Why Isn’t There More Solar Energy Generation in Austin, Texas?

A recent article in the New York Times reports:

The United States and other countries are offering incentives to develop their own renewable energy industries, and Mr. Obama called for redoubling American efforts. Yet many Western and Chinese executives expect China to prevail in the energy-technology race.

One key factor in winning the energy-technology race is securing large markets and the right regulation and incentive programs to spur demand for innovative renewable energy technologies. Because of the maturity and low growth of our markets (compared to a country like to China) government regulation and energy policy play a more important role in promoting energy technologies. This blog post will examine this issue through an example in our own backyards: Austin Energy’s program to incentivize rooftop solar panels.

Austin Energy’s Incentive Program
In the past, if you wanted to install solar panels on your roof, Austin Energy would pay you $3.75 per watt of installed capacity for up to $15,000 per home installation or $50,000 per site. In September 2009 the price per watt was reduced to $2.50. This system allows for staged installations, and requires that program participants pick from a group of approved solar providers and installers, and the system must be connected to the grid. This last point may seem obvious, but it belies one of the problems with capacity-based incentives: they reward the installation of rooftop solar, not the contribution of those solar arrays to the energy grid.

Through the solar rebate program at Austin Energy (AE), consumers have received a total of $18 million over the last six years in rebates for the purchase and installation of rooftop solar panels. Nine hundred installations later, Austin is producing three megawatts of electricity from solar. Unfortunately, under the current system, there is neither sufficient time nor money to reach the goal of 100 megawatts of solar power by 2020. AE will have to rethink its incentive program.

Rethinking The Incentive Program
Austin Energy should change from a capacity-based incentive system to a feed-in incentive system. In a feed-in system, utilities promise to pay for the energy that is actually fed in to the energy grid for a long period of time—15 to 20 years. The price must be good enough to ensure a solid return on the investment in a rooftop solar unit. The higher cost of this electricity is passed on to ratepayers, who will see an increase in their electricity bills. The utility may have additional financial burdens associated with upgrading the grid.

This alone would be a significant improvement over the current system, but it is not enough. AE will need to think about a number of additional parameters to craft a better incentive system.

1. Scale Versus Cost

In theory, the more generous the price per watt the faster the solar market will grow. This can have the opposite of the intended effect. Instead leading to cheaper, better solar technology, a spike in demand can drive the price up and slow innovation. Ideally, once the market is a sufficient size, the incentive system will become unnecessary, prices will tighten causing consolidation among manufacturers and installers. Austin will be left with a cleaner, greener energy portfolio, and a stable of strong solar companies to strengthen the local economy, or so they say.

2. How Do You Know When The Price Is Right?

In fact, this can get very complicated. The question of how to set the right price is very difficult to answer. Should price be based on the cost of another, dirtier form of energy like coal, or should it be based on the actual cost of producing energy with solar technology? What impact will price fluxuations in natural gas and goal have on this scheme?

3. Where and When Do We Want Rooftop Solar?
Without market price signals, how can we ensure that solar capacity is built in the right places and feeds energy into the system at the right time? Utilities pay more for electricity at times and locations of high demand. Can a feed-in tariff system price dynamically? If not, we get the equivalent of a really nice centrally-planned road to nowhere.

4. Regulation and Policy
Assuming we can design a superior feed-in tariff system, can it be successful without changes in regulation and energy policy? Utilities have a wide variety of prices, some have rules limiting or prohibiting raising rates. Details like the permit process will have a profound impact on the success of this program as well.

Sources
http://www.nytimes.com/2010/01/31/business/energy-environment/31renew.html?scp=1&sq=clean%20energy&st=cse

http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=TX11F&re=1&ee=1

http://www.austinenergy.com/About%20Us/Newsroom/Press%20Releases/2009/solarRebate.htm

http://earth2tech.com/2009/06/18/why-california-doesnt-have-a-german-style-feed-in-tariff/

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7 Comments

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7 responses to “Why Isn’t There More Solar Energy Generation in Austin, Texas?

  1. We tried to take advantage of the Austin Energy incentive program at my house (here in Hyde Park), last summer, but it didn’t work out because the neighbors have to many trees! We could have a decent system installed, but the actual amount of electricity we would produce wouldn’t be worth the installation costs because our neighbors are blocking a lot of sunlight.

  2. gatorgreg

    Economics. Austin Energy must supply an incentive that will allow a reasonable return. Without knowing all of the local tax code, a small property tax exemption would be an easy way to encourage growth. This allows the installer to profit in multiple ways:

    1. Energy savings. The most obvious and hopefully most beneficial down the road.

    2. Current tax savings.

    3. Lastly resale value of your home. The solar panels will add value to the home by merely existing (similar to new appliances in a kitchen); however, if you are looking at owning a home for 10-20 years, a $100-200 a year tax credit simply could result in as much as $4000 over the course of your home ownership. Therefore, that is an extra few thousand that you can now sell your home for purely as a future return for the buyer not including the previous value added by the solar panels.

