As high oil and gas prices spur consumers to consider alternative sources of energy, solar power leaders say their industry is ready for prime time. The industry is growing at a frantic pace both internationally and in the United States, as photovoltaic panel costs decrease and state and federal officials sign solar incentives into law. Rhone Resch, president of the Solar Energy Industries Association, examines whether solar can become more than a niche market in the United States and addresses concerns that the industry is growing too fast for its own good. Plus, he calls on policymakers to extend solar incentives as they consider new energy legislation following Hurricane Katrina.
Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining me today is Rhone Resch, president of the Solar Energy Industries Association. Rhone thanks a lot for being here today.
Rhone Resch: Good morning Brian.
Brian Stempeck: Of course we have oil and gas prices really reaching all-time highs right now. How much is that affecting solar power and are you seeing a lot more consumers come your way?
Rhone Resch: Absolutely, it's affecting us in a number of different ways. First is there's consumer awareness about energy prices, there really hasn't existed in the past or not in a meaningful way. And consumers are really looking at what they can do this winter to address their heating bills. They're already hearing that natural gas bills are going to be between 50 and 70 percent higher than it was last year. What are you going to do? You can do some conservation measures or you can turn to solar power for your electricity and your home heating. So we're starting to see the consumer, if you will, start to pick up demand.
Brian Stempeck: If you're talking to the average consumer what is the cost for a normal homeowner to outfit their home with solar power?
Rhone Resch: Well, there's really four different technologies that encompass solar energy in general. There is photovoltaics, which is the direct conversion of sunlight to electricity, typical PV panels that you hear about. There's solar water heating, in which you're using solar collectors to actually heat up water that could be used for radiant floor systems or for hot water showering and cleaning, etc. There's concentrating solar power, which are a kind of the big power plants in the desert and then there's solar hybrid lighting. If you were to look at your home and what you could do, let's say in the Washington, D.C., area, you'd be looking at a PV system that would run you about $20,000 and $25,000 to provide most of your electricity. A solar water heating system would cost somewhere between $4,000 and $6,000 and would displace about 70 percent of your natural gas demand.
Brian Stempeck: So then of course if you're talking about $20,000 or $25,000, that's a lot higher than what people are paying right now, 10 cents or 11 cents per kilowatt hour from a coal or natural gas plant. How do you address those costs, the difference there?
Rhone Resch: Well, there's a couple ways to look at it. First is the federal government has now provided a tax incentive, a credit if you will, for consumers, encouraging them to install solar. It's a $2,000 credit, so a direct dollar for dollar reduction on your taxes. That helps lower the upfront costs of solar power. Many states have also developed credits or rebate programs also to bring down the upfront costs, but when you start to look at a solar system, this is a system that is guaranteed for performance for 25 to 30 years. This is going to be on your rooftop for a long time. You build that into your mortgage and you're going to see a positive cash flow in that first month. What that means is it will lower your energy bill by more than what you'll see as an increase in your mortgage. So if you think about it from a strategic perspective this is like buying a car with all the gasoline you're going to need for the next 30 years upfront. If you had done that two years ago you'd be patting yourself on the back, saying that was a pretty good investment. So it allows the consumer to lock in energy prices today for the next 30 years.
Brian Stempeck: This is all, I mean when you're talking about $20,000, that's a pretty big chunk of change if you're looking at a home improvement. Talk about some of the state programs. I know New Jersey and California are two of the leaders there. If you own a home in one of those states how do the state credits breakdown?
Rhone Resch: There's a number of different types of provisions. North Carolina has a 35 percent tax credit. New York State has a 25 percent tax credit. New Jersey has a rebate program, which is, although administered by a nonprofit, it's run through the state. And the idea there is it actually helps you pay down the upfront costs. So in certain states you may get $3 or $4 per watt as a reduction in the overall cost for installing a solar system. What you typically see is somewhere around 50 percent of the overall cost of the solar system will be reduced by state rebates or state tax credits.
Brian Stempeck: Now what kind of growth have you seen in, I guess, seeing in the industry for the next 10 years? There's been a lot of talk about the costs coming down even further as we see fossil fuel prices go even higher. What kind of forecasts are you looking at?
