Why utilities are making a necessary foray into renewables
In 1988, as a young developer at what is now First Solar, I contacted dozens of utilities, trying to persuade them to install a small test facility — 500 kilowatts — of solar energy. Not a single U.S. utility expressed interest. Now, that amount of solar capacity is installed somewhere in the U.S. approximately every 25 minutes, and utilities no longer can afford to ignore the renewable energy industry. Today, my company, New Energy Capital Partners, is a leading investor in clean energy projects and companies
To understand why certain utilities have shifted their stance towards renewables, it is important to understand the history and nuances of the sector. It’s equally important to note the consistently positive public sentiment for renewable energy, which has served as a catalyst for a series of government actions aimed at restructuring utilities to meet this consumer demand.
Early on, the U.S. government recognized the restrictive nature of the monopolistic utility industry. In 1978, Congress passed the Public Utilities Regulatory Policies Act (PURPA), which sought to spur innovation and reduce that monopoly power by requiring utilities to purchase electricity from privately-owned power plants employing new technologies for cogeneration (production of power and steam) and renewable electricity. By the mid-1980s, these generators, particularly those utilizing new gas turbine technologies, were demonstrating that they could produce electricity more cheaply than large central station power plants owned by regulated utilities.
Around the same time in Europe, growing public opposition to nuclear power in the wake of the 1986 Chernobyl nuclear accident led the German government to adopt aggressive incentives for wind energy with the Electricity Feed-In Act of 1991. European companies invested in new wind turbine designs and the installed capacity of European wind generation grew at an annual rate of 40 percent between 1990 and 1995. In 2001, Germany established solar subsidies which led to a 65 percent annual growth rate in German solar generation capacity between 2001 and 2011. As the industry grew, manufacturing efficiencies and technical advancements followed, delivering aggressive cost reductions worldwide. Between 2001 and 2017, the average cost of solar modules on the world market fell 88 percent.
Stateside, the ability of independent generators to produce electricity more cheaply than utilities led the public, regulators and legislators to question the justification for generation monopolies. In 1992, Congress passed the Energy Policy Act, which required utilities to give transmission access to independent, non-utility power generators. Yet, the utilities were generally successful in rolling back early incentives which favored renewable resources. As a result, the U.S. renewables industry remained mostly dormant throughout the late 1990s and early 2000s.