Development of the U.S. Solar Energy Industry

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S. Patricia Batres-Marquez
Decision Innovation Solutions – 07/21/2016
11107 Aurora Avenue
Urbandale, IA 50322
http://www.decision-innovation.com/

Solar energy is a clean, renewable energy derived from radiant light and heat from the sun that can be harnessed by using different methods or technologies. It can be used for several purposes, such as generating electricity; heating or cooling spaces in buildings; and heating water for home, commercial, or industrial uses.

Two of the main solar energy technologies are photovoltaics (PV) and concentrating solar power (CSP). PV converts sunlight directly into electricity by using panels. Once the sunlight hits the solar panels, photons from the sunlight are absorbed by the cells in the panels, generating an electric field through the layers, causing electricity to flow.

CSP converts heat from the sun that can provide electricity for large power plants. The power plants that employ this technology, called solar power thermal plants, use the sun’s rays as a heat source to boil water. A large turbine is spun by the steam from the boiling water, which drives a generator to produce electricity. These power plants use the sunlight as a heat source instead of fossil fuels.

According to the U.S. Energy Information Administration (EIA), by the end of November 2015, the United States had over 20,000 megawatts (MW) of solar generating capacity from technologies including utility-scale PV, distributed generation solar PV systems (rooftop solar), and solar thermal installations (EIA, 2016a). California had almost half of the U.S. solar electricity generating capacity, with 9,976 MW, followed by Arizona (2,103 MW), New Jersey (1,235 MW), North Carolina (1,070 MW) and Nevada (1,010 MW).

Federal and State Policies Driving Solar Growth

Several federal and state policies have positively impacted solar industry growth. One such policy is the federal Energy Investment Tax Credit (ITC), which has been amended several times, most recently in December 2015 when the expiration date was extended. ITC currently allows a 30% federal tax credit claimed against the tax liability of eligible parties (residential, commercial, and utility investors in solar energy property). The ITC is based on the amount of investment in solar property.

State Net Energy Metering (NEM) is a billing system that allows PV owners to sell to their local utility company the excess electricity they generate back to the grid, often at full retail rates. This policy has enabled the growth of distributed PV; nonetheless, some concern exists about the viability of this system as the number of PV owners increase. Among the issues raised are potentially higher electricity rates, reduced utility shareholder profitability, and cost-shifting to non-solar customers. At the heart of these concerns is the perception that solar customers do not pay for the grid. However, the Solar Energy Industries Association (SEIA) indicates that Net Energy Metering customers use the grid and pay for it, as the majority of solar customers do not zero out their utility bills (SEIA, 2016a).

Removing this policy could have an adverse effect on the expansion of distributed PV deployment. A recent study (Barbose et al., 2016) indicates that eliminating the NEM policy, and instead compensating PV owners for exporting excess electricity generated to the grid at a wholesale electricity rate, would discourage consumers to invest in solar technology because the payback period could increase. Based on standard 5-kilowatt residential systems installed in six representative states (Arizona, Connecticut, Georgia, Minnesota, New Jersey, and Oregon), the study found that the payback period could increase by 2.4 to 8.2 years (or 20%–69%).

As Figure 1 indicates, the price of PV systems has declined substantially from 2010 to 2015 for residential, commercial, and utility sectors. National and state level PV incentives as well as reductions in the price of PV systems have contributed to the growth of PV deployment from 2010 to 2015 (Woodhouseet al., 2016).

PHotovoltaic System Price for Residential, Commercial, and UtilityFigure 1. Photovoltaic System Price for Residential, Commercial, and Utility (2010 and 2015).

The development, design, construction, and operation of CSP systems are more complex than PV systems and need a larger scale to reach minimum effectiveness. In addition, because of the declining cost of PV technology, acceptance and deployment of CSP have been negatively affected (Mehos et al., 2016). Nonetheless, because of the capacity to use thermal energy storage, CSP systems can provide power for longer periods even when the sun is not shining, offering flexibility. Since 2012, CSP has grown in operational capacity to 1,650 MW. Factors that have contributed to the expansion of CSP, particularly in the U.S. Southwest, are ITC federal loan guarantees and state renewable portfolio standards (Mehos et al., 2016). Renewable portfolio standards are state policies that require utilities to sell a specified percentage or amount of renewable electricity.

