Does cheap natural gas affect the expansion of solar energy?

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The development of usable solar energy has come a long way over the past decade, seeing exponential levels of adoption among American homes and businesses. However, in many states, solar energy is still one of the least used energy sources. Why is that, and what is preventing a significant rise in solar and other renewables?

One possible answer: The increasing use of cheap natural gas to generate electricity. Coal has long been the leading generation source for energy – until the discovery of vast reserves of natural gas in the U.S. in 2007.

What is it about natural gas that makes it so appealing? In a word, price. When it comes to electricity generation, natural gas is far cheaper and burns much cleaner than coal, which is why a lot of utilities have switched from coal to gas-fired power plants.

Harrison Fell, an energy economist at N.C. State University, says increased use of natural gas hasn’t slowed implementation of solar energy in North Carolina – yet. That’s at least in part due to adoption of the Public Utilities Regulatory Policy Act of 1978, which required utilities to buy power from independent companies that could produce power for less than what it would have cost for the utility to generate the power.

“The primary driver of the growth of solar in North Carolina has been the favorable terms in which solar is treated under North Carolina’s implementation of PURPA,” Fell said. “In particular, North Carolina’s implementation of PURPA allowed for relatively large solar installations to be eligible for relatively long-term power purchasing agreements.”

Changing conditions for solar

These terms have changed under 2017 legislation that reduced the size of contracts energy utilities can make with solar producers.

House Bill 589 reduced PURPA contract lengths from 15 years to 10 years and limited fixed-price PURPA contracts to solar and other non-hydro renewable energy contracts under 1 megawatt, down from 5 megawatts.

Fell outlined how this ultimately will hurt solar energy in the state.

“This new legislation has guaranteed Duke [Energy]’s procurement of an additional 2.6GW of solar capacity, which ensures some near-term growth of the solar industry,” Fell said. “In the long-term, the changes to PURPA implementation and low natural gas prices will likely curb the growth of solar in North Carolina unless solar costs and storage costs fall sufficiently to make it competitive.”

That means solar energy is being directly affected by cheap natural gas – even if it is just temporarily. If the prices of solar energy don’t fall to compete with natural gas, there likely will not be an exponentially large increase in its usage.

What comes next?

The question has now become: what can states do to ensure the growth of solar and other renewables? Fell explained what he thinks states could do to change that usage curve.

“One option, which many states are already doing, is to implement a Renewable Portfolio Standard (RPS) which mandates a certain percentage of the state’s power sales that come from renewable sources,” Fell said. “I think there is still an argument to be made for the continuation of federal tax incentives associated with renewable generation, and finally, policies which make fossil-fueled power plants pay their full social cost of generation would also help renewable energy growth as it would make the fossil fuel plants relatively more expensive to use and thus incentivize utilities to switch to renewables.”

According to Fell, policies that would fit this bill would include emission taxes or cap-and-trade programs for various pollutants.

About seven years ago, there was little solar generation. Now solar energy makes up about 1.3 percent of the total U.S. generation mix, according to the Energy Information Administration. Once companies can create cost-effective storage for solar energy, there could be a noticeable rise in its usage.

Stephen Sears is a recent graduate of the University of North Carolina at Charlotte and a freelance journalist with bylines at SBNation’s At the Hive and scout.com’s Panthers Insider. Connect with him on Twitter or LinkedIn.