Solar's time to shine in Iowa?
Can solar duplicate wind as an economic powerhouse for Iowa?
Friday, April 18, 2014 7:00 AM
As Iowa strives to become greener, focus is shifting to the potential for solar energy.
MidAmerican Energy a player in solar ...just not in its own backyard
There are several reasons you won’t see utility-scale solar projects built in Iowa, said Bill Fehrman, president and CEO of Des Moines-based MidAmerican Energy Co.
The company’s MidAmerican Renewables subsidiary has invested approximately $7 billion in three of the world’s largest solar arrays in the desert Southwest, the first of which went into production last year.
MidAmerican Renewables' utility-scale solar projects include the 290-megawatt Agua Caliente plant in Arizona, the 550-MW Topaz Solar Farms and the 579-MW Solar Star projects in California. Solar Star will be the world's larget solar array when it's completed late next year.
“I love solar,” Fehrman said. “It’s a great way to make electricity. But in Iowa, there’s this hurdle that you have to overcome from a renewables perspective. Wind is just so significantly better for customers from a cost perspective and a number of other perspectives.”
Bringing a hypothetical 200 MW solar project online in Iowa would require two consecutive electricity rate increases to help pay for it, Fehrman noted. “Compare that to our current wind projects where we’re building 1,050 MW - or about five times this hypothetical project - and we’re actually crediting customers back $10 million.”
Utility-scale wind vs.solar
(A 200 MW wind project vs. a 200 MW solar project in Central Iowa)
- Wind requires about one-third less in capital costs to build than solar
- Wind involves about 2.5% less in annual operating costs than solar
- Wind needs 958 fewer acres of land to build
- Wind is available 96.5% of the time; solar 98.5%
- Wind has about a 21% higher capacity factor than solar, meaning on average a wind project would produce about 367,000 megawatt hours more each year than solar, equivalent to powering 36,700 average Iowa homes.
A recent report by the Iowa Environmental Council suggests that Iowa could do far more to capitalize on the state’s solar energy potential.
The report, “Real Potential, Ready Today: Solar Energy in Iowa,” found that Iowa could potentially generate nearly 20 percent of its electricity needs from rooftop solar panels. In fact, Iowa ranks 16th in solar potential, ahead of several states that have built significantly more solar energy production capacity, according to the report.
Although solar has numerous advantages as a readily available clean energy source, it will still require a significant amount of effort to develop this industry in Iowa, said Nathaniel Baer, energy program director for the Iowa Environmental Council, and co-author of the report.
“We hear from a lot of people that solar today is where wind was 10 years ago,” Baer said. “It took a lot of effort to get wind to where it is today.”
Interestingly, the head of MidAmerican Energy Co. doesn’t see his company expanding its solar production here the way it did in creating the wind farms that have helped Iowa lead in wind energy creation. Although solar is a good investment nationally, Iowa’s energy prices are so low because of wind energy, that adding solar farms would actually raise energy costs for consumers, CEO Bill Fehrman said.
So, the alternative to utility-owned solar farms is a proliferation of rooftop solar systems installed by businesses and homeowners. The systems provide owners power and they can sell excess power back to utilities. As the high costs of rooftop solar systems have come down for the past decade, more public debate has been focused on this approach. Also, ground-mounted “solar gardens” managed by municipal utility or electric cooperatives are emerging as another way for people to buy into solar power.
Nevertheless, price remains a big hurdle for many homeowners and businesses that are exploring solar for their energy needs.
These recent initiatives may help to overcome solar’s challenges in Iowa:
• Late last year, the Iowa Economic Development Authority received a $1 million federal grant as part of The Rooftop Solar Challenge, a national initiative to boost solar energy investments. Through a statewide solar readiness initiative, the state will help selected communities, among them Des Moines, reduce the “soft costs” of installing photovoltaic systems such as local permits and inspection fees and net metering costs, as well as updating city codes to streamline the process. Gov. Terry Branstad endorsed the project, saying that as a leader in wind energy and renewable fuels, Iowa “should be at the front of the pack” in implementing programs to encourage solar energy.
• The Legislature is considering whether to expand a state solar energy tax credit, currently capped at $1.5 million per year, to $4.5 million a year. Other enhancements to the incentive program also are on the table.
The full $1.5 million in credits were claimed last year. Those who didn’t receive credits were first in line for the 2014 credits. That waiting list is for nearly $800,000 in credits, “so more than half the 2014 cap is already met by the waiting list of people who didn’t get credits from 2013,” Baer said. “So it just creates uncertainty about whether someone can get that credit.”
