What do you get when you mix Georgia Tea Party activists, solar energy developers and an eager regulator? The result of this rare coalition recently emerged 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 is set to increase the amount of solar within its borders 18-fold.
Beginning in 2004 with Colorado, 29 states plus the District of Columbia (PDF) have instituted mandatory renewable energy targets that require electric utilities operating there to derive a certain percentage of power from renewables such as solar, wind or geothermal. Notably missing from the list of states with renewable energy standards have been the nine in the southeastern United States, including Georgia.
Because solar generally produces low-cost energy that coincides with peak times of energy consumption, such as in the afternoon and early evening, it is particularly attractive. Therefore, of the 29 states with standards, 18 have gone a step further by requiring that 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 across 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 former clean air and energy policy junkie at the Environmental Defense Fund, I am highly interested in how policy changes shape business decisions. I took the Sustainable Global Enterprise Immersion at the Johnson School at Cornell University, so the news out of Georgia caught my eye.
The solar industry constantly has been criticized for leaning too heavily on government subsidies as a life-support system, and governments have been similarly criticized for providing this support. 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 already has achieved grid parity, which describes when the cost of electricity becomes equivalent to that of traditional energy. Recognizing this paradigm shift in the cost-competitiveness of solar, Georgia made its landmark move.
The Georgia Public Service Commission, the state regulatory body in charge of overseeing public utilities, voted July 11 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. 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 fifth 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 fourth-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 been noted, Georgia is in an island of southestern states with 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 in support of the Commission’s vote. Rarely have government policies transcended the traditional boundaries of solar fanatics and Tea Party diehards. (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 him to be named Bubba.)
The common ground that this motley crew discovered is the remarkable business case for solar. Essentially, everyone recognized two key facts about electricity.
First, prices historically have fluctuated. This probably will not change. In fact, it may get worse. Next, it’s unlikely 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 (PDF), “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."
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.