Screaming at the Media, Solar Installations are Under Siege

I recently turned 40. But I didn’t start feeling old until this weekend because that’s when I started yelling at the newspapers. On Saturday, the New York Times published a lurid, sneering, over-the-top piece on renewable energy
that was riddled with errors and really missed the forest for the trees.

The fact is, governments have long provided massive subsidies for the fossil fuel and nuclear industries and despite the fact that these industries are amongst the most profitable in the world, and continue to raise prices while inflicting tremendous damage to the environment, these subsidies continue unabated. IEA reports that fossil fuels get six times the level of subsidies of renewables. And according to the most recent report on energy subsidies by the U.S. Energy Information Administration in 2007, subsidies to nuclear were 9.6 times higher than those for solar panel installations; natural gas and petroleum subsidies were 11.2 times higher; and coal subsidies were 22.2 times higher than solar.

The important thing is that we don’t pick winners, right? On this uneven playing field, transitioning to clean, emission-free renewable energy is going to require some government guidance and support. And it is working. Renewables are finally coming into their own. In California, solar has hit the gigawatt mark for customer-owned generation. Incentives for rooftop PV have dropped from $4.50/W to $0.25/W, meaning that retail grid parity is just a frog-hair away. And well over half the solar power contracts that California utilities have signed nearly 5 GW are below the cost of a new natural gas plant. In Colorado, Xcel, the largest utility in the state, announced that it was going to meet the 30% renewable goal 8 years early, and at a savings to ratepayers of $409 million.

The point is, the programs incentives, standards, what have you are delivering. It’s a tremendous achievement the commercialization of clean, renewable energy, energy that doesn’t warm the planet, melt icecaps or poison babies at costs cheaper than the fossil fuel alternative. It’s a modern-day miracle. And it’s one that the vast majority of Americans support, regardless of their political orientation.

But let’s be honest here. The next 12 months are going to be more challenging than ever. There’s a well-funded opposition that’s just getting started. The Koch brothers just dropped $2.4 million in attack ads. ‘Clean coal’ has spent $80 million on TV ads alone. We are stepping through the looking-glass, where facts are not the coin of the realm.

What to do? Chin up, fight back, and get ready to go on offense.

A Response to “A Gold Rush of Subsidies in Clean Energy” that appeared in the New York Times.

The article asserted that renewables and solar in particular are experiencing a surge in subsidy support that is burdening American taxpayers and ratepayers and providing windfall profits to solar developers. That premise and the points used to bolster it are incomplete, misleading and in some cases simply untrue. The real story of incentive driven solar growth is actually one of stunning success that is directly in line with the interests and wishes of the American public. It’s important to set the record straight correcting this broken and misleading information.

The article included a number of factual inaccuracies in its attempt to describe solar subsidies: NY Times Significantly Overstates the Solar Power Contract Cost to Ratepayers “PG&E, and ultimately its electric customers, will pay NRG $150 to $180 a megawatt-hour, according to a person familiar with the project, who asked not to be identified because the price information was confidential.”

Fact: The exact contract price is indeed confidential, but the number quoted is significantly higher than the actual power price in the CVSR agreement. NRG confirms: “It is overstated in the article by a significant amount.” To further put this in perspective, peak solar power helps utilities avoid purchasing power from very expensive (and polluting) peaking power plants, which according to Lazard deliver energy at over $220/MWh far higher than even the inflated $150-180 MWh range cited in the NY Times article.

“At the time the contract was awarded, that was about 50 percent more than the expected market cost of electricity in California from a newly built gas-powered plant.”

Fact: This statement greatly misunderstands electricity market pricing and overstates the premium paid for CVSR power. Electricity’s value varies widely throughout the day and night as consumer demand rises and falls. As a result, all power generation, solar included, is given a Time of Delivery (TOD) adder according to the value that it delivers to the utility at a particular time of day. For solar, which delivers during peak demand period when electricity costs are highest, the TOD for PG+E territory works out to about 1.2. Again, this is designed to reflect the value of peak power generation as determined by the utility and the CPUC.

