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 / Summer 2012 / Issue 67(originally published by Booz & Company)


Solar Comes of Age

Everyone gets worked up when there’s something in the paper, such as the Solyndra or Evergreen Solar bankruptcies. My opinion is that those are just natural things that are going to happen as any industry matures. You have companies and products that don’t survive. It doesn’t mean the industry is failing. In the case of Solyndra, it became political. But solar itself actually isn’t that political. And an interesting, little-known fact is that tons of military bases across the U.S. — which typically have a lot of land and rooftop space — have adopted solar. They are trying to reduce cost, but also want energy independence and a reliable grid.

S+B: What do you see as some of the main roadblocks?
The fundamental one is this traditional, jurisdictional monopoly framework that we have. I’m not blaming the utilities. It’s just the way the structure has been set up, and that’s not going anywhere. If you want to interconnect, you have to call the utilities. In most places, utility commissions have a fairly transparent process, but in some cases the process can be slow, difficult, and expensive.

In some areas, things are held up by uncertainty about rules such as the alternative compliance payment, which is the penalty the utilities or other load-serving entities pay when they don’t comply with the RPS [the federal Renewable Portfolio Standard, which requires the increased production of energy from renewable energy sources]. And with the current political and economic turmoil comes uncertainty about how committed states are to implementing their policies. Uncertainty increases risk, which increases cost. Another challenge is that, in many cases, investors want companies to have long-term commitments from customers to buy the output of solar, whether that is energy or a renewable energy credit. But it’s hard to get a long-term contract because they’re not mandated. As a result, it’s difficult to get financing.

Low natural gas prices are also causing some distraction. Americans may look around and say, “Maybe we don’t need to do that much solar, or anything else, for that matter.” The perception is that we’re going to have cheap gas forever, the key word being perception. That’s typical behavior. And it’s unfortunate, because it’s shortsighted. The up-front costs of solar are higher than those of other energy sources. But then after that, you’re done; there are no fuel costs.

Not that different energy sources are mutually exclusive. You need a mix of many fuels, and you have to have good, sound policy to do that. We don’t have a national energy policy, so that longer-term view that would typically come from Congress isn’t there, which is why I’m focused on the states.

S+B: What’s happening at the state level?
We put the factors that make a good market, at the state level, into four buckets. The first is net metering rules. Net metering allows customers to produce power when they’re not using it to sell back into the system and receive a credit. The second is interconnection rules. If you’re building solar systems, you want to be able to hook up to the grid. The third is incentives, such as rebates and tax incentives. Are they sustainable over time? Do they reflect different technologies? The last is rate structures. All customers in the U.S. are served by a utility, and when they try to install a solar system, their relationship with the utility and how the rate structure looks can be either a barrier ora complement.

Progress in these four areas varies across the country. For example, in terms of negotiating rate structures, early on there was some resistance, and then five or six years ago, probably five or 10 of the more progressive utilities decided to make it work. We’ve seen some retrenchment from that in the past year or so because penetration has increased. The utilities are concerned, legitimately or not, about the physical impact on the system. With net metering, there’s also been a little bit of an ebb and flow. But today, 46 states have net metering in some form.

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