Solar Electricity Generation

As Figure 2 shows, the solar industry has been expanding in recent years. Utility-scale solar plants generated less than 1% of the total energy generated from all renewable sources in 2012 compared with 4.8% in 2015 (EIA, 2016b). EIA forecasts indicate that electricity generated in solar plants will represent 5.8% and 7.4% of the total electricity from all renewable sources in 2016 and 2017, respectively.

Electricity Generation from Renewables Sources and percent solar electricity of total electricityFigure 2. Electricity Generation from Renewable Sources (Utility-Scale Plants) and Percent Solar Electricity of Total Electricity from All Renewable Sources.

Overall, the EIA projects that electricity from utility-scale renewable sources will represent 14.9% and 15.3% of the total electricity generated in the United States from all sources in 2016 and 2017, respectively. On the other hand, utility-scale solar generation electricity is expected to account for 0.9% of the total U.S. electricity from all sources in 2016 and 1.1% in 2017. Electricity from utility-scale renewable plants in 2016 will increase 10.4% from the previous year. The growth will be driven mainly from expected new installations of wind and solar plants, as well as an increase of hydro-electric power generation. In addition, the July EIA Short-Term Energy Outlook (EIA, 2016b) indicates that from 2015 to 2017 utility-scale solar PV capacity is expected to expand by about 13 gigawatts (GW). This growth is led by California, Nevada, North Carolina, Texas, and Georgia (see Figure 3 below).

Utility-scale generating units planned mapFigure 3. Utility-Scale Generating Units Planned to Come Online from May 2016 to April 2017. Source: U.S. Energy Information Administration (EIA).

Solar Energy and Ethanol

As in the past, state-driven policies and the recent extension of the federal Energy Investment Tax Credit have the potential to further expand the solar energy industry, making solar electricity more cost-competitive with conventional generated electricity. The declining cost of PV systems can make them appealing to some solar project developers, but the use of thermal energy storage by CSP can give flexibility to that system. 

Incorporating renewable energy (including solar energy) in the production of ethanol can contribute to a reduction in the carbon intensity value of ethanol and at the same time increase the competitiveness of ethanol in markets such as the California market that favors biofuels with estimated lower carbon intensity through the California Low Carbon Fuel Standard policy. (For a more detailed discussion about the Low Carbon Fuel Standard, see our May and June reports.)

Sources

Barbose, G., J. Miller, B. Sigrin, E. Reiter, K. Cory, J. McLaren, J. Seel, A. Mills, N. Darghouth, and A. Satchwell. 2016. On the Path to SunShot: Utility Regulatory and Business Model Reforms for Addressing the Financial Impacts of Distributed Solar on Utilities. Golden, CO: National Renewable Energy Laboratory, NREL/TP-6A20-65670.

EIA (U.S. Energy Information Administration), 2016a. “California Has Nearly Half of the Nation’s Solar Electricity Generating Capacity,” Today in Energy, Feb. 5.

———, 2016b. Short-Term Energy Outlook (STEO) report, July 12.

Mehos, M., C. Turchi, J. Jorgenson, P. Denholm, C. Ho, and K. Armijo, 2016. On the Path to SunShot: Advancing Concentrating Solar Power Technology, Performance, and Dispatchability. Golden, CO: National Renewable Energy Laboratory, NREL/TP-5500-65688.

SEIA (Solar Energy Industries Association), 2016. Net Metering Facts, (accessed July 20, 2016).

Woodhouse, M., R. Jones-Albertus, D. Feldman, R. Fu, K. Horowitz, D. Chung, D. Jordan, and S. Kurtz, 2016. On the Path to SunShot: The Role of Advancements in Solar Photovoltaic Efficiency, Reliability, and Costs. Golden, CO: National Renewable Energy Laboratory, NREL/TP-6A20-65872,