imposed or adopted an (RPS) or Renewable Portfolio Standards – which demanded, coerced or requested that large investor (publically) owned, electric utilities produce – a small but significant portion of their power renewably from wind or solar electric. This led to local utility based, customer incentive programs for solar, with REC’s or SREC’s. These incentive credits have diminished over time, but certainly helped the industry as a whole – lower overall solar system deployment cost(s).
- The number of PV module manufacturers – first grew tremendously in number and then dropped off significantly due to attrition; because PV module pricing was repeatedly driven down – by economies of scale and direct government subsidy of offshore manufacturing of PV modules. Many, many offshore PV manufactures sold modules at below their cost to gain market share and consequently some US import duties were instituted to offer some protection from these predatory practices. Many photovoltaic module manufacturing companies that were operating viable businesses could no longer compete economically and were forced out of the PV module manufacturing business altogether. Many of the large scale PV makers hold tremendous debt on their books (a few -over a billion dollars) and are only still in business due to their government subsidized status.
- American PV module and equipment makers saw some limited relief via the Buy America ACT (ARRA), photovoltaic modules had to be made in the US – for photovoltaic systems to be installed on federal government, or state owned or affiliated facilities, including other publicly funded projects such as schools, hospitals and other public buildings.
- The number of PV module mounting system manufacturers also grew – over a magnitude of order in number from just a few years previous prior. American manufacturing jobs have been sent overseas, since 1981, and many US cold rolled metal manufacturers jumped at the chance to produce module mounting structures. In 2005, there were around a dozen recognized US mounting system manufacturers, where in 2012 this number jumped to over 75.
- The global PV module industry saw a silicon shortage that briefly raised PV prices; this quickly disappeared, as global polysilicon production ramped up.
- As the traditional expensive component of photovoltaic systems, PV module prices have dropped precipitously, the market then quickly looked at other areas to satisfy the insatiable hunger for further costs reductions. There after great pressure was placed on the balance of system manufacturers to reduce retail pricing and develop new innovative products with significant safety improvements.
- Component cost reduction attention was focused on the solar electric inverter manufacturing industry and the photovoltaic module array mounting system industry to reduce costs and innovate.
- The majority of all photovoltaic module array mounting structures have been redesigned to employ what are known as “top-down” module clamping methods that provide great installation labor savings and a reduced number of fastening hardware components.
- The industry growth rate forced regulatory imposed innovations to be adopted at almost a blinding rate to normal product development cycles. These included such product developments such as PV (DC) GFIC devices, AFCI devices, non-isolated inverters, above 600VDC rated PV system equipment, Rapid (Electrical) Shutdown of roof top PV sited arrays (for first responders) and the recent UL 2703 listing for PV module mounting structures and UL 4703 for tracking PV module mounting structures
- In addition, California authorities first adopted rooftop minimum setbacks for walkways and rooftop egress; which significantly reduced the amount of roof area for possible PV deployment – which other states and other jurisdictions quickly followed. Reducing the available deployable area for PV on a given roof, lessened the return on investment for PV customers and lengthened the period for return on investment.
Very few industries have ever experienced such dynamic growth and rate of change of market conditions in less than 10 years. Market forces have driven down PV system equipment costs in general – in hopes of gaining market share and aiming at energy cost(s) approaching grid parity on large utility scale systems.
According to a research note issued by Credit Suisse, the ITC or Investment Tax Credit, which will sunset at the end of 2016, may not see that sunset yet. The note mentions a building momentum in Congress for it to be added to tax extenders legislation at the same time as the world meets to discuss Climate Change in Paris this week. It certainly would look good for the US to take such action at this time and show that they will put their money where there mouths are.
For more on this subject, click here.
There are other ways the ITC could be saved as well. GTM analyst Cory Honeyman said there was more than one shape for an extension to take.
“It’s my understanding that there is opportunity for an extension to the ITC in a formal, comprehensive tax extenders bill, and opportunities to put the commence construction rule in an omnibus spending bill sometime in 2016.
“There could be one-off legislation that extends the ITC on its own but that’s a harder process as opposed to being bundled with other tax extenders. There are definatly a number of periods of time until the end of 2016 and a few different mechanisms that could extend it in some kind of fashion,” said Honeyman.
The New Mexico PRC has filed a Notice of Inquiry, stating that they will be looking into whether public utilities constructing and owning distributed generation facilities that are dedicated to serving one or more specific retail customers might provide net benefits or detriments to consumers, the environment, public utilities and the public interest. They are trying to determine if the Commission should encourage or discourage such arrangements.
For the complete pdf of their filing, please click below.
15-00355-UT Notice of Inquiry 11-18-15
Arizona is set to begin a full cost-benefit study on roof top solar. Arizona utilities have maintained, for the past two years, that roof top solar adds costs to the grid that customers who don’t have solar have to pay. According to a recent article posted in Utility Dive, the utility concluded that customers with distributed solar, on average, shift $67 a month in costs to non-solar customers because they “pay less for grid upkeep”.
However, solar advocates point out that the utility is not calculating the value of solar correctly. They assert that solar adds around 33 cents per kilowatt hour to rate payers. Arizona solar advocates also point to a 2013 Crossborder Energy study showing every $1.00 invested in Arizona rooftop solar produced a $1.54 benefit to ratepayers.
The regulatory commission voted 4 to 1 at the end of October to study the cost/ benefits of rooftop solar in order to determine solar’s worth.
With solar themed workshops ranging from the Homeowners Guide to Photovoltaics to DIY Tech and the Future of Renewable energy, there will be something for everyone, regardless of their experience with PV and solar technologies! Bring the family to the CNM Workforce Training Center, I-25 and Alameda, on September 26th. The Solar Fiesta starts at 10am and lasts until 5pm. Hope to see you there!
Click on the above image for the downloadable PDF of this year’s schedule and click here for the Workshop Descriptions PDF.