Manik, a solar pump operator for Nusra works near the solar panels in Rohertek, Bangladesh. © Dominic Chavez/World Bank
Manik, a solar pump operator for Nusra works near the solar panels in Rohertek, Bangladesh. © Dominic Chavez/World Bank

Solar’s growing share of the energy mix is being driven by better storage capacity and attractive generation costs. Large solar parks are now competitive with most alternatives; their average cost is below 5 cents per kilowatt-hour in some developing countries. Smaller-scale solar grids are also getting more competitive, opening new paths to financing this clean energy source. With rapid improvements in energy efficient lighting, refrigeration, water pumps, and other technologies for households, solar may soon be as game-changing as mobile phones have been in the last decade.

Solar’s potential is evident from its quick growth in India, where installed capacity recently topped 20 gigawatts (GW), putting the country closer to its ambitious target of 100 GW from clean energy by 2022 (an amount comparable to total installed capacity in the United Kingdom).

Solar can reach people in areas that are poorly served by the national grid or electric utilities. Mini-grids and off-grid generation are well suited to low-income countries where much of the population lives in rural areas; they can also increase access in urban areas. This relieves pressure on traditional energy companies, which are often unable to provide adequate service because consumer tariffs are not enough to cover their costs. They have had to rely on government transfers, which have become more and more precarious. Inadequate service, in turn, makes customers less willing to pay for an expensive and erratic power supply. In a vicious cycle, large physical and commercial losses have further weakened the financial capacity of these companies and their ability to invest.

 With costs falling and effective pay-as-you-go sales plans being introduced, the landscape is becoming like mobile communications, where consumers are ready to pre-pay if they value a service and find it affordable.  This scenario already applies to small grids, especially in communities where users can easily verify each other’s behavior and help install and maintain equipment. It may soon apply to rooftop units, especially if storage costs drop further. The flexibility of deploying solar power can also make the provision of electricity subject to price competition that benefits consumers.

Solar offers a new financing equation in part because it does not face the price volatility associated with fuel costs for traditional power plants. Together with the ability to charge more effectively for the service, lower volatility makes it easier for investors to hedge their income streams and helps compensate for the higher capital intensity of solar. Less uncertainty also simplifies the design of contracts, the ex-ante determination of the subsidies needed, and budgeting over the lifetime of a project. 

In this new environment, the regulatory burden to protect rights and align expectations of investors and consumers becomes lighter and easier to standardize. This can reduce transaction costs and the need for credit enhancement.  The main risk becomes macroeconomic, from the impact of currency fluctuations on the cost of hard currency financing. This can largely be addressed by government guarantees to top off the debt service when the currency goes beyond a certain threshold. The liquidity can be repaid by the electricity provider as the impact of depreciation wears off or is absorbed by gradual tariff adjustments that permit the pass-through of currency fluctuations while keeping the service affordable. In these conditions, the macroeconomic risk becomes a liquidity risk rather than a solvency risk. The guarantees can be efficiently backed by contingent loans from multilateral development banks (MDBs), helping reduce the risk premium on commercial financing. 

In some cases, MDBs can also help provide low-cost finance; blending it with commercial finance would help defray some investment costs and reduce the payback period to investors. This could address some of the obsolescence risks in the solar industry. In specific cases, the overall financing equation could benefit from treating solar energy as a potential export resource from low-income countries to mature economies.  One early example is a new transmission link between Italy and Tunisia’s electricity grids, a project being prepared by the Global Infrastructure Facility (GIF), housed at the World Bank. 

To make the most of solar power’s potential for profound transformation in many countries, it will be important to introduce low-cost, efficient energy storage at scale and understand better what’s possible in the new financial equation. It will also be essential to coordinate efforts globally. To help jump-start cooperation, the The alliance is helping realize a global vision in which solar plays a crucial role in mitigating climate change and ensuring a cleaner energy future. 

California legislation requires utilities and other retail electricity providers to disclose sources of the power supplied in their service areas. These fuel content laws were enacted to verify the claims of various retail providers about the mix of their power sources and to help consumers determine the potential environmental impacts of choosing one service over another.

Pursuant to legislation, the California Energy Commission introduced a Power Content Label, sort of a nutritional label for electricity, to delineate power sources. Issued annually, it displays the mix of electricity purchased by a provider, primarily utilities, broken out by resource type, ranging from natural gas and coal to renewable sources, such as solar and wind.

