Solar energy has expanded rapidly in the past several years, but it will reach its limit without technological advances and policy changes, according to a new report.
Photovoltaic solar power, which accounts for 90 percent of U.S. solar, has skyrocketed in the past six years to 18,000 megawatts of electricity capacity, up from 1,000 megawatts. Price reductions ranging between 50-70 percent have much to do with it, according to the Massachusetts Institute of Technology Energy Initiative “The Future of Solar Energy” report.
“Solar electricity generation is one of very few low-carbon energy technologies with the potential to grow to very large scale,” the report noted, adding a caveat that “further advances are needed to enable a dramatic increase in the solar contribution at socially acceptable costs.”
The report said recent industry progress will reach a natural tipping point without technological breakthroughs or changing how utilities value solar — such as by crediting it [or penalizing other forms of power] for producing zero carbon emissions.
The report pushes for increased federal spending on next-generation thin-film solar panels, much of which require “scarce elements.” But bringing that technology to a point where it would be commercially viable would help reduce materials and manufacturing costs that account for 65 percent and 85 percent of commercial-scale and residential solar installations, respectively.
It also pointed out that solar energy economics eventually will push capacity to saturation in deregulated wholesale markets.
Such markets are where much of U.S. solar exists due to homeowners’ ability to contract with third-party installers. Those financing arrangements thrive on the difference between peak power prices — generally, when it’s sunniest — and system costs. As solar penetration spreads, however, the return on investment for each solar panel decreases and thus creates a disincentive for investment.
“Thus significant cost reductions may be required to make [photovoltaic] competitive at the very substantial penetration levels envisioned in many low-[carbon dioxide] scenarios,” the report said.
The paper said such constraints make the case for increased federal investment in energy storage technology. Renewable power advocates say cost-effective batteries capable of storing intermittent solar and wind electricity are key to increasing clean energy penetration, but prices have remained stubbornly high.
“Because of the potential importance of energy storage in facilitating high levels of solar penetration, large-scale storage technologies are an attractive focus for federal R&D spending,” the report said.
The report comes as a federal tax credit for solar energy nears expiration. Battles over “net metering,” a policy that pays rooftop solar customers for power they supply back to the grid, have raised the subsidy’s profile — along with the target on its back.
The 30 percent investment tax credit for residential customers will end after this year and would fall to 10 percent for commercial customers if Congress doesn’t extend it.
The incentive has largely facilitated the surge of third-party solar installers. Such firms collect the federal credit along with state and local ones in exchange for setting up solar panels for customers who agree to pay that company for electricity over a term of 20 or more years.
While Democrats in Congress are fighting to extend the credit in the face of a Republican-led Congress less willing to give it another lifeline, the report advocates ditching the subsidy. Instead, the authors said it should be replaced with a credit for the amount of solar power generated rather than project investment costs or, at the very least, with direct grants.
A federal tax credit inherently offers a greater subsidy to residential solar customers — typically, 10 kilowatts — than larger utility-scale users of at least 1 megawatt, the report said. That’s because residential solar has a higher investment cost per peak watt of power, as well as a fair-market cost given by the provider, which often doesn’t operate against other competitors given the nascent field.
Regardless, the report’s authors said federal assistance for solar power should remain, given climate change considerations.
“Particularly in the absence of a charge on [carbon dioxide] emissions, now is the wrong time to drastically reduce federal financial support for solar technology deployment,” the report said.
The explosion of solar adoption has generated backlash from competitors, chiefly electric utilities that view every new rooftop solar customer as lost revenue.
“Net metering” policies in which customers are credited for power they resupply back to the electric grid but don’t have to pay for system upkeep act as a subsidy, the report said. Several states and cities, with the utilities, are fighting those policies. Solar boosters, though, say rooftop installations reduce load strain for utilities and provide climate and health benefits, which are not taken into account.
A share of those distortions rests with how utility rates are structured, the report said. Rather than separate costs for maintenance, electricity and other items, distribution utilities bundle them together. Layering net metering policies on top of that complicates the matter further, providing a windfall to solar customers while spreading costs among others.
“When this rate structure is combined with net metering, which compensates residential [photovoltaic] generators at the retail rate for the electricity they generate, the result is a subsidy to residential and other distributed solar generators that is paid by other customers on the network,” the report said.
