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Solar energy in Texas

July 20, 2010

This report describes the current

status of solar energy in Texas and in other states and outlines anticipated policy proposals for incorporating solar energy

into Texas’ energy future.

Number 81-13

2 Types of solar power

4Texas solarpolicy options

3 Solar energyin other states

Federal solarenergy policy

510 Texas solar

businesses

11 Municipal andutility initiatives

3 Current Texas solar policy

WhilesolarenergycurrentlymakesupasmallfractionofthemixofenergysourcesinTexas,thestateranksfirstinthenationinsolarresourcepotential,accordingtotheStateEnergyConservationOffice(SECO).Asolarenergycompanyisdevelopingplansfora60-megawattsolarplantnortheastofAustinthatwouldbethelargestsuchfacilityintheUnitedStates.

Solarenergyisproducedbycapturinglightandheatfromthesunthatcanbeusedtogenerateelectricpower.Texashashighlevelsofsolarradiationthatpassthroughtheatmosphereunobstructedbypollutants,clouds,watervapor,andothermatter,accordingtoSECO.Somehavecalledforstatepoliciestoencouragedevelopmentofthisresourceinordertoreducecarbonemissionsfromanddependenceonfossilfuels.Becausethesunshinesduringtheday,supportersofdevelopingsolarenergysay,itcouldbalanceenergyfromwind,whichblowsstrongestatnight.Otherssaysolarenergyshouldstandonitsownwithconventionalandotherrenewableenergysourcesandthatitisinappropriateforthestatetointervenebychoosingwinnersandlosersintheenergymarket.

FactorsthathavehelpedestablishaframeworkinTexasforpursuingsolarenergyincludeathrivingwindenergyindustryaidedbystateandfederaltaxincentives,anetworkofpeopleexperiencedintheenergybusiness,alargesemiconductorandmicroprocessorindustrythatcoulddesignandmanufacturesolarequipment,andgroundworkfortransmissionlines.AsthesolarenergyindustrymaturesinTexas,however,italsoisexpectedtofacechallenges.Theseincludethehigher

costofproducingelectricitywithsolarresources,concernsaboutaestheticsofsolarequipment,reliablyintegratingsolar

energyintotheelectricgrid,andintermittentgenerationsincewithoutaneffectivestoragesystemsolarenergyisavailableonlywhenthesunshines.

ThisreportdescribesthecurrentstatusofsolarenergyinTexasandinotherstatesandoutlines

anticipatedpolicyproposalsforincorporatingsolarenergyintoTexas’energyfuture.TheTexasLegislaturemayrevisitissues

involvingsolarenergyduringits2011regularsession.

Page 2 House Research Organization

Types of solar power Solarpowercanbecategorizedintothreebasicareas:solarhotwaterheating,concentratingsolarpower(CSP),andphotovoltaic(PV)solarenergysystems.Eachofthesesolarenergytechnologiesworksbycapturingenergyfromthesun’sheatorlight.

Solar hot water heating

Smallrooftopcollectorscancollecttheheatfromthesuninordertoheatwaterforlaundry,bathing,andotherpurposes.Whilesolarwaterheatersdonotgenerateelectricity,theycanreducetheamountofenergyusedforwaterheatinginahomeorbusinessby75percentormore.

Concentrating solar power plants

Solarthermalpowerplants,alsoknownasconcentratingsolarpower(CSP)plants,harnesstheheatfromthesuninordertoheatwatertohighlevelswithlargemirrorsthatfocussunlightonasmallarea.Thisheatedwaterisconvertedtosteam,whichisusedtorunsteamturbinestogenerateelectricityinamannersimilartoafossilfuel-firedpowerplant.

CSPrequiresahotclimateandareadilyavailablewatersupplytogenerateenoughsteamtoruntheelectricturbinesandkeepthemirrorsclean.TheUnitedStateshas431megawattsofCSPinoperation,accordingtoEnvironmentTexas,anenvironmentaladvocacygroup,butnoneinTexas.MostoperatingprojectsareinCalifornia,withotherinstalledcapacityinArizona,Nevada,andHawaii.

CPSEnergyinSanAntoniohasa20-yearagreementtopurchasepowerfroma27-megawattconcentratingsolardish-engineprojectinWestTexascalledWesternRanch.Itisexpectedtobeonlinein2011.

Photovoltaic solar systems

Photovoltaic(PV)systemsusepanelstoconvertsunlightdirectlyintoelectricity.PVsystemsaremadeofsemi-conductormaterialthatwhenhitwithsunlightfreeselectronsthatproduceanelectriccurrent.No

movingpartsarerequired,andwateruseislimitedtomaintainingacleansurfacearea.

PVsystemscanbeinstalledtoprovideelectricpowerdirectlytotheuserorforconnectiontotheelectricgrid.Thesystemsaremodularandcanbesizedtomeetelectricityneedsinconstrained,urbanareasoropen,ruralareas.Forexample,PVsystemscanbeusedforsmallresidentialrooftops,largeon-sitebusinessandgovernmentsystems,orpowerplant-sizedfacilities.

ThesmallestresidentialusewithPVsystemsisabout1kilowatt,oftenproducedbyrooftopsystemstooffsetanothersourceofelectricity.PVsystemusebyindividualpowerplant-sizedfacilitiesrangesfrom250to500megawatts.WhileTexascurrentlydoesnothaveanylargePVarraysoperating,municipalutilitiesinSanAntonioandAustinhavesignedcontractstopurchasepowerfromfacilitiesnowbeingbuilt,andaprivatefirmisdevelopingplansforaPVfacilitynearAustin.

Costs of solar power systems

BothCSPandPVsolarenergysystemscanproduceenergyatsignificantlylowercoststodaythaninthe1980s,butcostsremainhighcomparedtoconventionalenergysources.However,accordingtoarecentanalysisbyLazard,afinancialadvisoryandassetmanagementfirm,solarenergytechnologiesarebecomingincreasinglycost-competitivewithconventionalgenerationtechnologies,excludingcertainfactorssuchastransmission,back-upgeneration,construction,andfuelcosts.Forexample,producingenergyfromacoalplantcostsfrom7to15centsperkilowatthour,fromanuclearplantcostsfrom8to11centsperkilowatthour,andfromanintegratedgasificationcombinedcycleplantcostsfrom10to13centsperkilowatthour.ProducingenergyfromaCSPplantcostsfrom12to19centsperkilowatthourandfromaPVplantfrom9to19centsperkilowatthour,dependingonthePVtechnology.

