Betting on Renewables Amid a Changing Energy Landscape

By Rona Cohen

One year ago, Maryland’s burgeoning solar industry gave Daryl Cooper a lifeline. For two years, Cooper had supported his four kids on limited public assistance payments following the collapse of his contracting business. After completing a four-month, countysponsored, job-training program at Arundel Community College, Cooper learned that the only companies hiring were in the fastgrowing solar industry, a field that Cooper knew nothing about. But he jumped at the opportunity to take an entry-level position installing solar panels for $12 an hour, far below what he used to earn as a small business owner, but a job nonetheless.

I didn’t even know what tools to bring the first day,” recalled Cooper. But less than a year and two promotions later, Cooper runs the entire construction and electrical division at Kenergy Solar, which operates in Washington D.C., Maryland, and Delaware. His salary has increased by nearly 50%. The company has grown from 5 to 15 employees, and Cooper is looking to hire 3 more installers in the coming weeks.

“People are looking for stability, and I think that is the biggest thing that is bringing people to apply to the solar industry,” said Cooper. Stability is what Maryland legislators had in mind last spring when they sought to accelerate their solar mandate to ensure that the industry continued its steady growth. They joined a handful of states that are moving to ramp up renewable power, despite widespread uncertainty about continued congressional support for clean energy. Supporters of such measures say renewable industries have proven to be bright spots in a down economy.

“Supporting Maryland’s solar market is a win-win for our state,” said Malcolm Woolf, Director of the Maryland Energy Administration. “Under the O’Malley Brown Administration, we have more than doubled the amount of solar on our grid for each of the last four years and, to date, our solar industry has created over 2,000 solar installation jobs in Maryland.”

Maryland Delegate Sally Jameson, who sponsored a bill to advance the state’s solar goals by two years, said she knew action was needed after seeing data showing the state’s solar demand curve would soon resemble a hockey stick—nearly flat over the next few years but then shooting up until electricity suppliers met the target of providing 2% of their power from solar by 2022. The fear was that without picking up the pace of the requirement in the near term, the burgeoning industry might see demand slacken and be forced to shed jobs.

“The last thing you want to do is train people to put up solar panels, make solar panels, and then you’ve got good-quality, trained people with no place to work,” said Jameson. “The story we were able to tell is: ‘Hello—we did it. We created jobs.’ Now, let’s keep them here.”

The bill ran into heavy questioning from senate lawmakers warning that its price tag would be too high—a concern that has been expressed in many state capitols this year that have considered measures promoting solar and other renewables, which are dependent on subsidies to compete with regular grid power. But after studies showed the costs would amount to an average of $22 per ratepayer over 10 years—which Jameson noted is equivalent to purchasing two pizzas over the course of a decade—the bill won passage in the senate.

The new law, signed by Governor Martin O’Malley in May, calls for electricity providers to meet the solar carve-out by 2020, two years ahead of the original schedule. Industry sources say it will create 10,000 solar jobs between now and 2018.

Catalyzing Investment, Lowering Costs

Since the 1990s, more than half of all U.S. states have approved programs to promote higher-priced renewable generation such as solar, wind, and biomass to address several key public policy objectives—among them energy security, job creation, and environmental protection. In many states, particularly in the Northeast, policies promoting solar have created a glut of supply as developers rushed to take advantage of generous incentives.

In New Jersey, which recently became the largest solar market in the country in terms of megawatts installed, the legislature approved a bill that would increase the amount of solar power that utilities are required to buy, to correct an oversupply of renewable energy credits. Governor Chris Christie indicated that he would sign it. Pennsylvania lawmakers also considered legislation this year intended to correct a glut of credits, though representatives of the coal and natural gas industries lobbied heavily against it.

Renewable energy credits serve as a critical financing incentive for development of solar and other qualifying sources of power, with one credit equal to 1 megawatthour of generation. Owners of solar installations count on receiving yearly credit payments to help finance their investments. Electricity suppliers must purchase the credits to fulfill their renewable energy mandate, or pay a penalty.

Elsewhere, states that are moving to increase their programs are focusing keenly on surmounting two important hurdles: creating the economic certainty needed to drive investment in clean energy technologies, and keeping costs down for ratepayers.

