Arizona's Institute for Energy Policy

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ACC Solar PV Mandates are a Mistake

The proponents of the Arizona Renewable Energy Standards (RES) make various claims in order to promote grid-tied solar photovoltaic (PV) electricity.  Unfortunately, the use of grid-tied solar PV is unlikely to accomplish any of the objectives suggested by its proponents.   Specifically, it will not create jobs in Arizona, it will not reduce global warming, it will not reduce electricity prices, it will not reduce our dependence on imported oil, and it will not position Arizona to be a leader in renewable energy.  Furthermore, there is a good chance that the RES will have outcomes that are directly opposite its intended effects.

The suitability of Solar PV as a grid-tied energy source can be analyzed in a straightforward manner.  In Arizona, a 1 kW PV system costs approximately $5,000 installed and will offset about $50/year of fossil fuel use.  Adding PV to the grid offers no other significant savings in utility generation and transmission requirements and only adds to administrative and engineering burden for the utility.  Despite idealistic claims of infrastructure savings from distributed grid-tied PV, these do not exist in the real world because PV is not reliable power, so no significant reduction in generation or transmission infrastructure is possible.  PV system costs must fall by a factor of nearly 10 to be competitive with fossil fuel generation costs.   Additional evidence of this is the fact that current federal, state, and utility subsidies cover 70% of the up-front cost of these systems and net metering laws provide a rich subsidy for energy produced and yet the systems are still marginally viable.

Perhaps if grid-tied PV were the only available alternative to fossil fuels its low rate of return could be overlooked.  But there exist many alternative fuel sources that demonstrate a much higher rate of return.  Many of these initiatives are very promising and already contribute to the economy and environment; solar hot water, wind energy, off-grid solar PV, geothermal energy, and one day possibly solar thermal power generation and biofuels.  These technologies all have rates of return many times higher than grid-tied solar PV. Grid-tied solar PV makes sense only in a world in which we have fully exhausted all better renewable alternatives, a world which, thankfully, is many generations away. 

One of the reasons that support for grid-tied PV persists is the perception that the technology provides a legitimate way to spend government money that will, as it usually does, stimulate the economy and create jobs. While we do not dispute that the current economic environment may suggest that government spend more money than it otherwise would, both state and federal budgetary outlays ought to still be governed by strict cost-benefit analysis.  Government ought to pursue those projects and policies that demonstrate the highest rate of return without regard for their political appeal. This will always result in the greatest good provided to the constituency, and that translates into the most jobs in the long run.  We have no more business building highways to nowhere than building large-scale PV to nowhere.  If simply spending money created jobs, it would be easy work for government.  But spending money wisely is the job of government, and by spending money unwisely, it can only expect businesses to go to another state, thereby losing jobs in the long run.

Additionally, proponents claim that tying PV to the grid will, despite its financial costs, reduce the state's emissions of greenhouse gasses (GHG).  This argument supposes that although grid-tied PV is a big money-loser, we as taxpayers are essentially purchasing carbon offsets to mitigate the problem of global warming.  There are two main reasons grid-tied PV is not the right solution for achieving this objective. First, there is no strong evidence that, once properly measured, PV produces less GHG per KW-hr than coal or natural gas and at least some evidence that it produces more.  The high cost of PV systems is a clear indicator of the direct and indirect energy consumed to mine materials, manufacture, market, distribute, power showrooms, offices, and warehouses, advertise, install, maintain, and dispose of PV systems.  This high cost is also an indicator of the amount of other pollutants generated in this activity.  Second, if reducing GHG is the objective, there exist many better alternatives, particularly energy efficiency measures.  As just one example, investment in 15 W compact fluorescent light bulbs to replace 75 W incandescent bulbs which run 4 hours a day saves 132 times more CO2 than the same investment in grid-tied PV. 

Investment in grid-tied PV is also promoted as a means to reduce dependence on oil imports.  This, however, is a false assumption.  Oil is an important strategic fuel for our national economy and developing technologies to safeguard against foreign supply disruptions is both rational and prudent.  However, installing solar PV on our power grid will have little impact on our oil dependence, since we use mostly coal, gas, nuclear, and hydro to make electricity, not oil.  In fact, mandates on utilities to pay for grid-tied PV will raise the average cost of electricity, making oil more competitive rather than less, causing an increase in oil imports.  For example, if our PV mandates drive the price of electricity higher, as is expected, the relative cost of driving an electric or plug-in hybrid vehicle will rise relative to a conventional vehicle.  This will discourage motorists from switching away from gasoline, thereby increasing our reliance on oil. 

Finally, there is a desire among many in Arizona to develop our state as a leader in the field of solar power.  While it is true that Arizona is blessed with abundant solar energy, so are New Mexico, Nevada, West Texas, Southern California, Colorado, and Utah. Thus it is unlikely we will develop significant exports of solar power to our neighbors.  Nor is it realistic to assume Arizona will be a major exporter of solar panels.  To accomplish this would require a business-friendly atmosphere and a cluster of similar technology businesses.  Regrettably, high electric rates and state taxes resultant from our RES are likely to drive businesses away and prevent, rather than promote, the desired outcome.  Currently, large industrial customers in Tucson pay up to $3,600/month in a “Renewable Energy Fee."  This fee is likely to rise in the coming years if the state continues to subsidize, both explicitly through subsidies, and implicitly through mandates, the use of grid-tied PV.  Indeed, the lion's share of the costs of promoting grid-tied PV is borne by the businesses in Arizona, making it less likely that new businesses will want to locate here to manufacture solar products.

Solar PV has many great applications. It has the ability to be transformative to the billions of people who live removed from the electrical grid. But tying PV to the grid in order to give ourselves the illusion of creating a better world is counterproductive, and the sooner we commit our scarce resources to real solutions the better off we will all be.