Althoughthepriceofsolarpanelshasdeclineddramaticallyoverthelasttwodecades,theupfrontcostofarooftopsolarpowersystemcanbeabarrierifahomeownerplanstostayinahomeforonlyafewyears.Aportionoftheupfrontcostisretrofittingolderhomesbyupgradingtheelectricalsystem,reinforcingtheroof,andcreatingconnectionsbetweentheelectricalsystemandthepanelsinstalledontheroof.

House Research Organization Page 3

Current Texas solar energy policy

Inrecentyears,Texashasenactedlawstoencouragethedevelopmentanduseofrenewableenergysources,includingsolarenergy.TheLegislatureestablishedarenewableportfoliostandard(RPS)in1999andexpandeditin2005tosettargetsforuseofrenewableenergystatewide.

Renewable portfolio standard

Theelectricmarketrestructuringbillenactedbythe76thLegislaturein1999,SB7bySibley,hadagoalofpromotingretailcompetitionandconsumerchoiceinTexas.Toprovideachoiceofrenewableenergysourcesforconsumers,theLegislatureestablishedarenewableportfoliostandardunderUtilitiesCode,sec.39.904thatrequirescompaniessellingelectricitytoretailcustomerstosupportrenewableenergygeneration.TheRPSisamarket-drivenpolicyintendedtoensuretheavailabilityanduseofrenewableenergyaselectricitymarketsbecamemorecompetitive.RenewableenergytechnologiesthatqualifyfortheRPSarethosethatdonotrelyonenergyresourcesderivedfromfossilfuelsorwasteproductsfromfossilfuels.Thesesourcesincludesolar,wind,geothermal,hydroelectric,tidalenergy(wave),andbiomass,includinglandfillgas.

SB20byFraser,enactedduringthe79thLegislature’sfirstcalledsessionin2005,expandedtheRPSgoalstorequireanadditional5,000megawatts,incrementally,beyondthethen-required880megawattsofrenewablecapacity.Itsetatargetof10,000megawattsby2025.The2015goalof5,880megawattswassurpassedin2008byallrenewablesources,sevenyearsearly,withmorethan6,000megawattsjustfromwindpower.Inanefforttodiversifythestate’srenewableenergysources,whentherenewableportfoliostandardwasexpandedin2005statelawmakersrequiredthePublicUtilityCommission(PUC)tosetatargetofatleast500megawattsofcapacityfromarenewableenergytechnologyotherthanoneusingwindenergy.

Financial incentives

Texascurrentlyoffersvarioustaxdeductionsandexemptionstoencourageuseofrenewableenergysources,includingsolarenergy.

Incalculatingitsbusinessfranchisetax,acorporationorotherentitysubjecttothestatefranchisetaxmaydeductfromthetaxbasethecostofasolarenergydevice.Anentitymaydeduct10percentoftheamortizedcostofthesystem.

TexasalsooffersafranchisetaxexemptiontocompaniesinTexasengagedsolelyinthebusinessofmanufacturing,selling,orinstallingsolarenergydevices.Thisexemptionhasnoceiling,soitisasubstantialincentiveforsolarmanufacturers.

Texasvotersin1978adoptedaconstitutionalamendmentauthorizingtheLegislaturetoexemptsolarorwind-poweredenergydevicesfrompropertytaxes.TheTaxCodeallowsanexemptionfromtheappraisedvalueofthepropertyequaltotheamountthatarisesfromtheinstallationorconstructionofasolarenergydeviceprimarilyforon-siteuse.

In1975,theLegislatureexemptedsolarenergydevicesfromthesalesandusetax,buttheexemptionwasrepealedin1987.

Non-taxincentivesinTexasincludeaprogramofferedbytheTexasDepartmentofRuralAffairs,toprovidegrantstoqualifyingcitieswithfewerthan50,000residentsandcountieswithfewerthan200,000residentsforinstallingrenewableenergyprojects.Also,theLoanSTARProgram,arevolvingloanprogramthroughSECOundertheComptroller’sOffice,offerslow-interestloanstoallpublicentities,includingstate,publicschool,college,university,andnon-profithospitalfacilities,forenactingmeasurestoreduceenergycosts.On-siterenewableenergyoptions,suchassolarwaterheating,photovoltaicpanels,andsmallwindturbines,areencouragedintheanalysisofpotentialprojects.

Solar energy in other states

Texasranked13thamongthestatesforsolarenergyproductionin2009,with8.3megawattsofsolarelectricitycapacity.CaliforniawasthetopU.S.solar-energyproducingstatebyfarwith1,102megawattsofsolarelectricitycapacity.NewJerseywassecondwith128megawatts,followedbyNevadawith100megawattsandColoradowith59megawatts.One


megawattofsolarcapacityisenoughtopowerabout200homes,dependingonseveralfactors,includingsolartechnologyandtheaverageelectricityconsumptionofhouseholdsinthearea.

AccordingtotheSolarEnergyIndustriesAssociation,30statesandtheDistrictofColumbiahaverenewableportfoliostandards,and18ofthosehavecarvedoutaportionoftheirRPSspecificallyforeithersolaroralldistributedrenewablegeneration.Distributedrenewablegeneration(DRG)isenergycreatedfromarenewablesourceatorneartheplaceitisused,suchasresidentialsolarorwindsystems.Fivestatesprovideextrarenewableenergycreditsforsolarordistributedrenewablegeneration,whicharecreditsthatarepurchasedtosatisfytheRPSrequirements.MissouriandWashington,D.C.recentlyincreasedtheiroverallRPSstandards,whileIllinoisaddeda6percentsolarcarve-outandNevadaincreaseditscarve-outfrom5to

6percent.Atleastfourstatesnowincludesolarwaterheatingasaqualifyingenergysource.

