Sky high solar subsidies

Sky high solar subsidies

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Its advocates say solar power has a bright future in Massachusetts, but right now the energy technology needs astronomical ratepayer subsidies to survive.

Solar power generators are pocketing special ratepayer subsidies that run anywhere from 40 cents to more than 50 cents a kilowatt hour. Paid by Massachusetts electricity customers in the form of higher rates, the solar subsidies are more than twice what Cape Wind wants to charge for the wind power it plans to generate.

Solar advocates say the steep subsidies will be a short-term phenomenon. They say the subsidies are needed to get the technology off the ground and will come down as more solar installations are built.

Philip Giudice, commissioner of the Department of Energy Resources, said solar installations are expanding rapidly in Massachusetts. He said the state had three megawatts of installed solar capacity in 2007, but by the end of this year should have 70 megawatts either online or under construction.

Giudice isn’t concerned by the high solar subsidies. “Solar is a tiny, tiny piece of the market,” he said, and a small part of a much broader state strategy that’s heavily focused on energy efficiency and development of a broad array of renewable power.

Massachusetts subsidizes renewable energy through the use of renewable energy certificates. Companies that produce renewable energy are issued a certificate for each kilowatt hour of electricity they produce. Companies that sell power to customers in Massachusetts must purchase the certificates to prove a portion of their electricity is coming from renewable sources. The requirement is 5 percent this year, rising one percentage point a year. The cost of the certificates is rolled into the price of power that consumers pay.

Within the overall 5 percent requirement, there is a small carve-out (.0679 percent) for solar. It requires companies selling electricity in Massachusetts to buy solar renewable energy certificates, or SRECs, from in-state suppliers.

Under state rules, the price of the solar certificates can go no lower than 28.5 cents a kilowatt hour and no higher than 60 cents a kilowatt hour. Sales on auction websites over the last month indicate the certificates are going for 45 to 50 cents apiece.

Business groups raised concerns about the high cost of the solar subsidies when the program was being debated last year and early this year. Associated Industries of Massachusetts, for example, said the solar subsidies are likely to cost $200 million a year. “We’re starting to see the economic and financial impacts of all these feel-good programs that have been added over the last few years,” said Robert Rio, AIM’s senior vice president. “They’re starting to have an impact on rates and reducing our competitiveness. We need to sit down and start reevaluating all these programs.”

Giudice said the cost of producing solar electricity is already dropping and predicted the price of the certificates will also fall. “We expect the pricing of the SRECs to come much closer to the floor (28.5 cents per kilowatt hour) as more projects come online,” he said.

Boston Community Capital, which invests in low-income communities, is one of the biggest solar developers in the state. It owns more than 7,000 solar panels generating 1.4 million kilowatt hours of electricity annually.

Dick Jones, president of BCC’s solar subsidiary, says state and federal subsidies are crucial to his company’s operations. He said his company typically installs a solar facility at an affordable housing complex and covers its costs by selling the power to the complex and selling the solar renewable energy certificates to a firm selling electricity in Massachusetts. Jones said his company typically signs 20-year sales contracts for both the power and certificates to generate revenue streams that can be used to finance the project.

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Giudice said the solar subsidies appear high right now because fossil fuels like natural gas are selling at historic lows and their prices don’t reflect their carbon impacts. He said once the economy starts to recover and energy use rises, the price of fossil fuels will go up. He also expects government will eventually place a cost on carbon to reduce greenhouse gas emissions.

“There’s a lot of things that don’t make sense now that will make sense over the long term,” he said.