THE GRID
First let’s use this infographic from the Department of Energy to explain what the electricity grid is and how it works.
SOLAR
“But the sun is so far away”, they cry, “what could it possibly do for us?”
Little do they know that just an hour and a half of sunlight produces enough energy to meet the world’s energy needs for a year!
Solar works like this. Sunbeams are absorbed by photovoltaic (PV) panels or mirrors. These get converted into electricity that can be used immediately or is stored for future use.
What’s cool (hot?) about solar is that it can operate outside of a centralized grid. Distributed energy resources (DER) or what we call rooftop solar is fantastic not just for the environment, but it saves money on energy bills too. Typically, (through a process called “net metering”), utility companies subtract a household’s total energy with the solar energy they produce. Also, surplus solar energy can be sold back to the grid or to neighbors.
The proliferation of DER also means more communities can create microgrids. These can generate and distribute energy outside of the central grid. Thus, providing a crucial source of energy when the central grid is knocked out from a natural disaster or some other event.
Community solar is similar to microgrids except that it is connected to the grid. This allows businesses, homes, and other buildings to secure locally sourced solar energy without having to install rooftop solar. Virtual Net Metering permits a customer to receive credit based on the amount of energy their share of the solar array creates.
“BUT BUT!”, they yell, “WHAT HAPPENS WHEN THE SUN GOES DOWN?”.
It’s called batteries, genius. Ever heard of them? When we need the energy from solar when there is no sun out the energy can be stored in batteries as well as other technologies such as thermal energy storage which stores energy in an insulated tank.
“HOW DO YOU PAY FOR IT!”
First we need to separate hardware from non-hardware (“soft”) costs. Soft costs make up the majority of the total bill to install solar technologies.
Due to varied government regulations on permits, inspections, and so on there can be a significant lag time between purchasing solar and installing it.
To help finance the direct installation an ownership of solar projects, the federal government’s Solar Investment Tax Credit (ITC) includes a 26 percent tax credit for projects that start through 2022. This means that 26 percent of the solar project’s cost is written off your annual tax bill. So if the the system costs $10,000, you will receive a $2,600 tax credit that you subtract from your federal income tax.
If someone looking into solar can not pay for the solar project upfront, they can look in to third-person ownership. These are agreements between a customer and a third-party company to install and manage a solar energy system. The most common methods of third-party financing are Power Purchase Agreements (PPAs) and Solar Leasing.
For PPAs, the customer pays a third-party company a rate every month depending on the amount of energy use that hovers around or below the going retail rate for electricity. Solar leasing operates similarly, but the monthly rate is a flat flee — not tied to monthly energy consumption. One of the biggest drawbacks to third-party financing is that a customer is not eligible for the ITC since they do not own the system.
WIND
*Note: I am going to keep this very short and sweet so you can move on with the rest of your day.
Wind generates electricity by spinning blades from a turbine that spins a generator.
Generally, you find wind turbines in their on and off shore varieties. Wind farms are the giant armies of turbines you usually see in pictures but also important is distributed wind. Distributed wind systems included smaller turbines that are used to directly power businesses, schools, homes, and other buildings. Like solar, net metering is used to lower the energy bill.
Community wind projects allow municipalities or groups of individuals to develop wind projects for local use. These are separated into small and large community wind with projects costing as low as $10,000 to over $2 million.
There are several federal tax credit available to incentivize turbine installations. Through the Consolidated Appropriations Act of 2021, there is a 26 percent tax credit for small wind projects (max of 100 kilowatt generated for home use) that drops to 22 percent after December 31, 2022. There is also the Production Tax Credit (PTC), but that is expiring. Congress’ Build Back Better legislation would extend this and other tax credits for renewable energy for 10 years.
FURTHER READING
There is some interesting research on the relation between renewable energy tax credits and tax equity and how this promotes and impedes the transition to a carbon free future.
