Solar Power in the US: Sunny today, cloudy tomorrow

This article was originally publicated by Energetica International in May 2014:

http://www.energetica21.com/revistas-digitales/mayo-2014-2014

Solar Power in the US: Sunny today, cloudy tomorrow

 

David Gomez Jimenez[1]

Trade Commission of Spain, Los Angeles, CA

April 2014

Solar power in the US continues breaking records every year. In 2013, 4,751MW of photovoltaic power (PV) were installed, the highest yearly figure so far and up 41% over 2012. Another 410MW of Concentration Solar Power has being added, so the US ended the year with more than 13GW of total operating solar capacity, being within the top 5 countries in the world. The trend is expected to persist in 2014, when analysts predict around 6GW of new installation, growing in all segments, but most rapidly in the residential market, according to SEIA[2].

Despite the good results, very few in the sector would say that the US is a sweet spot for doing business in solar energy. The complexity of the electrical market, the great competition between players pushing prices lower and regulatory drawbacks make solar industry professionals’ work very difficult. Additionally, putting the figures in perspective, solar power still represents less than 0.2% of the total electricity generation in the US[3].

Complexity is due to, among other things, the fact that energy policy in the US is more a state responsibility than a federal one, except for some cross-border issues. This is the heritage of an uncoordinated and scattered development of the power utilities which were born at the beginning of the last century as small and local ventures. They grew at slow pace, becoming monopolies in the areas where they serve due to the nature of electrical distribution. To oversee this market power and avoid abuses as electricity was becoming more indispensable; local or state agencies began to regulate their activities, usually being called Public Utility Commissions (PUCs). So after a century of state regulations, mergers and acquisitions, deregulation attempts and some outrageous blackouts, the market in the US has become a very heterogeneous and complex mix of models, with more than 3,200 utilities (public, private or even co-ops), three independent and asynchronous grids, 8 Independent System Operators and at least 52 legislation bodies to decide the future of the electrical markets.

Nevertheless, if there is something in this mess that they all agree on, it’s to maintain reliability at the lowest prices. This is the pledge that solar, and the rest of the renewable technologies, must make every day. Solar technologies have been well-known for several decades, and they have already demonstrated their capacity of producing electricity from the sun in utility-scale grade, especially thermo solar power that used to be considered experimental. However, as much capacity is installed, utilities and regulators in some places, such as California or Hawaii, are becoming worried that the outdated grid cannot support it, especially for variable PV, whose ramps can be sharp and no efficient storage has been already developed.

Moreover, the cost of energy for solar power is still higher than conventional technologies in most cases, if this comparison can be ever done in a fair manner. Once reliability is assured, and it is nowadays, price is the next barrier for solar. The cost of electricity is the key variable for regulators to grant approval for a utility’s project or raise tariffs for paying it back. The reason that makes PUCs allow more expensive technologies is because they have a superior mandate from state governments to achieve a goal of renewable generation: the so-called Renewable Portfolio Standards (RPS). These objectives of renewable consumption are set only by some states (29 to be exact); for example, 8% in 2025 in New York, 33% in 2020 in California or 40% in 2030 in Hawaii. For achieving a more balanced mix, some states also imposed a carve-out, obligating solar power to be a particular percentage of the RPS.

However, it is the responsibility of the utility and the regulators (PUC) to achieve them in the most cost-effective way. So utilities, pushed or backed by PUCs, launch competitive Request for Offers (RFO) to buy renewable generation from developers (Independent Power Producers, IPPs) or, in few cases, to build their own plants. The deal is closed in the PPA (Power Purchase Agreement), where the price paid by the utility for renewable kilowatts-hour in the next 25 years is defined. These processes are tremendously competitive, especially in the solar sector, so big vertically integrated companies are usually the winners; since they can offer lower prices thanks to scale economies. For instance, FirstSolar, manufacturer and developer, is by far, the number one solar contractor in the country, with more than 1,500MW installed, five times more than the next competitor[4].

