Last week SolUnesco presented on a panel at Solar Power Southeast in Atlanta, Georgia (Click here to download presentation). The panel focused on the trajectory for solar after the Supreme Court’s Stay on the Clean Power Plan (CPP) including the legal merits of the suit, and the impact on the economics, policy, and market trends.
Does the Supreme Court’s Stay mean a slower pace for the development of renewables going forward? One might think so. However, we point to the inexorable momentum in the markets even with the Stay. An expansive group of stakeholders including consumers, utilities, business, politicians, and regulators recognizes the overall value of solar development.
The CPP creates a mechanism to monetize the value created by reducing carbon pollution from the electricity supply. The argument resulting in the Supreme Court Stay did not focus on the merits of reducing carbon pollution, rather focused on how we will reduce carbon pollution. Will we allow the EPA to use market mechanisms to allow for efficient allocation of resources or will we throw out the current rule and force a prescriptive regulatory approach? If we go with the latter, history demonstrates that communist style central planning results in tremendous inefficiencies.
Few still debate that clean energy technologies will continue to grow and continue to displace both generation from polluting resources and wasteful consumption. The real policy and commercial decisions boil down to how the markets should evolve to maximize value to all stakeholders. This blog provides a few snippets showing how various stakeholders are changing the traditional models and argues for policies that facilitate this type of innovation.
Despite the traditional lock on policy debates afforded the southeast utilities by the fully regulated market structure, they are forfeiting ‘some’ control to the competitive market. In our opinion, utilities have come to realize that certain market functions belong with the competitive market. Project development provides a case in point as the independent, not utility business model should always provide lower overheads, greater executional flexibility, funding with higher risk tolerances, and greater speed to market.
Virginia’s utility Dominion Power recently demonstrated an evolution in its business model for solar by advocating for a switch from Cost of Service rate making to a market index for setting its customers rates. The rate payer will benefit from the market index approach in several ways. Competitive market participants will set the market index by bidding in pricing for solar output and selecting the least cost qualified bids. Dominion will set the price for the power from its regulated solar assets using exactly the market index price. The Cost of Service rate making results in higher rates to the utility’s customers, because federal law prohibited the utility from passing through to its customers the realized economic impact of the Investment Tax Credit and the five-year MACRS. In addition to this structural advantage, the market competes on pricing for operations and maintenance and the cost of capital resulting in lower input pricing and a better value for the utility’s customers.
The market opportunity created by the demand for clean energy has resulted in additional market innovations for customer-sited solar. In Virginia, The Solarize, or Solar Coop model and The Council of Independent Colleges in Virginia (CICV) procurement demonstrate efforts to use aggregation to drive down capital costs and improve customer acquisition.
A solar co-op is a group of homeowners in a given geographic area who use bulk buying power to save on the total cost of transitioning to solar. The goal of the solar coop model is to reduce cost and transaction barriers to solar and build a diverse, non-partisan constituency to support fair and accessible solar policy. Solar co-ops advertise significant reductions in the costs to finding and contracting solar customers. However, a key benefit to the solar co-ops is that each participant signs his or her contract with the installer, while everyone receives the bulk discount.
Photo credit: Forbes
The CICV Solar Market Pathways project provides another example of customer aggregation to provide scale. This project, started in 2015 allows private colleges across Virginia to create solar energy procurement projects. Their goal is to install 30 MW of on-site solar generation by 2020 through collaborative procurements. The project has support from the U.S. Department of Energy’s SunShot Initiative. The CICV Solar Market Pathways project has educated a wide array of stakeholders including faculty, students, regional organizations, local government, and utilities. Long-term, this project aims to share best practices with similar organizations. The CIVI Solar Market Pathways project creates a unique collaborative solar procurement model that has the potential to provide innovative solutions to many of the market barriers in Virginia and nationally.
The above examples demonstrate the potential for market innovations. SolUnesco encourages policy makers and politicians to ensure the rules of the road encourage and support innovation.