Whether it deserves it or not, the solar energy industry can’t count on continued government largess, thanks in part to the Solyndra mess. But in the end, Solyndra’s demise might be exactly what...
to produce electricity at peak demand for about $130 per megawatt-hour.
Fortnightly: With changes to the federal investment tax credit (ITC) and solar requirements in state renewable energy standards, many utilities are spending money on solar roofs and solar central stations. Do you think this kind of investment is sustainable?
O’Brien: A couple of key catalysts have accelerated utilities’ interest in owning and operating renewable energy projects in general, and solar projects in particular. The first catalyst has been the drop in the expected price for installed PV systems, and consequently the cost of energy from those systems. Some companies, like FirstSolar, Sun Power and others, have significantly shifted expectations and provided some eye-opening improvements in the value of PV energy as delivered to utility customers.
A second important catalyst is the sudden introduction of new policies that are providing an unprecedented opportunity for utilities to capture tax credits directly and potentially access loan guarantees from the government to support investments in renewable energy projects. And policies are evolving at the state level, in such states as California, regarding the regulatory treatment of investments in PV.
These policies provide an opportunity for utilities to kick the tires of the technology in a much more meaningful way and test alternative business models. There’s good reason to think this is a long-term trend. We know the ITC will be in place until 2016, and there’s no expectation that utilities would lose the ability to use that directly. That’s a significant long-term window. And the cost trends are sustainable, particularly with regard to thin-film technologies. Collectively they comprise only 10 percent of the market today, but I’ve seen estimates that they could be 25 to 50 percent of the market by 2012. That’s driven by economies of scale and continued advances in the performance of the technology itself.
Fortnightly: In the current financial crisis, companies are having trouble financing almost any kind of investment. How is that affecting utility investment in PV projects?
O’Brien: Compared to conventional fossil technologies, solar and other renewable technologies are characterized by comparatively higher initial cost, and little to no O&M costs over the 20- to 30-year life of the asset. That highlights the sensitivity of those investments to financing terms. To the extent utilities invest directly in PV projects and even potentially in PV manufacturing, it would reduce the portion of the energy cost associated with financing.
One thing that makes utility-owned PV attractive is that by integrating it into the rate base, utilities have an opportunity to earn a return on those investments, in the same way conventional assets are treated. It needs to meet regulatory tests for a least-cost resource, compared to a third-party owned scenario. Utilities and PUCs are testing both models. We’re in a period of transition.
Fortnightly: You mentioned the prospect of utilities investing in PV manufacturing facilities. Why would they want to do that?
O’Brien: The utility might have an advantage in terms of financing costs, and this, combined with getting thin-film silicon modules effectively at wholesale instead of retail,