• The Iowa Environmental Council is lobbying legislators to allow businesses to claim credits for multiple projects, rather than just one project, per year. That provision would benefit retailers seeking to add solar at several locations.
• The Iowa Supreme Court is considering a case that could open the door wider for more solar development in the state. At issue is a proposed purchase agreement between the city of Dubuque and a solar provider which, if ruled legal, would clear the way for additional municipalities or nonprofits to buy solar energy from a non-utility third party and take advantage of state solar tax credits.
By early summer, the court is expected to rule on whether the Iowa Utilities Board incorrectly defined a third-party power provider, Eagle Point Solar, as a “public utility” and in violation of the state’s service territory laws because of its proposal to sell electricity directly to the city of Dubuque from panels installed on the roof of a city building. If the justices affirm the district court ruling that overturned the utilities board’s decision, it would clear the way for similar third-party purchase agreements in the state, which would benefit nonprofit organizations installing solar that can’t directly use federal or state tax credits.
An eagle’s view of rooftop solar in Iowa
Iowa’s solar potential is reflected in the shiny black photovoltaic cells on the tops of several buildings throughout Greater Des Moines - from the World Food Prize Hall of Laureates along the Principal Riverwalk to the new DART Central Station and the renovated Franklin Avenue Library.
They’re among hundreds of solar installations scattered throughout the state, many of them perched on the roofs of warehouses or industrial buildings in rural communities where businesses and farmers are using them to offset their electricity costs.
Two of the largest solar arrays in the state are at colleges. Luther College in Decorah has been operating a 280-kilowatt array of ground-mounted solar panels since August 2012. Along with a smaller 20-kilowatt array nearby, Luther powers a six-building student housing complex. At the University of Northern Iowa, a 206-kilowatt solar array atop the university’s multimodal transportation center supplies the entire energy demand for that facility and also augments power for several adjacent campus buildings.
This month, Farmers Electric Cooperative plans to begin construction on a $2.2 million project that will expand the cooperative’s community “solar garden” in the tiny berg of Frytown near Iowa City. When completed, the 750-kilowatt solar farm will be the largest solar array in the state. Currently, 70 cooperative members own the modules in the existing 25-kilowatt solar farm, which will be built on nine acres. When that project is completed this year, about 10 percent of the cooperative’s electricity will be produced by solar energy.
“Our customers have been very supportive of it,” said Warren McKenna, the cooperative’s general manager. “If we can do it, the larger utility companies should be able to jump up there in community solar options. It’s a market that’s in its infancy. We’re playing a part in it and using a model that works for us.”
A majority of the growth in solar installations has occurred in eastern Iowa, which is due in part to solar rebates offered by Alliant Energy Corp. Although that program didn’t generate a lot of takers until it approached its end late last year, it did spur more interest.
“Now we’re seeing more projects in Central Iowa; Des Moines is just a year or two behind that pace,” said solar advocate Baer.
Prices of solar power systems, driven largely by lower costs of the photovoltaic cells that are the heart of the systems, have continued to drop, according to the Iowa Environmental Council report. The cost to install one watt of solar power, which averaged $7.50 in 2008, fell to nearly half that - $4 per watt - in 2012, and costs are expected to continue to decline. A U.S. Department of Energy study has set goals of reaching an installed cost of $1 to $1.25 per watt for commercial systems and $1.50 per watt for residential solar by 2020.
Despite declining system costs, solar remains a tough economic sell in Iowa, due in large part to the prevalence of wind energy production in the state that has helped to keep average electricity costs about 40 percent below the national average.
Although Iowa’s solar footprint has grown significantly in the past few years - last year, nearly 1 megawatt of additional capacity was built - it’s nowhere near the growth rate seen nationally. Last year more than 4,750 megawatts (MW) of new photovoltaic capacity were installed in the United States, a 41 percent increase from new 2012 installations, according to data from the Solar Energy Industries Association. With the additional installations, the cumulative solar electric capacity nationwide is now more 13,000 MW generated by more than 445,000 systems – enough energy to power 2.2 million average homes.
For solar energy to gain a true foothold in the state, other major policy issues will need to be addressed, said the chief executive of Des Moines-based MidAmerican Energy Co.
Currently, rooftop solar panel users in Iowa with small systems (under 500 kilowatts) can arrange to sell the electricity they produce back to MidAmerican or Alliant Energy.