RPS are continuously in debate within the States and even the Houses. Raising them seems very unlikely in the short and medium terms, since unconventional fossil fuels coming from shale exploitation have flooded the markets with cheap natural gas, ready for electricity generation. Moreover, these are domestic and also cleaner than the conventional alternative, coal, so the former renewable supporters based on these arguments are now challenged.

In addition to RPS, tax credits given by the federal and states governments act as catalysts in the definition of the PPA price, balancing renewable capacity installation in the short run. The reduced tax amount is translated into lower offers in the PPA price, so they are actually a subsidy to utility and consumers, who buy cheaper renewable electricity. The most important tax credit for solar power is the ITC (Investment Tax Credit), which is available for projects that will be online by 2016, giving 30% of investment costs back as an incentive. Due to the economic downturn and the difficulty of monetizing this credit, for projects that went online between 2009 and 2011, there was the option of receiving the incentive as an upfront grant, under the 1603 program, known as Cash Grant. This option was fantastic for solar projects, since developers did not need tax equity investors and they could reduce their financial needs. It is estimated that over 45,000 individual projects were supported by this program. However, the dream has turned into a nightmare for developers as the Sequestration is reducing the amount of cash grant received, challenging the legal certainty of a country that is supposed to be the hero of capitalism and have a responsible government, with a measure that is close to retroactivity. Since there has not been an agreement in Congress about raising the debt ceiling, the Budget Control Act of 2011 fired the automatic spending cuts in the Federal Budget, causing a reduction of 8.7% in 2013 and a 7.2% in 2014 of the Cash Grant, which will continue over the next years. That has squeezed the small margin of developers, compromising financial viability of projects that are already online, which included the grant in their project financing[5]. It is especially dramatic for the handful of thermo solar projects, due to the size and the huge amount of investment. Many foreign companies are affected, especially the Spanish ones. The situation is chipping away at the country’s credibility.

Nevertheless, despite these difficulties, the solar market continues growing, as mentioned before, driven by cost reductions, financial innovations and improved investor confidence in this long-term venture.

Solar PV in depth

As mentioned, 2013 was the record year on capacity additions, with 4,751MW of Solar PV installed. Annual weighted average PV system prices continued to descend in 2013, reaching a historic low of $2.89/W.

Solar Power in the US

More than a half of this new capacity (2,621MW) was installed in California, which continues being the champion in solar power in the US, followed by Arizona (421MW), North Carolina (335MW), Massachusetts (237MW) and New Jersey (236MW). In cumulative capacity, California is also the leader with more than 5GW running, followed by Arizona (circa 1.5GW) and New Jersey (over 1GW).

By segment, the utility scale broke records too with 2,847MW installed. However, the project pipeline (PPA-signed) in this segment fell from 12.6 GW to 11.7 GW, of which 3.3 GW is currently in construction with expected completion in the next two to three years. This is the first symptom that RPS-demand is starting to wane and the effect of tax credit cuts, since ITC is only available for less than three years (to 2016), for projects that usually need more than two years of development.

Commercial and residential segments, represented 1,112MW and 792MW respectively. The first one grows at a small rate, but the residential is distinguished by its remarkably consistent incremental growth. New financing options (lease, loan and PPAs) are more widely available for homeowners as well as new distribution channels closer to retail markets as partnerships with home improvement stores, electricity suppliers or other home service suppliers such as cable television. SolarCity, the company founded by the cousins of Elon Musk (Tesla), stands out as the leader of the contractor segment, ranking second, after FirstSolar.

Net metering is the battlefield here. Since it is a direct threat to the utility business model, as they are paid by kWh served to customers, a strong debate is taking place in many states about how to manage it. It is not a simple question; as long as homeowners continue to need the grid as a backup and for balancing generation and consumption, while efficient and economic storage is developed. Utilities are lobbying the PUCs for charging high fees to customers arguing that distributed generation (DG) solar users take far more from the grid than they give. Solar supporters alleged that DG can actually be beneficial, since it is closer to consumption and it will avoid new transmission and distribution infrastructure to cope with demand increments. A strong battle will come in the following years.

