James Hughes, CEO of First Solar, recently gave a hugely interesting interview to Australia’s Renew Economy in which he discussed his company’s future, the state of the global solar market.
Hughes’ views on utility scale v. rooftop solar are intriguing and worth reading, as First Solar is one of the largest solar manufacturers in the world and a major player in the U.S. utility-scale solar market. The company has paid considerably less attention to small-scale commercial and residential solar, and this focus is reflected in Hughes’ comments about the future of distributed renewable energy generation:
It’s a notable occasion when the CEO of the largest U.S. solar firm questions the sustainability of basic and fundamental policies supporting the U.S. solar industry. Indeed, First Solar has built its business around large utility-scale solar, so it’s not surprising that his comments focus on the benefits of that model and the drawbacks of distributed solar.
Nevertheless, Hughes raises an intriguing question: will utility-scale or small-scale solar be more successful without subsidies?
First Solar’s large-scale U.S. installations – including the enormous 550 megawatt Topaz Solar Farm in California and the 290 megawatt Agua Caliente installation in Arizona – are indeed built upon an array of policy supports, including state renewable electricity mandates and the federal renewable energy investment tax credit. In fact, California’s aggressive Renewable Portfolio Standard compelled Pacific Gas and Electric to pay higher-than-market rates (estimated $.14-.16 per kilowatt-hour, compared to typical wholesale prices around $.07 per kilowatt-hour) for electricity which will delivered by the Topaz project. Suggesting that commercial and residential markets are today awash in governmental support while utility-scale solar operates in a completely open market isn’t telling the full story.
In a purely free-market paradigm it’s rooftop solar which would arguably have the upper hand, since smaller residential and commercial systems must be price-competitive with retail electricity rates while larger utility-scale systems must compete with much-lower wholesale electricity rates – a considerably more difficult task.
Of course, nowhere in the U.S. is electricity generated, transported, or sold in a completely free market, without government’s influence playing a considerable role. The industry should continue to have a robust conversation about the comparative benefits of supporting small-scale v. large-scale solar-with complete transparency around all government programs at play. Cherry-picking optimal data points for an “apples to oranges” comparison leaves a sour taste and can lead to misguided strategic decisions while undermining the industry’s credibility.
Here’s the takeaway: policies supporting both small and large solar help the market determine which forms of the technology will ultimately be most useful and cost-competitive with conventional electricity generation. A wide array of solar policies are proving successful – costs are coming down as the industry builds scale and matures – which in turn lessens the need for additional policy support. Already, policymakers have phased out the richest solar subsidies for distributed and centralized distribution alike.
Solar can’t be an emerging industry forever. Economics matter and solar needs to stand on its own two feet in the very near future. Yet, it should be more widely acknowledged that in a marketplace as highly regulated and uncompetitive as the U.S. electricity sector, some basic forms of government policy support will likely always be necessary. Policies allowing homeowners, for example, to generate their own electricity instead of purchasing from a utility aren’t a subsidy, but rather basic market access. As solar’s economics become increasingly compelling, maintaining that access – for small- and large-scale solar – will become increasing critical for the industry.
Ben Higgins serves as the Director of Government Affairs for Mainstream Energy Corp., where he works closely with company and industry leadership, as well as state and federal policymakers to craft policies that make for a more stable, sustainable business environment for solar. Higgins has over a decade of experience working in the legislative and regulatory arenas.