The importance of solar energy
Solar energy is the fastest growing source of energy, but we need more policy incentives to encourage growth. The world’s solar energy capacity from rooftop panels and solar parks grew faster worldwide than any other source of energy, including fossil fuels. In 2017, 98 gigawatts (GW) were installed worldwide1 with over a tenth of that installed in the United States alone2, providing enough electricity to power 12.6 million American homes3.
However, the energy industry has not tapped into a substantial amount of solar resources. Solar energy accounts for less than 2% of electricity generation in the US4. Many of the states with the highest solar potential, like Arizona and New Mexico, lack policy incentives for installing solar energy technologies.
Policies which incentivize solar energy projects can speed up the renewable energy transition, which is necessary for mitigating climate change by reducing greenhouse gas emissions. The Green New Deal calls for a renewable energy transition5. Feed-in-tariffs (FiTs) would incentivize this transition by linking economic growth to renewable energy. People could make money while saving the planet. Adopting FiTs at the state level would provide a significant policy incentive that has proven effective in several international cases.
Feed-in-tariffs (FiTs) allow people with installed solar panels to provide energy to utilities at a fixed, premium rate for a set amount of years, which is usually 20. FiTs are one of the most common policy incentives for renewable energy. Around three-quarters of global solar photovoltaic (PV) deployment is associated with FiTs6. Utilities are required to purchase renewable energy from customers and to support the connection of all eligible renewables to the energy grid7. Only six states in the US have mandatory FiT programs that require utilities to provide FiT options, though several utilities have voluntary programs in which customers can opt-in to a FiT program8.
Domestic and international examples of FiTs at work
There are several international examples of FiTs at work, but Germany is probably the most successful example. The main initial policy tool for Germany’s energy transition was a FiT for solar PV, which has resulted in a largely decentralized system of energy production. Over 1.6 million solar projects have been installed9 in a country of less than 40 million households10, and at peak levels solar power can provide over 40% of Germany’s power9. Local energy cooperatives are predominantly providing more energy than large-scale industry operations12, and an aggressive target of greenhouse gas emissions and renewable energy use could be met partially from solar power.
Dominion Virginia Power (DVP) and the Tennessee Valley Authority (TVA) are prominent US examples of FiTs, but these voluntary programs are at a much smaller scale than Germany’s programs. Participants in the DVP program receive 15 cents per kilowatt-hour (kWh) for five years for all PV-generated electricity, which is higher than the average retail electricity price8. The TVA’s Green Power Providers program allows customers to enter a 20-year contract and be compensated 7.5-9 cents per kWh for small-scale renewable energy systems11, but this program will end in 2019.
A framework for state FiTs
States in the southeast and southwest have much higher potential for solar energy because the sun shines for brighter and longer in the south. The use of FiTs would be most practical as state policy. A FiT could integrate well with existing renewable energy policies: the residential federal Investment Tax Credit (ITC) for installing solar PV which is expiring in 20213, and the state-by-state Renewable Portfolio Standards (RPS) that requires some electricity generation for utilities to come from renewables. The ITC decreases installation costs for solar PV, meaning that residents can make money from installing solar panels and selling their electricity more quickly. A FiT could enhance an RPS by providing a source for utilities to purchase electricity from. Generally, contracts for FiTs should at minimum be five years, ideally being ten years to maximize net profit while minimizing risk from the variability in retail electricity price.
Challenges and opportunities
Connecting energy sources to the energy grid is a significant issue in the deployment of any renewable electricity, solar included. In order for residential solar to be consumed, power lines must be built to connect where the energy is produced at homes to where it may be stored or used. One option is providing a tax rebate for utilities who build these power lines. The cost of solar-generated electricity compared to other energy sources is expensive, but as policies increase the deployment of solar PV, the market will respond with infrastructure and technology that lowers the cost of solar installation.
The renewable energy transition will be difficult and will rely on many policy tools and market innovations. By providing an economic incentive for the average citizen to contribute to the renewable energy transition, we would encourage more people to buy into this transition. As many RPS programs and other renewable energy policies are nearing their end, we must think proactively towards a renewable future.
- Berke, Jeremy, and Shayanne Gal. “There’s New Evidence That Fossil Fuels Are Getting Crushed in the Ongoing Energy Battle against Renewables.” Business Insider, Business Insider, 9 Apr. 2018, businessinsider.com/solar-growth-outpaces-coal-oil-fossil-fuels-2018-4.
- “Solar Market Insight Report 2017 Year In Review.” SEIA, Solar Energy Industries Association, 14 Mar. 2018, seia.org/research-resources/solar-market-insight-report-2017-year-review.
- Perea, Austin, et al. “Solar Market Insight Report 2018 Year In Review.” SEIA, Solar Energy Industries Association, 13 Mar. 2019, seia.org/research-resources/solar-market-insight-report-2018-year-review.
- “What Is U.S. Electricity Generation by Energy Source?” Frequently Asked Questions, US Energy Information Administration, 1 Mar. 2019, eia.gov/tools/faqs/faq.php?id=427&t=3.
- United States, Congress, H.Res.109, Recognizing the Duty of the Federal Government to Create a Green New Deal.07 Feb. 2019.
- Couture, Toby D., et al. Policymaker’s guide to feed-in tariff policy design. No. NREL/TP-6A2-44849. National Renewable Energy Lab.(NREL), Golden, CO (United States), 2010.
- Rickerson, Wilson H., Janet L. Sawin, and Robert C. Grace. “If the shoe FITs: Using feed-in tariffs to meet US renewable electricity targets.” The Electricity Journal4 (2007): 73-86.
- “Feed-in Tariff: A Policy Tool Encouraging Deployment of Renewable Electricity Technologies.” Today in Energy, US Energy Information Administration, 30 May 2013, eia.gov/todayinenergy/detail.php?id=11471.
- Wehrmann, Benjamin. “Solar Power in Germany – Output, Business & Perspectives.” Clean Energy Wire: Journalism for the Energy Transition, Clean Energy Wire, 6 Feb. 2019, www.cleanenergywire.org/factsheets/solar-power-germany-output-business-perspectives.
- “List of Countries by Number of Households.” Wikipedia, Wikimedia Foundation, 18 Nov. 2018, en.wikipedia.org/wiki/List_of_countries_by_number_of_households#cite_note-8.
- “Green Power Providers.” TVA, Tennessee Valley Authority, tva.com/Energy/Valley-Renewable-Energy/Green-Power-Providers.
- Beveridge, Ross, and Kristine Kern. “The Energiewende in Germany: background, developments and future challenges.” Renewable Energy L. & Pol’y Rev.4 (2013): 3.
- Cory, Karlynn, Toby Couture, and Claire Kreycik. Feed-in tariff policy: design, implementation, and RPS policy interactions. No. NREL/TP-6A2-45549. National Renewable Energy Lab.(NREL), Golden, CO (United States), 2009.