CSP, stop and hope

Concentrated Solar Power is at the end of a cycle in the US. Between the end of 2013 and the first half of 2014, the largest capacity addition in the history of the country is going online. However, no new commercial project has started construction in the last two years, and the few that are in advanced grade of development, are trapped in permitting or financing phases. Now the Sequestration is adding a new hurdle in the road, as commented.

Around 1,300MW of CSP will be online soon, thanks to the key role of Spanish companies, which have been developers, engineers, contractors or suppliers. These projects are the result of extensive development during the last five years, and they are scattered throughout the southwest of the country[6]: Abengoa, with Solana, already successfully operating for the last six months, and Mojave, in commissioning (280MW each, parabolic trough), BrightSource, with Ivanpah in operation (392MW, tower), Solar Reserve – Cobra, with Crescent Dunes (110MW, tower) and Nextera – Sener, with Genesis (250MW, parabolic trough).

Solana by Abengoa
Solana by Abengoa

Projects in development are Rice (Solar Reserve – Cobra, 150MW, tower) with all permits and PPA but without financing, and Palen (BrightSource – Abengoa, 500MW, tower), that does not have all California Energy Commission permits yet. Both projects are currently on stand-by.

All these new online projects were possible somehow thanks to the Federal 1705 Loan Guarantee program, where the government securitized up to 80% of the investment, making financing possible at a reasonable price. This program ended in 2011, but now there is a glimmer of hope for new projects, as Ernest Moniz, Secretary of Energy, announced last February during Ivanpah opening. The previous 1703 loan guarantee program is about to open for new applications, allocating up to 4 billion dollars only for renewable energy where CSP funding could perfectly be granted.

Conclusions

Solar PV, especially distributed generation paired with smart grid, has the capability of altering the traditional power industry model that is more than one century old. Technology is becoming so reliable and inexpensive that it is beginning to cause concern among utilities regarding losing their core business: producing, transporting and distributing electricity to customers. The silent revolution has already started and it is more a matter of time when having solar panels on roofs will be as American as apple pie.

In the short or medium term, the market will depend on the cost of solar energy (which is expected to slightly increase as global excess capacity is removed2), availability of government incentives (Sequestration will force developers to revise some PPA prices), and new state and local policies support; with the cheap natural gas looming as an strong alternative for solving the energy puzzle, but with solar net metering being a very reasonable option.

Two challenging moments for solar power are ahead: first in 2016 when the ITC will end and second, in 2020 when RPS compliance dates arrive, especially in California, the first market for solar power by far. Political decisions made for later dates are crucial for the future of solar energy in the next decade.


[1] MSc Engineering (UPM), BA Business (UNED), CGS Sustainability (UCLA). Director of Energy Department.

[2] Solar Energy Industries Association (SEIA): Solar Market Insight Report 2013 Year in Review

[3] See www.eia.gov

[4] See Solar Power World: 2013 Top 250 Solar Contractors

[5] SEIA: Letter to OMB and Treasury on 1603 Sequestration Cuts

Volunteering at Grid Alternatives. Installing PV for low-income

I have always believed that the technology has to serve the citizens as a way of prosperity and social equilibrium. In that sense, I have participated in one of the best experiences of my live as engineer and specialist in energy: volunteer for installing solar PV panels for a low-income family in Los Angeles.

The brilliant idea of the nonprofit Grid Alternatives is to bring the benefits of solar technology to communities that would not otherwise have access, providing needed savings for families, preparing workers for jobs in the fast-growing solar industry, and helping clean our environment. So, they address all of the triple bottom line’s objectives. They basically install solar PV for free on low-income roofs. Panels and equipment is finance by donations at manufacturers’ special prices, and the labor comes from volunteers.

I knew about them at UCLA and I loved the idea. Several months ago I registered and I did the orientation session, where they explained basic safety and installation issues. I was surprised because the majority of the volunteers are unemployed people who want to gain experience on solar PV installations, to get a job. It is ironic that, at the end, the most generous persons are those who are more needy.