Rhone Resch: We're actually in a really good position. For the last 10 years we've seen the price of solar come down about 6 percent per year. At the same time we've seen fossil fuel prices continue to rise. And I think anybody you ask is going to say that trend is going to continue. We are scaling up, we are seeing a growth in the solar industry, about 35 percent per year for the last five years. We expect that to continue globally. What we're really hoping to occur is to see that kind of growth in the United States. So we bring the manufacturing jobs, the construction, the engineering, the installation jobs back the United States.
Brian Stempeck: What's the breakdown internationally and nationally? If you look at just the United States how much are we growing here?
Rhone Resch: In the United States we are growing about 15 percent per year annually. We represent approximately 10 percent of the total production globally of solar panels. We used to be the market leader just six years ago. We produced over 40 percent. And what we've seen is Germany and Japan put incentives in place that have really jump-started the industries in those countries quite significantly. Germany now is the largest installer of solar systems in the world. And if you think about it Germany actually has the solar radiation of Anchorage, Alaska. So when you kind of step back, you say, gosh, we should be thinking about solar starting because it's starting to make more sense. We have the best solar resources in the world, here in the United States. Yet you're seeing countries like Germany and Japan, typically cloudy, much farther north countries, start to invest in solar and seeing the jobs and seeing the installations grow.
Brian Stempeck: If you're talking to a member of Congress or people on the Hill how do you break that down for them? If the United States is going to compete again with Japan and Germany, what needs to happen?
Rhone Resch: I think that you need to have credible long-term markets to spur investment in United States. What we just found in the National Energy Policy Act of 2005 was the first solar tax credits in 20 years. It's a great recognition by Congress that solar needs to play an important role in our energy mix, but they were only two year tax credits. So you're not going to see a lot of investment, long term investment, in manufacturing or new power plants within two years. Very similar to a clean coal facility or to a nuclear power facility, which each received 10 and 15 year credits. It takes a long time to plan, design, permit and then build these facilities. So when you look at a manufacturing facility or you're looking at a solar power plant, they have long lead times. So the most important thing that Congress could be doing to encourage solar is to extend those tax credits out for the original Senate provisions, which were six years.
Brian Stempeck: So at the same time, if the solar energy industry right now is growing at 35 percent per year and you're already talking about, I know there's been some stories that there's not enough materials to actually make all these PV panels, then why the need for a long-term tax credit, pass two years? I mean isn't the industry going fine on its own with high fossil fuel prices?
Rhone Resch: Globally, yes. We're growing at 35 percent per year. In the United States we'd like to see that market grow here as well. And right now we don't have the long term incentives in place to encourage the industry to grow at that 35 percent level. Right now we do have a tightness in the market with respect to silicon. The reality though is the market's responding and we're seeing companies that produce silicon actually double their capacity dedicated to the solar industry. So if we want to see solar power play a more important role in the United States, and I think we should, then we need to have those long term incentives that are going to encourage the energy industry to grow. Very similar to what we're seeing in the clean coal industry. Very similar to what we're seeing in the nukes industry. Very similar to what we saw in the wind industry when they first had their production tax credit.
Brian Stempeck: Now why do you think there was resistance in Congress? As we saw the energy bill pass this last summer-you're saying it's a two year credit, while clean coal and other industries got further out than that. Why was there resistance to doing something more than two years? That's been a criticism that's been raised for wind power as well.
Rhone Resch: First I want to just applaud Congress. They did a fantastic job. We are thrilled with the 30 percent tax credit. We think it's the right level for both residential and for commercial solar installations, but we do need a longer lead time. And I think the reality is when they got down to trying to shoehorn all the different provisions in the tax title into a very small $14 billion package some things had to go. And some of the outer years were those types of provisions that were cut down. I would have rather, I mean I think they did the right thing, which is to shorten the duration and keep the percentage high. I hope that they now have an opportunity to go back and reconsider, looking at our current energy crisis, an opportunity to extend these tax credits and make them meaningful for the long run.
