Solar Energy at the Speed of Light

11 min read

Substantial decrease in prices results in sustained growth

As far as scientists know, light is the fastest-moving entity in the universe. And now, harnessing the energy provided by our only significant light source, 92.6 million miles away, is the fastest-moving technology to provide for our future power needs.

“One thing right off the bat: There has been long and sustained growth across the industry along with a decrease in prices. A lot of affordable housing investors have become renewable energy investors.” So says Jeffrey Lesk, an attorney and partner in the Washington, DC office of Nixon Peabody who specializes in affordable housing, and who has been a pioneer in the application of renewable energy to community development.

“We should be making solar panels instead of digging coal out of the ground,” Jerome Sullivan of Churchill Stateside Group told the audience at NH&RA’s 2017 Summer Institute in Quebec. The Clearwater, FL-based financial services company has extensive experience analyzing and underwriting renewable energy deals.

The figures for this renewable energy are impressive. Though there is variation by state due to location, terrain and government policy, in 2008 the average price per watt for solar energy was $7.19. Today, less than a decade later, it is around $1.95, with prices projected to continue to drop. Solar energy is now cheaper than coal and has recently equaled the cost of natural gas.

There are three key drivers. The technology behind solar panels has increased their heat-gathering efficiency at nearly the rate of computer development. Interestingly, semiconductor and photovoltaic technology were originally developed out of the same basic material – silicon – within a few years of each other, each by a three-person research team at Bell Labs.

The China Impact
The dominance of China in panel manufacturing has steadily lowered the cost-per-unit. New technologies are in rapid development, such as vertical panels attached to south-facing walls, materials that can be bent or molded to wrap around sun-exposed corners or even incorporated into building materials themselves. Research is underway on efficient battery storage, which would provide power at night and resiliency during natural disasters. The cost of installing panels and inverters has become more efficient to the degree that prices have dropped 70 percent since 2010.

Though the actual proportion of solar power to total American energy output is still low – most estimates predict five percent by 2022 – its share is steadily growing. There are also some inherent restrictions. Only about 20 percent of roofs are good candidates for solar arrays due to directional orientation, site shading from other buildings, roof age and structural condition, wind shear, safety setbacks, insurance considerations, other equipment needing the roof space or amenities, such as terraces or roof gardens being more important to occupants.

State programs are also an important determinant of solar progress. Darien Crimmin told the Quebec Summer Institute audience that states with subsidy and incentive programs, such as PACE (property assessed clean energy) and high-value SREC’s (solar renewable energy credits), have seen much more development than states without them. Crimmin is vice president for energy and sustainability at WinnCompanies of Boston, which oversees one of the largest affordable housing portfolios in the nation.

In many jurisdictions, utility companies must supply their portfolios with a certain amount or percentage of renewable energy.

Orders of Magnitude
Solar power generation operates on several orders of magnitude, or scales, and for such a relatively new industry, the terms sometimes vary. Basically, though, at the top is Utility (USRE, for Utility Scale Renewable Energy), generally referring to operations generating at least ten megawatts of power, though definitions can vary. Its function is to feed energy into the utility grid under a power purchase agreement (PPA) that guarantees a certain rate of payment for a specified period of time.

Below Utility scale is Distributed Power Generation (DG), which is energy consumed at or near the source of its generation. This can range from a group of commercial buildings, to a cooperative community group, a multifamily dwelling, all the way down to an individual home. In other words, solar gathering facilities range from many-acre “farms” of photovoltaic arrays to a couple of panels on a townhouse rooftop.

“The climate is ripe for solar energy to be adopted on all scale levels, from utility scale to individual home scale,” Crimmin told the Quebec conference.

As an investment vehicle, “Solar is the safest space in the renewable [energy] hierarchy of risks,” Sullivan stated. “With a PPA, there is a lot of predictability so they’re easy to underwrite. Solar is safer than wind and biomass, and once you turn it on, you qualify for credits.”

Tax Credits to Transform a Market
A major incentive for the speed of solar energy installation is the available government subsides, and there is a race to use them before they fade into the sunset. There is currently an investment tax credit of 30 percent for solar equipment acquisition and installation costs. The credit drops to 26 percent in 2019, 22 percent in 2020, and ten percent in 2026. This is not necessarily a zero-sum negative, however,  during that period costs are expected to continue going down and efficiency will continue to rise.

“Unlike the other tax credits we work with – Low Income Housing, Historic and New Market – energy credits are different,” Lesk comments with his typical visionary zeal. “They are not meant to be there forever or to help projects get built. They are meant to transform a market. Technologies will only improve. We will have done our job as an industry if we take those subsidies and do research and improve installation techniques. If there is enough work and incentive, you can transform an industry by transforming the market.”

While LIHTC and NMTC awards have traditionally been more concerned with the green transformation, allocating agencies are increasingly supporting sustainable energy programs. “Affordable housing has been a driver,” notes Lesk, “and has led to rooftop solar installations in multifamily buildings.” New Market programs have been promoting sustainability through both the application and scoring processes.

The combination of solar investment tax credits with nine or four percent LIHTC can make an affordable housing project much easier to put together.