The relatively small number of solar users doesn’t really affect the grid now, but MidAmerican President and CEO Bill Fehrman said that a sizable expansion in solar panel users would create a fairness issue for those who aren’t solar users but who would be footing more of the cost for maintaining the electric grid.
Comments on this issue, referred to broadly as “distributed generation,” are now being collected from key stakeholders by the Iowa Utilities Board as it seeks to develop new policies related to small wind or solar projects and their impact across the state.
Customer-owned rooftop solar systems are still rare in Iowa, but if they do take off, the rules would need to change to ensure fairness to electricity customers, Fehrman said.
“As people talk more and more about wanting to do (rooftop solar), more and more will get paid for net metering,” he said. “That becomes a very significant fairness argument, because of the average 10.5 cents a customer pays per kilowatt-hour, 6.3 cents goes to generation costs and 4.2 cents goes to transmission and distribution costs.
“If you’re a solar owner, you actually get paid for - and the utility doesn’t get - the price for the generation and the price for the grid. Yet we still have to maintain the grid and we still have to maintain the generation for those times when you have to use the grid.
"So the debate that’s happening around the country, and that is part of the Iowa Utilities Board’s distributed generation notice of information, is: How should this be changed so it’s basically fair for everybody - both customers who want to put on solar and those who don’t want to put on solar?” said Fehrman.
As of mid-February, MidAmerican Energy had 156 distributed generation facilities interconnected to its Iowa utility system totaling more than 13 megawatts. Of those, 139 customers used net metering to sell power back to MidAmerican, - 56 percent from wind and 44 percent from solar. Additionally, more than 400 Alliant Energy customers use solar, generating about 6 MW of power for the grid.
Fehrman said net metering is a different proposition than conservation or energy efficiency efforts. “I see those programs a little bit differently than (rooftop solar users), who still have to have my (power) generation to meet the peak (demand),” he said.
Iowa needs to have the same policy discussion about solar that it did for wind power, Fehrman said.
“And if there is really a desire to make solar work, then we have to start with the cost to the customer,” he said. “To me, that’s first and foremost. Is there a way to make this work such that it doesn’t impact (Iowa’s) competitive position and increase costs to customers? Secondly, (is there a way) not to increase costs to customers in an unfair manner, because it’s absolutely unfair for people who have the wherewithal to put large solar projects up on their roofs and expect those who can’t afford it to pay. Certainly I think the key to this is getting folks around the table and using real facts around cost impacts to customers to see if there’s a way to make this work.”
Whether to increase the state solar credit cap is “a small bite of this bigger apple.” he said. “To me, this issue is a lot bigger than that, and it requires a lot more detailed discussion. For the tax credit to move the needle and bring solar closer to wind and address the unfairness in the way the current system is set up would require significant discussion for it to be meaningful.
“To me, whether we can make this work or not is an interesting challenge for us. We’ve clearly been able to do it with wind. Can you do it with solar? I don’t know yet.”
4 perspectives businesses are seeing
Hy-Vee: The ROI of adding rooftop solar
Hy-Vee Inc. is experimenting with solar with pilot projects at its stores in Lawrence, Kan., and in Urbandale. In Kansas, it installed a small solar array on the roof of the gas station, and in Urbandale, a small array powers an electric car charging station.
“It’s something we continue to look at,” said Michael Smith, Hy-Vee’s assistant vice president for real estate and sustainability. “The challenge we have in Iowa, and for that matter the Midwest, is that you have low electricity rates and low rebates. So the challenges are most often your return on investment.”
Although the costs of the panels continue to come down, there’s still too big of a gap to bridge without tax incentives, Smith noted. For now, Hy-Vee is learning from its demonstration projects and possibly may build some more small projects at other locations.
“It’s clearly something that if the economics made sense, we would invest in it,” he said. “At this stage, it’s truly an economic challenge.”
Solar panel costs are declining, but is it enough?
The co-owner of solar panel business GWA International LLC said photovoltaic panel costs have come down significantly in the five years his company has been in business.
“When we started back in 2008 it wasn’t uncommon for us to have a panel cost of $2 per watt,” said Steve Guyer. “That’s now somewhere less than $1 per watt, and manufacturing costs continue to be driven down also. And once some trade issues that are hanging out there are resolved with China, prices should continue to come down.”
The Altoona-based company, which offers both roof-mounted and ground-mounted systems, installed about 45 systems across the state last year.
