Air Quality clean energy subsidies

Published on February 10th, 2013 | by Zachary Shahan


Value Of Solar Tariffs — The Way To Go?

February 10th, 2013 by  

clean energy subsidiesThere’s a certain issue regarding solar policy that often gets to me. I’ve tackled it in several ways, but the policy idea below is one of the more intriguing of options, in my opinion. It stems from research done by academics from the University of Albany, George Washington University, and Clean Power Research; an article from the Institute for Local Self-Reliance; and a policy put in place by Austin Energy.

First of all, the issue that gets to me is that the value of solar power is consistently underestimated in our electricity markets, in politics, and in the media.

Beyond the electricity it provides, solar power provides many benefits. A unit of electricity from solar is worth more than a unit of electricity from natural gas or coal.

When this really becomes an issue for me is when discussing energy subsidies… or simply when discussing the price of electricity from solar versus the price of electricity from natural gas or coal.

At one point, I even wrote a post contending that solar (and wind) subsidies should continue forever, or at least until a proper price is put on pollution that equals the playing field for all forms of energy. I still like that idea (if the proper subsidies were used), but the problem with that argument is that subsidies are widely viewed as a way to artificially support one industry or portion of an industry over another (even if the subsidies are really just aimed at correcting market failures).

solar panels money investmentBut another way of dealing with this imbalance is to avoid a politically controversial subsidy altogether and simply implement a policy of paying solar power producers (including homeowners with solar roofs) for the full value of their power.

You may be saying to yourself, “isn’t that what we do already?” Not exactly. In most places, we do pay electricity producers for their electricity, of course, but we don’t pay solar power producers for the added value their power includes.

Let me explain this with some more specifics. Electricity from a coal power plant is useful, but pollution from a coal power plant is not — it causes societal harm. However, instead of pricing that pollution (since that is a struggle politically), with a “value of solar tariff,” you pay solar power producers for both the value of the electricity they produce and the value of reducing air pollution, water pollution, and greenhouse gas emissions.

There are some other key things to value, as well. For example, solar provides more grid security, solar provides more price stability (due to its $0 fuel cost and a predictable supply of fuel), solar power boosts the economy to a greater degree, and rooftop solar power reduces the need for additional transmission infrastructure. Valuing all these things takes a bit of calculation, but it’s nothing too difficult or too complex to figure out.

As noted at the top of the page, people have done some research on the matter. Back in June 2011, I posted an article on a study they had conducted on the matter. It had come to the conclusion, using conservative assumptions, that the value of solar power in the state of New York was 15 to 41 cents per kilowatt-hour (kWh) of electricity:

costs vs value of solar power

For California, meanwhile, the Institute for Local Self-Reliance found a value of 33¢/kWh:

solar power costs and value

Additionally, Austin Energy (AE) actually implemented a Value of Solar Tariff (VOST) as an alternative to net metering. “The VOST was derived from analyses by PG&E, Sandia Labs, Clean Power Research and others,” Greentech Media‘s Herman Trabish writes. Benefits that solar brought to the municipality included:

1. Energy value for predictably priced point-of-consumption electricity production;

2. Generation value for the avoided cost of building traditional generation;

3. Environmental value for reduced emissions and pollution;

4. Transmission and distribution system value for reduced burdens on existing wires and infrastructure and the eliminated need for new wires and infrastructure;

5. Disaster recovery value for serving when central stations go offline;

6. Reactive power value for stabilizing voltage drops that cause outages; and

7. Loss savings value for preventing all the above-named losses.

Here’s an initial breakdown of the value of different solar power installations from Clean Power Research:

Since the initial analysis, another value has been identified and added. “In the 12.8 cents per kilowatt-hour 2011 update of the annually revalued tariff, ‘the value for solar went up,’ [AE Solar Incentives Program Manager Leslie] Libby said, because the times ‘when solar is produced match [the times] when ERCOT needs power.'”

“What it is not,” Libby noted, is a special incentive. “It is a credit applied to our customer’s bill for bringing this valuable resource into our service territory. That resource has a value to Austin Energy and we are going to credit them for that value…. [A] residential solar system owner is billed like every other customer for their total consumption. The brilliance of it is this piece. Solar system owners are no longer a special class of customer.”

