SEPA: Grid integration main challenge for utilities amid solar growth
The primary challenge to growth in the solar industry is no longer related to cost, but is instead determining how to build and manage the power grid to accommodate that growth, Julia Hamm, president and CEO of the Smart Electric Power Alliance (SEPA), recently told Daily Energy Insider.
Electric utilities typically use long-term planning horizons of 20 to 30 years. Utilities, however, do not know for certain within any given service territory at what pace customers are going to be adopting solar technology or other resources.
“Planning the system has become a much larger risk for the utilities because you don’t know what you’re planning for,” Hamm said.
As the market accommodates greater amounts of solar power, both on large-scale projects and in the small-scale residential sector, “it changes how you have to manage and operate the grid,” Hamm added. “It is really forcing us to make the grid smarter.”
Hamm said that the largest market segment of the solar industry – large-scale solar power plants – will continue to experience growth in 2016. Growth in recent years was seen mostly in the southwest part of the country, but now the industry has experienced massive diversification geographically, with more plants coming online in Georgia, North Carolina and Texas.
Looking ahead to 2017, however, there will likely be a decrease in that market segment as a result of past uncertainty surrounding the federal solar investment tax credit. While the tax credit was extended in late 2015, the possibility that it would expire fueled a rush of solar projects in 2016.
“Now that the federal investment tax credit was extended for five years, though it will start to taper down in years four and five, it gives the industry a much longer runway to continue to bring down its costs and that policy certainty ensures that the markets are going to keep growing very quickly,” Hamm said.
The solar investment tax credit is a 30 percent tax credit for solar systems on residential and commercial properties through 2019, at which point the credit will be reduced.
In the residential sector, more retail customers are turning to solar because it makes economic sense, due partly to the cost of solar continuing to decline. In addition, individuals don’t have to purchase a solar energy system outright, but can lease or enter into a power purchase agreement arrangement with a company who will own, operate and maintain the system.
“That model makes solar much more accessible to so many customers,” Hamm said.
Hamm also sees a trend emerging in the solar industry with large commercial industrial customers like Apple, Walmart and Google, who have sustainability goals. A number of large companies have set targets to get to 100 percent renewable energy for their operations.
“If you look at that segment of the solar industry in terms of deployment, that commercial industrial sector actually hasn’t been growing near as fast as the large-scale projects or the residential, but it has been a good steady market,” Hamm said. “I think very quickly we are going to begin to see that market segment grow at a much faster pace.”
Heated debates in different states over how best to integrate solar into the grid, market reform, net energy metering and other issues fueled the creation of SEPA’s 51st State Initiative, an effort to provide a platform for discussing the future of the electric industry.
Launched in 2014, the project’s goals are to create equitable business models and integrated grid structures in the electricity market and to meet customer demand going forward for solar and other types of distributed energy. The innovative and collaborative approach led to SEPA and the 51st State Initiative winning the Keystone Policy Center’s 2016 Leadership in Energy Award.
In Phase 1 of the project, SEPA asked the industry to describe the ideal electricity market structures in a fictitious state, imagining there was a blank slate.
Phase 2 of the project began in 2015. Market participants were asked to explain what their vision was and how to get there. They needed to describe the main changes that would need to occur in retail market design, wholesale market design, the utility business model, rates and regulation, and asset deployment and IT infrastructure, Hamm said.
SEPA will enter into the third phase of its initiative this fall by finding three states that are willing to put ideas into practice. The states will need to have stakeholders who are ready to agree on what the energy vision is for their state and the creation of customized guidelines for implementing those plans.
“We have to find states where the environment is ripe to have this kind of conversation,” Hamm said.
SEPA is a non-profit education and research organization that aims to help the electric utility industry transition to a clean energy future.
