by Robert Collier, MBA ‘14 and Environmental Finance and Impact Investing Fellow (7/17/13)
What do you get when you mix Georgian Tea Party activists, solar energy developers, and a gung-ho regulator? The result of this rare coalition emerged last week as an aggressive state policy that will hedge electricity rate increases for consumers, secure environmental benefits, and kick start a regional solar industry. By 2016 Georgia will increase the amount of solar within its borders 18-fold.
Beginning with Colorado in 2004, 29 states plus the District of Columbia have instituted mandatory renewable energy targets that require electric utilities operating in those states to derive a certain percentage of their power from renewable sources, such as solar, wind, or geothermal. Notably missing from the list of states with renewable energy standards are the nine states that comprise the southeast corner of the country, including Georgia.
Because solar generally produces low-cost energy that coincides with peak times of energy consumption (i.e. afternoon and early evening), it is a particularly attractive renewable resource. Therefore, of the 29 states with standards, 18 have gone a step further by establishing provisions requiring a certain portion of the renewable energy come specifically from solar. The states that have created so called solar “carve-outs” have attracted attention - and capital - from companies that occupy all points on the solar value chain.
This summer I have an internship with a utility-scale solar developer that uses state-level policy as a predominant factor when crafting its business strategy for entering new domestic markets. Furthermore, as a Sustainable Global Enterprise immersion student at Johnson and a former clean air and energy policy junkie at the Environmental Defense Fund, I am highly interested in how policy changes shape business decisions. It’s no surprise then that the news out of Georgia caught my eye.
The solar industry has been criticized constantly for leaning too heavily on government subsidies as a life support system (and governments have been similarly criticized for providing this support). The merits of certain subsidies are topics for another, much longer, blog post, and I won’t get into them here. However, there is no question that regulatory mandates and financial incentives have been a catalyst for much of the solar industry’s success.
Nevertheless, that dynamic is changing. Sometime in the very near future, solar projects will become economically viable in the absence of government intervention. In fact, in places with high electricity prices solar has already achieved “grid parity” or a levelized cost of electricity that is equivalent to that of traditional energy. Recognizing this paradigm shift in the cost competitiveness of solar, Georgia made its landmark move last week.
On Thursday, July 11, 2013, the Georgia Public Service Commission, the state regulatory body in charge of overseeing public utilities, voted to approve a plan that requires Georgia’s largest electric utility to build out 525 MW of solar, enough to power over 48,000 homes. The utility, Georgia Power, has until 2016 to bring all of the solar capacity online. To put 525 MW in perspective, that’s almost double what Colorado currently has installed, and Colorado ranks 5th in the nation and was first to implement a renewable energy standard.
The new development in Georgia could be a game changer for solar in the Southeast. Despite the state’s lack of major solar incentives, Georgia has shown signs of interest in solar for the past several years. In December 2011, Georgia Power got its feet wet with solar by signing long-term power purchase agreements with two solar farms representing 49 MW of capacity. The solar procurement process preceding the agreements attracted scores of developers wanting the first bite at the Georgia market.
Then, in November 2012, Georgia Power received regulatory approval to procure 270 MW of both rooftop solar installations and utility-scale solar farms (the 525 MW of the July 11 decision is inclusive of the 270 MW) by 2014.
While the Public Service Commission’s approval of the 525 MW solar plan does not establish a conventional renewable portfolio standard with a solar “carve out,” the requirement placed in front of Georgia Power is similar to one. For example, when compared with the standards in other solar-friendly states such as Massachusetts and Minnesota, the Georgia Power requirement of 525 MW is more aggressive. Then again, Georgia is the 4th largest consumer of energy in the country, so the actual solar energy produced will be smaller as a percentage of total retail sales.
So, what does this mean more broadly for the solar industry? As has already been noted, Georgia is in an island of states in the Southeastern U.S. that have a dearth of solar incentives. Thus, the solar plan sets a strong precedent for surrounding states to emulate.
Perhaps what’s even more compelling, though, is the alliance that coalesced in support of the Public Service Commission’s vote. Rarely have government policies transcended the traditional boundaries of solar fanatics and Tea Party die-hards. Not to mention that the champion of the plan was a conservative Commissioner named Lauren “Bubba” McDonald. If anyone can rally support for solar, I’d like it to be someone named Bubba.
The common ground that this motley crew of bedfellows discovered is the remarkable business case for solar. Essentially, everyone recognized a few key facts about electricity:
1) Historically prices have fluctuated. This probably will not change. In fact, it may get worse.
2) It’s not likely that prices will decrease in the future. Old, inadequately controlled coal plants will need to make capital expenditures in order to meet new federal air pollution standards. This could lead to rate increases.
As one of the commissioners put it:
“Commissioner McDonald's motion adding 525 megawatts of solar to our 20-year energy plan is a hedge against more coal regulation and natural gas price volatility. When the President finishes his war on coal, he'll come after fracking, and gas prices will surely go up. We have to be ready.”
Bubba McDonald echoed that sentiment: "We don't know what tomorrow is going to be with coal. We don't know what tomorrow is going to be with natural gas…but we know the sun will be shining."
Georgia’s commitment to develop 525 MW of solar is a huge step forward. The fact that my host company, a ten-person start up based out of Seattle, WA, is now looking seriously at the Georgia market, is a testament to the importance of the new policy.
I, for one, look forward to seeing how Georgia’s solar industry unfolds and hope to be in the right place at the right time when the market really takes off.
 U.S. Energy Information Administration. 2011 Data.