Why 2016 Will Be Solar's Year Again

This year may not be as huge for solar as it looked before Congress extended the solar investment tax credit—some projects can now relax into 2017 without losing their subsidy—but 2016 will still be bigger for sunshine than any year the United States has ever seen.
And two mechanisms will roll out to support solar and wind—inexpensive utility-scale battery storage and the first plans for new carbon markets spawned by the Clean Power Plan and Paris Agreement.
Analysts at GTM Research expect 2 gigawatts of solar installation to slip from 2016 to 2017, but that still leaves 9-11 GW already queued up for installation in 2016, up from 6 GW in 2014 and perhaps 7.5 in 2015.
Installations will continue to be driven by the falling price of solar electricity, which GTM predicts will routinely drop below 4¢ per kilowatt hour at the utility scale over the next two years—cheaper than gas or coal.
"In short, the ITC extension is a game-changer and accelerates the timeline for the next stage of solar. We'll hit nearly 100 gigawatts of cumulative solar by the end of the decade — after starting the decade with less than 2 gigawatts," said MJ Shiao, GTM's director of Solar Research, in a roundtable discussion following the tax-credit extension.
"With that ramp up, solar isn't just a promising technology. It's a real, deployable tool and platform for a next-generation electricity grid. The regulations and innovations that come together in the second half of this decade will set the stage for what the future of electricity in the U.S. looks like."
The first of those innovations will be battery storage:
Battery Storage
Once battery storage is cheap enough and widely deployable—two milestones it will pass in 2016—it slips an armored boot over the achilles heel of renewables, their intermittency, allowing them to compete against the traditional sources of baseload power, coal and nuclear.
The first Tesla Powerpack utility-scale batteries were installed at the end of 2015, and in 2016 Tesla CEO Elon Musk expects to sell $400-500 million worth of the Powerpacks, at $250 per kilowatt hour of capacity. In 2017, he predicted, Tesla will sell five to ten times that many.
Residential batteries—like the Tesla Powerwall—will also proliferate in 2016, but because their price is further from grid parity, they're not expected to have the same liberating effect across the market as utility-scale batteries, which offer utilities the prospect of savings that more than offset their capital costs.
As the race gets underway, plenty of competitors are elbowing Tesla at the starting line, in both the residential and utility markets, though few have approached the Powerpack's groundbreaking low price.
AES Energy Storage, the nation's leading developer of utility-scale storage projects, sometimes uses batteries made by Tesla, sometimes batteries by the South Korean manufacturer LG Chem. LG Chem supplied the batteries for Southern California Edison's massive Tehachapi Energy Storage Project.
The German company Sonnen plans to compete in both the utility and residential markets, along with Samsung, Orison, SimpliPhi, Stem, A123 Energy Solutions.
While battery storage helps solar and wind enter the baseload power market dominated by coal and nuclear, carbon markets will continue to drive the cost of renewables down, increasing their competitive edge. Power from two reactors under construction in Georgia is estimated to cost 12.4¢ to 14¢ per kilowatt hour, two reactors proposed in Florida have been estimated at 16.8¢, a new reactor planned in Virginia is estimated at 19¢/kWh—compared to a 5¢ average for utility-scale solar.
Gas costs utilities 5¢-8¢, coal 6¢-15¢, according to Lazard, and carbon markets will raise those fossil fuel prices while pushing the solar price down.
In 2016, plans for new carbon markets will begin to take shape across the nation and globe:
Carbon Markets
Carbon emission trading markets are the most likely mechanism that states will use to comply with the Clean Power Plan and that nations will use to comply with the Paris Agreement.
In a carbon market, polluters have to buy credits if they exceed an emissions limit, which raises the cost of technologies that pollute. The proceeds from those sales help fund innovation and deployment of clean alternatives.
"There are market developments on the horizon for 2016, though it may take a while for them to go operational," Dirk Forrister, CEO of the Geneva-based International Emissions Trading Association, told me in an email. Among those developments, according to Forrister:
• Ontario will announce the details of its cap and trade market in 2016, which will likely begin full operation in 2018, when it hopes to link with an active market operated by California and Quebec.
• China will announce plans for its national emissions trading market in 2016, with a start planned in 2017.
• The International Civil Aviation Organization is expected to set rules in 2016 for a carbon market to manage emissions from aircraft. The market will probably begin operations in the 2020s unless ICAO decides to launch earlier than expected.
• A number of US states will reveal their plans to use carbon markets to comply with EPA's Clean Power Plan. "We should get the first of those plans in 2016, with a program start in a few years time." Some states may opt for "early action," but they all have until 2022 to meet the EPA's first emissions cap.
• A global carbon market will begin to take embryonic form in 2016 as countries meet to implement the Paris Agreement. It is scheduled to open for business in 2021, but that date may be moved up to have it fully operational by the 2020s. "Finally," said Forrister, "we should see action on the implementation rules for Article 6 of the Paris agreement."
A lot happens in Article 6 of the Paris Agreement:
• It authorizes parties to engage "on a voluntary basis in cooperative approaches that involve the use of internationally transferred mitigation outcomes" — in other words, to form international carbon markets where countries and companies can trade carbon emission credits.
• Article 6 requires participants to apply robust accounting methods and to use market proceeds to support sustainable development.
• It establishes a mechanism under the auspices of the UN to host such a market.
At a press conference in Paris, a journalist from Humboldt County's North Coast Journal asked a panel of experts how carbon markets reduce emissions.
The question was fielded by Nat Keohane, a former Yale economist and Obama advisor now employed by the Environmental Defense Fund:
“As an environmental organization that’s why we are interested in markets—because we think they’re critical to driving long-run ambition. And for two reasons: one, at any point in time they provide a very powerful incentive to find the most effective, least-cost ways of reducing emissions right away, and number two because they drive innovation and investment into better, cleaner, more cost effective technologies going forward. It’s not the only tool in the toolbox that you need, but it is a key part of unlocking the investment and the innovation and the entrepreneurial creativity that’s the only way we’re going to get to 2º or 1.5º in the long run, in our view. We’ve seen markets get used to solve acid rain in the United States, we’ve seen them get used to drive down emissions in California, even in Europe in combination with other policies. We’ve seen them get lead out of gasoline and we’ve seen them help solve the HFC problem and the ozone hole. So we’ve seen markets create ambition in many other instances and that’s why I think they’re so critical to this problem as well.”
While the direct effects of those markets remain a few years off, their impending arrival sends a signal to investors that fossil fuels are walking the plank and a windfall is coming to renewables.
According to the analysts at GTM Research, the companies best positioned for that windfall are those who got lean because they expected the solar tax credit to expire.
When SolarCity announced in the third quarter it was cutting costs for just that reason, its stock price dropped by 35 percent overnight. When the tax credit was extended two weeks ago, it rose more than 50 percent.
"Using clean energy is the most important step an individual can take to address climate change and protect future generations," said SolarCity CEO Lyndon Rive on the eve of the extension. "Combined with the historic Paris climate agreement, long-term certainty for the ITC sends a strong signal to the marketplace that investment in clean energy is the right way to drive continued economic growth and job creation."