US Clean Power Plan good for utility-scale solar, ignores distributed

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To the consternation of coal activists and Republicans alike, U.S. President Barack Obama yesterday unveiled the Environmental Protection Agency’s (EPA’s) new Clean Power Plan, which aims to cut carbon emissions by 32% from 2005 levels by 2030, up from the previously suggested 30%. In a boost to the utility-scale solar and wind industries, renewables will be expected to contribute 28% to generating capacity, also up, from the 22% initially proposed.

As Deutsche Bank’s Vishal Shah notes, utility-scale solar is likely to benefit from the new rules, which encourage upgrades in electricity generation, particularly in light of falling power purchase agreement (PPA) prices, sometimes under those seen in the natural gas market. This, says Shah, indicates "a potential significant longer term tailwind for all solar companies, particularly US solar developers," and a possible extension of the 30% ITC, which is set to decrease to 10% in 2017.

Disregarded

Although its market share is rapidly increasing – GTM Research predicts around 2 GW of residential solar installations in 2015; while the U.S. Solar Electric Power Association (SEPA) estimates that of the 5.3 GW (AC) of solar added in the U.S. in 2014, residential systems accounted for 36% – distributed generation (DG) has not been included in the EPA’s Best System of Emissions Reduction (BSER), due to the "unique data and technical challenges" it presents that "complicate identifying a technically feasible and cost-effective level of generation." Saying this, the EPA adds that those distributed plants which meet the eligibility criteria, i.e. projects that generate metered MWh, will be counted.

California has recently been criticized for ignoring DG at a policy level, with two of the state’s biggest utilities requesting it be included in the revised Renewable Portfolio Standards (RPS) Program. Pacific Gas and Electric Company (PG&E) and Southern California Edison (SCE) wrote to the Assembly Committee on Utilities and Commerce requesting DG be included, thus avoiding "picking technology winners and losers."

Forbes writes that we can expect to see "strong lobbying" from battery storage companies, like Tesla, which will oppose the exclusion, adding, "With the right rules, batteries could be considered important elements of both renewable power and grid reliability, another priority under the plan." The EPA, however, has been fairly dismissive of storage’s impact, stating, "Storage can be helpful but is not essential for the feasibility of RE deployment because there are many sources of flexibility on the grid."

Counter arguments

Countering arguments from opponents, of whom there are many, who state for instance that grid reliability and energy security will be compromised, the EPA points to newer sources of energy, like solar and wind, which have been "reliably" participating in the electric sector for a number of years. And, while their deployment will be speeded up on the back of the new rules, "there are multiple features well embedded in the electricity system that ensure that electric system reliability will be maintained."

Those who claim, strenuously, that renewables and clean energies will push the cost of electricity up, will also have to face new realities, where solar, for example, is actually helping to lower energy bills. SEPA recently announced in a new study that solar energy is fast becoming a "least-cost" option for U.S. utilities, with falling PPA and technology prices, high solar irradiation, favorable energy policies and technological innovation blazing the trail.

Meanwhile, helping those in underserved communities and low income households, will benefit from a raft of support measures, which have been created to expand solar energy education, provide opportunities for job training, and roll out community solar programs.

The Clean Power Plan

The Clean Power Plan aims to reduce carbon pollution from America’s power plants. The EPA also issued final Carbon Pollution Standards for power plants and a Federal Plan to help implement the Clean Power Plan. It is the first time carbon pollution has been tackled in the U.S. and there have, naturally, been a lot of disgruntled parties challenging the new rules. Indeed, Deutsche Bank predicts "intense legal challenges," lie ahead, with many states already saying they will fight them.

If the rules stay intact, individual states have until September 6, 2016 to submit either their final plans or an initial one with an extension request. Final, final plans must be submitted by September 6, 2018. States have been given a number of options and flexibility for creating their plans, including multi-state emissions trading and choosing what technologies they invest in.

Regarding the Best System of Emissions Reduction (BSER), the EPA determined it consists of three "building blocks":

  • Reducing the carbon intensity of electricity generation by improving the heat rate of existing coal?fired power plants;
  • Substituting increased electricity generation from lower?emitting existing natural gas plants for reduced generation from higher?emitting coal?fired power plants; and
  • Substituting increased electricity generation from new zero?emitting renewable energy sources (like wind and solar) for reduced generation from existing coal?fired power plants.

An optional Clean Energy Incentive Program (CEIP) has also been devised to encourage early investment in renewables in 2020 and/or 2021. Under the program, additional allowances or Emission Rate Credits (ERCs) will be available. "The EPA intends for the CEIP to have a reserve for wind and solar projects and a reserve for EE projects in low income communities and is taking comment in the federal plan on several aspects of the CEIP, including the size of these reserves."