Wednesday, April 25, 2012

Solar Officials Don't Want TVA to Put the Brake on Incentives

Sitting in a side yard off Middlebrook Pike, soaking in the sun on a bright March day, the solar system at the offices of the Southern Alliance for Clean Energy is a testament to the economic potential of the solar industry to Tennessee, said Stephen Smith, executive director of the organization.
The Southern Alliance for Clean Energy's new solar
panel system on Middlebrook Pike received its final
inspection from the Knox County Community Action
Committee last week

The panels in the 9.36-volt array were made by Sharp at a facility in Memphis. The system itself was designed and installed by Knoxville-based Green Earth Solar LLC. When the Hemlock Semiconductor plant in Clarksville, Tenn., comes online later this year, the polysilicon making up the panels in systems like this will also be produced in Tennessee, Smith said.

It will be possible to have a solar system with the production of raw materials, manufacture of individual components, and design and construction of the system all accomplished by workers in Tennessee companies.

"One reason we have been really pushing TVA to be supportive of this industry is that Tennessee is well-positioned to be a leader in the solar manufacturing world," Smith said.

The solar industry has been growing in Tennessee, but Smith and some industry leaders say it faces a difficult period in which state and federal incentives are shrinking and state legislation would raise taxes on solar installations.

These developments could add significantly to the cost of installing a solar system, and on top of that are changes to TVA programs that helped birth the solar and renewable industries in Tennessee, Smith said. In particular, Smith said TVA's Generation Partners program, which provides incentives on power TVA buys from renewable sources, has been refocused on smaller renewable projects, such as solar systems installed on homes and small businesses, to the detriment of larger solar projects.

It's the larger projects, Smith said, that drive economies of scale that will make solar power as economically viable as other power sources.

"I am afraid we are going to go from having a very good solar market employing a lot of people to where the industry will stagnate and falter," Smith said.

Overall, the solar industry made gains in the United States during 2011, with 1,855 megawatts of solar systems installed, 109 percent growth over 2010, according to the Solar Energy Industries Association and GTM Research.

According to a report released in December by the Tennessee Solar Institute, the solar industry in Tennessee has grown despite a tough economy. In 2008, Tennessee had fewer than 1.3 kilowatts of installed solar capacity — enough to power 20 percent of the electricity needs of one home — but by the end of 2012, the capacity of solar systems installed in the state is expected to exceed 23 megawatts. The industry has produced about 6,400 jobs, and Tennessee now ranks 22nd in the nation in installed solar systems, according to the Tennessee Solar Institute.

The institute and TVA are partnering to host the 2012 Tennessee Valley Solar Solutions Conference, April 10-11, at the Cook Convention Center in Memphis. Industry leaders, policy makers, solar providers and others will gather to share information, tour area solar installations and hear keynote speaker Julia Hamm, president and CEO of the Solar Electric Power Association.

Though it has grown, the industry is very dependent on TVA as a market for its power and still dependent on the incentives that TVA provides, Smith said. That's why there is concern over changes TVA has made in Generation Partners, he said.

Generation Partners supplies the renewable energy for another TVA program, Green Power Switch, in which consumers agree to buy certain amounts of energy produced by renewable or green sources. TVA spokesman Mike Bradleysaid TVA tries to balance the supply and demand between the two programs and that has led to changes.

In June 2010, TVA announced it was suspending the Generation Partners program because of excess demand. At the time, Generation Partners was available for systems up to 1 megawatt and paid participants a premium of 12 cents per kilowatt hour above the retail rate for solar as well as 3 cents per kilowatt hour above the retail rate for other renewable sources, including wind and biomass.

The program was limited to 200 megawatts of power generation and $50 million in total power purchases, and TVA said it had received many more applications in a short period of time than anticipated. Bradley said the program had simply outgrown demand and the revenues available to support it.

Right away, members of the solar industry put pressure on TVA, which agreed to reinstate the program; however, when it did, it was limited to systems of no more than 200 kilowatts.

"When you went from 1 megawatt back to 200 kilowatts, it orphaned everything from 200 kilowatts up," Smith said.

To help the larger systems, in fall 2010, TVA made its Renewable Standard Offer available. This was for systems from 201 kilowatts to 20 megawatts. It pays based on the demand in different seasons and different times of day but averages 5.5 cents per kilowatt hour. However, Smith said this is not paid above retail, but is just a flat payment, like a power purchase agreement, and was still not enough incentive for larger systems.

"When they went to this Renewable Standard Offer, they pretty much choked off the market for larger systems," Smith said.

In fall 2011, TVA was again concerned that supply and demand between its two green power programs was out of balance and limited the availability of Generation Partners to systems of up to 50 kilowatts. TVA also changed the name of the program to Green Power Providers. Under the program, participants get an initial $1,000 incentive and are paid the retail rate for power plus a premium of 12 cents per kilowatt hour for solar along with 3 cents per kilowatt hour for wind, biomass and small hydro projects. Contracts are also extended from 10 to 20 years.

