Solar Power: Tackling Barriers to Widespread Deployment...Federal solar tax incentives enacted in the Energy Policy Act of 2005 allow homeowners a tax credit of 30% for qualifying

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Strategic Energy Institute

Marilyn A. Brown, Ph.DProfessor, School of Public PolicyGeorgia Institute of Technology([email protected])

and

Visiting Distinguished ScientistOak Ridge National Laboratory

December 15, 2008

Solar Power: Tackling Barriers to Widespread Deployment

www.ornl.gov/sci/eere/publications.shtml

Lee Raymond, the former CEO of ExxonMobil, famously remarked in 1997 that:

“non-petroleum sources of energy” are merely “fashionable,” and the “with no readily available economic alternatives on the horizon, fossil fuels will continue to supply most of the world’s energy needs for the foreseeable future.”

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Business Risks of Innovation

Lock-in of Incumbent Technologies

HighTransaction

Costs

•High costs•Unfavorable regulations•Industry structure

•Incomplete and Imperfect Information

•Uncertain Fiscal Policy•Uncertain Regulations

UnfavorablePolicy

Environment

•Infrastructure Limitations•Lack of specialized knowledge•Burdensome permitting

Carbon Lock-In

Barriers to deployment are interrelated, overlapping & reinforcing – an Iron Triangle

Systems of interrelated, overlapping, and reinforcing barriers

Lock-in of incumbent technologies:positive feedback between government, financial

institutions, suppliers, and existing infrastructure systems contribute to technology “lock-in” and maintain status-quo technologies even in the face of superior substitutes.

Business risks of innovation:inventions and innovations face an array of obstacles in

the marketplace, and since many GHG-reducing technologies are relatively new, these obstacles can strongly impact them.

High transaction costs:costs associated with gathering and processing

information, developing patent portfolios, obtaining permits, and designing and enforcing contracts can all be prohibitive during the early stages of a technology’s deployment.

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11 deployment barriers were identified

as criticalfor renewables

CostEffectiveness

FiscalBarriers

RegulatoryBarriers

StatutoryBarriers

IntellectualPropertyBarriers

Other Barriers

High Costs UnfavorableFiscal

UnfavorableRegulations

UnfavorableStatutes

IP TransactionCosts

Incompleteand ImperfectInformation

TechnicalRisks

FiscalUncertainty

RegulatoryUncertainty

StatutoryUncertainty

Anti-competitive

PatentPractices

Infrastructurelimitations

Market Risks

WeakInternational

PatentProtection

IndustryStructure

ExternalBenefits and

Costs

University,Industry,

GovernmentPerceptions

MisplacedIncentives

Lack ofSpecializedKnowledge

PolicyUncertainty

Those identified as critical to renewable fuels and power are outlined here.

These eight most critical barriers will be elaborated upon in the following slides.

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The lack of a price on carbon impedes all CCTP* sectors

Anti competitive Patent Practices

Policy Uncertainty

Barriers

0 1 2 3 4 5 7 9 10 12 13 14 15

High Costs

Technical Risks

Market Risks

Fiscal Uncertainty

Unfavorable Regulations

Regulatory Uncertainty

Unfavorable Statutes

Statutory Uncertainty

IP Transaction Costs

Infrastructure limitations

Industry Structure

Misplaced Incentives

Energy End -Use & InfrastructureEnergy SupplyCarbon Capture and StorageNon-CO2 Gases

Cost-

Fiscal Barriers

IP Barriers

Other Barriers

Regulatory Barriers

Statutory Barriers

CCTP Goal Areas

External Benefits and Costs

Lack of Specialized Knowledge

Unfavorable Fiscal Policies

Incomplete and Imperfect Information

Bar

rier T

ypes

(Def

ined

in C

h. 2

)

Effectiveness

6 8 11

Number of Technology Sectors Impacted by Each Barrier

Weak Internation al Patent Protection

University, Industry, Government Perceptions

Anti competitive Patent Practices

Policy Uncertainty

Barriers

0 1 2 3 4 5 7 9 10 12 13 14 15

High Costs

Technical Risks

Market Risks

Fiscal Uncertainty







Industry Structure



Cost-

Fiscal Barriers

IP Barriers

Other Barriers

Regulatory Barriers

Statutory Barriers

CCTP Goal Areas





Bar

rier T

ypes

(Def

ined

in C

h. 2

)

Effectiveness

6 8 11


Anti competitive Patent PracticesAnti competitive Patent Practices

Policy Uncertainty

Barriers

0 1 2 3 4 5 7 9 10 12 13 14 15

High Costs

Technical Risks

Market Risks

Fiscal Uncertainty







Industry Structure



Cost-

Fiscal Barriers

IP Barriers

Other Barriers

Regulatory Barriers

Statutory Barriers

CCTP Goal Areas





Bar

rier T

ypes

(Def

ined

in C

h. 2

)

Effectiveness

6 8 11






*CCTP = Climate Change Technology Program

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Myths Abound: “Renewable EnergyCould Never Meet America’s Growing Electricity Demand”

Sources: AWEA, IEA, NREL, EIA, GEA

This myth is strong, especially in the U.S. Many analysts dismiss renewable power as “hopelessly impractical” … “a pipe dream.”

