President Obama’s Clean Power plan has already touched off a firestorm of backlash, and here comes the financial services giant Deloitte with a new report that is sure to crank up the heat. The report, released last week from the firm’s Center for Energy Solutions, examines the speed with which wind and solar energy can reach grid parity with conventional electric power sources, a key factor being the effect of government subsidies such as the Production Tax Credit for wind.
Sure enough, on Friday, the Houston Chronicle teed off with the somewhat inflammatory headline, “Report says wind, solar can’t compete for now without tax breaks.” That certainly doesn’t paint the whole picture, so let’s take a closer look at that new clean power report.
Grid Parity For Clean Power Is Inevitable
To be fair, that Chronicle headline does hedge by throwing in “for now.” As a matter of fact, the report does conclude that wind and solar can eventually achieve grid parity — meaning electricity prices competitive with conventional sources — without subsidies. Here’s the conclusion under the heading, “Grid parity is not imminent but may be reached sooner rather than later:”
“The purpose of this report was to examine the timing of reaching grid parity without state RECs and without federal tax incentives, such as the PTC for onshore wind and the ITC for utility-scale solar PV. The research indicated that reaching grid parity is not imminent, except in certain markets possessing the most robust renewable resources and having relatively higher wholesale power market prices.”
The key takeaway, as outlined in the report, is that subsidies can make an enormous difference in the speed with which clean power can achieve parity. Taking into account regional factors in the US, in some cases that difference is a matter of decades.
So, if you are one of those folks who are convinced that the US should significantly reduce its carbon emissions very quickly as a matter of sound public policy, the Deloitte study has your back: subsidies make an enormous difference.
On the other hand, if you are Oklahoma Senator James Inhofe, you can lift some of Deloitte’s points out of the study and use them to bolster your case that wind and solar can’t compete with fossil fuels right now, so it makes no sense to throw public dollars at them.
Clean Power & Innovation
You can find the full report under the title, Journey to grid parity, with the subheading, “Three converging forces provide a tailwind for US renewable power.”
Do read the whole thing for some interesting insights into the US utility-scale solar and wind markets, but for those of you on the go, here’s an important caveat that pops up near the end of the report:
“While the projected dates for reaching grid parity without subsidies appear to be much farther out than many predictions being featured in the media today, this report does not consider the future pace of innovation and its effect on grid parity timing…
“…this innovation could come in the form of technological advancements leading to lower overnight construction costs, greater operating efficiencies and higher capacity factors, and/or in the form of financing or process improvements leading to lower cost of capital and decreased “soft costs,” such as permitting, interconnections, marketing, professional fees, and other intangible expenses associated with development.”
The authors of the Deloitte study are also careful to note that they have taken a conservative approach when it comes predicting the pace of future innovation. To get a look at some of the potentials in that area, check out President Obama’s SunShot initiative, which launched in 2011 with the aim of achieving grid parity sooner rather than later.
Part of that effort involved lowering the cost of solar cells themselves. The other part involves reducing the aforementioned soft costs, and financial/process costs in particular.
To take just one example, earlier this month, we had a chance to chat with Dr. Lidija Sekaric, acting director of the Energy Department’s Solar Energy Technologies Office. She filled us in on the Catalyst program, one of SunShot’s initiatives aimed at tapping small-scale innovators for big new ideas. Catalyst is structured as a competition, and in this round several contestants are zeroing in on increasing access to clean power by developing new financial instruments.
When the Clean Power Plan launched earlier this summer, it included several measures aimed at community solar and other pathways for increasing access to solar power. Just last week, President Obama ramped up the Administration’s focus on community solar by announcing new commitments from local governments and businesses to engage in financial collaboration.
Here’s a rundown from the new community solar announcement that indicates the enormous potential for growth in the community solar market:
“Community solar has the potential to unlock economic growth across the United States while providing clean solar power to historically underserved communities and allowing them to benefit from the falling costs and increased deployment of solar. Low-income households, which spend four times greater proportion of their income on energy than the national median, can see significant benefits from community solar…”
As for whether or not support like this should be counted as an undeserved “tax break,” one grid parity factor not addressed in the Deloitte report is the enormous financial support that continues to pour into the fossil sector from the government, Clean Power Plan or not.
Image (screenshot) via Deloitte Center For Energy Solutions.