Report: Hawaiian Sunblock – Solar Facing Unexpected Barriers Despite Low Cost

Date: 26 Jul 2012 | posted in: Energy, Energy Self Reliant States | 10 Facebooktwitterredditmail

First in the U.S., Hawaii residents and businesses can install solar power – without incentives – for less than the cost of grid electricity.  But as local Earthjustice lawyer Isaac Moriwake notes, “the gates of heaven do not open just because solar is cheap.”  Instead, a number of unexpected barriers have kept the solar market from to its full potential or growing as quickly as it might.  ILSR’s new report, Hawaiian Sunblock: Solar Facing Unexpected Barriers Despite Low Cost, explores these barriers and how Hawaii’s experience might provide valuable lessons as the cost of solar makes it competitive across the country.

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Executive Summary

An island state reliant on imported oil for 83% of its electricity generation, Hawaii has become the pioneer for solar grid parity in the United States.  It had an early commitment to solar power in the name of energy independence and state energy mandates and incentives encouraged the development of more solar power.

A rapid rise in the price oil and a rapid decline in the cost of solar have suddenly removed the economic barrier to solar, but like a receding tide, it has also uncovered unexpected and previously hidden barriers.

Solar is Profitable

With abundant sunshine and falling solar costs, solar power in Hawaii can pay back in a remarkably short time.  Since 2010, electricity from solar has cost less than electricity from the utility, with the gap steadily growing.  Without any incentives, an investment in a residential solar project pays back in just 10 years while adding significant value to the property.  Adding in federal and state tax credits reduces that payback period to 5 years.  Payback periods for commercial solar are even better, thanks in part to federal accelerated depreciation.

Solar is Growing Rapidly

A combination of economics and policy has led to a surge in solar installations.  Installed capacity in Hawaii rose from 25 megawatts (MW) in 2009 to over 85 MW in 2011, and forecast to reach nearly 150 MW by the end of 2012.

Limits to Solar Growth

Although the economics of solar suggest no end to its potential, there are a number of logistical and technical limitations that have become a concern:

  • Wiring and interconnection costs have meant unexpected costs for one-quarter of homeowners, for electrical upgrades, and nearly 90% of commercial solar projects, for interconnection studies.
  • Local government lacks the capacity to efficiently process a surge in permit applications to install solar.
  • Utilities have introduced two stumbling blocks for solar:
    • The “15% rule” limits distributed solar from providing more than 15% of electricity on local electric power lines based on somewhat arbitrary safety margins, requiring many  potential producers to face the specter of a time-consuming and expensive interconnection study, and
    • “Curtailment,” a situation where the utility will turn off a solar array in the name of grid stability and refuse to pay for electricity generated.
  • State incentives have to adjust to the rapidly changing prices for solar and grid electricity to avoid being unnecessarily generous to solar power producers.

Hawaii Blazes the Trail

Hawaii may be first, but in the next decade 100 million Americans will live in metropolitan areas reaching solar grid parity.  The lessons from Hawaii will provide useful context for policy makers from San Diego to New York City to Phoenix.  Will cheap solar open the floodgates or will poor policies and reluctant utilities hold it back?  The Aloha State may provide the answers.

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John Farrell
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John Farrell

John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.

John Farrell
Follow John Farrell:
John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.

10 Responses

  1. JoeJoe
    | Reply

    They likely need to implement an inverter tech spec that allows the grid operators to tune the output of the systems using something like ripple control. That should be enough to allow a much higher penetration than 25%. Frankly, I’m not too worried. This is something that needs to be worked on but it’s safe to say that people are going to vote to have the barriers broken down. This is the sort of growing pain we want to see.

  2. shashi parekh
    | Reply

    Excellent article. Does similar report exists for other countries in the world like India for example?

  3. GeraldR
    | Reply

    Utilities are, for the most part, despotic monopolies. What else would you expect? Their business model consists of retailing a commodity; their profitability is in markups on that commodity. They’re used to purchasing power in bulk from large scale suppliers. They are used to negotiating prices in a market and charging prices that protect their margin not used to mandated PPA terms where purchase price is locked to their sell price. In the conventional power market, consumers are just captive customers in a pricing regime that disfavors low consumption with little control over their energy costs. Small scale distributed generation is a huge shift in thought and practice while resistance to change is a powerful force. It is generally the case that common practice trumps reason.

    American distribution practice favors a rather large number of distribution transformers – partly because of the common use of low voltage user services. This could be improved but it is likely that 19th century distribution technology will persist indefinitely. The problem is that local distribution transformers, particularly the cheaper ones, have a poor efficiency versus load characteristic; to make matters worse, they are sized to exceed peak future demand. While local back-feeds supply local demand, transformers operate at reduced efficiency and even sap some of the local power which reduces the utility’s margins. Also, very minor deviations in inverters’ frequency following increase these losses.

    The reason utilities often to do studies is more pedestrian: with a plethora of local distribution networks, they just don’t have the data readily available; if they had TOU data and network topology in electronic form, evaluating the local generation capacity of any given local net would be a 5 minute task. This is really indicative of the larger problem: within the system billing and taxation mechanisms are well developed and automated; grid management not so much.

    One option is communal local generation with the owners connected by their own micro-grid. This is an option for condominiums and incorporated subdivisions, shopping malls, industrial campuses, etc. but not individual green entrepreneurs. Unfortunately, individuals can expect the same level of ‘service’ as the have traditionally received.

  4. GeraldR
    | Reply

    The nub of a big problem: “Dispersing the benefits means broadening participation and more importantly ownership of solar power, so that the economic benefits accrue to many, varied investors.” If you were an investor or government with shares in a utility, and, until now, an exclusive right to the ‘economic benefits’, how would you feel about this. The existing model where utilities fund capital investment through charges i.e. use the customer’s money to make those investments but without passing the profit back seems more desirable.

    The other problem that needs to be addressed is that economic benefits that accrue to many investors, if available, will attract more capital to the market. This creates a problem which is seen in the German market – capacity grows at a greater rate than it would if utilities alone were left to the task, then the supply/demand thing kicks in. Since solar, wind and geothermal have near 0 run rates, when largely deployed they compete the market price down – not a happy state for other producers, particularly when they have traditionally used supply constraint as a means of justifying higher prices including big money makers like TOU pricing and demand charges.

  5. GeraldR
    | Reply

    The dichotomy between rooftop and solar gardens is more imagined than real. The most common life-form in my area is 10 kW AC ground mounts on trackers which feature lowest installed cost due to complete factory assembly and lowest land use since they stand high on a single pole (comparable to an old school satellite dish). The second most popular is 10 kW rooftop systems (note how regulation and rate structure can profoundly influence the size of systems). If community projects are as small as the examples given, they would appeal to a different class of investor than those who can afford their own systems or, for that matter, would make a direct investment in a co-op. As the report mentions, perhaps the main value of these solar garden projects is in creating awareness of the technology.

    • chrismaui
      | Reply

      Hi GeraldR, that’s an interesting remark. Can you tell me where you are and where these 10 kW systems come from? Thanks

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