Will lack of funding stall US solar market takeoff?

07. May 2012 | Markets & Trends, Storage & smart grids | By:  Cheryl Kaften

Ever since the 1603 Treasury and Section 1705 loan guarantee programs expired last year, succumbing to what many characterized as premature deaths, renewable energy advocates have been inconsolable. And they haven’t suffered silently. They continue to find ways to remind the U.S. Congress that the solar sector is not receiving the support it needs to build jobs and independence from fossil fuels, or to compete on a global scale.

The chart highlights US government spending for every major energy source over the past 60 years. Solar has received a modest amount of federal support, compared to other energy sources

The chart above highlights US government spending for every major energy source over the past 60 years. Solar has received a modest amount of federal support, compared to other energy sources.

What is more, they say the federal government is not offering the same level of backing to solar generation that it did to other major U.S. power players – all of which have taken a similar path to commercialization.

Now, a study conducted by the Howard H. Baker Jr. Center for Public Policy at the University of Tennessee–Knoxville, on behalf of the Solar Energy Industries Association (SEIA), shows that traditional energy sources, such as coal, oil, natural gas and nuclear energy, have all been backed by U.S. subsidies throughout the commercialization process.

Indeed, the study finds that the predecessors of such next-generation power sources as solar and wind generation continued to receive federal-level funding as they neared market acceptance and finally went mainstream – effectively removing market barriers, encouraging private investment, and enabling the energy technologies to reach maturity over an average period of 30 years.

With the proper incentives, the study, "Assessment of Incentives and Employment Impacts of Solar Industry Deployment," predicts that the U.S. solar industry could create 200,000 to 430,000 jobs nationwide by 2020.

"When it comes to government investment in new and emerging energy sources, solar is not unique," said Tom Kimbis, vice president of Strategy and External Affairs for SEIA. "The U.S. has a long history of incentivizing all sources of energy because access to reliable power is the lifeblood of economic development.  Pursuing an all-of-the-above approach to our energy portfolio, including aggressively deploying solar energy, is the right policy choice and is critical for America's long term competitiveness."

A leap of faith

Without incentives, the path to success may not be easy to navigate. The authors find that, while "solar energy technologies are moving quickly toward widespread adoption, consistent government support will be crucial for solar to become a major source of domestic energy production."

Furthermore, the researchers point out that every American industry has reached the stage at which the solar sector finds itself – in need of a boost to take the next great leap. "One need only look to the early history of the automobile industry in the in the United States to realize that not all companies that enter the market early flourish, yet the industry itself can succeed," they state.

The report goes on to say, "There is a 'chasm' over which the industry must leap to expand to majority adoption. Depending on the type of industry, the propulsion for this leap can be demand-side factors, such as when General Motors made loans to automobile buyers in the 1920s; or supply-side factors, such as Henry Ford’s assembly lines. When benefits accrue broadly, rather than to investors alone, a federal role exists, such as the defense and energy industries’ benefits from NASA’s funding the man-on-the-moon mission."

Thus, according to the researchers, solar energy technologies are currently in the rapid growth stage between early adoption and the chasm that comes before majority adoption – where government incentives can be most critical in helping new energy technologies become significant sources of energy production.

Effective incentives

The most effective incentives, the research finds, are those that are long-term. Programs that offer support and then stop before seeing a sector to maturity are not productive.

"The antithesis of long-term, stable instruments are the production tax credits for wind power that have existed on one- to five-year cycles and twice expired, creating uncertainty and a choppy adoption path; or the Section 1603 Treasury program that operated on only a short-term basis," the authors state.

There also must be balance among the industry segments that receive support. "From an economic development perspective, a portfolio of incentives weighted toward mature industries will tend to insulate and maintain those profitable industries and suppress new industries, while a portfolio weighted toward industries in the adoption stage will tend to advance adoption of new industries," according to the report. "Since history shows that new industries are the source of growth in an economy and mature industries tend to either maintain or lose jobs over the long term, effective incentives from an economic standpoint are those that address industries in the early adoption stage."

Energy storage

That is all well and good; however, other energy industry players have reached different conclusions about what technologies deserve support.

Ariana McKnire, an advisor for Houston-based Enbridge, a natural gas distribution company; as well as vice president of the Houston Chapter of the United States Association for Energy Economics (USAEE), points out that shale hydrofracking is a new form of an older technology, and that it deserves federal support, no matter what part of the industry is comes from.  

"The potential of solar generation pales next to the promise for shale," McKnire commented to pv magazine. "Consider that, by 2020, the shale industry will offer more than one million jobs, and compare that to the 200,000 to 400,000 positions that the report forecasts for solar employment."

McKnire asserts, "The authors of the research study gave no context for their numbers. What they need to do is put their facts in a little more perspective."

Meanwhile, the President-Elect of the group’s national chapter, based in Cleveland, Lori Smith Schell, Ph.D., who also is president of Durango, Colorado-based  Empowered Energy, told pv magazine the research makes a more convincing case for subsidizing energy storage than it does for supporting photovoltaics. 

"The study’s impact would have been strengthened by explicitly addressing the issues associated with the intermittency of solar generation," remarked Schell .  "Instead, the study implicitly resolves intermittency issues by assuming that the ‘merit order’ effect of electric power dispatch – where generating facilities are dispatched based on their marginal cost of production – results in solar plants being dispatched first. The need for energy storage to firm up PV generation and, thereby, make PV a dispatchable resource argues as strongly for incentives for energy storage as it does for incentives for PV."

Schell notes, "As stated at the outset of the study, '[a] mixed portfolio of energy options has allowed Americans to enjoy long-term economic growth and prosperity.' Solar energy and energy storage have important roles to play in that mixed portfolio of energy options. Educating policy-makers on the benefits of any emerging energy technology is critical to ensure that stable and long-term incentives appropriate to meeting policy objectives are provided in a timely manner."

Considering the case on the merits

While there are merits to funding shale and energy storage – both of them, promising advanced technologies – that does not compromise the case for solar, according to SEIA’s Tom Kimbis.

"Just like older energy sources like coal, oil, and gas, solar energy is providing real, tangible benefits to America today," added Kimbis. "Policies designed to increase America's use of solar are incredibly successful and generating benefits across the nation. It would be a serious mistake for policymakers in Washington, D.C., and in statehouses across the country, to walk away from good public policy."

Today more than 100,000 Americans work at 5,600 solar energy companies across the nation in all 50 states. The industry more than doubled the amount of solar electricity installed in the U.S. in 2011 compared to 2010 and growth is expected to continue in 2012.

The Baker Center study was funded by a research grant from the Solar Energy Industries Association.


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