Solar Policy

Caleb Marrero

4/20/2015

WE 3315

Solar Energy Policy

Renewable energy growth and success depends on many large and small factors. Specifically Photovoltaic technology has expanded its availability as a result of advancements in newer panel design as well as the simple install base on the consumer level. Policies have a responsibility to assist in the development of renewable technology. Any new technology that is brought before an existing technology will have to face challenges that can often determine its adaptation. With solar technology there arises the issue of cost and long-term effectiveness. When a home owner decides to installs panels on their home they are not just adding to their personal power supply however, assuming the system is tied to the utility grid, they are also supplying power to the grid for other users. The benefit for the consumer is to reduce their monthly power bill. When consumers look at investments in renewable energies most are going to consider the amount of money they can save over the life of the technology. Solar panel systems at first appear as a direct monthly saving on a utility bills. Consumers would be more interested in the direct application of the savings. That is, if the panel system is designed to produce a potential wattage that is greater or equal to the homes total monthly watt usage, then it’s a good investment. Unfortunately PV systems cost and production are broken down differently and the result may not always show the savings prove the investment. A PV system is broken down into specific factors to determine its effective production. Each panel has a specific efficiency and a nominal wattage peak. Sun hours are also a factor in PV systems. A Sun Hour is a specific irradiance that the sun emits on a square meter of earth. This is typically modeled at 1000W/m^2. Contemplate an example in which the total investment of the PV system would be \$20,000. The panels chosen are rated for 100 Watt peak and an efficiency of 85%. The sun hours for the home are an average of 4. The \$/W value is calculated as shown in the equation.

This Amount represents the Dollar per watt cost of the system. To determine the actual cost of the electricity the PV system produces, a calculation called the levelized cost of electricity is used. The levelized cost is a complex calculation that includes many factors. This metric allows investors to see if they are in fact truly saving over the life of the investment. For example, consider a system producing for 20 years and a total system output of 5000W in an area that has sun hours that offer 5620Wh per day and the system cost \$9,000. LCOE then is found to be about 5¢ /kWh. This calculation is beneficial in determining the best option for PV systems. A consumer could compare two systems using this calculation. The LCOE reveals the true savings a system provides a consumer. We can now look at other financial factors that affect the totality of PV systems.

The United States implemented federal tax credits for consumers who choose to invest in green renewable energies. Solar panels are one of these. The solar investment tax credit is the current policy in place for commercial and residential use. It is currently in place until December 2016. At that time the residential credit percent will be removed and the commercial percent will be reduced to 10%. The credit works by allowing a consumer who invests in a solar panel system to receive a tax credit on their tax filing for the year they made the investment. A simple example, Bob invest in a solar panel system for his home and spends \$20,000 for the install. On his taxes he is allowed per the policy to claim 30% of the expense as a credit against his taxes. This would be a \$6,000 dollar for dollar credit. The credit applies directly against any taxes Bob may own the IRS. There are some issues with this tax credit. First, the credit does not directly reimburse the consumer. Instead any remaining credit would roll over each year up to December 2016. On the consumer level this is good and bad. The average consumer doesn’t owe enough in taxes to benefit from the credit. That is if Bob already had his taxes showing that he paid enough from other sources or his income the credit applies to nothing and even though it rolls over each year there is no a real benefit for average Americans to invest in personal PV systems. This tax policy has certainly been a great stimulus in advancing the US in renewable energy however its not designed to help, as it should be. On the commercial level, PV investment can also qualify for tax credits. The major difference is a company may owe enough taxes that the credit would substantially benefit the commercial market.

For tax policies to further aid in the enhancement of renewable install base new approaches should be considered. For example the credits need to allow technology to offer equal incentives for the average consumer, as they don’t benefit in investments like commercial investors do. Distributed generation, or a system that produces power that is decentralized or movable and often close to the load they supply, these systems have benefits that allow for development in renewable technology. Some of the benefits could be local economic growth. More jobs in an area that could produce or manage these systems. They also add to the overall supply and demand for power in the US. As the demand grows the need for technology to supply grows. Opportunity for renewable development can take hold. There are some that think that a new direction would be to look at what other countries have done. Feed-in tariffs are an option that could create a balance in renewable development. The tariffs are designed to offer a cost incentive to renewable energy producers. This incentive could balance the commercial and consumer differences. If a consumer could receive a direct cost incentive for PV power produced by their panels on their home, however small it could be, it stands to reason that more consumers would move into investments in PV systems. Typically the cost incentives are paid over a long set period of time and are based on a determined unit such as a kilo-watt of power. Previously discussed were the LCOE for PV systems. Tariffs can also have an effect on this cost. There are two types of tariffs that are normally seen with PV systems. The first is the gross rate tariff. This is a rate paid to the investor that is paid for all of the electricity the system produces regardless of the local electricity the consumer uses. This means that the rate is paid based on the power produces and is not affected by the use of power by other consumers who may also use the power. The second is the Net tariff. The Net tariff is a rate that is often higher, for extra electricity after consumer use is subtracted.

Renewable technology has a chance to continue to advance in the US. Consumers need to be offered more of a defined incentive that can out weigh the initial investment of a PV system. The Feed-in tariff option is an example of how this change could occur. Looking at the long-term effects of a tariff system, the install base of PV systems could grow dramatically that not only offers additional use of the green technology but additional indirect benefits as well. Consumers need more awareness of the cost vs. gains of PV systems. Policies should amplify the development of green technology buy balancing the consumer and commercial differences for investments. The additional benefits of the investments, also allow for indirect economic growth.

Sources:

Mendonça, Miguel, Stephen Lacey, and Frede Hvelplund. “Stability, participation and transparency in renewable energy policy: Lessons from Denmark and the United States.” Policy and Society 27.4 (2009): 379-

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