California’s initiatives

Californialeadsthenation’ssolarenergyproduction.InJanuary2006,California’sPublicUtilitiesCommission(PUC)approvedtheCaliforniaSolarInitiative,whichthroughanumberofregulatorydecisionsauthorizedthestatetoinvest$3.3billioninconsumerrebatesforsmall-scalesolarelectricpowersystemsover11years.Itestablishedastatewidegoalofbuildingamillionsolarelectricroofs,theequivalentof3,000megawattsofsolarelectricpower.TheinvestmentwasfundedfromasurchargeonelectricandgascustomerswithintheutilitiesregulatedbythePUC.

InAugust2006,Gov.ArnoldSchwarzeneggersignedintolawSB1,morecommonlyknownastheMillion

Federal solar energy policy TheUnitedStatesrankedfourthintheworldin2009forsolarenergycapacityinstalled,with2,108megawatts.Germanywastheworldleaderwith9,677megawatts,Spainsecondwith3,595megawatts,andJapanthirdwith2,628megawatts,accordingtotheSolarEnergyIndustriesAssociation.

Thefederalgovernmentofferstaxcreditstomanufactureandinstallsolarequipment.In2005,theinvestmenttaxcreditforsolarprojectsincreasedfrom10percentto30percent.Thecreditreducesoveralltaxliabilityforindividualsorbusinessesthatinvestinsolarenergygenerationtechnology.In2008,Congressextendedthecreditto2016andtoresidentialandutilitysystemowners. Whentherecentrecessiontightenedcreditmarkets,thefederalgovernment,aspartoftheAmericanRecoveryandReinvestmentActof2009,offereda30percentupfrontgrantinsteadofthesolartaxcredit,allowingthecommercialtaxcredittobetakenasacashgrantforalimitedtime.Thegrantprogramissettoexpireattheendof2010.TheRecoveryActalsoliftedthe$2,000capontheresidentialinvestmenttaxcreditforsolarthermalinstallations,allowingafull30percentinvestmenttaxcreditonsolarwaterheatingandothersolarthermaltechnologiesforthehomeowner.

TheRecoveryActeliminatedfederaltaxesonsubsidizedenergyfinancingprovidedunderfederal,state,orlocalprogramsforprojectsdesignedtoconserveorproduceenergy.Italsoprovidedanewtaxcreditforrenewableenergymanufacturingfacilitiesandbillionsofdollarsmoreforsolarresearchanddeploymentfinancing.

TheU.S.DepartmentofEnergyispartneringwiththeWesternGovernors’Associationtoencouragecertainsolarinstallationsinstateswiththebestsolarpotential,includingArizona,California,Colorado,NewMexico,Nevada,Utah,andTexas.Thegoaloftheinitiativeistoinstall1,000megawattsofnewconcentratingsolarpowersystemsinthesouthwesternUnitedStates,includingTexas,by2010.


SolarRoofsBill.SB1expandsCalifornia’splantocustomersofmunicipal-ownedutilitiesoverwhichthePUCdoesnothavejurisdiction,allowsabout500,000newsolarenergysystemsintotheprogram,andrequiresdevelopersbuildingsubdivisionswithmorethan50newsingle-familyhomestooffertheoptionofasolarenergysystemtoallcustomersbeginningJanuary1,2011.ThegoaloftheplanistohaveonemillionsolarroofsinCaliforniaby2018.InFebruary,Californiaincreasedthenumberofcustomersforwhomnetmeteringwouldbeavailable.Netmeteringisusedatahomeorbusinessthathasitsownrenewableenergygenerator,suchasrooftopsolarpanels,tomeasurethedifferencebetweenenergyproducedandconsumedon-site.

InJanuary2007,aspartoftheCaliforniaSolarInitiative,theCaliforniaEnergyCommissionlaunchedapartnershipwithhomebuildersanddeveloperswiththegoalofcreatingaself-sustainingmarketforsolarhomesandgainingbuildercommitmenttoinstallingsolarenergysystemsasastandardfeaturefornewhomes.Theoverallgoalistoachieve400megawattsofnewsolar-producedelectricitybytheendof2016.

In2009,theCalifornialegislaturedirectedtheCaliforniaPUCtoapprovefeed-intariffs,whichrequireenergysupplycompaniestogiveprioritytoelectricitygeneratedusingrenewableenergysources,feeditintothegrid,andpayproducersafixedprice.Bycontrast,underaquotasystem,suchasarenewableportfoliostandard,theregulatoryauthorityspecifiesthatafixedproportionofelectricityonthemarketmustbeproducedbyrenewableenergysources.BothGermanyandOntario,Canadausefeed-intariffs,ratherthanaquotasystem,toregulatetheirrenewableenergyindustry.

Supportersoffeed-intariffssaytheyofferequalopportunitytoallwillingparticipantsinthemarketandfreedomforthemtoproduceandselltheirownenergy,stimulatingrapidgrowth.Theysayaquotasystemfailstoprovidelong-termcertaintybecauseonceagoalisreached,powerproducershavenoincentivetocontinuesupportingrenewablesources.Theysayquotasystemsfavorlarge,verticallyintegratedgeneratorsandaremoredifficulttodesignandimplementthanfeed-intariffs.

New Jersey’s initiatives

NewJerseycommittedtopromotingsolarinitiativeswhenitsCleanEnergyProgramwasenactedin2001.

Sincethen,NewJerseyhasbecomeoneofthenation’slargestPVmarkets,secondonlytoCalifornia,whichhasfourtimesthepopulationandenergyuse,accordingtotheIC2InstituteattheUniversityofTexas.In2006,theNewJerseyBoardofPublicUtilitiesissuedregulationsrequiringthestatetoproduce22.5percentofitsenergyfromrenewablesourcesby2021,including2.12percentfromsolarresources.Thissolarelectricpercentagewouldresultinabout1,500megawattsofsolar-electricpower.

RobustdevelopmentofthesolarenergymarketinNewJerseyhasbeenattributedtocertainmajorfactors.Asolarelectricrequirementinthestate’sRPShashelpedtocreatedemandforsolarenergyandcontributedtoinvestorconfidenceinthemarket.Reliableinterconnectionofsolarelectricityontothegridandnetmetering,whichmeasuresthedifferencebetweenenergyproducedandconsumedon-site,makeiteasierforsystemstoconnecttothedistributionsystemandbecompensatedfortheircontribution.Inaddition,arebateprogramhashelpedfinancemorethan50percentofthecostofinstallation,andasolarrenewableenergycreditfinancingmodelprovidesenergycreditsandadditionallong-termfinancingforthosewhoinvestinsolar.

