Finally A Renewables Story That Makes Sense



Followers of the blog know that I am concerned about the loss of habitat in farm country.  On a cold morning with the dogs moving through the native grass on the edge of the corn seeking the wet depressions empty of crops but full of rooster tails and moving through the tree filled draws, you see the full range of the few surviving wild natives of America. Turkey, quail, white tail and mule deer, fox, coyote, mountain lion, beaver, and all the others who survive in the border of lands of agriculture.

Ethanol for almost no environmental, national defense, or economic reason is subsidized. Every farm I travel today is planted from fence post to fence post. While deer and waterfowl populations remain abundant, game birds are in sharp decline. Farmers are even now sending in dozers to rip out the low lying trees in the low yielding damp areas.

Ethanol is a man-made plague upon the wildlife living on and around America’s farms.

But this is a piece on solar. I am happy to report that the Rocky Mountain Institute (RMI) believes solar has a different future than ethanol. There is a real possibility in the near term of achieving price parity with traditional fossil fuel sources. Something corn based ethanol will never achieve.

The City Club here in Boulder held a forum on solar financing with Ned Harvey of the Rocky Mountain Institute (RMI). I had some basic questions.  In Boulder they are more or less settled answers because of moral imperatives, but not necessarily market economics.

  1. Why is the model so complex with so many limitations, such as, not being able to use a grid connected solar system to power a house in a blackout.
  2. Is solar technology really, as a solar salesman told me, “pretty much the same technology as when Jimmy Carter pushed it”.
  3. Can solar ever escape subsidies and compete with natural gas and oil?

Like any good researcher and presenter Harvey turned the questions around to fit the data.

  1. The reason there are so many limitations is that solar is a distributed power source maximized in a smart grid (a grid that uses distributed communications and monitoring technology to blend available energy from multiple sources without Cold War central command). We have a dumb grid with centralized technology (generating plant) resulting in the complexity of fitting a square peg (distributed power) in a round hole (centralized power). Since we are going to have to rebuild the grid as a routine matter (a forty year life cycle for power grids), if we rebuild it as a smart grid we help resolve solar’s complexity.
  2. Yes, solar technology is mature and is not subject to radical innovation. But, that is the wrong lever in the economic equation. What matters in the economic equation is scale and rational financing.
  3. Yes, by 2016 when the current subsidies run out.

There are three economic drivers in the solar model: technology (mature), scale (immature), finance (juvenile bordering on exploitive). The cost competitiveness comes from driving innovation in finance. Current bank sources for a variety of reasons related to the Great Recession economic environment and the complexities of the tax subsidy structures ignore solar for many loan valuations.

The market for solar is then lead by tax equity investors seeking high rates of return approaching 20%. If you use a typical solar lease, which currently finance 50% of California installations, you give up all the tax incentives to the investor/lender. Whatever value the tax subsidies have had and have until 2016, this perversion of the financing market is stupid policy when interest rates on homes are at 3%.

Congress needs to act not to make more tax subsidies available, but to open  to solar traditional sources of private funding such as REITs. If you could drop the private market financing rate through market forces down ten points, you make a huge difference in solar pricing. If the lower financing costs lowers the overall price, that will increase demand for installations, which will increases scale, which will bring down the price of solar bracketing hardware (steel) and the labor associated with installation.

At that point the numbers on solar begin to snowball toward fossil fuel parity.  And if that helps end the ethanol mandate America’s wildlife will thank us all.