Last week, California's solar advocates and investor-owned utilities were cheering in a rare moment of unity after the passage of AB327, potentially the most significant piece of legislation for the solar industry since the 33% Renewable Portfolio Standard was signed into law in 2011.
AB237 will reform residential electricity rate structures and net metering policy. But whether these reforms will be the boost everybody in the solar industry hopes for remains to be seen, and AB327 no doubt will be hotly contested in the regulatory arena of the California Public Utilities Commission.
Of course, there's always uncertainty until the final decision is signed at the CPUC. But major factors on the commissioners' minds will be where the price of solar has gone since key policies such as net energy metering were implemented, the growth of the US market over the past few years, utility concerns over the impact of distributed generation and the 800lb gorilla in the room – the price and abundance of domestic natural gas.
At the National Clean Energy Conference in Las Vegas last month, I had the opportunity to speak to Ethan Zindler, head of policy analysis at Bloomberg New Energy Finance (BNEF).
Natural gas and renewables had to learn to be “best ‘frenemies’ forever”, he told the NCES delegates. But that head-to -head competition is probably only true of utility-scale solar and wind because they are positioned against wholesale electricity. When it comes to distributed rooftop solar, the playing field levels off somewhat. Zindler said BNEF was bullish in the long term about distributed generation because it won't have to compete with natural gas.
“Natural gas prices will rise,” said Zindler. “Solar does already make sense; where you have high enough priced electricity the economics can work right now – but we haven't even begun to enjoy the low cost of solar because it's twice as expensive [than Germany] because we are a smaller market.”
“The price that a homeowner pays for retail electricity is marked up quite a bit from the wholesale price,” Zindler told PV Tech. “That's really what a small-scale system has to compete against primarily – whether the power that ended up at that person's house was produced by a natural gas or coal plant it doesn't matter. All that matters is whatever the retail price is when it gets there.”
Global market share for the US will reach an all-time high of 13% this year, up from 5% in 2008, as cumulative capacity is set to exceed 10GW, according to the latest figures published by GTM Research last week.
BNEF's figures for 2012 were that 31GW of solar were installed globally – 10% of that in the United States.
“In terms of demand we're still a relatively minor player,” said Zindler. “As a demand market, we're just getting started over here and we're pretty small time compared to what was installed in Germany over the past couple of years, or even Italy, but the market is growing very quickly.”
This year, BNEF expects the US to install between 3.7GW and 4.3GW in 2013 and 4.6GW to 5.3GW in 2014 [see slide 1].
“There is real opportunity for growth, particularly on the distributed side and particularly when the kind of European pricing that we've seen for PV comes to the US,” said Zindler. “Systems in California are simply much higher than in Germany for small scale [see slide 2]. So once that comes here, that should add to demand as well. It will come, but it will take time.”
One barrier that could at least slow, if not arrest this pace of growth, is the battles between utilities and the solar industry over net energy metering (NEM).
“A lot of it is contingent on NEM – some of the utilities, not all, are gearing up to try to roll back what NEM is permitted or to block NEM from coming to pass in some states. We've seen this in Arizona.
“The alarm has been sounded among some in the utility community that they stand to lose market share to distributed PV and they really don't have to look much further than what's happened in Germany. Some of them have viewed that as a cautionary tale and are mobilising in a number of cases to avoid that kind of situation here.
“PV presents a potentially existential challenge to utilities in the US where they have to reconsider what their business models are going to be as electricity demand in the US has been dropping over the past five years so it creates some real challenges for them.”
But another barrier which may vaporise the closer the 2016 horizon approaches is the sunset of the Investment Tax Credit from 30% to 10%. Prices by then should be at a more competitive level, said Zindler.
“The US market hasn't enjoyed the full benefit of lower equipment prices yet in terms of final capex that the consumer gets. There's a lot of price decline to come in the US market for residential – where that will leave us by the end of 2016 is hard to say.
“But as far as a subsidy is concerned it could very well be hard to make the argument at the end of 2016 that solar absolutely needs 30% to be economically competitive because of the economic declines we're seeing.”
Commodification for high-volume manufacturing to the large-scale industry that solar is quickly becoming means that “everything ultimately becomes a toaster”, said Zindler at the NCES.
“There's a cycle when the product becomes highly commoditised and the consumer doesn't necessarily differentiate between manufacturing,” he told me. “Somewhat inevitably, that goes to lower cost markets – that's the bad news from the US manufacturing perspective.”
Politically and economically, the United States is still reeling from the shock that China managed to get way out in front when it comes to manufacturing. But that shock should have been no surprise – and it may happen yet in innovation. For decades, the US took for granted that it would lead on research, start-ups and new lines of business, which quickly grow into American markets and then globalise. Aviation, the auto industry and semiconductors have all taken this path, but will clean energy innovation in the US struggle if a manufacturing base cannot be established on its home turf?
“The good news is there's always innovation that has to happen around advancing the technology making it cheaper and cheaper,” said Zindler. “There will continue to be opportunities for US manufacturing in so-called advanced manufacturing but the key is to stay ahead of the curve, not to just try and race to the bottom with China.”