November 12, 2013

Illinois Not Meeting Goals for Solar Energy

Wording glitch in law at issue; state has yet to create market for trading renewable energy credits

Shawn Temple, a development director for Weston Solutions, said he has manufacturers, grocery chains and retailers interested in erecting solar panels along large swaths of abandoned industrial sites in Chicago.

"We have lots of clients and sites available," Temple said.

But those companies are building large-scale projects in other states because they can't make the math work in Illinois.
A glitch in the wording of a state law has prevented solar power from being purchased for Illinois electric customers even though they are paying into a fund for that purpose. What's more, the state has yet to create a market for trading renewable energy credits, vastly extending the time it takes for solar power producers to recoup construction costs.

No chief financial officer is going to sign off on a big solar project without financial incentives, Temple said. "It needs to pass the CFO test."

The incentives are especially crucial, given Illinois' lack of sunny days and low electricity prices.
As a result, virtually none of the power flowing to Illinois electricity customers comes from the sun, despite aggressive statewide mandates that require increasing the number of homes and businesses supplied with renewable energy such as solar.

So far, $53 million has been paid into a fund by Illinois electricity customers. But the law allows the money to only be spent at the same time that power is being purchased for Commonwealth Edison and Ameren Illinois customers. But those utilities have more power than they need because most of their customers fled for cheaper alternative suppliers.

So the pot of money just sits.

A legislative fix would allow the agency that procures power to spend that money on behalf of all Illinois electricity users, regardless of whether they remain with their legacy utility. The fix was expected last week but was postponed after the Illinois Competitive Energy Association, a lobby arm of alternative energy suppliers, claimed that such a move would drive up electricity prices.

Sen. Don Harmon, D-Oak Park, who is sponsoring the legislation that would fix the law, said last week that the issue will be taken up after the veto session.

Illinois patterned its renewable energy market after New Jersey, a state that has made up for its dearth of sunshine and low electricity prices by paying well for renewable energy credits.

"On paper we have great incentive for people to invest in solar here," said Sarah Wochos, senior policy advocate and director of research for the Environmental Law & Policy Center in Chicago. "But there's some structural flaws in the mechanics of the law right now that make it impossible for those investments and that growth to happen here."

In the meantime, experts say, solar development in Illinois has been the exception rather than the rule.
"These are customers that really wanted to make it work in Illinois for one reason or another that went beyond the pure economics of the project," said Madeleine Klein, senior vice president of policy and strategy for solar rooftop developer SoCore Energy, a subsidiary of Edison International.

For example, SoCore Energy developed two of the state's largest rooftop solar panel installations, at Ikea stores in Bolingbrook and Schaumburg. The main reason for those projects is that Ikea is committed to having solar panels at its stores. Klein said about 90 percent of its stores have solar panels.
Ikea's projects also illustrate why the state is behind on solar installations.

In Illinois, Ikea's return on its solar investment could take decades, compared with only three years if the same project were hypothetically launched in a sunny state like Hawaii, said Jason Keyes, partner at law firm Keyes, Fox & Wiedman LLP and an attorney for the Interstate Renewable Energy Council.

In Hawaii the cost of a typical residential solar installation has dropped from about $40,000 four years ago to about $26,000 today, according to Brad Albert, owner of Rising Sun Solar, a solar installer in Hawaii. Federal and state tax exemptions further reduce the cost to about $12,100.

As a result, companies have popped up that pay for the solar installation for businesses and homes, and they make a profit selling the cheaper electricity back to the solar panel hosts. So much solar energy is flowing into Hawaii's electrical grid that the incumbent utility has refused to accept any more solar power along certain parts of its system.

"Three years ago, people installing solar were wealthy and had big homes, wanted to save money, but really, the big thing for them was being green. But now it has shifted. People are doing it just for the sake of saving money. And they're saving from day one," Keyes said.

Illinois solar power producers tend to be green enthusiasts, and their projects relatively small.

Shedd Aquarium last month announced the installation of 913 rooftop solar panels. The $1.1 million project, paid for with public and private money, is part of the aquarium's goal to cut its energy use in half by 2020.
For Shedd, which can afford a long payback period, the project fit with its sustainability goals.