Highdemandforsolarrebateshasforcedtheprogramtobeshutdownseveraltimesovertheyearswhenapplicationsoutpacedrebatemoney.ThisspurredNewJerseyregulatorstoconsiderweaningsolarenergyoffofstatesubsidiesbyreplacingrebateswithrenewableenergycreditsthatcouldbeboughtandsoldontheopenmarket.

Texas solar policy options

Duringthe2009regularsessionofthe81stLegislature,morethan60billsrelatingtosolarenergywerefiled,manyseekingtocreatemarketincentivesfordevelopmentofsolarenergyinTexas.Manyofthesemayberevisitedin2011.

Theproposedbills,mostofwhichwerenotenacted,wouldhaveincreasedgoalsforsolarenergyinstallationandprovidedfinancialincentives,includingtaxbreaks,tohelpmaketheindustrymorecost-competitivewithotherenergysources.Aproposed“homeowner’sbillofrights”wouldhaveaddressedbuybackratesforenergy


producedwithsolarresourcesaswellascontractandinterconnectionstandards.Itwouldhaveestablishedmorestringentconsumerprotectionsforownersofsolarenergysystemsandremovedrestrictionsbyhomeownersassociationsoninstallingresidentialsolarenergysystems.Onebillthatwasenacted,HB1937byVillarreal,allowshomeownersandbusinessestofinanceon-siterenewableenergysystemsorenergy-efficientimprovementsthroughmunicipalloanswithamulti-yearassessmentontheirproperty.

PACE financing

Property-assessedcleanenergy(PACE)financingallowshomeownersandbusinessownerstofinanceon-siterenewableenergysystems,suchasrooftopsolarpanels,andenergyefficiencyprojectsbywayofaspecialmulti-yearassessmentontheirproperty.HB1937byVillarreal,nowLocalGovernmentCode,ch.376,enactedin2009,allowsmunicipalitiestoofferPACEfinancinginTexas,althoughimplementationofthisformoffinancinghasbeenhinderedbylegalquestions.

UnderaPACEprogram,acityor,insomecases,acountywillmakefundingavailablefortheupfrontcostsofon-siterenewableenergyandenergyefficiencyprojectsandwillrecoupthecoststhroughamulti-yearassessmentaspartofthepropertytaxbilloftheimprovedproperty.

Propertyownersmayborrowmoneyfortheimprovementsandrepaythemoneythroughavoluntaryspecialassessmentsecuredbyalienagainsttheproperty.AnyassessmentimposedunderPACEfinancingisconsideredalienagainstthepropertyuntiltheassessmentandanyrelatedinterestorpenaltyispaid,evenifthepropertyissoldtoanotherparty.FundingforPACEprogramsoftenismadeavailablethroughmunicipalorothergovernment-backedbonds.

ThecityofBerkeley,Calif.,wasthefirsttoadoptthisfinancingmechanismin2008.Sincethen,21states,includingTexas,haveenactedPACE-enablinglegislation.

SanAntonioandAustin,eachofwhichreceived$10millionincompetitiveenergyefficiencyblockgrantfundingfromtheU.S.DepartmentofEnergy,have

beenthefirsttosetupmunicipalprograms.ElPasoandHoustonareactivelypursuingPACEfinancingaswell,butwerenotrecipientsoffederalblockgrantfunding.

Supporters ofPACEfinancingsayitallowshomeownerstofinanceacleanenergycapitalexpenditure,suchasrooftopsolarpanels,whichcanrangefrom$5,000to$25,000perproject,withoutrelyingontraditionalconsumerfinancingmethodsorpersonalcredit.Highupfrontcostsandthefactthatpeoplemayselltheirhomesbeforethepaybackperiodoftheimprovementsisreachedarebarriersforretrofittingahome.UnderPACE,homeownerspayonlyfortheyearstheyareinthehome,thentransferpaymenttothenextowner.Forexample,ifasolarprojecthasa12-yearpaybackperiodand20-yearusefullife,ahomeownerwhoisgoingtohavetopay$20,000upfrontandplanstoliveinthehomeforonly5-7yearsmightnotwanttodoit.PACEwouldallowhomeownerstopayonlyapro-ratedshareofthecostsfortheperiodtheyownthehouse.

Legal questions.CertainlegalquestionshavehinderedimplementationofPACEfinancinginTexas.

SomehaveexpressedconcernsabouttheconstitutionalityofPACEfunding.TheTexasConstitution,inArt.3,secs.50,51,and55,andinArt.16,sec.6,prohibitsgovernmentalentitiesfromdonatingorlendingpublicfundstoanyprivatepersonandfromlendingcreditinsupportofthedebtsofprivatepersons.However,caselawholdsthatanincidentalprivatebenefitfromtheuseofpublicfundsisnotunlawfulaslongasuseofthefundshasapredominantpublicpurpose,thecityretainssufficientcontroloverthetransactiontoensurethatthepublicpurposeisaccomplishedandtoprotectthepublic’sinvestment,andthepublicreceivesareturnbenefit.

IfpublicfundswereusedinaPACEprogram,projectsfinancedwouldneedtohaveavalidpublicpurpose.Economicdevelopment,emissionreduction,andenergyconservationhavebeenfoundtobevalidpublicpurposesinotherstateswherePACEprogramshavebeenimplemented.SimilarfindingsinTexaslawonwhatconstitutesapublicpurposehaveneverbeenapplieddirectlytoaPACEprogram.ThisincludesArt.3,sec.52-a,oftheTexasConstitution,whichstatesthateconomicdevelopmentisavalidpublicpurpose.Some


TexasmunicipalitieshavehesitatedtomoveforwardwithoutguidancefromtheAttorneyGeneral’sOffice.AsofJuly,noonehasrequestedanattorneygeneral’sopiniononthisissue.

