There is much speculation about the impact of the recent election with concern about the future of the solar industry. Although difficult to predict industry trends without the future presidential platform announced, our expectation is that RRC’s portfolio of opportunities will not be affected by the new administration. We foresee continued, significant growth over the next 5 years, and beyond, in the solar industry.
Our confidence is based on several items:
1. The vast number of states (41 out of 50) have existing Renewable Portfolio Standards (RPS) and the current push is toward increasing the percentage of solar. There is not currently an effort to repeal these laws at the state level, in any state. A change in federal laws by the incoming administration would not impact state laws.
2. Solar enjoys a time of production benefit over other renewables because solar panels produce energy during the day. This is an advantage because the energy captured is concurrent with peak energy use times which are in the morning and late afternoon.
3. Efficient storage technology is years (10+) from commercial application at any significant scale, which will continue to cause renewable generation to lean toward solar. While storage would allow wind power to be stored and used to meet daytime demand, there are significant technical difficulties with the technologies at the forefront of that market. Current battery technology is challenged by capacity, safety, longevity and cost. While improvements are in the works, a step change is required. Other technologies are being evaluated (pumped storage, flywheels, compressed air, capacitors) but none are ready or capable of filling the gap.
4. Solar project costs are dropping at about 5% per year and continued improvements in module efficiency, trackers, and inverters combine to improve financial performance and investor confidence.
5. The Solar Investment Tax Credit (ITC) has already been extended for solar utility scale at 30% through 2019, 26% through 2021, 22% through 2023, followed by a permanent drop to 10%. Our expectation is that the new administration will have other initiatives and working to repeal a law that had bi-partisan support will be difficult to overturn.
6. Solar currently provides about 1% of US energy generation (wind is 7%), leaving considerable opportunity for growth.
I have heard or have questions about:
1. What if the Clean Power Plan (CPP) is repealed?
While that is possible, the state renewable portfolio standard (RPS) levels will not be impacted and will continue to drive the industry. Also, the current solar projection of 20,000 MW of new generation in the next 5 years still applies. Should the CPP stay in force, the bulk of the new generation will be gas fired, not renewables. Natural gas fired generation remains lower in cost than renewables and is dispatchable, meaning it can be turned on when needed.
2. I have read that the utilities are taking away payments for solar, won’t that slow down the industry?
The utility companies are struggling to deal with net metering where customers are credited the full retail rate for power that they produce. The cost of the power delivered includes both a power component (the cost of generating the power) and an infrastructure component (the cost of connecting a house to the grid). Crediting the full retail does not allow the utility to cover the infrastructure cost. Many are attempting to modify rates to replace the existing single rate with a fixed monthly charge plus a lower energy cost than the current retail rate. I believe that this trend will continue and that residential solar will see a decline. Overall, this will not affect the industrial solar industry.
3. What about industry announcements by solar associations that the new administration will hurt the industry considerably?
These announcements address the already struggling residential solar side of the industry, which will continue to face difficulty finding its footing. The big residential players are struggling to make a profit, but the utility scale side of the business will be fine. Remember that the trade associations represent all people in the industry.
4. I hear a lot about community solar. What is it and what does it mean to RRC?
Community solar consists of utility scale solar gardens where individual homeowners purchase subscriptions for panel produced energy. The cost of a solar garden is half the cost per watt compared to a typical residential installation and does not create maintenance problems or liens for the homeowner. From the utility point of view, they can see and control the production on their system to ensure grid stability. For individual homeowners, they can purchase the output of the panels and enjoy the benefits of solar without the associated problems and uncertainty of roof mounted panels.
Overall, we are confident in the future of our solar division based on the above industry trends. The next administration has said that their energy strategy is “all of the above” which includes coal, gas, wind, solar, nuke, etc. We also will continue to have growing power demand due to retirements, growth, and manufacturing, necessitating new generation. With our country structurally needing new generation, the direction is largely driven by the states through the Renewable Portfolio Standards, which are unlikely to change direction. The current penetration of solar in the power mix is very small (1%) but with a good position on cost (2nd), production when needed (1st), and applicable in diverse locations, it will grow at an increasing rate and a small impact to the total US power mix could mean a 200%+ increase in solar. RRC is well positioned to participate in the market for years to come.
Written by Mark Aldrich.