The Keys to Success or Failure: Assumptions

All of the above sounds great, doesn’t it. But, as with just about everything, the effectiveness and validity of such a policy would depend on the assumptions. Assumptions would have to be made for each item, sometimes several assumptions for each item.

As just one example, a Harvard Medical School study found that the health and environmental costs of coal range from 9–27¢/kWh. If solar were solely replacing coal, the added value in this category would thus be 9–27¢/kWh. But which value in that continuum should it be? It depends on which assumptions from that study you decide to adopt. And what would be the value of replacing natural gas or nuclear power? Again, you’re going to have to make more assumptions.

If the assumptions you use are significantly different from the reality they are supposed to represent, you’re going to come up with a value of solar tariff that doesn’t accurately balance the market. Plus, you’re simply always going to end up missing things. However, even a move in the right direction helps to make the market more balanced and realistic than it is today.

Coming back to the first study above, here are some limitations its researchers noted:

  • No value was claimed beyond 30 year life cycle operation for solar systems, although the likelihood of much longer quasi‐free operation is high (Zweibel, 2010)
  • The positive impact on international tensions and the reduction of military expense to secure ever more limited sources of energy and increasing environmental disruptions was not quantified.
  • The fact dispersed solar generation creates the basis for a strategically more secure grid than the current “hub and spoke” power grid in an age of growing terrorism and global disruptions concerns was not quantified.
  • Economic growth impact was not quantified beyond tax revenue enhancement.
  • The question of government subsidies awarded to current finite energy sources (i.e.,displaceable taxpayers’ expense) was not addressed.

This all makes the value of solar identified even less than its true value.

Overall, though, as long as a decently qualified and unbiased team is charged with agreeing on the assumptions and determining the tariff value, I think this could very well be the best system around for paying solar producers what they deserve. What do you think?

Images: moneypollutionsolar panels & money via Shutterstock; chart and tables via sources linked above.

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About the Author

is tryin' to help society help itself (and other species) with the power of the typed word. He spends most of his time here on CleanTechnica as its director and chief editor, but he's also the president of Important Media and the director/founder of EV Obsession, Solar Love, and Bikocity. Zach is recognized globally as a solar energy, electric car, and energy storage expert. Zach has long-term investments in TSLA, FSLR, SPWR, SEDG, & ABB — after years of covering solar and EVs, he simply has a lot of faith in these particular companies and feels like they are good cleantech companies to invest in.

  • Pingback: Three Unequal Choices For A Local (Renewable) Energy Future | CleanTechnica()

  • Otis11

    “times ‘when solar is produced match [the times] when ERCOT needs power.”

    –That’s the part we need to focus on. This brings down the peak for the generators and allows them to do what they do best – constant load power. (Eventually we will replace that too). But bringing down this peak makes the generators we do use more efficient since peaking plants are expensive and using non-peaking plants as peaking is extremely inefficient. Reward the solar for doing away with this.

    The thing we don’t need is to account for all the different externalities of everything else. That is a mathematical and political nightmare that makes it hard to justify to the american public who is uninformed about solar and FF externalities. It also makes the policy different on every grid depending on what power sources that grid is using, adding to the complexity that already keeps normal citizens from using solar.

    I do agree we should account for those externalities, but we need to do those things separately and not associate it with solar as that would only arm anti-solar/anti-RE advocates with even more to misrepresent!

    • Bob_Wallace

      I think we should hammer home the externalities of coal.

      We don’t need to get sidetracked when talking about solar, but when someone starts talking about how cheap coal power is I think we should kneecap them. Figuratively, of course.

      Make it extremely clear to those who complain about taxpayer money being spent to subsidize renewables how much taxpayer money is being used to treat coal-caused health problems. Hit them with what they hate most, tax dollars and government spending.

      • Otis11

        “I think we should hammer home the externalities of coal”

        I agree and I”m all for more stringent limitations on pollution or even establishing a very high “pollution tax” to kill two birds with one stone. I just think it would be better to pass that by itself – say we are going to tax EVERY place these pollutants are released and not be industry specific and definitely do not relate it to solar.

        Just like you wouldn’t talk about the good younger brother when punishing the trouble making older brother, there’s no reason to mention PV when chastising coal and other FFs.