ThepriorityandenforceabilityofthestatutoryliencreatedbyPACEfinancingalsohasbeenasubjectofconcern.UnderHB1937,theassessmentwouldbesecuredthroughalienontheproperty,butthebilldoesnotexplicitlyprovidethatthecity’slienonthepropertybeaprioritylien.SomeexpressconcernthatbondbuyersthatwouldfinancePACEprogramswouldshowlittleinterestinsubordinatedPACEliens,makingitlesslikelythataPACEbondmarketwoulddevelop.Anotherconcernisthatinterestrateswouldbeprohibitivelyhighonbondsforsubordinatedliens.SomebelievetheseniorityofthePACEloanlientothatofafirstmortgagelenderwouldbecrucialtostructuringfinancingacceptabletoboththeratingagenciesandtoinvestors.

TheU.S.DepartmentofEnergyisdevoting$150millioninstimulusmoneytohelpcommunitiescoverset-upandadministrativecostsforPACEprograms.However,FannieMaeandFreddieMac,thegovernmententitiesthatguaranteemorethanhalfoftheresidentialmortgagesintheUnitedStates,saidinletterstomortgagelendersonMay5thattheenergy-efficiencylienscouldnottakepriorityoveramortgage.Thismayresultinmortgagelenders,whodependonFannieMaeandFreddieMactobuytheirhomeloans,demandingthattheentirePACElienbepaidoffbeforeissuinganewloan.AslowdownininterestinPACEprogramsacrossthecountryisanticipatedduetotheuncertainty.SeveralPACEprogramadministratorshavesuspendedapplicationspendingaresolution.

Third-party ownership of PV systems

Anotherfinancingalternativeforon-siterenewableenergysystems,suchasrooftopsolarpanels,wouldbeallowingathirdpartytoownthesystems.Forexample,inNorthTexas,SolarCity,abusinessentity,hasteamedwithTXUtoleasepanelstohomeowners.SolarCitybuilds,owns,operates,andmaintainsthesystem,andthehomeownersignsa15-yearleaseforit,eliminatingtheupfrontcosts.

ThedealisexclusivelybetweenSolarCityandthehomeowner.Thisoptioncurrentlyisavailableonlyfor

ratepayersintheOncorservicearea,andonlyTXUandGreenMountainwillbuybackexcesssolar-generatedpower.Oncorisprovidingsolarrebatesforparticipants,withtherebatespaiddirectlytoSolarCitytokeeptheleasepaymentlower.Morethan300peoplehavesignedcontractswithSolarCity,andthelargeamountofinterestintheprogramhasmadeitdifficultforOncortokeepupwithdemand.

Mandatory non-wind RPS and solar carve-out

SB541byWatson,whichpassedtheSenateduringthe2009regularsession,butdiedontheMajorStateCalendarintheHousewhennofurtheractionwastaken,wouldhaveamendedtheexistingrenewableportfoliostandard(RPS)byestablishingnewrenewableenergygoalstobemetwithtwotiers.Tier1renewableenergywouldhaveincludedsolar,wind,geothermal,hydroelectric,tidalenergy(wave),andbiomass,includinglandfillgas.Tier2wouldhaveincludedtier1renewableenergytechnology,excludingenergyderivedfromwindwithacapacityofmorethan150kilowatts.SB541alsowouldhavereplacedthetargetof500megawattsofnon-windrenewablecapacitywithagoalof1,500megawattsoftier2renewableenergy,tobeinstalledbyJanuary1,2020.

ThePublicUtilityCommission(PUC)currentlyisworkingonaproposalforthe500-megawatt“non-wind”RPSinTexas.ThePUCissuedaproposedruleonApril16that,ifadopted,wouldprovideatieredapproach,includingasolar-specifictier,withinthe500-megawattnon-windrequirement.

Theproposalalsowouldmakethe500-megawattnon-windgoalmandatory,seekingtoclarifysec.39.904(a)oftheUtilitiesCode,whichstatesthatthePUC“shallestablishatarget ofatleast500megawattsofcapacityfromarenewableenergytechnologyotherthanasourceusingwindenergy.”Somehaveinterpreted“target”asnotbeingmandatorybecauseotherlanguageinthesameprovisionestablishesspecificbenchmarksanddirectivesforwhenrenewablecapacitymustbeinstalledandformeetingcertainthresholdsbyspecifieddates.AfinaldecisiononthePUCruleisexpectedbytheendoftheyear.ThePUCalsoisconsideringtheroleofdistributedrenewablegenerationaspartoftwoseparaterulemakingsonthe500-megawattnon-windRPSgoalandenergyefficiencyimplementation.


Supporters of a mandatory non-wind RPSsayatieredbutflexibleapproachwouldencouragedevelopmentofavarietyofrenewabletechnologiesneededforabalancedenergyprogram.Theysaythistieredframework,whichwouldallowenergyproviderstomeetgoalsbyprocuringrenewableenergycreditsorsubmittingalternativecompliancepayments,isdesignedtoensurethattheRPSresultsinadiverseportfolioofresources.Itsetsagoalforbusinessesandallowsthemtofigureoutthemostcost-effectivewaytogetthere,creatingamarketandallowingthemarkettosetthepricethroughsupplyanddemand.

WhileTexashasinstalledmorerenewableenergythananyotherstatethankstolarge-scalewinddevelopmentinWestTexas,thestatehasfallenbehindindevelopingotheremergingrenewableenergytechnologies,suchassolar,geothermal,andbiomasspower.Asecond-tierRPSwouldhelpjumpstarttheseindustriesinTexasanddiversifythestate’senergysources,continuingTexas’leadershipinclean,renewableenergywithamarket-basedapproach.ThiswouldencouragerenewableenergyequipmentmanufacturingplantstolocateinTexasandprovidepriceprotectionsforbusinessesandconsumerswithagradual,stagedincreaseofmegawatttargets.Italsowouldbeanimportantsteptowardpreparingforthepossibilityoffederalcarbonregulation.Thisapproachwouldoffsetmorethan7milliontonsofCO2by2020andhaveasignificantimpactonNOxandparticulatematteremissions,accordingtoEnvironmentTexas.

Anon-windRPSshouldcontainasolarcarve-outlargeenoughtocreatearobustsolarmarketinTexas,solarsupporterssay.AcommitmenttosolarenergywouldprovidesignificantpaybackforTexaswithjobcreation,economicbenefits,theabilitytomeetenergydemand,reducedpollution,andultimately,lowerenergycosts.ItalsowouldmaximizetheinvestmentsmadeintheCompetitiveRenewableEnergyZone(CREZ)transmissionlines,whicharetransmissionlinesinareasofthestatethathavebeendesignatedbythePUCtobemostsuitableforgeneratingcapacityfromrenewableenergytechnologies.