After several months of being waitlisted (they have more volunteers than projects to accommodate), I could get a spot. The home was located very closed to Compton, which is sadly infamous in LA for its heavy concentration of gangs and gang violence, ranked as the 8th most dangerous city in the country by FBI, but being the place where probably gangsta rap sub-genre born (Ice Cube, etc). Nevertheless, it did not seem so dangerous to me, it actually has a very similar look to many parts of my home town, Madrid.

The house was one story with a back and a nice front yard. We installed 20 panels of the brand Sun Power, probably E-19 series(245W/each), in two racks of 14 plus 6. The first day we installed the footers and rails where the panels would be fixed, on the second day, with the electrical connections. It is frankly surprising see how the panels generate voltage between the two terminals when you measure it with a multimeter, even if they are not facing the sun. Such a wonderful technology¡

After two days of pace and relaxed work, drilling holes, screwing bolts, joining wires and pouring glue, the work was finished, and the installation running¡

Solar PV Installation in Compton - Grid Alternatives

Donations to Grid Alternatives

I have published an article in 'Energias Renovables'

I am very glad to announce that an article by my workmate Victor Iglesias and me, have been published in the very famous Spanish magazine Energías Renovables.

Termosolar en estados unidos

The title is ‘¿Cómo está la termosolar en los Estados Unidos?’ (How is the thermo-solar market in the US?) and in a few pages we explain to our Spanish compatriots what is going on in the American market:

http://www.energias-renovables.com/articulo/como-esta-la-termosolar-en-los

Moreover, we have been cited in the paper version, on page 59

http://www.energias-renovables.com/publico/revista_digital.php?nrevista=582&title=Especial%20Termosolar/

 

Spanish Feed-in Tariffs: Killing the Golden Goose

Spain had a struggling issue in energy supply at the beginning of the 90’s. More than 70% of its primary energy sources were hydrocarbons and almost all of them were imported because there are not autochthonous reserves of oil, natural gas and only one third of all needs of coal. They were imported from countries like Russia, Libya, Algeria, Nigeria or Egypt, not very trustable from a geopolitical point of view. Moreover, the electrical markets were dominated by two vertical integrated utilities which had not been invested in new transmission capacity or new generation plants. Due to the growth of the economy, it was forecasted a important growth in energy demand (actually the demand doubled in 15 years), so the Government had to deal with a big problem, also aggravated by the environmental compromises with European Union in using renewable energy and reduce CO2 emissions.

Spanish FiT have been called as the fable of the golden eggs goose

So, the Government made important decisions to address the issue, fighting with numerous personal and private interests from utilities and the old school guys. Probably, the period from 1990 to 2010 was the moment with more energy laws and legislation passed in all the Spanish history. Following the California and UK examples, the market was liberalized, a new Independent System Operator (ISO) and owner of all transmission lines was created, Independent Power Producers were allowed to access to the grid, and important laws in supporting renewable energy sources were passed.

Nowadays, Spain is well known for being a country who is leader in the world in renewable energy technologies. Despite to be the 12th country by GDP, it achieved the fourth place in wind capacity installed, second in solar PV and it remains first in solar thermal. In 2011, the 36% of the electricity comes from renewable energies, a remarkable fact since the US only achieved 13%. In others indicators related with infrastructure (as transmission lines average age, miles of high-speed rail or miles of freeways) or with human development (mortality, education, etc), it is on the top five. Nevertheless, currently is also infamous by the struggling economic situation, difficulties to pay back the national debt and high rates of unemployment. Both achievements and failures are consequences of the decisions made, some of them related with energy. In the particular case of renewable promotion, the Spanish feed-in tariffs program (FiT) is one of the most commented, discussed and disputed energy policies in the recent years, specially the program for solar photovoltaic, who has been called for many people as the fable of Killing The Goose That Laid the Golden Eggs.

The promotion of the renewable energy, as solar, wind or biomass, is an issue of how to internalize the positive externalities into the market. These benefits are well known. The clean or renewable energies, do not pollute, do not contribute to climate change, do not imply resources depletion, do generate local employment, do promote the national industry, do improve the energetic independence, and more. All of these benefits are not included in the Levelized Cost of Energy (LCOE) or the price of the electricity. Because of that, these technologies are not competing in the same conditions as the conventional generation. That makes that the price of them is above the average price of the electricity in wholesale market, and as a consequence, the utilities do not want to build this expensive plants or to purchase expensive energy from others. This is because the benefits of the renewable energy do not go to them, but to society. That is a market failure and that is because they need the regulation or the support from the Government.