The designated base cost of new natural gas generation was $106/MWh in 2007 when the CVSR contract was originally awarded. With the TOD adder (1.2) – that amounts to a market-equivalent value of $127/MWh. Even at the “significantly overstated” asserted contract prices of $150 MWh, that amounts to around an 18% premium for the solar contract far less than the 50% premium stated in the article. And as NRG has disclosed, the true contract price brings the solar pricing even closer to comparable natural gas prices.

NY Times Overstates Treasury Department Grant Proceeds to NRG by 90%

“When construction is complete, NRG is eligible to receive a $430 million check from the Treasury Department part of a change made in 2009 that allows clean‐energy projects to receive 30 percent of their cost as a cash grant upfront instead of taking other tax breaks gradually over several years.”

Fact: $380 million of the Treasury Grant will go to repay a DOE loan and the American taxpayer, and only $50 million flows to NRG as the equity investor in the project. (Source NRG). NY Times Overstates NRG Profits on its Solar Projects and excludes Tax Revenues Back to the American Government “By 2015, NRG expects to be earning at least $300 million a year in profits from all of its solar projects combined.” The Facts: NRG expects to make pretax profit of approximately $49 million (as disclosed in its 3rd quarter earnings call presentation.) The $300 million referenced in the article is actually EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization, not profits. The interest that they pay on the projects generates revenue for the American Government.

Beyond these objective inaccuracies, the article’s lack of context misses the real story of solar energy success and its benefits to Americans attributable in large part to the same public support we see pilloried in the article. The CVSR project should be celebrated as one in a steady drumbeat of examples we’re seeing of solar becoming a mainstream American energy resource. Its tremendous scale (250 MW) and project developer (Fortune 250 wholesale power generation company NRG Energy) both validate solar’s increasingly important role in our nation’s electricity

David Crane, the CEO of NRG, is quoted at length at how valuable the solar subsidies were to the company. But Crane has also spoken about how these price decreases are going to enable solar to play a crucial role powering America’s future.

“The prices have been cut in half in the last four years. I predict that the price of solar modules will be cut in half again in the next two years.” As a result, Crane says: “We believe that in the next 3 to 5 years you’ll be able to get power cheaper from the roof of your house than from the grid. Solar is going to go from this thing that right now is like .1 percent of the market to 20 to 30 percent of the overall electricity mix. That’s huge.”

Solar energy costs are competitive and declining:

The article uses the CVSR project, which was contracted years ago, to present a static snap-shot of solar panel pricing. In reality those costs are dynamic and trending quickly downward. Surging demand has dropped solar module prices approximately 75% in just the past three years, with another 50% expected over the next three, (Source: Navigant Consulting and other market data). In California, over 50% of currently contracted solar plants amounting to more than 4 GW of clean, reliable generation are already below the MPR the price of new natural gas power. Early utility-scale projects like CVSR were instrumental to driving scale and delivering those favorable price declines that will continue to benefit California ratepayers in the near and long-term. The same positive trajectory cannot be said for solar’s fossil fuel counterparts which consistently trend higher in cost.

Solar delivers value far beyond what is included in today’s price when compared to conventional generation:

It’s important to remember that solar power generation is not replacing nothing – it’s replacing generation from coal, natural gas and other conventional energy sources – and its costs and benefits should be compared accordingly. Our fossil-based infrastructure is antiquated, uncompetitive and inflicting national security, environmental & public health problems that have real costs. If those externalized costs were included in the price of power, there is no question that solar power would be well below the price of its fossil counterparts. Incentives help capture the value of smarter energy choices, like solar, that would otherwise go unmonetized.

Solar investment today also protects ratepayers from long-term fuel price risk by harnessing a free fuel source the sun. The NY Times article omits any comparison to the price risk of conventional fossil fuels, which have a history of upward trends and volatility which can be expected to continue for the foreseeable future.

Americans also get what they pay for namely power more quickly with an investment in solar power. Due to lengthy financing, permitting and construction timelines, large conventional power plants are often financed by the ratepayer long before those facilities begin generating electricity. In Florida, for example, ratepayers are already being charged for nuclear power plants that won’t be completed for at least a decade. Conversely the solar industry has proven that it can deliver gigawatts worth of power 8-10 times faster than coal or nuclear.