Opponents of a mandatory non-wind RPSsayelectricitygenerationshouldbebasedonthemarket,asrenewableenergyismoreexpensiveandnotascost-effectiveawaytoproduceenergy.

Electricityconsumerscananticipatepayingmillionsmoreperyearonelectricityunderamandatorynon-windRPS.Retailelectricprovidersthatdidnotmeetthestandardsundertheregulatorymandatemayhavetobuycreditsinatradingprogramormakealternativecompliancepaymentstomeettheirobligations.Thisessentiallywouldbeacap-and-tradesystem,forwhichthecostsultimatelywouldbepassedontoconsumers.Alongwiththeaddedadministrativeburdensimposedonretailentities,requiringutilitiestousemoreexpensiveenergysourceswouldincreaseelectricrates.Subsidizingthesecostlyrenewableresourcesinthecompetitiveretailmarketandpassingthecostsontoconsumerswouldbeinefficient,uneconomical,andburdensome.

Solarplantsandotherrenewablesourcescannotproducethesameamountofenergyasmoretraditionalgeneratingplants.Manyoftherenewableenergygeneratingfacilities,suchasthoseforsolarenergy,requireatraditionalback-upenergysource.Thisduplicatesgenerationandfurtherincreasescosts.

Other opponentssaythatrequiringelectricproviderstouseaminimumamountofsolarenergymayhavetheunintendedconsequenceofdiscouragingdevelopmentofothertypesofresources.Anyamendmenttotherenewableportfoliostandardshouldbetechnology-neutralsothattherenewabletechnologiesmostpreparedtomeetthegoalswithintheshortesttimeframeandwiththegreatesteconomicdevelopmentimpactareallowedtocompete.Ifaparticulartechnologyorresourcedominatesinthesamewayaswind,thenoncethe500-megawattgoalhasbeenachieved,theLegislaturecandetermineifmorediversityisrequired.Ifacarve-outisnecessary,itwouldbebettertohaveoneforalldistributedrenewablegenerationsourcesthatcouldincludesolar,wind,andgeothermal.

Governmentmandatesforusingnon-windrenewableresources,includingsolarenergy,shouldnotbetooaggressive.Thiscouldleadtoscarcityoftheseresources,drivingupthepriceandencouragingretailentitiestochoosetomakealternativecompliancepaymentsinsteadofusingmorecostlyrenewables.Thesemandatedalternativecompliancepaymentswouldbecome,ineffect,ahiddentax,opponentssay.


Solar-ready homes

TheLegislaturealsomayconsiderestablishinggoalsandcreatingincentivesformakingnewbuildings“solarready”byintegratingsolarenergysystemsintobuildingsatthetimeofconstructionorpreparingbuildingstomakesolarimprovementseasytoinstall.

SB545byFraser,whichpassedtheSenateduringthe2009regularsessionbutdiedontheMajorStateCalendarintheHouse,wouldhaverequiredabuilderofnewhomesinasubdivisionthatcontainedmorethan50lotstoofferthehomebuyeratleastoneplanunderwhichthehomebuyercouldpurchaseanoptiontoinstallasolarenergydeviceonthehomeforheatingorcoolingorfortheproductionofpower.

Supportersofcreating“solar-ready”homessaythatensuringthatnewhousesarebuiltwithproperwiring,south-facingroofsthattakeadvantageofsunlight,andlandscapingthatavoidsshadeonroofscouldsignificantlyreducethecostofinstallingsolarpowersystems.Creating“solar-ready”homesandbusinesses,alongwithusingotherrenewablesandimplementingenergyefficiencymeasures,couldcontributetoanincreaseinnet-zeroenergyperformance,whichisthecapacitytoproduceenoughenergyon-sitewithrenewableenergysourcestoequaltheamountofenergyused.HavingallnewhomesinTexasbuiltfornet-zeroperformancecouldreducetheneedfornewlargepowerplants,reduceannualglobalwarmingpollution,andreducehomeowners’energybills.

Tax exemptions and incentives

Exemptingsolarenergysystemsandinstallationsfromcertainstateandlocaltaxes,providingafranchisetaxcreditforinvestmentsinsolarenergy,andcreatingasolargenerationincentiveprogramhavebeenconsideredinotherstatestoencourageexpansionofsolarenergygeneration.The81stTexasLegislaturein2009considered,butdidnotenact,severalbillsthatwouldhaveprovidedfinancialincentivestothesolarindustryinanefforttojumpstartthesolarmarket.

SB619byShapleighandHB2226byParkerwouldhaveexemptedcertainsolarenergydevicesfromthestatesalestax.HB1328byMcClendonandSB832byWentworthwouldhavemadetheexistingadvaloremtaxexemptionforsolar-orwind-poweredenergydevicesautomaticafteraone-timefiling,similartoahomesteadexemption.HB4639byLuciowouldhaveofferedafranchisetaxcreditforinvestmentsinsolarenergyinadditiontothecurrentlyavailabledeductionfromthetaxbase.

SB545byFraser,whichpassedtheSenatebutdiedontheMajorStateCalendarintheHousewhen

nofurtheractionwastaken,wouldhaverequiredthePUCtoestablishasolarincentiveprogramtobeimplementedbyelectricutilitiesforresidentialandcommercialcustomers.ThePUCalsowouldhavehadtoestablishprocedurestoachievethegoalofinstallingatleast3,000megawattsofsolargeneration

capacityinTexasby2020,atleast1,000megawattsofwhichwouldhavebeendistributedrenewablegeneration,whichisenergycreatedatorneartheplaceitisused.ThePUCwouldhavehadtosetrebateamounts,paidforbyasurchargeonelectricitybills,forinstallingsolargenerationandperiodicallyadjusttherebateamounttomaximizethesolargenerationinstalled.Therebateamountswouldhavebeenreducedbyatleast5percenteachyear.SolargenerationmanufacturedinTexaswouldhavehaduptoa20percenthigherrebateamountthanothersolargeneration.TheprovisionsofSB545wereaddedasaSenateamendmenttoHB1243byGallego,butHB1243diedintheHousewhentheend-of-sessiondeadlinepassedforconsiderationofSenateamendments.

