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The California Solar Paradox: Why Does DRA Overlook the Cost Control Feature of Feed-in Tariffs? November 4, 2010

Posted by Laura Arnold in Uncategorized.
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November 3, 2010

Opinion by Paul Gipe

The Division of Ratepayer Advocates (DRA)’s recent report “California’s Solar PV Paradox” attempts to explain why the price for utility-managed solar photovoltaic (PV) systems in California was increasing despite the dramatic drop in solar PV prices worldwide. The report then goes on to suggest various remedies so California consumers don’t overpay for solar PV.

Unfortunately, the DRA never provides any substantive evidence that utility project prices are increasing.

Worse, the proposed solutions for reining in utility costs of solar PV ignore the world’s most successful policy for developing massive amounts of renewable energy while strictly controlling costs: Feed-in Tariffs.

Repeated US-Centric Bias
The report also fails to take a global look at best policy practices, recommending instead that its findings be compared to other US states.

As pointed out by industry analyst Craig Morris, the DRA, in calling for more research on the problem of overpaying for solar in California suggests comparing the state’s procurement policies to those in New Jersey–not any country in Europe, not even in Vermont or Ontario.

The trade is abuzz with talk of the out-of-control overpayment for solar PV under New Jersey’s REC (Renewable Energy Certificate) market. Certainly comparing California to New Jersey will make California look good. Some industry participants suggest the New Jersey market will collapse shortly as volume approaches the RPS targets and REC prices are expected to fall precipitously.

What would the finding be if we compared California’s procurement of solar PV to programs in Ontario, Vermont, Germany, Italy, even in France?

Selling to the Grid?
DRA does suggest exploring feed-in tariffs-in the absolute last sentence of the report. The statement appears almost as an afterthought or a throwaway line: “debate about whether to allow for CSI system ‘oversizing’ and expanded feed?in tariff provisions to allow for excess solar energy to be sold back to the grid.”

The explanation illustrates a fundamental misunderstanding of what feed-in tariffs are and how they work. Successful feed-in tariff policies pay for the “sale of electricity (typically all the electricity generated) to the grid” not “back to” the grid as in net-metering. This is not simply semantics, because it reflects an inherent bias toward “net-metering” which allows delivery of “excess electricity . . . back to the grid”.

Systematic bias is most obvious with the use of the politically-charged word “subsidy”. The word only appears in connection with China, Spain, and Germany, never with California’s RPS program or the CSI program. For example, “Feed?in Tariff programs offered in both nations [Spain and Germany] helped to bolster the market for expensive solar panels by providing subsidies to program participants.”

This suggests that there are cash grants from the public till for solar PV in Spain and Germany. While the term subsidy may be applicable with China’s support during the period studied, it is clearly not the case with Germany and Spain. Germany and Spain use a policy framework that grants interconnection and pays for the cost of generation. That is, each generator is assured it can connect to the grid and that it will be paid for their generation based on a calculation of what a generic system of that type, size, and application would require for profitable operation. It is neither a subsidy nor an incentive. It is simply payment for what it costs. The amount of this payment or tariff is determined in a transparent public process just as the payment to a regulated utility for generation from a conventional power plant is determined in the US.

There are no taxpayer-funded cash grants for solar PV or wind in Germany and haven’t been since 2000.

The more benign but still inaccurate term “incentive” is applied again to China, Spain, and Germany. However, incentive can only be accurately applied to the CSI program to describe the up-front subsidies or in American parlance, “buy-down” or “cash grants”.

Again, feed-in tariffs are not “incentives”. Feed-in tariff programs pay a fair price for generation. Some programs do offer “incentives” for specific policy objectives. In Ontario, the program pays a “bonus” for projects developed by farmers, community groups and Aboriginal groups.

 Why Did System Costs Drop Only 20%?
The overriding theme of the DRA report is that CSI system costs have dropped 20% and that for utility projects it has not. DRA missed an event bigger finding: Why did CSI costs only drop 20%?

The trade press has been awash in reports that system costs have dropped 40% since the Spanish market collapse. During the period DRA studied, Germany’s feed-in tariffs for solar PV-and only for solar PV-have dropped 36%. Could it be that feed-in tariff markets are more competitive than the California solar markets? Could it be that the federal ITC pushes system costs up by an amount almost equal to the federal subsidy? These are questions that are only not answered, they are not even raised.

 The Growing US Market?
Then, on page 6, the authors chime in on another claim that Americans have been making since 2009: “Analysts anticipate that the consumer market for solar PV will continue to shift away from Europe due to waning government support for renewable energy development there and increasing support in countries such as China, India, and the United States.”

Unfortunately, there’s no footnote for the mysterious “analysts” that made such an outlandish statement.

Let’s examine “waning government support”. France may install as much solar PV this year as the US did last year. Remember, this is France, a country not known as a hotbed of renewable energy development. Italy will likely install as much solar PV this year as the US has installed in the past 30 years. In June, Germany installed as much solar PV as the US has installed in the past 30 years. In July, Germany installed as much solar PV as the entire US in 2009. Waning support indeed.

 Declining PV Demand
To add insult to injury, there’s this on page 7: “Global news sources reported that from 2008 to 2009 the demand for solar PV decreased by 50% and many solar companies, both foreign and US-based, reported quarter-losses and overall drops in revenue in 2009. . . These and other developments have left many solar PV manufacturers and companies watching the market demand for their products diminish virtually overnight.” My records indicate that during this period demand increased-not decreased-by 25% and this year demand is up another 40% over 2009.

Where are Utility Solar PV Bid Prices?
DRA’s report hinges on its observation that unlike the CSI, whose prices have dropped 20%, bid prices for utility-scale solar PV during the same period have increased. But DRA doesn’t provide any data to support its contention. There’s a complete absence of transparency in this statement and, hence, in the entire report. Is this because California’s RPS program and its bidding mechanism are non-transparent? If that is the case, then not only is the report flawed, but the entire edifice that California uses to develop solar energy is fundamentally flawed.

A public agency, paid for with ratepayer funds, should provide a full and complete accounting of the costs in the utility program that it is criticizing.

Californians would be better served if DRA took a global look at policies and revealed the costs of the utility program. Only then can Californians make an informed choice about how to restore the state’s renewable energy leadership it lost more than two decades ago.

Renewables International: Utility-scale Solar PV Prices Increasing in California by Craig Morris

California’s Solar PV Paradox: Declining California Solar Initiative Prices and Rising Investor Owned Utility Bid Prices



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