    The payback period for the solar panels would not be quick with this scheme but long term it makes sense and could even be quite affordable for the city (I would think, I do not know the full ramifications of $100 per household at 10% participation on the city budget).

  3. bhgully

    Speaking specifically in regard to the German feed-in tariff, such as the incentive you suggested, I think another factor worth considering is the “American way” in that we are so often unable to perceive long term benefit, and much more concerned with immediate costs. The capacity based system could offer more incentive if we were addressing a market concerned with capital costs…

    Just food for thought, great discussion!

    (FYI, next time, don’t be as concerned with supplying intro/background information)

  4. constanceanne

    I also looked at installing solar panels on my roof through Austin Energy’s rebate program in 2007. We didn’t do it because AE suggested that we do other energy efficiency upgrades first, which we now have done.

    I think the idea of the feedback payment that will pay the home-owner/solar panel installer over a 15 – 20 year period is interesting, but see a large incentive problem. It is difficult for many people to know that they will live in that location for a large percentage of the 15 – 20 year period. In fact many people may buy a house with the intention of only living there for a much shorter time period. This may just be people’s shortsightedness, as suggested above, but some of the financial reluctance is justified. If you own a home that is valued at $150K or $300K then the installation of a $15K solar panel system is %10 or %5 of the value of you home, respectively. That is a sizeable financial commitment for a single enhancement. While a homeowner may re-coup some of that investment when they sell the house, it is a unknown whether potential buyers will be willing to pay a little more for a house because it has solar panels or other efficiency upgrades – it depends on the buyer. In short, without an incentive program similar to the one in place it may be too cost prohibitive or too risky for homeowners who would like to install solar panels to do so.

    I agree that the current rebate program may not meet the goal of adding 100MW from solar by 2020, but am not sure that goal is really meant to be realized from installations on individual homes. Whether the current rebate plan is good or not may depend on whether the goal is to increase generation into the grid from this source, or to help offset the need for additional power generation from other sources.

  5. erinbb

    CPS Energy actually is introducing a feed-in: Solartricity was supposed to launch last month, but is apparently on hold. Under the program, they utility will sign 20-year contractors with small producers to pay 27 cents/kwH. They will pay for the program by getting voluntary Solartricity customers who will pay a different rate – like how Austin has increased its wind consumption with GreenChoice customers.

    Once it’s going, it will definitely a good deal for people in San Antonio who want to install PV.

    The Solartricity page on the CPS website: http://www.cpsenergy.com/Services/Generate_Deliver_Energy/solartricity.asp

  6. mmccann

    Typically, everything is bigger in Texas. When it comes to solar, the incentives and subsidies just may be bigger elsewhere.

    To expand the topic out from individual incentives to overall production, a possible answer to the question raised, “why isn’t there more solar energy generation in Austin?” is that it might have to do with Arizona. Recently, Austin was passed over on receiving a major solar energy plant; it is now slated for Phoenix. According to the Austin Business Journal, this marks the second time in four months Arizona has landed a major foreign solar company over Austin.

    The amount of annual sunshine in Phoenix is higher, according to the National Climatic Data Center. Phoenix is ranked 4th in the nation for percent of annual sunshine. Yuma, AZ is considered number one. Austin falls further down the list; in fact there are several other cities in Texas ranked higher that Austin for annual sunshine. El Paso ranks the highest, followed by Midland, Abilene, and Lubbock. West Texas would be far more conducive setting, but as with the ever recurring dilemma, then transmission becomes the issue to the parts of the state where the demand is higher.

    But still, Austin does receive 60% annual possible sunshine, which would still however yield to efficient results.

    Perhaps the positive results and economic benefits that come from the first solar plants will stimulate future development of solar energy generation here in the Lone Star State. Maybe, then the prominence of solar can promote incentives on an individual/homeowner basis.

    Related reading:

    http://www.bizjournals.com/austin/stories/2010/01/11/daily13.html

    http://www.ncdc.noaa.gov/oa/climate/online/ccd/pctposrank.txt

    http://www.geminisolar.com/portfolio/Austin-Energy/austin_energy.html

  7. annaloumercado

    Sunbelt Solar is a registered contractor with the Austin Energy solar water heater rebate program.

    Rest assured that the system will cut your energy bill. GUARANTEED! If it doesn’t save you as much as promised, they’ll pay the difference!

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