The cost of local renewables continues to drop dramatically around the country. On the Hawaiian island of Kauai, the local electric cooperative just signed a deal for a multi-site solar-plus-storage project that will deliver power to the grid — way beyond the sun setting — for $0.11 per kilowatt-hour (kWh). To put that in context, the average U.S. residential cost of electricity is $0.125 per kilowatt-hour.
The Kauai project will provide electricity to the Kauai Island Utility Cooperative that is 30% cheaper than a similar solar-plus-storage deal the cooperative made in 2015 — highlighting the aggressive pursuit of increased efficiency and reduced hardware costs by the renewable energy industry.
Policymakers and utilities also have a critical role to play in driving cost reductions for renewable energy projects. Policies that establish transparency, longevity, and certainty in the marketplace are essential to driving down the soft costs of project development. Feed-in tariffs (FITs) have proven very effective at streamlining the market, as evident in Germany, as well as across a variety of utility territories in the U.S. By replicating FIT policy successes, U.S. policymakers and utilities can further unleash the market for local renewables and make them the most cost-effective form of electricity in the country.
Lessons from Germany
U.S. policymakers need look no further than Germany to find a successful energy policy. Starting in 2000, Germany enacted a national FIT that propelled the country to become the world’s clean energy leader.
Germany experienced tremendous growth of local renewable energy because their FIT unleashed the wholesale distributed generation (wholesale DG) market segment. As shown below, wholesale DG refers to distributed generation systems that connect to the distribution grid and sell the electricity they produce to the local utility to serve local energy demand.
The German FIT targeted the wholesale DG market by making it easy to build local renewable energy projects, connect them to the grid, and sell power to the local utility at a fixed rate using a standardized, long-term, and guaranteed contract. To date, Germany has integrated more than 38 gigawatts of solar PV into its grid — the most solar capacity anywhere in the world. During the 10-year period following the introduction of its national FIT, Germany ran laps around the United States, including deploying over ten times more solar capacity than California — far and away the leading U.S. state for clean energy. Incredibly, over 80% of Germany’s solar capacity is made up of projects 1 MW or smaller that are sited in the built environment close to where people live and use energy.
The German FIT was not only successful at driving deployment of renewable capacity, but the policy also created a highly efficient renewables market. Through fixed-rate, long-term contracts, the FIT created transparency, longevity, and certainty in the marketplace, which minimized risk and reduced financing costs. Furthermore, Germany simplified the interconnection process for wholesale DG projects — the interconnection process looks very similar to U.S. net metering interconnection policies.
Predictable, streamlined procurement and interconnection radically reduced the costs to build local renewable energy projects in Germany. Replicating Germany’s scale and efficiency in California would result in rooftop solar costing between $0.05-$0.07/kWh, due to California’s better solar resource and applicable tax treatments. The scale of the German market now enables deployment of commercial rooftop solar at $1.20 per watt — a price that is only achievable in California for massive, ground-based, transmission-dependent solar projects, where land is cheap and economies of scale enormous.
Utilities in the U.S., from Georgia to California, are learning from Germany’s success. In Part 2 of this series, we will highlight how leading utilities are utilizing FITs to develop cost-effective local renewable energy.
Photo Caption: The three renewable energy market segments Source: Clean Coalition