May 13, 2011

Utility-Scale Solar Market: FITS and Starts

The utility-scale solar market in North America continues to go through growing pains with “fits and starts.” The “fits” revolve around Feed in Tariffs (FITs) being planned and implemented in various states and provinces. And the “starts” include the Investment Tax Credits (ITCs), Department of Energy’s Grant and Loan Program, and Renewable Portfolio Standards (RPS).

FITs

Feed In Tariff (FIT) programs are a type of policy mechanism that is used in renewable energy projects throughout the world to create incentives to build energy producing projects. A FIT provides a guarantee of a pre-determined and uniform price that is paid to the owner of the project at a specific $/kWh of electricity for a period of years. This approach enables the project owner to know the revenue stream throughout the life of the project, providing more certainty around the viability of the project. This assurance allows financial partners to get behind projects by providing clarity on how their investment will perform.

The FIT with the most momentum in North America is the Ontario FIT program, where over 5,100 solar photovoltaic (PV) applications have been received as of April 1, 2011 for a total of almost 5,600 (megawatts) MW of electrical production. In the U.S. the cities of Gainesville, Florida and Los Angeles, California have enacted their own FITs, and the State of Wisconsin is considering doing the same. States are left to determine if a FIT policy is right for them to encourage more renewable energy projects. A national policy is needed to coordinate all of these incentives to drive construction for the years to come.

Starts

The American Recovery and Reinvestment Act (ARRA) of 2009 created the 1603 Treasury Program, which allows the owner of commercial solar property to receive a 30 percent grant on the front end for the development and construction of a project. Developers/owners of solar projects must begin construction by December 31, 2011 and be complete by December 31, 2016 to receive a 1603 grant. A potential rush of construction starts for solar projects could be coming in the second half of 2011 to meet the requirements of the Treasury grant program.

Another “start” is what is shaping up to be one of the biggest renewable energy policy debates on Capitol Hill, the issuance of a Federal Clean Energy Standard (CES) consistent throughout the U.S. This would be a uniform expectation for all the states where a set percentage of their energy must be derived from renewable/clean energy sources. A stable and consistent federal CES policy would go a long way toward promoting additional renewables projects, including solar.

Working in the utility-scale solar space demands a steady hand when developing and building larger solar arrays. Federal and state incentives are in place to promote solar generated electricity, and the industry is actively working to match the cost of producing electricity from fossil-derived sources such as coal. The energy needs of the U.S. will require several different sources of electricity and solar is one of many solutions that have exciting possibilities for the current generation and generations to come.