U.S. incentives for solar lag far behind spending on well-established, conventional energy resources:

The article makes the case that solar is receiving a “gold rush” of incentives. In fact, the federal government has long chosen a role of investing public dollars in energy via tax credits, subsidies and other incentives. The most recent report on energy subsidies by the U.S. Energy Information Administration found that in 2007, subsidies to nuclear were 9.6 times higher than those for solar; natural gas and petroleum subsidies were 11.2 times higher; and coal subsidies were 22.2 times higher than solar subsidies. The ARRA stimulus bill made only small gains toward parity. Even in 2010, coal subsidies were 20% higher, nuclear subsidies 120% higher, and natural gas and petroleum 148 % higher than solar subsides. Moreover, 93 percent of the fossil fuel and nuclear subsidies were permanent, whereas almost 70 percent of the solar subsidies were temporary stimulus bill subsidies.

Even an apples-to-apples comparison of just the first 15 years of investment in each energy sector reveals tremendous discrepancies: $1.8 billion per year was spent on subsidies for oil and gas industries in its early days, compared to just $400 million for all renewables, including wind and solar (Source: DBL Investors).

Solar is delivering strong returns on that relatively small amount of incentive spending:

As a result of public sector and private investment, the solar power industry is one of the fastest growing industries in America. Today there are more than 5,500 companies operating in the U.S. solar supply chain employing more than 100,000 Americans. Solar businesses added 6,735 new workers in all 50 states since August 2010, which represents a 6.8 percent growth rate. During the same 12-month period, jobs in the overall economy grew by a mere 0.7 percent, while fossil fuel electric generation lost 2 percent of its workforce, (Source: Solar Foundation’s National Solar Jobs Census – 2011).

The value of the U.S. solar industry was $6 billion last year, a 67% increase over 2009, with the growth proceeding apace into 2011. The U.S. remains poised to install 1,750 megawatts of PV in 2011, double last year’s total and enough to power 350,000 homes, (Source: SEIA & GTM Research’s Market Insight Report).

Federal loans back a small percentage of the overall solar power market:

Larger utility-scale solar energy systems like the CVSR project highlighted in the NY Times article demonstrate solar’s ability to replace fossil fuels with clean energy at entirely new orders of magnitude. These projects are typically too large for the financial sector to in this economic climate and would not be developed if it weren’t for federal loans and loan guarantees. These types of loans are made to back other capital-intensive energy projects including nuclear power plants. To be clear, federal loans are not a giveaway to solar development. It’s an investment that needs to be repaid to the American government at returns exceeding Treasuries. In the case of solar projects like CVSR that involve experienced developers using a proven technology to harness a predictable energy resource, these loans are very low-risk.

But it’s important to recognize that these projects represent less than 1/3 of the overall American solar power market and to use them to characterize the entire market is highly misleading. The U.S. solar market is dominated (2/3rds) by commercial and residential solar energy systems. A significant portion of the remaining third is smaller projects for wholesale/utility customers. Financing for these smaller systems can be covered by the financial sector and do not require the government-backed loans of their large-scale counterparts.

The role of energy incentives can and should be to fundamentally transform the marketplace. And Americans resoundingly support federal incentives to that end:

We are at an energy crossroads. An Edison Electric Institute (EEI) funded study estimates that the U.S. is will spend $2 trillion over the next 20 years replacing aging infrastructure and building new infrastructure to meet our country’s growing energy needs. The question is not if we’ll spend that tremendous amount of money, but how. Policy and investment decisions made today will have lasting economic and environmental consequences.

Right now the playing field and the rules of the game are both designed to support traditional energy generation and
power delivery. Inserting solar into today’s fossil-based marketplace as the NY Times authors did is like playing golf with a basketball. Repowering our nation’s grid with clean energy requires building a new game altogether. Government incentives and other policies built our existing energy economy, and now it’s time to use those tools to transform it again.

Americans overwhelmingly support such change. Recent polling from the University of Texas–Austin shows that 76% of Americans think that our business-as-usual approach to energy investment and development is the wrong choice.

According to an independent poll from Kelton Research, an impressive 9 out of 10 Americans think it’s important for the United States to develop and use solar energy. 8 out of 10 think that the federal government should be incentivizing that solar development, just as we’ve done for traditional sources of energy like oil, natural gas and coal for decades. And that support remains strong regardless of party affiliation. Republicans, Democrats and Independents all agree that we need more solar.

Source: Vote Solar Author: Adam Browning