Yet, U.S. renewable electricity has experienced a compound average growth rate of ~ 10%

Skeptics argue that solar and wind power are “hopelessly impractical” and “are far too diffuse and intermittent to ever provide more than a small fraction of the energy needs of any major industrialized nation, let alone vast northern countries like Canada and the United States.”(EnviroTruth.org)

Lee Raymond, the former chief executive officer of ExxonMobil, famously remarked in 1997 that “non-petroleum sources of energy” were merely “fashionable,” and that “with no readily available economic alternatives on the horizon, fossil fuels will continue to supply most of the world's energy needs for the foreseeable future." (Raymond, 1997)

Such ideas have infiltrated the news media. One news commentator, for instance, referred to renewable energy as a “pipedream” with “dubious prospects.”

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Current Renewable Electricity Policy: A Chaotic Landscape

Purchase obligations range from 8 to 30%.Source: Pew Center on Global Climate Change

http://www.pewclimate.org/what_s_being_done/in_the_states/rps.cfm

1 REC = 1 MWh

Notes: Compliance buyers are generally indifferent to the type of resource that created the REC (insofar as it qualifies), but they are limited to a specific geographic region from where the REC can be sourced

In compliance market, in 2007 Texas will demand 5.5 million RECs alone (followed by Massachusetts with 1.8 million RECs)Voluntary market in 2005 was ~8.5 million RECs (Bird & Sweezy, 2006, Green Power Marketing in the U.S.)

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Net metering is critical to PV success, but it’s highly variable

More states are.

Source: DSIRE, 2007

(1)Net metering is used to measure a customer's total electric consumption against that customer's total on-site electric production. When on-site production exceeds use, the customer sends electricity to the grid, and when use exceeds production, the customer uses electricity from the grid. The customer then pays the local electric provider only for the net electricity consumed.

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Almost half of the states have renewable energy funds – more than half do not

Source: Pew Center on Global Climate Changehttp://www.pewclimate.org/what_s_being_done/in_the_states/rps.cfm

Almost half the states have funds, often called “public benefit funds,”dedicated to supporting energy efficiency and renewable energy projects. The funds are collected either through a small charge on the bill of every electric customer or through specified contributions from utilities. The charge ensures that money is available to fund these projects. Publicly managed clean energy funds from twelve of these states have formed the Clean Energy States Alliance to coordinate public benefit fund investments in renewable energy. The Clean Energy States Alliance is composed of funds in California, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, and Wisconsin.

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Investment Tax Credits Come and Go

* DOE/EERE analysis

Current Credits

• 30% ITC: solar energy

• $2,000 cap for residential solar systems

Figure 2: Estimated Impact of Extending/Modifying the Solar ITC oU.S. Installed Photovoltaic Systems

0

20

40

60

80

100

120

2010 2015 2020 2025 2030

Year

Cum

mul

ativ

e In

stal

led

PV (G

W)

Extension of solar ITC for 8 years through 2016 would accelerate installations to as much as 100 GW by 2030*

Base Case

ITC Ext @ 30%

Estimated Impact of Extending/Modifying the Solar ITC on U.S. Installed Photovoltaic Systems

Federal solar tax incentives enacted in the Energy Policy Act of 2005 allow homeowners a tax credit of 30% for qualifying solar electric (PV) or solar water heating expenditures, up to a maximum of $2,000 per technology. For businesses, the investment tax credit is increased from 10% to 30% of qualified solar property expenditures, with no cap on the credit amount. These incentives apply to equipment placed in service during 2006-2008.

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U.S. companies are moving manufacturing overseas to take advantage of higher incentives

U.S. market share of global PV production has fallen behind Japan, Germany, & China.

0

20

40

60

80

100

120

First Solar Evergreen Solar

Eur

os (m

illion

)

IncentivesFirms's Contribution

Evergreen SolarFirst Solar

Euro

s (m

illio

n)

Incentives

Firm’s Contribution

Current renewable energy policies may be insufficient.

The majority of solar manufacturing facilities are built off-shore as companies look abroad for attractive manufacturing incentives and market transformation policies.

The U.S. is steadily falling behind the rest of the world in solar manufacturing capacity

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Conclusion 1: Multiple barriers require multiple remedies

• Interviews and literature provided consensus that a market signal (a price on carbon) is the greatest need

• But there are numerous barriers

• Thus, no single policy remedy will be sufficient

Indeed, current federal activities attempt to address most of these barriers.

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Conclusion 2: “Public failures” may be as important as “market failures”

• Numerous policies place clean energy technologies at a comparative disadvantage.*

• A range of policies have design flaws that undermine their intended outcomes.

• These distortionary policies create confusion in the marketplace.

• Can a platform of policy reform get any traction?

*See “Governing Confusion…”http://www.spp.gatech.edu/faculty/workingpapers.php

Interventions to fix “market failures” have produced an array of “public failures.”

Documents

Solar Power: Tackling Barriers to Widespread Deployment...Federal solar tax incentives enacted in the Energy Policy Act of 2005 allow homeowners a tax credit of 30% for qualifying