Energy prices impact solar

By Drs. Robert and Sonia Vogl
President and Vice President,
Illinois Renewable Energy Association

The collapse in oil prices is usually followed by an increase in its consumption which in turn leads to a rise in the price of oil. The formerly high price of oil stimulated the production of unconventional sources of oil contributing to the surplus.

Tar sands, Arctic sources, deep ocean reserves and tight oil supplies released by fracking require a greater amount of energy to secure than conventional oil, lowering the net energy they provide while increasing their cost. The amount of carbon released from their development and the overall levels of pollution increase. Fracking for natural gas also involves higher costs, lower net energy and increased pollution.

Low prices for natural gas and the desire to reduce the consumption of coal have accelerated switching to natural gas to produce electricity.

Gains in the efficient use of electricity have hurt utility earnings contributing to an effort to undermine state policies supporting renewable energy and efficiency.

Securing nonconventional sources of fossil fuels was stimulated by quantitative easing which dramatically lowered interest rates on loans secured by fracking operations, contributing to the energy glut. With low oil and gas prices fracking firms are having difficulty repaying their loans and are cutting back on their operations. The cutbacks will reduce energy supplies and increase energy costs.

Of increasing concern to renewable energy interests is the approaching expiration of the federal tax credit. In states with high electricity costs, such as Hawaii, the economic case for solar energy remains strong even without the tax credit. According to a recent article by Kari Lydersen the expiration of the tax credit at the end of 2016 would adversely impact solar energy installations in the Midwest. Relatively weak state policies supportive of solar energy and the low cost of electricity in the Midwest weaken the economic case for solar electricity.

A Bloomberg News Energy Finance report predicts that passing a tax credit extension would result in a cumulative Midwest capacity of 3428 MW of installed solar power by 2022. Failure to extend the tax credit would result in only 2331 MW of installed capacity, up from the existing 500 MW. With the uncertainty of extending tax credits it is important to take advantage of their existence now.

While tax credits are important to the accelerating growth of the solar industry in the Midwest, other factors could stimulate installations. The costs of solar systems are expected to continue to fall. Cost reductions and efficiency gains in battery storage will increase the appeal of installing batteries so that PV owners could utilize more of the electricity produced by their systems.

If grid service becomes less reliable due to an increase in the intensity and frequency of storms or successful efforts to damage the grid, independence from it will prove more appealing.

As efforts to reduce carbon emissions gain acceptance, reliance on renewable energy sources could increase dramatically. A carbon tax on fossil fuels used to support the installation of renewable energy systems would speed the transition to a cleaner energy future.

The solar tax credit as a subsidy has stimulated solar installations. If the solar tax credit were extended, energy subsidies for fossil fuels eliminated and environmental costs of energy production incorporated into energy prices, the solar transition would accelerate.

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