"And they did hear us and others in the industry say this RSO is choking off the industry. So they came up with a special provision they called SSI," Smith said.

That stands for Solar Solutions Initiative. Launched this year, this pilot program is available to those taking part in the Renewable Standard Offer. It pays a premium of 6 cents per kilowatt hour for systems between 50 and 200 kilowatts and 4 cents per kilowatt hour for systems between 200 and 1,000 kilowatts. Smith said this is still not sufficient to help those doing larger systems.

"For a commercial building, like a Walmart, you could put hundreds of kw on there. FedEx has some buildings over in Memphis where they are talking about putting a whole megawatt on them," he said.

Andrew Johnson, executive director of the Tennessee Solar Energy Industries Association, said many of those in the solar industry are not thrilled about the Solar Solutions Initiative program.

"Some of our installers here in Tennessee don't think they can build even at those prices, but that remains to be seen. They just started the program at the end of January. Hopefully it will work," he said.

Gil Melear-Hough, president of the board for the Tennessee Solar Energy Industries Association and manager of the renewable energy division of Oak Ridge-based RSI — Restoration Services Inc., said installation of solar systems has been brisk this year, but much of that is due to installers trying to finish projects that were in the pipeline under previous Generation Partners guidelines. His company does not have many orders for later in the year.

"There has been a big rush, but installers are seeing a dramatic lack of interest in larger systems," he said.

Solar industry representatives will continue trying to work with TVA on its programs, Johnson said.

"It is a delicate situation, with the solar industry and TVA trying to be as cooperative and collaborative as we can, and I would say they are really trying to reach out to the solar industry and make these incentives work," he said.

Bradley said the Green Power Providers program is, nevertheless, doing well. Since it was initiated in the fall, it has 103 megawatts of solar generation either operating or approved. It was necessary to refocus the program on smaller-scale projects that are more sustainable so as to balance that program with Green Power Switch and make it more sustainable, he said. Even with the recent changes, TVA expects to spend about $5 million more in incentives for Green Power Providers than annual revenues from Green Power Switch, he said.

The changes have also been made because TVA wanted its program to remain focused on the smaller projects for which it was originally intended, Bradley said. Although renewable systems of less than 50 kilowatts made up more than 80 percent of projects in Generation Partners through last summer, they only accounted for 11 percent of the program's megawatt capacity, he said.

TVA wants its renewable energy programs to be paid for by those who voluntarily participate and not by ratepayers, Bradley said. Also, as renewable industries grow, TVA wants to wean them off incentives.

TVA has announced goals of increasing its use of renewable energy. Its Integrated Resource Plan, which lays out a long-range plan for TVA to meet energy demand needs, calls for at least 50 percent of its power generation to be based on green or renewable sources by 2020. However, Smith noted that currently renewables make up only a small part of the TVA energy portfolio.

In 2010, out of a systemwide capacity of 26,697 megawatts, TVA produced 5,492 megawatts of that power through renewable sources, the utility said. Of that total, 5,490 megawatts were produced through hydroelectric means, leaving about 2 megawatts accounted for by solar, wind, biomass and other renewable sources.

Meanwhile, the solar industry faces other challenges. Incentives through the American Recovery and Reinvestment Act and other programs are going away. Solar companies also face the challenge of legislation advocated by the state comptroller and pending in the Legislature that would require that the value of any public utility, commercial or industrial property "that generates electricity using machinery and equipment from a certified green energy production facility" to be taxed at up to one-third of the installed cost of the equipment, instead of salvage value, as currently. A Senate committee passed the bill March 20.

Johnson said his organization will be talking with the comptroller and Sen. Randy McNally, R-Oak Ridge, one of the sponsors of the bill, to get the bill changed.

"If the bill passes as was originally written, it would seriously jeopardize the solar industry," he said.

One thing that would help the renewable energy industry in Tennessee is if the state adopted a renewable portfolio standard, Johnson and Melear-Hough said. This is a regulation requiring a power company to produce a certain amount of its electricity from renewable energy sources. About 30 states have such a requirement. Tennessee and most other Southern states do not; however, North Carolina, West Virginia and Virginia have them. North Carolina requires power providers to produce 12.5 percent of their electricity through renewable sources by 2021, West Virginia requires 25 percent power from renewables by 2025 and Virginia requires 15 percent by 2025.

Such a requirement would give a boost to green companies and add some certainty to the marketplace, Melear-Hough said.

"Basically, it lets private companies know there is going to be a market," he said. "Right now, TVA could say, 'We have enough renewable energy,' and offer nothing next year."

Melear-Hough said he understands the need to wean renewable industries off incentives, but he doesn't agree with TVA on the rate at which it should happen.

"We want orderly, sustained development," he said. "You can offer us less, but gradually, over time. Let's build the market."


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