Think solar power can't compete with big utilities? Think again

John Farrell is a senior researcher for the Institute for Local Self-Reliance, which describes its mission as "to provide innovative strategies, working models and timely information to support environmentally sound and equitable community development."

Most Americans think clean energy is futuristic — a good idea some day, but not practical now. But a new report from the Institute for Local Self Reliance suggests that within 10 years, 100 million Americans in the nation's largest cities could get cheaper electricity from rooftop solar — without subsidies — than that provided by their utility.

For example, one-quarter of San Diego residents could power their homes with cost-effective solar by next year. Even in Boston, solar could cost-effectively power one-third of homes by 2020.

The current electricity system is ill-equipped for this surge in local rooftop solar — or even for the 21st century. It's a relic of the last century, when utilities located dirty coal-powered plants far from population centers, connecting them via high-voltage transmission lines to customers hundreds or thousands of miles away.

An electricity system powered by local solar is fundamentally different. Wherever the sun shines, solar panels are right at the customer's location, on a rural farm or an urban rooftop. And because solar power is modular, it lends itself to construction at a local scale.

Solar also lends itself to local ownership instead of utility conglomerates. The National Renewable Energy Laboratory reports that locally owned renewable energy projects — like rooftop solar — can offer twice the jobs and more than three times the local economic impact of absentee-owned projects, because revenue from local projects stays in the local economy. Having an economic stake in energy ownership also gives citizens a sense of political ownership. Researchers in Germany found a 45 percentage-point increase in support for more local wind power when wind turbines were locally owned instead of absentee-owned.

The rooftop revolution doesn't need more subsidies, but it does need new rules.

Subsidies for solar must change before exponential growth creates exponential resistance to rising costs. This requires us to move away from fixed, one-size-fits-all incentives like the federal solar tax credit toward more flexible and transparent incentives that can phase out as solar becomes competitive in different regions.

The solar tax credit should also be replaced because it is inefficient. Indeed, as much as half of taxpayers' money goes not to solar power plants, but to the middle men who funnel it to large corporations and wealthy households.

The tax credit's inefficiency also undermines solar's greatest asset: local ownership of energy generation. Local ownership of solar could be best achieved through community institutions — cooperatives, schools or cities — but federal tax incentives are for taxable entities, not these organizations. Instead, community institutions must rely on complex partnerships with large corporations to use tax credits, with as much as half the credit used to reduce the tax liability of the private partner instead of the cost of local solar.

Policy makers could replace the inequities and inefficiencies of the tax credit with a feed-in tariff: an energy policy that allows anyone to get a long-term contract for generating electricity from solar, at a price sufficient to earn a modest return on investment (without using the tax code). Used by leading solar nations like Germany, the feed-in tariff can adjust to solar market conditions, as well as offering different contract prices in less sunny regions or places with lower grid electricity prices.

The new rules for the electricity system are needed now, because otherwise billions of dollars will be spent on the last century's power plants and power lines just as a local solar revolution supplants them.

The surge in local solar will create a self-interested movement — the strongest kind. But the movement's success requires policy makers to act now. With the right rules, they can nurture a solar opportunity to democratize energy production and to energize democracy.

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