Supporters of providing financial incentives forsolarenergysystemsandinstallationssaythehealthofTexas’solarenergyindustrydependsonhavingasizabledemandforthesolarindustry’sproductsandservicesandonthecostsassociatedwithmeetingthatdemand.Meagerstateincentivesdolittle toovercomeexistingmarketbarriers,suchascost,foralltypesofsolarenergydevelopment.

The Legislature also may consider establishing goals and creating incentives for making new buildings “solar ready.”


Astatewidesolarprogramsimilartothosethatjump-startedtheCaliforniaandNewJerseymarketswouldmakeTexasoneofthepremiersolarstates.Experiencesinotherstatesandcountries,especiallyGermany,haveshownthatgovernmentincentivescanleadtoincreaseddemandandlowerprices,thefirststepstoarobust,self-sufficientsolarmarket.Manystateprogramsreduceincentivesasmorecapacityisbroughtonline,basedontheideathatastheindustrymatures,thepriceofmaterials,constructionandfinancingshouldcomedown.

Supportersoffinancialincentivesforsolarenergysystemssaygovernmentincentivesforprivateindustriesarenothingnew.Forexample,in1917,thefederalgovernmentofferedataxcredittoayoungoilindustrytoencourageexplorationanddrilling,openingupanindustrythattransformedtheeconomyandcreatingthousandsofnewcompaniesandmanymorejobs.Today’ssolarpowerproponentshopethesolarenergyindustrywillseethesameresultsfromgenerousfederalandstateincentivesandfromcreativebusinessmodels

likepowerpurchaseagreements,whicharecontractsbetweenanelectricitygeneratorandapowerpurchaser,suchasautility,tobuyelectricity.Underapowerpurchaseagreement,thegeneratorwouldsecurefundingforaproject,maintainandmonitorenergyproduction,andselltheelectricityatasetpriceforthetermofthecontract.

Opponents of providing financial incentivesforsolarenergysystemsandinstallationsbyexemptingthemfromcertaintaxessaythatwhileitmayjump-startthesolarindustry,itisquestionablepublicpolicyforthegovernmenttomakedecisionsthatwouldaffectamarketinthatmanner,essentiallypickingwinnersandlosers.

Requiringelectricitycustomerstopayforsuchaprogramthroughasurchargeonelectricitybills,anamountthatcouldhavebeenasmuchas$100millionayearforfiveyearsunderSB545,wouldaddcostsforconsumers.Whileeveryonewouldhavetopaythesurcharge,onlythosecustomersthatparticipatedintheprogramwouldreceiveanybenefit.

SeveralbusinessesidentifiedbyEnvironmentTexas,anenvironmentaladvocacygroup,spanthesolarsupplychainandcanbefoundinseveralpartsofthestate.Forexample,TesseraSolar,headquarteredinHouston,develops,ownsandoperateslarge-scalesolarplants,includingtheWesternRanchSolarProjectinWestTexas,nowunderdevelopment.HelioVoltCorporation,foundedinAustinin2001,manufacturesadvancedthin-filmsolarcellsthatcanbeusedforroofingtilesandglazing.MeridianSolarisasolarelectricdesignandinstallationcompanywithofficesinAustin,Dallas-FortWorthandSanAntonio.EntechSolar,headquarteredinFortWorth,designsandmanufacturesproprietarysolarmodulesandhasworkedwithfederalagenciestobuildsolarpowersystemsforterrestrialandspaceapplications.

OtherbusinessesinTexaswhoseactivitiesarenotlimitedtothesolarindustrycontributekeycomponents.Forexample,PPGIndustries,aglassmanufacturerwithafacilityinWichitaFalls,producesglassforsolarmodules.USAWireandCableisanAustin-basedwireandcabledistributorservingthesolarindustry.BarrFabricationinBrownwood,whichmanufacturerscomponentsforthewind,solar,andotherenergyindustries,providedsteelsupportstructuresforNevadaSolarOne,oneofthelargestconcentratingsolarplantsintheworld.ExelTech,basedinFortWorth,engineersandmanufacturesinvertersusedinthesolarindustrytoconvertelectricityproducedbysolarpowerintoelectricitythatcanbeusedinastandardwalloutlet.AppliedMaterials,whichisheadquarteredinSantaClara,Calif.buthasanAustinlocation,providesequipment,service,andsoftwareproductsforthefabricationofsemiconductorchips,flatpaneldisplays,solarphotovoltaiccells,flexibleelectronicsandenergyefficientglass.MonsantoElectronicMaterialsCompany(MEMC)hasafacilityinPasadenathatisoneoftheworld’slargestproducersofpolysilicon,usedtocreatephotovoltaiccells.

Texas businesses contributing to solar industry


Buyback rates

Texas’currentpoliciesonnetmeteringtechnologyprovidenoguaranteethatcustomerswhowanttoinstallsolarpanelsandgeneratesurpluselectricitywillbepaidafairpricebytheirelectricproviderfortheelectricitytheysupplybacktotheelectricgrid. Someproposalsthatmaybeseenduringthe82ndLegislatureincludeestablishingbuybackratesforenergyproducedbysolarresources,improvingstandardsforcontractsforconnectiontotheelectricgrid,andconsumerprotectionsforownersofsolarenergysystems.Proposalsmayincluderequiringallutilitiestooffernetmeteringandusemeteringprogramsthatprovidetime-of-usebillingandbuyback,bothofwhichcompensateownersofPVsystemsforproducinglower-costsolarpowerduringperiodsofhighestdemand.

Duringthe2009regularsession,HB1243byGallegowouldhaverequiredelectricutilities,electriccooperatives,orretailelectricproviderstocontractwithownersofdistributedrenewablegeneration(DRG)sothatsurpluselectricitytheownersgeneratedwasavailableforsaletothetransmissionanddistributionsystematfairmarketvalue.DRGisenergyfromsmall,renewableenergysourceslocatedwheretheenergyisused,ratherthanenergyoriginatingfromlarge,centralizedfacilities.HB1243passedbothhouses,butdiedintheHousewhenapointoforderwassustainedthatthedeadlineforconsideringSenateamendmentstothebillhadexpired.

