Chad Farrell, Founder and CEO, of Encore Renewable Energy, offers an insider’s account of the current state of the burgeoning solar market and the transition to a distributed energy generation model that is happening in Vermont and throughout the US.
The United States has long been the most powerful, dynamic and enterprising economy in the world. From automobiles to computers and beyond, we have become the most prosperous country on the globe largely based on our ability to adapt and innovate but also as a result of public support for research and development related to groundbreaking new technologies.
The burgeoning clean energy and climate economy offers a similar parallel to the American stories of technological innovation of the 20th and early 21st century, with an abundance of growth in jobs, services, products, and associated supply chains. In fact, many financial analysts have argued for years that the mitigation of the negative effects of climate change offers the most compelling economic opportunity of the 21st century, perhaps ever. Others point to the benefits of these new technologies on lowering energy costs over the next 25 years and beyond.
In 2017, the US solar photovoltaic market alone represented over 250,000 jobs, $20+ billion in project investment, and more than 10 gigawatts of new generation capacity, a greater than 1,000% increase as compared to the capacity installed in 2010. Globally, over 100GW of solar PV was installed in 2017 representing a total of nearly $161 billion of direct investment value and an 18% increase from 2016, with a whopping 54GW delivered in China alone. In 2018, it is estimated that the US solar industry will develop, finance and construct $25 to $30 billion in new solar assets and will build 20 to 25% of the country’s new electrical generation capacity.
The democratization of the energy grid is already underway, and the future is sure to be dominated by distributed energy generation resources owned and operated by many different entities and sited at or close to load. In fact, here in Vermont, our utilities are actually stepping up to help lead the transformation to a cheaper, lower carbon, more reliable grid.
However, before we rest on our laurels, concluding that the future is saved with green energy and that the climate crisis is well on its way to being resolved, it is important to recognize that numerous challenges still exist, both at home here in Vermont, as well as across the country.
The combination of the Trump administration’s recently announced solar, steel and aluminum tariffs, along with termination of the Clean Power Plan, the exit from the Paris Climate Accord and the relaxation of regulations pertaining to domestic oil and gas extraction and exports, have all had detrimental effects on the growth of the renewable energy economy. Solar panel tariffs are expected to add 5 to 7% to total project costs and result in an 11% reduction in US solar installations over the next four years. Additionally, the steel and aluminum tariffs are predicted to add another 2% to total solar project costs.
Amidst these negative recent developments, the US solar sector is also preparing for the gradual step down of the investment tax credits that have helped the industry grow through its subsidization phase (ironically, while the greater than 100 year old fossil fuel industry continues to receive subsidization to the tune of greater than $20 billion per year). As it stands, the critical tax credit for solar projects will be reduced by 66% by 2022, when the credit will be permanently reduced to 10%.
Here in Vermont, recent changes to the state’s net metering program – currently the only means by which Vermonters can choose a cleaner source of electricity – have had the effect of reducing the deployment of new sources of solar generation. The 500kW customer cap associated with the new net metering rule negatively affects schools, hospitals, municipalities, businesses and housing authorities that can save money by procuring solar energy. Further, the additional constraints associated with siting non-residential net metered solar projects only on “preferred sites” such as brownfields, landfills and parking lots, while certainly well-intentioned, has increased costs and timelines associated with the development and construction of community scale solar projects, often to the point of eliminating project viability. Recently announced downward modifications in net metering credit rates by the Public Utility Commission will result in further constraints for solar deployment.
Between the well documented influence of the traditional energy lobby and the sum of the previously identified factors, it is reasonable to conclude that both the U.S. and Vermont solar markets are in jeopardy, not only of losing the long-term, local economic benefits that looked so promising just a few short years ago, but also of providing real hope for meeting our renewable energy goals and addressing climate change. In the absence of leadership in Washington DC, overcoming these challenges will require the careful consideration and implementation of policy at the state and local levels. The good news is that this is already happening here in Burlington, Vermont and in other states around the country. It needs to continue in Montpelier and other state capitols with common sense legislation that recognizes the future energy landscape and our need to arrive there as soon as possible.
Many know that solar is and will remain a compelling investment opportunity, despite the headwinds and short-term roadblocks. That’s why homeowners, businesses and public institutions continue to look to procure solar in one way or another despite all of the recent setbacks. At the end of the day, while the environmental benefits of clean energy cannot be ignored, and the social benefits of new jobs, property tax revenues, and keeping energy dollars in our communities are compelling, this is an economic competitiveness issue. Despite attempts to support the coal industry, it is not coming back, as many close to the issue have reported. Additionally, there are many signals in the market regarding long term upward pressure on the current, near-floor price for natural gas as extraction gets costlier, recently passed rules regarding natural gas exports increase demand abroad, and natural gas-fired electricity generation increases here at home as greater numbers of nuclear and coal-fired power plants are retired and not replaced. In many parts of the country, the combination of solar and battery storage is already out-competing natural gas on price alone, without even considering a price on carbon.
The transition to a distributed energy generation economy is upon us here in Vermont, the US, and around the world. This new energy economy will be powered by numerous smaller renewable energy resources sited close to points of consumption as opposed to a limited number of large generation sources located far from load and delivered by less efficient means via miles of transmission lines. Carbon pricing models are taking hold across the globe and will result in even more innovation and new business development. We can either choose to lead in this important 21st century market, or cede that leadership to other states and countries. History is never kind to obstructionists who block the path for American leadership and this adage is sure to play out as the clean energy and climate economy continues to advance.
The team at Encore Renewable Energy® is proud to be certified as a B Corp, joining over 3,500 other businesses worldwide who also share a commitment to social and environmental performance, accountability and transparency.