Those were among the goals of an omnibus energy reform law enacted in Connecticut last year that establishes a range of new incentives for clean energy. The state’s new green bank will offer lowcost financing to clean energy and energy efficiency projects, and a new credit trading program compels the state’s two investor-owned utilities to enter into long-term contracts to purchase energy from low- and zero-emission sources.

The trading program aims to provide certainty for solar investors while reducing costs for ratepayers. For example, utilities must purchase, annually, a fixed dollar amount—$8 million—of credits generated by zero-emission sources, known as ZRECs. This approach differs from trading programs in many other states in the Northeast, which typically require utilities to buy a certain number of credits each year and are not based on an overall dollar amount. The intent is to reduce costs through competition, as solar installation owners bid against one another for a portion of the overall pool. The winners of the reverse auction are able to lock in fixed ZREC prices for 15-year terms. Those with the lowest bids will have the best chance of winning a contract.

“To the extent that the ZREC auction is very competitive—and we think it will be—and the competition drives down the prices of awarded contracts, that drives down the cost of solar being installed,” said Peyton Boswell, a partner in EnterSolar, a developer that works primarily with corporate entities in several northeastern states. “Our clients really value certainty, and in states that have programs that provide certainty for system owners, that’s what drives deployment,” he said.

A Changing Energy Landscape

Although industry sources are hopeful that these and other new programs will hasten development, they stand in stark contrast to a political wave that has turned decisively against renewables. Lawmakers in at least a dozen states considered bills this year to weaken or repeal their clean-energy mandates.

The push has unfolded amid a changing domestic energy landscape. Many critics of renewable mandates point to the availability of abundant, cheap supplies of domestic natural gas tapped in the last few years from once-unreachable shale reserves in Pennsylvania, Ohio, Texas, Colorado, and other states via a controversial drilling technology known as hydraulic fracturing.

As few as five years ago, gas prices were skyrocketing, local supplies were dwindling, and policymakers were debating the merits of importing liquefied natural gas to satisfy growing energy demand. Now, many are rethinking that support in light of rock-bottom natural gas prices.

The conflict was on display in Delaware this year, which launched a solar pilot in February that offers long-term contracts for the purchase of credits, similar to Connecticut’s program. At the same time, the legislature was simultaneously considering a proposal to freeze the state’s Renewable Portfolio Standard (RPS) at its current level of 8.5%. Under current law, electricity suppliers must obtain 25% of their power from renewable sources by 2025.

Representative Greg Lavelle, the bill’s chief sponsor, told a packed hearing of the Delaware House Energy Committee on March 29 that the RPS, which was enacted in 2005 and expanded in 2007, should be reviewed in light of rising energy prices.

Delaware’s retail electricity rates are the thirteenth highest nationwide, averaging 13.8 cents per kilowatt-hour (kWh). That compares with the national average of 11.5 cents/kWh. One of the bill’s supporters warned the committee that if left unchanged, the RPS could cause electricity rates to rise by 18% by 2025.

But Representative John Kowalko, who chairs the House Energy Committee, said the state’s clean-energy mandate adds less than 1% to ratepayers’ monthly electricity bills, and that those costs are far outweighed by the job growth and other economic benefits that the state’s growing clean-energy sector has produced.

“You are proposing a repeal of a goal that will cause a shutdown” of those industries, he told Lavelle. “We’re not going to have huge savings by stopping this, but quite to the contrary, new costs imposed on ratepayers and industry.” The house panel overwhelmingly voted to let the bill die, but not before hearing testimony from people like Rich Collins of the nonprofit Positive Growth Alliance, who asserted that in a world of cheap natural gas, renewables simply will not be able to compete.

“There is nothing that anyone in this room can do to prevent natural gas from bankrupting every solar company that exists,” said Collins, whose organization works to defend private property rights and free enterprise, according to its website.

A Window of Opportunity

But elsewhere in the country, particularly in the windy Midwest, there is clear evidence that renewable electricity is already competitive with fossil fuel generation. A recent report from the Michigan Public Services Commission found that the cost of wind and biomass in the state is cheaper than new coal. Currently, signatures are being gathered for a ballot initiative to increase the state’s RPS to 25% by 2025, up from the current 10% mandate.