HB1866bySolomonswouldhaveamendedthecustomerprotectionchapteroftheUtilitiesCodetoprovideallbuyersofretailelectricservicetheopportunitytoconnectDRGtotheelectricgrid.ThePUCwouldhavebeenrequiredtoestablishsafety,technical,andperformancestandardsforDRGthatcouldbeconnected.HB1866passedtheHouse,butdiedintheSenateBusinessandCommerceCommittee.

BothbillswouldhaveestablishedthatDRGsarenottobedefinedaselectricutilities,whichhavecertainregistrationrequirements. Supporters ofrequiringacertainbuybackrateforDRGsayitwouldencouragetheproductionofclean,renewableenergy.DRGreducestheneedfornew

conventionalgeneration,transmission,anddistributionsystemsthataredamagingtotheenvironment.DespiteagreatdealofinterestinDRG,barriersinhibititsgrowth.Forexample,aDRGownercurrentlyissubjecttothesameregistrationrequirementsasabiggenerationcompany.Also,notallelectricprovidersareallowingconnectiontotheelectricgridorofferingtobuysurpluselectricity.

Requiringelectricproviderstobuybacksurpluselectricityultimatelycouldbeanetbenefittothembyreducingtheirownpeakdemand.ThiswouldoffsetanyinitialburdenthatmaybeplacedonthembyrequiringthemtoputsystemsinplacetobuybacksurpluselectricityproducedfromDRG,supporterssay.

OpponentsofrequiringacertainbuybackratesaysucharequirementwouldburdenelectricprovidersbyrequiringthemtoputtechnicalandadministrativesystemsinplaceinordertobuybacksurpluselectricityproducedfromDRG.WhileconnectingDRGproducedbyelectriccustomerstothegridshouldbeencouraged,anylegislationshouldspecifythestandardsforinterconnectioninordertoensurethegrid’stechnicalintegrity,theysay.

HOA restrictions on solar panels SomehomeownerswhowishtoinstallPVpanelsarefacingresistancefromhomeownersassociations(HOAs).HOAshaveexpressedconcernsabouttheaestheticsofthepanelsandabouthealthandsafetyrisksifthepanelsareimproperlyinstalled.

Severalbillsconsideredduringthe2009regularsession,includingSB545byFraser,SB236byWest,andHB25byLeibowitz,wouldhaveprohibitedapropertyowners’associationfromrestrictingapropertyownerfrominstallingasolarenergydevice,exceptincertaininstances.Theseprovisionswouldhaveappliedtoadeedrestrictionadoptedon,before,oraftertheeffectivedateofthebill.

Municipal and utility initiatives

Regardlessofhowstatelawmakerschoosetoproceed,someutilitiesandmunicipalitiesareofferingrebateprogramstotheircustomerstopromotetheuseofsolarenergy.Rebateamountsrangefrom$2.25to$4


HOUSE RESEARCH ORGANIZATION

Steering Committee:

David Farabee, Chairman Bill Callegari, Vice Chairman Drew Darby Harold Dutton Dan Gattis Yvonne Gonzalez Toureilles Carl Isett Susan King Jim McReynolds Jose Menendez Geanie Morrison Elliott Naishtat Rob Orr Joe Pickett Todd Smith

John H. Reagan BuildingRoom 420P.O. Box 2910Austin, Texas 78768-2910

(512) 463-0752

www.hro.house.state.tx.us

Staff:Tom Whatley, Director; Laura Hendrickson, Editor; Rita Barr, Office Manager/Analyst; Catherine Dilger, Kellie Dworaczyk, Tom Howe, Andrei Lubomudrov, Carisa Magee, Blaire Parker, Research Analysts

awattforaPVsystemandfrom$1,000to$3,000forsolarwaterheaters.AmongthosetakingthisapproachareAustinEnergy,CPSEnergyofSanAntonio,Oncor,Entergy,andotherutilitiesandmunicipalities.

Rebatesfromindividualelectricprovidersandfederalstimulusfundinghaveincreasedinstallationofsmall-scalerooftopsolarpanelsonhomes,businesses,andschoolsinthelasttwoyears.Noutility-scalesolarenergysystemsarecurrentlyoperationalinTexas,althoughthefirstisexpectedtocomeonlineattheendofthisyear.

AustinEnergyhassignedacontractforapowerpurchaseagreement(PPA)for30megawattsofPVsolargenerationfromaplantbeingbuiltinWebberville,about15mileseastofAustin.TheWebbervillePlantwillbebuiltandownedbyaseparatecompany,andAustinEnergywillenterintoaPPAwithafixedpricefor25years.TheWebbervilleplantisexpectedtocomeonlineattheendof2011.

CPSEnergyofSanAntoniosignedcontractsfortwoPPAsin2009foratotalof41megawattsofsolargeneration.WesternRanch,a27-megawattCSPsystemtobelocatedjusteastofMarfa,isexpectedtogoonlineinMarch2011witha20-yearcontract.BlueWing,a

14-megawattPVsolarenergysystemlocatedsoutheastofSanAntonio,willbeginoperatinginDecember2010witha30-yearcontract.

TheWesternRanchprojectrecentlyhasfacedoppositionfromsomeresidentsofMarfaandthesurroundingareaduetoaconcernthatthenoiseandlightpollutionfromtheprojectcouldmarthetranquilityandlandscapethatmaketheareasoappealing.

RREAustinSolar,astart-upsolarcompanywithcorporatebackingfromIndia,recentlywontaxbreaksfromthecityofPflugervilletobuilda$230million,60-megawattsolarPVplantonabout600acresnearPflugerville,northeastofAustin.ThisplantwouldbethelargestPVplantintheUnitedStates.

Underthetaxbreakagreement,RREAustinSolarwillinstallforPflugervilleandthePflugervilleschooldistrictupto$750,000insolarpanelsandsmallwindturbinesandprovideeducationaltrainingtotheschooldistrict.Asimilaragreement,alsolikelytolimittaxes,hasbeennegotiatedbutnotfinalizedwiththeElginschooldistrict.ThecompanyalsoisseekingpropertytaxbreaksfromTravisCounty.IfTravisCountyagrees,thecompanywillconsiderheadquarteringinAustin.

— by Blaire D. Parker