        Relating unrelated policy just gives RE deniers and detractors more material to work with. If you ask citizens if they support limiting asthma causing particulate matter and taxing/fining companies that don’t meet the new criteria, most will support it, but if you say we’re going to create a solar feed-in tariff followed by we’re going to hit the coal industry people will cry foul!

        They both have enough support on their own – no reason to pass them together and create more issues than we have to. Besides, for solar to explode, we only really need to pass 1 of the 2 issues. If you pass a feed in tariff, PV is now grid parity in most places… pass any significant pollution tax – PV is now grid parity in most places. If we happen to get both, PV is parity everywhere and lower than grid in many locations.

        I don’t see a logical reason why we would want to try to pass both policies together.

        • Nationally, this just isn’t happening in the coming 2 years at least. So, for now, states and cities have to move forward the best they see fit.

          • Otis11

            Oh, absolutely! If a state or city wants to implement policies like this, by all means I will be 100% behind that! I just want to make sure we get all our ducks in a row before we do it at the national level.

            On the state level (or smaller) when things go slightly wrong there are either exemptions made or some sort of solution passed/worked out, and relatively few people are left with a truly bad taste in their mouth. At the national level there’s the very real likelihood that large geographical areas can and will get the brunt of any unintended negative side effects and it can be extremely hard to fix when 90% of people are helped by a policy, but 10% are extremely hurt.

            In the case of solar, the people that could really be hurt are the researchers and inventors working on other clean, RE projects that do not fall under the current definition written into our new law. That’s why I think it’s almost always better to go after the negative behavior rather than reward a few select “good” behaviors. Penalizing the negative will create a wide array of new solutions, some of which may be better than the “few hand picked acceptable” solutions.

          • Oh, certainly. Don’t think this is a good policy idea for the national level. Has to be implemented by local entities. Or, at the least, have a “base value” that has to be added onto by local or regional municipalities.

      • Kim

        I don’t agree with out coal power the grid would not function, taxpayer money is been wasted on useless rooftop solar homes when new coal power station can replace solar power in such a small area. Just think about all that energy that wasted in making solar cells.

        • Bob_Wallace

          Your argument makes no sense, Kim.

          The energy it takes to mine and refine the materials plus the energy it takes to manufacture and install a solar panel is paid back in less than three years. And then that solar panel is going to be cranking out electricity for 40+ years.

          Coal plants take a lot of energy to construct. And then you have to feed them a continuous stream of fuel as long as they keep operating.

          You also need to include the area needed for extracting coal in your “small area” calculation. It seems that it takes more real estate to mine coal than to install solar panels in order to get the same amount of electricity. And that solar real estate can be existing rooftops and parking lots.

          • Jimmy

            You can never replaces lost energy, take the human body
            energy by food, that energy can not be recovered, so your claim that solar
            power will recover lost energy make no
            sense. Look at the heavy snow storm we are having, what solar power do we have?
            Without coal base load energy, we will all be in the dark.

          • Actually, solar makes the grid more secure and stable. A coal-based grid is a very risky one. I don’t see anything above your comment about recovered energy, so not sure if you’re missing the point/context or not.

          • luke

            how can solar make the grid more secure and stable,?

          • Otis11

            Right now we have our wheel-and-spoke system where we have a center power plant with power lines radiating outward. In this system tremendous strain is placed on the inner most parts of the spokes to carry electricity to all of the outer regions.

            If you’re not familiar with electricity, think of the traffic jams that result in cities with this highway design – Houston comes to mind. Just like there is a maximum capacity that a highway system can transport before we start to get congestion, there is only so much power that can be passed at one time through the power lines. Sure, we can always build more and more power lines, just like we can build wider and wider streets, but at a point it’s no longer practical and there are better solutions.

            Plus, what happens if a tree falls on one of these spoke powerlines? Same thing as if a Tractor-trailer (18 wheeler) jackknifes on the highway – everything stops!

            Now look at an alternate scenario – one in which there are hundreds (or thousands, even millions) of points that generate electricity, such as roof-top solar. This creates a web-like structure in which there is actually very little electricity flowing through the wires as much of it is produced at the point it is used, but there are still nodes and wires to transport it from areas of excess to areas of need.

            In this case, as demand goes up, we add more producers, just like before. The important difference here is that we add the producers near the point of use, meaning even though there is higher demand, the amount of electricity flowing through the wires is relatively constant. (there is a mathematical argument to prove this is the case, or at least the most statistically probable case, but in interest of keeping it understandable for people outside the field, I’ll leave it at this).