Brian Stempeck: Do you think that will happen? Right now we're seeing people on the Hill talking about more oil and gas incentives, talking about opening up ANWR or the outer continental shelf for oil and gas exploration. They also talked about refineries. Are you hearing anything about more incentives for solar, more incentives for wind?
Rhone Resch: Absolutely. I think what we're realizing is we need it all. We do need more production of oil and gas. We do need more renewables. And in particular those renewables that can help address some of our energy problems in this country. We really do have an energy crisis. The president came out yesterday and said we need to conserve. We need to cut back on our use. We need to make some sacrifices. At the same time we should be looking at what those technologies are that could help displace natural gas, oil, etc., and solar does it directly. Solar displaces natural gas at your home. Solar displaces natural gas for generating electricity. It is one of the few renewable technologies that directly reduces the overall commodity price for natural gas by extending the life, by displacing it, in both your home and for power generation.
Brian Stempeck: What do you expect to pass this year? I mean as we're talking about these specific bills moving through the House and Senate right now, is there going to be a solar component in those bills that moves forward?
Rhone Resch: We're hopeful. We're hopeful that in the extenders bill, looking at the tax extenders, that there is an opportunity to include the additional solar years. We're really looking at just tacking on four more years. It's a score of about $50 million to $60 million. It's actually included with fuel cells. And I think when you kind of step back and say what are the two technologies we really want to encourage going forward, it's hydrogen and it's renewables. And in this case you're really looking at encouraging both fuel cells and solar for a cost of about $50 million for the next six years. Pretty cheap investment to make and we're hopeful that the extenders bill will include a solar provision.
Brian Stempeck: So do you think that money will be there? I mean we're talking about billions of dollars for the cleanup at the hurricanes right now. Some of the states we've seen have budget crunches as well. California is having trouble with getting through their million homes initiative. Do you think the money and, is solar going to be there on the priority list when all is said and done?
Rhone Resch: I think solar has a series of new champions in Congress who recognize the role that it plays. This is not just an environmental play. This is an economic play. This is an energy play. Solar is 100 percent reliable and when you step back and you look at how do we put in place an electric system both for the home, for shelters, as well as overall on the grid, that's 100 percent reliable? You've got to look at diversification. Right now centralized power plants are not going to give you that capability. When you start to look at distributed generation and using solar on your rooftop, basically generating the electricity at the point of consumption, you start to realize that this provides a tremendous benefit for an increasing problem that we have in this country, which is capacity constraints, our ability to move electrons from the centralized power plant to the home. It also addresses natural gas. So when you really start stepping back and saying what are the two big issues we're facing, from an energy side of things? It's really natural gas issues and it's capacity constraints, in addition to oil. And solar addresses both of them. So I'm optimistic that the new champions, if you will, for solar, recognize its potential and they're going to go back and fight for those extensions.
Brian Stempeck: Beyond Congress, what do you see happening at the state level? We've already seen New Jersey, North Carolina, California, move forward with solar programs. What do you see coming over the course of the next year?
Rhone Resch: Well California still needs to figure out how they're going to keep their program running. SB1, which was Schwarzenegger's primary legislative initiative, actually failed this year. It got bogged down in partisan politics. And he's now turning to the California Public Utility Commission to deliver the program. So I anticipate in the next three months or so, actually probably two months, we're going to see the program come out of the CPUC and be announced. It will be a very robust meaningful program with some long term 10 year types of goals and funding mechanisms, which is great. California is going to be the big play. It now represents probably three quarters of the market in the United States, so it's very important for us to ensure that the California market remains in place. After that you really are starting to see kind of regional markets develop, one in the mid-Atlantic to the northeast. New Jersey has some of the best incentives and frankly, some of the best policies to encourage the use of solar energy in the country. And you're finding that Pennsylvania and New York, Connecticut, Massachusetts, now D.C. and potentially Delaware, are going to put in place programs that mimic it. And then subsequently you really have a regional market that could compete with California.
Brian Stempeck: All right, probably a lot more ahead at the state level. We'll look forward to hearing from you again.
Rhone Resch: Great.
Brian Stempeck: Thanks for coming on the show. I'd like to thank our guest today. That was Rhone Resch. I'm Brian Stempeck. This is OnPoint. Thanks for watching.
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