In Texas, which leads the nation in wind generation, the wholesale price of wind has at times been cheaper than natural gas, said Russel Smith, executive director of the Texas Renewable Energy Industries Association. Recent additions of new wind farms along the Gulf Coast enabled wind generation to hit record levels in June, when wind provided nearly 18% of overall power demand within the market of the Electric Reliability Council, which comprises most of the state.

In Massachusetts, officials say that cheap natural gas offers a ripe opportunity to catalyze investment in renewables.

With few indigenous energy resources, Massachusetts businesses and consumers spend $20 billion a year on energy, and the bulk of that outlay—$18 billion—leaves the state to pay for natural gas and oil from other states and nations, including Venezuela, Colombia, Canada, and producers in the Middle East, said David Cash, commissioner of the Massachusetts Department of Public Utilities, speaking during a roundtable on electricity markets in Boston on June 15. That contrasts with dollars spent on energy efficiency and renewable energy, which largely pay for suppliers and installers who reside in Massachusetts, he said, thereby promoting a range of local economic gains.

Certain fundamental issues continue to make Massachusetts and all of New England vulnerable to price volatility, said Cash. Rising consumption in Asia will put upward pressure on gas prices as the market becomes more globalized. In the Northeast, New England sits at the end of the energy pipeline, and growing demand for shale gas has created congestion along limited supply routes, which could lift prices, particularly during heavy usage times.

Massachusetts officials have shown that fostering cleaner, indigenous energy sources yields dividends. In recent years, the state has implemented some of the most aggressive energy efficiency and clean-energy policies in the nation, and reductions in energy use, combined with cheap natural gas, have led to a decline in monthly electricity bills of up to 40% in the last three years. This drop more than compensates for the comparatively small portion of a typical ratepayer’s that bill goes toward subsidizing clean-energy investments—3% to 5% on average, said Cash.

“Part of the story that’s happened in the last five to six years is that energy efficiency has proven to be a very good way of supplying energy,” and will enable suppliers to avoid new generation going forward, said Cash. “The low price of natural gas has not changed the fact that climate change is real, and that we and other states around us are required to act.”

Others point out that continuing to rely on fossil fuels will have very steep costs. Climate experts predict that severe weather will become more frequent as emissions of greenhouse gases from the burning of fossil fuels continue to warm the atmosphere.

Twenty-five percent of Vermont’s budget this year was directly or indirectly related to cleaning up the extensive damage caused by Tropical Storm Irene last August, said Senator Ginny Lyons, who chairs the Senate Energy and Natural Resources Committee. “That’s huge, and you cannot tell me that those are costs that are not directly associated with our unmitigated use of fossil fuels,” she said.

Vermont officials have set a target of deriving 90% of the state’s energy from renewable sources by 2050, and its energy plan released in February calls for the creation of an “all fuels standard” to replace its heavy reliance on oil and diesel for transportation and heating with cleaner options. An energy law enacted this year expanded Vermont’s feed-in tariff for local renewable energy projects and provides incentives for clean developers to locate projects in places where they can alleviate the need for new transmission and distribution upgrades.

Reducing grid congestion can lower costs for utilities and provide enhanced grid security, and is one of the potential benefits of distributed renewable generation that are often not factored into comparative cost analyses with fossil fuel energy, said Lyons, who sponsored the legislation.

Relying more on power generated on site can offer benefits during large-scale power outages, such as the one that left many Maryland residents in the dark for five days in June, said Mike Healy, director of government affairs for Skyline Innovations, a developer of solar heating and cooling systems that operates in the mid-Atlantic region and a few western states.

“With solar, you’re benefiting the distribution grid overall. We’re getting to the point where if we have enough distributed resources, we’ll have different ways to cope with power losses so that people aren’t sitting in their houses with no power for days on end.”

Those possibilities are exciting to Daryl Cooper, who testified in support of Maryland’s bill last April. He vowed to do what he can to see that solar development continues. “I can’t say enough about this industry,” he said. “I want to give back to the company to help it continue to grow.”