            So it is more reliable as the system expands, but what happens if a tree falls on a wire? Well, it’s a lot like a spider web at this point. You can go cut strand after strand, but other strands will take more of the load to hold the whole system up. Sure, if you cut enough of the strands you can break holes in the web and cause small localized blackouts, but they are much smaller and statistically more unlikely to happen than if there is one main line for an entire region.

            Hope this helps!

          • Bob_Wallace

            You never should have sniffed that glue, Lamb Chop.

            Your brain can no longer string words together into coherent sentences.

        • Coal power is expensive. Coal power is a huge waste of energy. And baseload power is not what the future grid will be based on. Sorry, but coal is seeing the door.

      • Agreed.

    • I don’t think it would be confusing / difficult on the consumer end. It simplifies things compared to net metering. The power they produce from solar panels is worth something. Someone else has figured out what, and now they get paid for each kWh of electricity. As the lady from Austin Energy notes, they’re no longer special customers. They’re simply electricity customers and electricity producers.

      It would need to be calculated differently in different places, but utilities, local governments, universities, consultants, etc have people who can work on that. Something useful for them to spend a little time on!

      If we could get something simpler nationally, that’d be great, but that’s not happening write now. Individual jurisdictions have to take charge. This is just another option in the toolbox.

      Folks in Austin seem to be happy with it.

      • Otis11

        Yes, the solution that we have here in Austin is relatively good, but it is not optimal. Much better than most solutions granted, but I am being picky. If we’re going to push for something good, try for the best and if we fall short we can always end up with the good.

        • kenny

          solidarity tax sound like a good idea too.

          • Otis11

            See, that’s where I disagree – taxes should be designed to discourage bad behavior and draw money from those who exhibit said undesirable behavior. A solidarity tax, to my understanding anyway, taxes a person’s savings above a set amount. This type of tax would discourage savings among the upper class, upper-middle class, or even the middle class depending on where that limit was set. This effectively establishes a ceiling to how much any one individual can (effectively) save for the future, and in doing so, also establishes a limit on investments which drive our economy.

            Even more than that, a tax of this nature would encourage extravagance and rampant consumerism among those that reach the cap, not only causing the conspicuous consumption many have come to detest (see “occupy” movement), but also creates a boom-bust style economy. This occurs because, for those who are near the limit, it is better to spend on things that are not considered financial assets (typically considered wasteful spending or rampant consumerism) during times of prosperity and then spend much less during times of economic turmoil. This worsens inflation during good economic times, and worsens unemployment during poor economic times.

            So while it is a ‘novel’ concept that sounds good on the surface, it actually has very negative overall impacts.

          • Good analysis. 😀

            Thanks for these extensive comments. 😀

          • Otis11

            Glad to contribute something!

          • And if you want to contribute some posts (or discuss the option) shoot me an email.

          • Otis11

            Well, I sent you a message, and one before that in reply to your previous email, but I think I’m either somehow getting blocked or marked as spam.

            Just a heads up.

  • Spanish Peter

    That is an interesting analysis, and bringing in. The insurance companies to cover a portion of that market rebalancing would be the obvious choice for achieving what you are talking about. However, even easier than this would be to simply remove the trillions in subsidies provided to fossil fuel companies every year, well easier mathematically….politically of course, all those congressmen that get paid by the oil and coal companies to sell-out the health of their constituents, as displayed by Boener’s handing out of checks from oil companies on the house floor, will not rally support, claiming jobs in their state….again complete BS based on the multiple studies of the employment effects of renewable energy. So what to do, we’ll the problem really lies in the lack of education in the US, the lack of objective news media outlets, and the lack of proper conception of time: people are only thinking about their next paycheck, not the bills they will have to cover for the treatment of the various cancers their kids will develop resulting from their apathy. So, what to do? If you figure it out, get to work; the 100 year feedback cycle of pollution to climatic effects means that what we are feeling today is the result of the pollution from the turn of the century, imagine what will happen when we start feeling the effects of the unbridled pollution that has occurred since.

    • Completely agree. On our part, simply trying to educate more people, and correct myths that major media and politicians push (sometimes on purpose, sometimes inadvertently).

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