MIT Report: Subsidize Renewable-Energy Output not Project Investment

By TIM FAULKNER/ecoRI News staff

A new report by the Massachusetts Institute of Technology says solar power can play a big role in combating climate change and bringing electricity to billions of people. It also suggests changing some popular financial incentives and making solar owners pay their share of running the electric grid.

This proposed solar initiative would require massive, multi-terawatt expansion and improvements in technology, both of which are plausible, according to the 356-page report titled “The Future of Solar Energy.”

Specifically, the study says, the cost of solar systems must continue to drop, improvements to power-grid connections must be made and support for developing large-scale electricity storage improved. The benefits will not only help the United States but also bring light and electricity to remote locations around the world, the report predicts.

The study also suggests that traditional residential photovoltaic (PV) and more utility-scale concentrated solar power (CSP) systems, such as the Ivanpah Solar Electric Generating System in California’s Mojave Desert, can drive the growth. Because CSP systems work by heating a fluid such as water, they can store that heat and generate electricity as needed, helping to fix the problem of delivering renewable power on demand.

CSP systems also work as a hybrid power source that can operate in unison with an existing natural-gas power plant, according to the report. New England, however, is too cloudy and hazy for CSP systems.

Hydroelectric power also can address electricity demand needs, while new high-efficiency technologies such as crystalline silicon solar panels and thin-film solar are available and will help lower costs and increase power generation.

Growth in U.S. solar energy has increased in the past six years to more than 18,000 megawatts of solar capacity. Financial incentives, third-party ownership that includes leasing, and a 50 percent to 70 percent drop in PV costs has aided much of this growth. Costs are expected to continue to fall as competition increases, according to the study.

The report also addresses some controversial issues. Significant pushback has occurred in Hawaii and Arizona after utility companies tried to impose fees on solar customers in order to pay for ongoing use and maintenance of utility poles and electric wires, also know as transmission and distribution networks. The MIT report says costs are incurred by utilities to meet the growing flow of solar electricity in both densely populated and rural regions. The study recommends that costs for grid connection be more fairly distributed among traditional electricity ratepayers and renewable-energy customers, whose monthly charges for these costs are sometimes eliminated by selling the electricity generated back to the electric company.

The report also argues against restoring the popular 30 percent federal investment tax credit, in favor of incentives that reward the most productive electricity producers. Without a fee on carbon emissions, however, subsidies are still needed, and grants are preferred as the more effective and transparent incentive than tax credits.

Washington, D.C.-based Solar Energy Industries Association (SEIA) says the MIT report “offers an incomplete and flawed picture of solar economics.” SEIA says the MIT report overlooks the impact of larger rooftop solar arrays — the costs of which are similar to the larger utility-scale arrays but lack the problems of the ground-mounted, utility-scale solar installations the MIT report favors. Those problems, SEIA says, include siting and land-use issues, and, in some cases, permitting red tape on federal land.

The high soft costs for rooftop solar that the report cites are declining, according to SEIA. The real benefits of rooftop solar is that it delivers power directly to the electricity supply, often in regions with busy power grids, thus reducing the need for transmission and distribution network upgrades, said Ken Johnson, SEIA vice president of communications.

The MIT report recommends that state mandates for the amount of clean electricity delivered to electric outlets, called renewable portfolio standards (RPS), should be replaced by a national standard. A single benchmark would spark renewable-energy development across the country and allow for the free trading of the renewable-energy credits that traditional power producers rely on to meet targets, according to the report.

The principal goal of renewable-energy development, the report concludes, should be reducing greenhouse-gas emissions. And without disincentives for polluters, such as a carbon tax, government programs and subsidies are essential to make the highly attainable changes, the reports states. Otherwise, the report says, solar energy will only meet a small percentage of global electricity needs while the cost of reducing carbon emissions will remain high.

“Until Congress is willing to adopt a serious carbon pricing regime, the risks and challenges posed by global climate change, combined with solar energy’s potential to play a major role in managing those risks and challenges, create a powerful rationale for sustaining and refining government efforts to support solar energy technology using the most efficient available policies,” the MIT report reads.

Rhode Island, like many states in the Northeast, is already using some of the report’s recommendations. Rhode Island participates in one of the few cap-and-trade programs that imposes fees on power-plant carbon emissions. The proceeds help fund renewable-energy programs.

Rhode Island also offers grant-based incentives for solar projects of all sizes and emerging solar technologies — all of which are subsidized through utility bills, which the MIT study says is preferable to incentives funded by tax breaks. Utility-based fees are preferable because higher electric costs make renewable energy more economically viable, according to the study.

Rhode Island’s distributed generation program, however, operates counter to what the MIT report recommends. The Rhode Island program is a version of a feed-in tariff, a program found in other states and Europe. A feed-in tariff offers a fixed price, generally above the market rate, for electricity for a fixed period.

The MIT report says the feed-in tariffs are good for boosting initial development and attracting investors, but claims they don’t reward the systems with the best production or account for current energy prices. The report suggests an “output-based” model that pays renewable-energy projects a premium for the electricity they produce during peak demand.

“The current system of rewarding invest instead of performance is so far from optimal,” said Richard Schmalensee, an MIT management and economic professor-emeritus and an author of the report. “Why would you want to subsidize investment rather than output?”

Rhode Island for its part rolls out a new version of its feed-in tariff program this summer for both small and large solar projects.