SOLAR ASKS FOR EXTRAS FROM FEDS

Renewed Energy: Solar Seeks Special Place in Climate Bill
Siobhan Hughes, April 29, 2009 (Dow Jones Newswires via Wall Street Journal)
and
First Solar: US Solar Incentives Must Be Raised
Jerry A. DiColo, April 29, 2009 (Dow Jones Newswires via Wall Street Journal)

SUMMARY
A variety of proposals are emerging for federal policies to increase the use of solar energy.

The cost of solar panels and solar power plants has so far kept the so nakedly obvious abundance of solar energy from turning the heat and light of sunshine into electricity. While wind energy has grown exponentially and is now nearly 2% of U.S. power generation, solar remains a rounding factor in the electricity supply.

The Solar Energy Industries Association (SEIA) is, like the American Wind Energy Association (AWEA) and the other New Energy industry associations, backing the Renewable Electricity Standard (RES) proposed in the American Clean Energy and Security Act (ACESA) of 2009 now working its way through the House Energy and Commerce Committee.

The RES in the ACESA requires U.S. utilities to obtain 6% of their power from New Energy sources by 2012 and ramp up to 25% by 2025. SEIA wants Congress to provide a “carve out” in the RES, requiring a portion of each year’s New Energy to be distributed generation like small wind turbines or rooftop solar panels.

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SEIA’s argument is that without a carve out a disproportionate part of the RES requirement will be met by wind and biomass. This argument was substantiated by a just-released Energy Information Administration (EIA) report. (See NEW ENERGY STANDARD WON’T RAISE RATES ) Without the SEIA-proposed carve out, the solar industry could also continue to move marginally toward solar power plant development and away from rooftop installations.

Because First Solar Inc. is the biggest business success in the U.S. solar sector, many are listening to the company’s ideas about what policies will be most useful to the industry. While the sales of big solar panel makers like SunPower Corp. and SunTech Power Holdings Co. dropped with the recent economic downturn and loss of credit availability, First Solar’s first-quarter results were higher than expected and the company’s shares have been up as much as 14% in 2009.

First Solar wants more federal funding support. Despite having won an 8-year extension of the 30% investment tax credit late in 2008 as well as $60 billion in loan guarantee authority and $30 billion in energy grants for New Energy and new transmission planning in the stimulus bill earlier this year, First Solar believes there is more the federal budget can provide. Anticipating revenues from a cap&trade emissions allowance auction, the company is arguing that a portion of them should flow to New Energy in general and solar energy in particular.

First Solar is doing more than releasing opinion statements. It has hired Dennis Fitzgibbons, previously chief of staff to the very same House Energy and Commerce Committee that will decide all the ACESA details, as its first in-house Washington lobbyist.

A recent EIA study showed a national RES will not raise power prices significantly but will significantly impact greenhouse gas emissions. (click to enlarge)

New Energy champion Congressman Jay Inslee (D-Wash) wants to use funds from the allowance auction to create a national feed-in tariff (FiT). An FiT guarantees an above-market rate (a “tariff”) over an extended period of time to anybody who sends New Energy to the grid. FiTs have been used successfully in Europe to drive solar panel manufacturing volumes. The goal is economies of scale that would result in lower costs for solar energy installations.

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COMMENTARY
House Energy and Commerce Committee Chair Henry Waxman (D-Calif.) continues to say he will get the ACESA out of his committee and to the House for debate by the end of May. The ambitious and therefore contentious initiatives in the bill are many. They range from the highly controversial cap&trade system, intended to use the power of the marketplace to reduce U.S. greenhouse gas emissions, to a national Energy Efficiency Resource Standard (EERS), requiring U.S. utilities to meet mandated levels of energy use reductions through improved efficiency.

An RES was passed by the House of Representatives in the 2007 energy bill but rejected by the Senate. That makes the RES in this legislation more familiar and less controversial than other measures. It is expected to have less opposition. Waxman and his House and Senate allies must now decide which extras can be added on without making the package more problematic for the Senate.

The biggest point of RES contention has been over making it fair for states with disproportionately lower wind and solar resources. An attachment allowing up to 20% of the New Energy requirement to be met by implementation of new efficiencies is conciliatory.