The problem is the Power Content Label provides too little information about the fuels powering the grid and no information at all about what fuels are being used at any given time. This leaves electric power providers less than fully accountable for the power purchase and delivery decisions they make.

Although customer choice of retail providers is now quite limited, the current label fails to help customers who do have a choice to make well-informed decisions, and it fails to properly reveal the greenhouse gas implications of their power use decisions. Further, it does not delineate the times at which various sources are being used to power the grid, an increasingly important detail as regulators make decisions about when to encourage people to use power for such purposes as charging electric vehicles.

Knowing Our Power: Improving the Reporting of Electric Power Fuel Content in California
This report provides the history of the Power Content Label, explains the problems with the existing approach, analyzes reasons for current limitations and offers suggestions for improving the process.

An “unspecified” problem

Electricity retailers are allowed to characterize a portion of their power as coming from “unspecified” sources. Statewide, that represents more than 14 percent of the delivered electricity; and for Southern California Edison, unspecified power has exceeded 40 percent. Power in this category is not just any electric generation – the unspecified category is dominated by imported power that likely includes output from the dirtiest generators serving California markets.

In addition, the law only requires retail providers to tell their customers about annual average usage of each fuel type – not by hour, or even by season. Perhaps equally important, the Energy Commission does not perform an audit to ensure the accuracy of the information it is providing.

Arguably, retailers don’t want to be required to account for all their power purchase decisions, dirtier out-of-state generators don’t want to identify themselves as it could lead to lower sales and none of the market participants, including the California Independent System Operator, want to take on the added work of creating accurate, detailed accounting for each transaction. Further, retailers have successfully argued that any disaggregation of the annual fuel averages by season, month or day would enable generators to gain a business advantage by allowing them to infer the marketing strategies of competitors.

Improving reporting

How could policymakers and stakeholders improve the Power Content Label reporting process and help achieve California’s ambitious decarbonization goals? It would require designing an emissions accounting framework that incorporates more accurate power source disclosure, reduces unspecified power as much as possible and breaks down usage by hour. This would provide information that is more complete and reliable.

California power customers deserve to know what they are buying whether the electricity source is clean or dirty, so that they can evaluate the climatological consequences resulting from the release of air pollution emanating from some types of power plants.

The fuel choices made by load-serving entities have consequences. Those companies should not be able to deflect responsibility for such consequences by claiming that they cannot know what emissions they are enabling. Would consumers want to buy a food product if the label stated that 14 percent of the contents was unspecified?

Next steps to take

Fortunately, we can get closer to the truth about fuel choices. It requires action on the part of retail providers, power marketers and the operators of organized markets. In addition, it requires resolve and tenacity on the part of regulators. The California Energy Commission and California Public Utilities Commission can clarify the power content mix and require the utilities to account for the origins of all the power that they schedule onto the grid.

As the role of electricity in reducing greenhouse gas emissions becomes greater, the ability to fully understand the consequences of power choices and to hold retailers accountable becomes even more critical.

Although California far exceeds all other states in solar electric capacity, it’s falling short in efforts to support community solar programs that can make accessing solar more equitable and allow distributed solar systems to better support the electricity grid.

Community solar can describe various business models, but we specifically mean programs that enable individual consumers to receive utility bill credits for generation from a photovoltaic (PV) system that they share with others. Program participants may either contribute to part of the system’s upfront costs or pay a rate that finances their portion of the power produced.

Community solar offers electricity to users who may not be able host PV panels and allows developers to locate solar at places of greatest cost-effectiveness and best benefit to the stability and reliability of the grid.

Read the white paper — Community Solar in California: A Missed Opportunity

In general, dedicated rooftop solar systems provide a good economic proposition for residential and commercial consumers. The downside is these individualized systems disproportionately benefit homeowners and businesses and lead to PV systems sited without regard to grid-level or community needs – preventing solar from reaching its potential technical and societal benefits.

Community solar program

California’s community solar program, named the Enhanced Community Renewables (ECR) program, was created by the state legislature as part of the larger Green Tariff Shared Renewables program in 2013 and implemented in 2015.