In the market, it is a basic principle that nobody, even the Government, can control the quantity and the price of a product at the same time. If you fix the price for the renewable generation (as FiT does) you do not know what will be the amount of renewable generation that you will obtain. The same, if you fix the quantity you want (as Renewable Portfolio Standards does); you do not know what will be the price for this generation. The price multiplied by the quantity is the key point, because that will be the cost for the electricity customers who are also your voters. So you have to be careful with that because otherwise you can make your citizens to pay so much for the electricity if the price by the quantity is too high, but you can make them not to gain the benefits of renewals if the renewals were not developed due to low prices which do not make the investments profitable.

In the FiT option, the government decides what will be the price of the renewable generation. That has enormous advantages for developing the renewable market because it is very easy for developers, investors and financial institutions to know what will be their retribution and the Internal Rate of Return (IRR) for their investments. It is easy to calculate the IRR and if the FiT is also well determined -the price will be a bit more than the cost of capital- then the development of renewable is smoothly and a reasonable cost for ratepayers, being society awarded with the benefits of clean generation. See Exhibit 1, with the case of wind.

Spanish wind feed-in tariff as an example of sucess
Exhibit 1. Electricity market Price (black), FiT for Wind (yellow and red) and Estimated cost for Wind (blue). This FiT was well calculated to make the investor obtain a 5-9% IRR.

Spain has become a leader in renewals thanks to FiT. The government support has been very strong and determined. The country started to use FiTs in 2000, and ten year later, the 35% of the total electrical generation is using renewals (2010). Spain has been successful implementing some FiTs, for instance in the case of wind, but has made huge mistakes in solar PV. The law ‘RD661/2007’ in 2007 was the most important piece of legislation because the most important FiT prices were determined. Prior prices were not enough for launching the market.

The key point of FiT is to determine the price of the premium. But that is difficult for a pioneer Government (and more in 2007 without other experiences) because a civil servant is not usually a solar PV developer, he does not know what are the real cost of solar modules, wires racking, etc. So the Government decided to ask the local solar PV generators associations to estimate the right price for the premium. Obviously, as much price, much profitable for the companies in the association, so they finally convinced the Government to fix a solar PV FiT that was 10 times higher than the average electrical price, and almost twice that the LCOE for Solar PV (at that time it was not so clear what was the real LCOE for PV, that, in fact, it has been strongly decreasing in the past five years). The business was so profitable (IRR above 20%) that it attracted investors from all over the world, and because it was pay by the Government, it was secured by the country bond with used to have an AAA rating, so practically at no risk.

The Government objective was 400MW of solar PV, but in only two years they got more than 3000MW. See Exhibit 2. Only the over cost of the solar PV FiT for the ratepayers is more than 2 billion of Euros every year, and considering all renewable technologies more than 6 billion. The reason why the Government did not realized before what was happening, it is because they relied on local administrations (similar to counties) for granting the permits for the solar facilities. Since local governments earned a lot with solar PV installations (jobs, taxes, votes), they did not informed the Central Government about the number of projects in the cue. In fact, they was not going to pay for the FiT, so they tried to host and grant permits for as many projects as they could.

Spanish Solar PV boom
Exhibit 2. Solar PV Objective (red) versus Solar PV actual development (blue).

Moreover, the Government decided not to increase the electrical rates, because the benefits of renewable should be paid not only for the current consumers but also by the future consumers, since renewals benefits are for different generations. So the electrical system generates every year a huge deficit that has the creative name of ‘rate deficit’, and which is accumulated as public debt (and accounted as more public debt for rating and country risk). Basically it is a debt from the ratepayers (aka citizens) to generation owners (generating companies). That debt was by the end of 2011 of more than 25 billions of Euros.