"We're very proud to be able to have these solar panels on our roof, for lots of reasons," said Roger Germann, Shedd's executive vice president. "It's good for the environment. It's good for the bottom line, and we have a unique ability to tell the story and use this installation as a road map for others."
Shedd's solar panels are projected to produce 300,000 to 400,000 kilowatt-hours per year and shave $25,000 to $30,000 annually from its electricity bill. Shedd officials would like to quadruple on-site renewable energy generation and possibly partner with the Adler Planetarium and the Field Museum to produce power for the entire museum campus.

A billing mechanism called "net metering" allows Shedd, Ikea and residential customers to run their meters backward when they produce more electricity than they consume.

But if Shedd or Ikea could offset the cost of installing the solar panels by selling their renewable energy credits to Illinois electricity customers as was intended under a 2007 law, the aquarium would have money coming in that could be used to install more panels, Germann said.

The credits, which vary by state, are based on power production. Renewable energy producers receive one "credit" for each megawatt-hour produced. New Jersey credits last month traded at $135; Washington, D.C., credits traded at $485 last month,according to SREC Market Monitor.

At 300 megawatt-hours per year, that could bulk up Shedd's annual revenue from those panels by $40,500 if the credits traded at prices similar to New Jersey's, to $145,500 per year if the credits traded similar to Washington, D.C., prices.

Without a market for credits in Illinois, there's no incentive to develop big solar projects, said SoCore's Klein.

Solar panels capable of powering 6,200 suburban homes are installed in Illinois, according to the Solar Energy Industries Association, which is about how much the state needs to meet its 2013 goals. But only about half of those solar credits are being purchased to meet the state's renewable energy goals, according to the Illinois Power Agency.

The problem is only expected to get worse. To meet increasing state goals, Illinois will need to increase its solar purchases tenfold by June 2014, according to an analysis by the Environmental Law & Policy Center, and by 2015, purchase credits from solar installations capable of powering about 89,000 homes, or nearly 30 times its current solar purchases.

To meet those goals, the state is not allowed to increase electricity rates more than 2 percent in any given year from 2007 rates.

"We work with big retailers and the (real estate investment trusts) that are landlords to the big retailers. In addition to Walgreens and Ikea, we work with Target, Simon Properties, movie theaters. Our customers are part of this group of folks like Kohl's and Costco who want to build solar," Klein said. "In Illinois, low power prices and no incentives don't paint the right picture for them."

The price for the credits would be set through a bidding process.

The Illinois Power Agency, which procures electricity on behalf of Illinois consumers, would open the doors for solar developers to bid in their solar credits. In turn, the agency would choose which credits to buy.
For smaller power producers, the agency would offer a flat rate. The agency said it could not speculate on prices for an upcoming procurement that would occur next year if the law is fixed.

Harmon said he is confident the legislature will approve his bill.

"Certainly, as in every compromise, nobody is getting everything that they want. But this is a sensible solution. We have a general consensus," he said.

In a statement, Exelon Corp., the Chicago-based parent of ComEd, said it will wait until a final legislative proposal is available before commenting.

For some time, environmental groups have clamored for the law to be tweaked to free up money to purchase credits and power from producers of renewable energy. But the legislature has backed off under pressure from ComEd and Exelon. Those companies have contended that the law is working as intended.
But as of June, about 5 percent of Illinois' electricity came from renewable sources, which include wind power, according to an Environmental Law & Policy Center analysis of publicly available state data. That's short of the 8 percent target mandated under the law.

Solar, like wind power, is seen as a threat to traditional electric generators, who lose money when businesses and residential customers start generating their own power instead of purchasing it from the electricity grid.
Utilities across the country have pushed for laws to charge monthly fees to customers who generate their own electricity or have capped the amount of solar electricity that can be generated to offset electricity bills.
The Edison Electric Institute, an industry group for shareholder-owned electric companies, said in a January report that traditional utilities have lost less than 1 percent of their typical electricity load to solar electricity producers but that the trend will grow as solar costs plummet.

"Investors have no desire to sit by and watch as disruptive forces slice away at the value and financial prospects of their investment," the institute said in the report.

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