ECR program rules allow consumers to enter into agreements directly with third-party, private developers to purchase solar and other clean energy generated by projects with their community. However, the program’s overly complex regulations combined with inflated and fluctuating retail energy pricing have discouraged private developers from partaking with participation so far limited to the state’s major investor-owned utilities.

The ECR must be reworked. Otherwise, community solar will remain a second-tier option for PV development with continuing inequitable access to solar and other renewables and while perpetuating random placement of rooftop solar that stresses grid distribution operations. Although California is behind on community solar deployment, the state can still burnish its image as an energy innovator by developing creative approaches to compensation that incorporate the technical and social value of PV.

Successes in other states

In contrast, state policymakers across the country are realizing the potential benefits of community solar and designing programs to boost participation.

Colorado built a low-income carve-out into its state community solar regulations. Minnesota takes a value-of-solar approach to determining appropriate compensation structures for community solar. Massachusetts offers rate incentives (adders) for power acquired from community solar projects and projects providing other valued benefits, such as serving low-income customers. New York has prioritized community solar projects that are explicitly designed and sited to benefit the grid and/or serve low-income electricity users.

Program needs to be fixed

California has an opportunity to build on the successes in other states. The first step is to retool or replace the existing ECR program, working with stakeholders to design improvements. It should be modified to create an attractive economic proposition for community solar developers and program participants. It should offer a meaningful option for low-income customers and nonprofit organizations to benefit from renewable energy. And community solar systems should be strategically sited to serve both customers and the grid, while providing adequate and sustainable revenues.  A promising development is a proposed decision currently before the California Public Utilities Commission which, if approved, would enhance the likelihood of developing a limited number community solar projects in disadvantaged communities.

Community solar in California can be an important tool to promote social and environmental equity and contribute to the state’s ambitious build out of renewable generating resources to meet our energy and climate action plan goals. The ECR program just needs to be fixed so that we can realize the benefits community solar offers and provide those benefits to customers throughout the state.

Not too long ago, electricity worked as a one-way street—utilities produced energy and people consumed it. Solar energy has changed that model, enabling people who install solar panels on their rooftops to consume the energy generated and sell the rest of it back to utilities. This turns consumers into prosumers—people who both produce and consume energy.

Here are four fast facts about what it means to be a solar prosumer.

1. Prosumers don’t need to produce 100% of the electricity they consume

The solar panels on a homeowner’s rooftop might not produce all of the energy a home needs to function each day. Energy generation also depends on the season. For example, homes consume more energy for cooling in the summer and heating in the winter than they do in the spring or fall. This means that the solar energy being produced doesn’t have to equal the demand at all times; the solar may cover a portion, all, or more than a consumer’s load. This is especially true for people who have smaller rooftops. That’s why solar prosumers still connect to the grid and rely on utilities to balance supply and load just like other electricity consumers.

2. Prosumers don’t sell solar energy to other consumers

When prosumers produce more energy than they can use, the excess is sent back to the grid to be managed by the utility.  However, not all the excess energy is captured back on the grid because the grid was initially built for power to go only one way.   The U.S. Department of Energy’s Grid Modernization Initiative is working to change this by enabling power to flow on a two-way superhighway rather than a one-way street. This includes funding the development of new transformer technology that will allow larger volumes of solar-generated energy from rooftop installations scattered across a utility’s territory to be utilized efficiently onto the grid.

Read More

Consumer vs Prosumer: What's the Difference?

3. Businesses can be considered prosumers, too​

Solar panels aren’t just made for homes. Businesses can use rooftop or on-site solar energy arrays to help offset a variety of expenses. Solar can also be used in conjunction with combined heat and power, which is useful for industrial and large commercial facilities. This technology allows businesses to use the heat that would normally be lost in the power generation process to be recovered for use in heating or cooling, taking business prosumer cred to the next level.

4. Prosumers can save money

Switching to solar can help balance a budget, making the prosumer lifestyle a worthwhile choice. In fact, SunShot-funded research from the North Carolina Clean Energy Technology Center found that in 42 of America’s 50 largest cities, going solar is less expensive than only relying on a utility to generate your electricity. As more financing options become available, solar energy will become even more affordable in cities across the country.

Are you thinking about becoming an energy prosumer with solar? Check out our Homeowner’s Guide to Going Solar to learn more.

*Graphics by Sarah Harman | U.S. Department of Energy




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