The SEIA carve out proposal requiring a specified portion of distributed generation is intriguing. Many states have such carve outs but they usually emphasize whatever specific energy source the state is richest in. The SEIA proposal could be the basis for a potentially very broad coalition between several New Energy industries, small business associations and blue collar labor organizations.

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Big utilities may choose to campaign against the carve out. It diminishes opportunity for utility scale solar power plants and big wind installations. But the 2008 investment tax credit extension for the first time allowed utilities to use the 30% deduction and it applies to large scale rooftop installations as well as solar power plant projects. Utilities will likely profit either way and may see an advantage in backing incentives for both.

In addition, the distributed generation carve out could subsidize the growth of more readily accessible sources of New Energy like rooftop solar, small wind and home geothermal systems while urgently needed new transmission is being built to serve solar power plants and utility scale wind installations. Because this would bring a quicker if smaller shift in the direction of New Energy and GhG reductions, it should find strong support in the White House and its electoral base. At the same time, distributed generation is another reason for upgrading the "smartness" of the grid and therefore would be likely to get support from the Silicon Valley IT crowd.

First Solar’s lobbying effort seems exactly in line with President Obama’s intentions to manage financial crisis funds in the direction of seeing U.S. New Energy capacity double in the next 3 years. That the company is already campaigning for revenues from cap&trade system allowance auction revenues might seem overreaching but First Solar became an industry giant by looking ahead.

In the late 1990s, while most of the solar energy industry’s panel makers were thinking about silicon, First Solar was perfecting its cadmium telluride thin-film. Disdained as not being able to achieve the levels of efficiency possible with silicon-based panels, First Solar’s principals suddenly looked like they owned crystal balls when shortages of silicon drove panel prices through the roof and slightly less efficient but much cheaper cadmium telluride thin film panels suddenly became as demanded as water in a desert. The resulting economies of scale have kept First Solar’s price point dropping and its efficiency improving. And the lack of ready financing in the current financial crisis continues to drive demand for their more affordable product.

Congressman Inslee’s FiT proposal reflects the groundswell of support for the concept in the grassroots of the U.S. New Energy community. The promise of a guaranteed, long-term return on a system installation has been shown in Europe to drive demand. Demand drives production and production creates the economies of scale that drive costs down.

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The FiT has been essential to the success of solar markets in Germany, Spain and Italy. After refining its FiT in 2004/05, Germany developed the world's biggest installed solar energy capacity despite having no better an insolation (solar energy per square meter) than Anchorge, Alaska.

Gainseville, Florida, recently instituted the first FiT in the U.S. and the Canadian province of Ontario set off a New Energy boom with its recently passed FiT, the first such large-scale subsidy in North America. Solar energy advocacy groups in Vermont, California, Washington, Oregon, New York, Arkansas, Iowa, Minnesota and many other U.S. states are pushing for FiTs.

Such grassroots support for what is essentially a very expensive subsidy is not likely to motivate Congress to include an FiT in its legislation this time around. Though it will disappoint solar boosters, political considerations drive political decisions and the FiT is unlikely to do little more than crack the surface of Congressional awareness in a year when much more conventional spending is already out of control.

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QUOTES
- Dennis Fitzgibbons, former chief of staff to the House Energy and Commerce Committee/in-house D.C. lobbyist, First Solar: "There are proposals on the table to invest revenues that might be generated from a cap-and-trade system or from an allocation system into renewable energy…How that might be done is a matter of interest."
- Congressman Jay Insless (D-Wash), FiT advocate: "What we're talking to the committee about is potentially distributing some permits to utilities for use in funding these guaranteed contracts…It's more needed on the more cutting-edge technologies that have yet to reach a certain market maturity…"
- John Berger, CEO, Standard Renewable Energy: "I think distributed generation is going to take off much faster than people think…I've been around the legal issues of siting…It's been a problem for 25 years in terms of building out the transmission distribution system. I just don't see how that's going to change. Can you imagine what it's going to be like when the Obama administration comes in and seizes a bunch of right-wing ranchers' lands?"
- Michael Ahearn, CEO, First Solar Inc.:"The incentive from the federal government needs to be higher than it is today…The states are not in a position to fill the subsidy gap."