A Review Of Emerging State Finance Tools To Advance Solar Generation
Introduction
The U.S. is rapidly becoming one of the world’s leading markets for
solar photovoltaic (PV)projects. Installed costs of PV systems are
falling, and the extension of the 30% federal Investment Tax Credit
is helping to improve project economics, attracting homeowners,
commercial building owners, governments, and institutional
investors. This solar success story has occurred, in large part,
because states throughout the U.S. have established policies,
programs, and incentives to support solar deployment. Despite this
success, solar markets in the U.S. are still small relative to their
potential. In particular, small- to medium-scale solar PV projects
(<10 megawatts (MW)) are not well served by existing state renewable
energy programs and policies, which tend to support lower-cost,
larger-scale renewable energy technologies and projects.
Today, states are supporting solar electricity for a number of
reasons: solar PV is an emissionfree distributed generation (DG)
resource that cost-effectively reduces peak demand, can be scaled
down to the individual homeowner or scaled up to multi-megawatt
projects, lends itself to quick project development timelines, and
is a locally available resource in states that may have limited
alternative in-state renewable energy resources.
Rebates and upfront incentives have historically been the primary
form of state support for solar technology installations. Today,
more than 25 states offer rebates for solar projects, either through
state- or utility-run programs. These rebate programs have had a
significant effect on the growth of residential and commercial solar
PV. However, because of increased demand for these rebates, many
states have simply run out of available funding. Insufficient
funding and program cutbacks have caused market disruptions and
boom-and-bust cycles.
To address this funding challenge and ensure the sustainable growth
of the solar industry, states are increasingly turning to
alternative financing approaches in association with their Renewable
Portfolio Standard (RPS) programs. This guide explores several of
the most promising financing mechanisms that can be integrated into
RPS programs: solar-specific provisions, feed-in tariffs and
market-based auctions. These mechanisms, if designed smartly, can
allow states to build sustainable solar markets with programs that
are economically efficient, reward solar system performance, drive
cost reductions, allow for program continuity, advance market
transformation, and avoid rebate dependency.