“Looking back to last year, we had more commercial demand than residential,” Guyer said. “A lot of it had to do with the rebate that Alliant Energy was offering last year. Putting that together with (federal and state) tax credits and incentives, we had clients seeing one- to two-year payback periods. So far this year, we’ve had about a 50-50 mix of commercial and residential projects.” A number of the commercial projects are those that applied last year for Alliant rebates and are awaiting installation, he said.
“If your utility rates are still relatively low, you’re probably not going to look at it,” he said. The residential systems his company installs generally range from 5 kilowatts to 8 kilowatts, while the commercial projects range from 30 to 50 kilowatts.
Home builder: Price is still too high for many customers
A builder who constructed a net-zero energy home in Ankeny that used solar panels said that most prospective home buyers he works with are waiting to see if costs for solar energy are going to come down.
“We offer it as an option,” said Joel Clutts, co-owner of Eco-Logic Homes. “It can be a step up if that’s the direction they want to go.”
He has four house designs that can be pre-wired for solar systems. “If they’re interested in putting solar in, we’ll give them the data that we’ve modeled,” he said. “So we can actually show them if we design and build the house this way, you can expect to pay this much in utility bills.”
There is definitely more awareness of solar, Clutts said. “When I talk about it with people now, they don’t think I’m talking about something crazy,” he said. “And they’re coming to us because they know we understand it.”
The Ankeny model home that he built with solar, priced at more than $330,000, sold in February after nearly two years on the market. The cost of a photovoltaic system has probably come down about 20 percent since he started that house, from about $20,000 to about $15,000 or $16,000.
For now, the relatively high price of rooftop solar systems is going to keep those projects within a fairly tight niche of buyers. But price seems to be the only objection, he said. “I haven’t heard anybody say, I wouldn’t put them on my house because they’re ugly,” Clutts said. “But if it’s a price-driven buyer, they’re going to want their custom countertops before they mess with solar.”
A 'competitive advantage' for business
For businesses, installing solar power can be a way to mitigate the risk of rising energy costs, said Steve Fugate, policy development specialist for Dubuque-based Eagle Point Solar.
His company recently installed a solar array for the wastewater treatment plant in Galena, Ill, and this month began installing an 800-kilowatt array for Farmers Electric Cooperative, which when completed this year will be the single-largest solar project in the state.
Fugate said most of the solar assessments he’s done for businesses in the state are penciling out at a less than five-year payback period to recoup the investment. “So you’re looking at an internal rate of return of 20 percent – that’s pretty darn good. And after the first five years, you’re looking at free power. Fixing your cost of electricity now so it won’t go up will provide a competitive advantage for any business.”
The Farmers Electric Cooperative project in Frytown is also creating jobs in Dubuque, where aluminum racking for the solar array are being fabricated, he said. “So we’re looking at localizing the value of doing this also. If we can start building in jobs here in the state, that’s economic resiliency, and that’s what we’re looking to do.”
From the Solar Energy in Iowa Report
According to the National Renewable Energy Laboratory, Iowa could generate more than 7 million gigawatt-hours (GWh) from solar photovoltaic cells – which is about 120 times more than the power generated from all sources, including coal, natural gas, nuclear and hydroelectric. It ranked Iowa among the top third of U.S. states (No. 16) in the potential for solar PV energy production.
A recent study found that adding 300 MW of solar capacity in Iowa over five years would create an annual average of 2,500 jobs during that time. Direct jobs include installers, contractors and electricians, as well as jobs in sales and distribution, engineering and more. The study did not include any new manufacturing in Iowa. However, as Iowa has seen with the wind industry, a vibrant market for solar in Iowa could create additional jobs related to manufacturing.
Solar advocates say expanded tax credit will promote growth
The solar tax credit enacted by the Legislature two years ago has been a key factor in the growth of small photovoltaic systems in the state, said Nathaniel Baer, energy program director of the Iowa Environmental Council.
The $2.84 million in tax credits issued so far have generated investments totaling nearly $24.4 million in 622 solar projects, according to state data.
“The solar tax credit has been a huge success,” Gov. Terry Branstad said during “Solar Day on the Hill” April 9 at the Statehouse. Branstad declined to say whether he would sign a bill expanding the credit before seeing the final version, and cautioned that it would have to fit within the biennial budget.
In addition to expanding the program cap, the bill, which as of press time was still alive, would increase the state credit to 60 percent of the federal credit from the current 50 percent. It would also raise the cap on individual credits from $3,000 to $5,000 and the farm/business cap from $15,000 to $20,000, and allow businesses to claim multiple credits in a year for multilocation projects.