One tax credit in which there has been a degree of tension with renewable energy is historic preservation since rehabilitation and reuse of old buildings is often incompatible with new systems. However, this is now beginning to change. The National Park Service, which administers the program, has put a section on its website of how to accomplish both historic integrity and sustainable energy.

Community Solar
One of the most important developments in renewal energy is what is known as Virtual Net Metering or Community Solar. It normally has a three-part financing base: tax equity through federal investment tax credits; local government and/or foundation grants; and debt that is paid through the sale of SRECs to the utility company. Each SREC represents one megawatt hour (MWh) of electricity produced by a solar generator. Credits can also be transferred from a host – the owner of the energy generation – to a subscriber, or end user. Regulations vary widely by state and not every state allows credits to be transferred away from the physical location where the energy is produced. The solar asset can be owned by the owner of the building or land on which it is situated, or by a third-party developer who leases the location. The “community” aspect comes in when the solar generation is decentralized across a number of properties, locations and/or hosts and owners.

The goal is always to produce power at a lower cost than the rate charged by the local utility company. In an affordable housing context, Community Solar can offset management-paid utility bills. For resident-paid arrangements, developers are coming up with creative ways for residents to be incentivized to save energy.

As shown on WinnResidential’s chart, solar-produced electricity is metered, the local utility calculates the net metering credits and assigns a dollar value. Through a net metering credit agreement, the host directs the utility where to apply the credits to the subscriber or “off-taker.” Power companies generally don’t particularly care for electricity supplied to them on less than utility scale because of all the accounting and record-keeping involved, as well as the competition. But like the advent of multiple telephone service providers decades ago, this arrangement is here to stay.

The DC Model
As stated earlier, success and profitability in solar installation varies by location. One of the burgeoning areas happens to be Washington, DC, not necessarily known for productive activity in other areas at present. Because of zoning and height restrictions, most commercial rooftops in the city are flat and unencumbered by taller structures that block the sun. This provides an excellent environment for solar implementation.

As reported in a previous issue, Nixon Peabody’s NP Solar (for New Partners), a 501(c)(3) enterprise, is the District of Columbia’s first Community Solar project and a good example of the innovative ways renewable energy can be developed, accounted and employed for a variety of desired outcomes. The 180 kilowatts generated from arrays atop the roof of its offices is directed to two affordable housing projects in the city.

“It’s actually all about accounting,” Lesk explains. “The energy going through the NP Solar account at Pepco [Potomac Electric Power Company] gives us credits. We donate those credits to 100 affordable housing tenants in two buildings, worth about $20 a month to each tenant.

“This kind of arrangement offers people the opportunity to direct energy to places that are meaningful to them. The flexibility of Community Solar is tremendous, and the response from a lot of organizations and nonprofits has been overwhelmingly positive.”

Lesk adds, “Around the country, there is a lot of surplus roof space. Maybe at some point there will actually be a social stigma attached to not using it productively.”

Policy Questions
As solar generation becomes cheaper and more ubiquitous, public policy questions arise. On a broad scale, should the federal government and administration encourage or subsidize coal production? Can the nonrenewable energy workforce be retrained into, say, the production of solar panels and transmission equipment? And if so, who should pay for the costs?

“It will take time for the transition, but the general idea of converting the workforce from old, polluting industries to new, sustainable industries will happen and be profitable economically,” states Lesk.

A related matter is the manufacture of the panels themselves. One of the factors that has led to lower solar prices is the large-scale Chinese production. As Lesk commented at the Quebec conference, “Panel manufacturers in the U.S. tend to go in and out of business, so it’s not been a dependable supply.”

As Darien Crimmin posed to the same assembly, “Panels are now a worldwide commodity. Do we want to give grants to U.S. manufacturers (which could increase costs) or do we want to make the equipment as cheap as possible?”

In an April 8, 2017, New York Times article, Keith Bradsher wrote, “In 2012 and 2013, the United States and the European Union concluded that Chinese solar-panel makers were collecting government subsidies and dumping panels, or selling them for less than the cost of producing and shipping them. Both imposed import limits. Chinese manufacturers and officials denied improper subsidies and dumping, and still do.” A case before the U.S. International Trade Commission involves two American manufacturers – Suniva and SolarWorld Americas – that claim Chinese subsidies and dumping practices made them unable to compete. Most of the American industry, including the main trade group, the Solar Energy Industries Association, oppose the action, attributing the two companies’ problems to their own business practices and claiming that any governmental action would “undermine the hard work and innovation that is making solar a viable alternative to conventional energy sources,” and could jeopardize more than 250,000 American jobs. If the trade commission sides with the petitioners, the White House will have the ultimate decision and solar panel prices could be reset through tariffs and minimum pricing requirements to 2012 levels, which could have a significant negative effect on new installation.

But most signs point to increasing speed in solar adoption. “The industry is growing so fast there is a shortage of qualified developers,” Jerome Sullivan notes.

The one near certainty is that despite any outside legal or regulatory hurdles, solar power size, technology and cost efficiency will progress at exciting rates. Jeffrey Lesk muses, “As we do now with the computers and mobile phones, at some time in the not-too-distant future,

I think we’ll laugh at the size and inefficiency of what we consider state-of-the-art today.”

Story Contacts:
Jeffrey Lesk,
Darien Crimmin,
Jerome Sullivan,