New research: Taking advantage of falling solar costs
And a few words on permitting reform
Monday, we released a new research paper by Austin Vernon. In short, it is about how we can clear out the regulatory thicket around solar development.
As Vernon details, poor permitting rules, local NIMBYism, and outdated interconnection processes are in the way of realizing solar’s cost declines.
The starting point is solar’s dramatic price declines. Our World in Data shows the price per watt falling since 1975.
Vernon’s central insight is that as the materials cost falls, then you run into high costs from other sources–like onerous permitting requirements that cause delays. As he puts it, “Several high leverage, non-subsidy policy levers are available that can unlock more solar deployment while also making deployment more sustainable for the entire energy system.” This is becoming more important given that about $2 out of every $3 spent installing solar today are related to “soft costs” like permitting, labor, and customer acquisition rather than the actual panels.
To add my own spin on why unlocking solar matters and why sorting out the soft costs is particularly important, you have to realize what cheap materials mean in practice. Normally, you install solar panels oriented to maximize exposure to solar. But there are all sorts of daily life items that could be solarized.
Julien Jomaux has explained this point most clearly. He points out that vertical solar panels, installed, say, in the form of fences, would generate electricity at different times of day. This could be a match for household energy use or be sold to others. In fact, some vertical installations are popping up already on buildings as well as fences. When you work through the idea, it makes more and more sense.
Getting the order right: Cut red tape, don’t subsidize
One of the best parts of Vernon’s argument is that it gets the order right. Policymakers should remove barriers to a technology’s growth before adding subsidies. In almost every case, you’ll find that you don’t need subsidies. If you must subsidize, then we’ll get much more out of them without an obstacle course of overlapping and entangled reviews!
Energy policy is shot through with subsidies and government interference. We have a system at the federal level that pours billions (maybe trillions) of dollars into technologies that are then stymied by federal permitting rules. As environmental lawyer Mark Rutzick pointed out about the 2009 stimulus law, “there are no longer any “shovel-ready projects” within the federal enclave.” Why? Because, as Rutzick continues, “The stimulus law could not be implemented until federal agencies completed 192,707 NEPA reviews including 841 EISs. In 2011, federal agencies were still completing those NEPA reviews.”
Layered onto this is a mess of state-level rules–including additional permitting projects. In fact, Vernon shows these objections are becoming more common. This NIMBYism is a growing problem. A recent USA Today report suggests that 1 in 10 counties ban renewable energy development, for example. Researchers at Columbia University’s Sabin Center for Climate Change Law noted the same problem.
All this is to say that we should not let the vegetarians win on permitting reform. The July 2024 permitting proposal from Senator Manchin and Barasso is a great example of bipartisan compromises that will unlock energy development of all sorts. It’s a federal-level implementation of the same thinking behind Vernon’s solar report.
You can read the entire report at the Institute’s site. It’s split between a utility-scale and distributed scale set of proposals. Here are the highlights as a preview:
Highlights for utility-scale solar:
Limit Local Authority to Deny Solar: Restrict local governments' ability to deny solar projects while eliminating property tax breaks that reduce their revenue. These tax breaks are counterproductive because they reduce local governments’ willingness to approve solar farms.
Simplify Grid Interconnection with Connect and Manage: Implement market-based, simplified interconnection processes to reduce fees and uncertainty, enabling faster generator integration and better transmission utilization.
Adopt New, Cost-Effective Technologies: Encourage monopoly utilities through state regulatory hearings to adopt newer, cheaper technologies.
Market-Driven Solar and Batteries will Smooth Production and Consumption: Allow market forces to develop more affordable solar farm designs and integrate storage batteries to enhance value. Solar’s variability is being tamed by falling battery costs, and policymakers need only to let it happen.
End Solar Panel Tariffs: Remove tariffs on solar panel imports. Tariffs on solar panel imports add uncertainty and cost. Policy should focus instead on supply-side industrial policies to boost domestic production if necessary.
And the distributed or residential solar highlights:
Adopt SolarAPP+ to Simplify Permitting: Promote the adoption of simplified permitting processes, such as SolarAPP+, to reduce costs and expand competition for solar installers.
Eliminate Utility Approval for Safe Home Systems: Remove the need for utility approval for home systems with safe designs, bypassing the interconnection process for non-exporting systems
Legalize DIY Solar: Formalize and legalize plug-in and DIY solar systems, following examples set by countries like Germany.
User-Friendly Investment Tax Credit: Convert the investment tax credit into a lump sum payment claimable by installers so that savings pass directly to customers.
Refine Net Energy Metering: Adjust net energy metering rates to accurately reflect the market value (or lack thereof) of electricity exported to the grid.