So, as the model was unsustainable, the Government finally decided, in January 2012, to cut off or suspend the FiT program, with a lot of complaints from investors and generators with projects on the way. So, since some of the causers of the over costs of the FiT model and the final breakdown of it were the own solar PV generators (trough the associations), they have been accused of killing the golden goose.

The renewable program has had additional benefits as 100,000 new employees, total contribution to GDP around 8 billion €, total exports: 3 billion €, reduction in 10,7Mtep in fuel imports (2 billion €) and savings over 370 million of € in CO2 emissions. Nevertheless the excessive cost finally collapsed the system. Now the renewable sector is accused of contributing to the tough situation of the Spanish economy. That is a good example as how careful has to be a Government when they decide the energy strategies and policies.

Visito la planta termosolar de eSolar Sierra Sun Tower

Sierra Sun Tower Generting Station

Gracias a una asignatura del certificate que estoy haciendo en UCLA, tuve la oportunidad de visitar la planta termosolar de eSolar Sierra Sun Tower. Sus 5MW de demostración se suman a los casi 500MW termosolar que hay en el país a en el verano del 12, aunque pronto sumarán casi el doble con los proyectos en desarrollo que hay.

Calor y sol en Sierra Sun Tower Generting Station

Sólo existen dos plantas con su tecnología en el mundo, la que fuí visitar en el increíblemente caluroso desierto de Mojave cerca del pueblo de Lancaster, y la otra en India. La tecnología es solar de concentración, pero el pequeño tamaño de los espejos (planos) y su generación directa de vapor aportan ciertas características nuevas a la generación termosolar. A continuación se puede ver un generador de vapor desmontado, donde se pueden ver los tubos instrumentados con su especial recubrimiento. La tecnología de la torre la suministra los viejos expertos del vapor Babcock&Wilcox que también aporta algo de equity a la compañía.

Generador de vapor solar Sierra Sun Tower Generting Station

Una planta interesante aunque quizás algo fuera de la tecnología actual, ya que no permite almacenamiento (clave para hacer interesante la termosolar), con una eficiencia más que dudosa, un mercado complicado en el corto y medio plazo y mejores competidores (los españoles entre ellos¡)

Generador de vapor solar Sierra Sun Tower Generting Station

 

Minimizing externalities

The electricity generation has important externalities issues. An externality happens when the price of a good doesn’t reflect all the costs that are generated in its manufacturing. That is because some of affections of the product manufacturing has no cost for the company because the price is zero, for instance, there are no price for the clean air or for a not-nuclear-risky generation. In the electrical generation, the product is very homogenous: electrical energy, measured in kWh. But, obviously, it is not the same for the planet how you obtain this energy. But the market, the wholesale market by own, doesn’t reflects all of these affections. So, in electricity markets, both negative externalities and positive externalities happen at the same time. In these two pages, I will analyze the two most popular methods of internalizing the benefits of the positive externalities of the renewable generation: Feed-in Tariffs (FiT) and Renewable Portfolio Standards (RPS), and I will focus on two country examples: Spain (FiT) and the US (RPS). There are also methods for internalize the negative externalities as the carbon cap and trade for CO2 emissions, but I will not consider them in this article.

So, the promotion of the renewable energy, as solar, wind or biomass, is an issue of how to internalize their positive externalities into the market. These benefits are well known. The clean or renewable energies, do not pollute, do not contribute to climate change, do not imply resources depletion, do generate local employment, do promote the national industry, do improve the energetic independence, and more. All of these benefits are not include in the Levelized Cost of Energy (LCOE) or the price of the electricity. Because of that, these technologies are not competing in the same conditions as the conventional generation. That makes that the price of them is above the average price of the electricity in wholesale market, and as a consequence, the utilities do not want to build this expansive plants or to purchase expensive energy to others. This is because the benefits of the renewable energy do not go to them, but to society. That is a market failure and that is because they need the regulation or the support from the Government.

In a market, even the Government can not control the quantity and the price of a product at the same time. If you fix the price for the renewable generation (as FiT does) you do not know what will be the amount of renewable generation that you will obtain. The same, if you fix the quantity you want (as RPS does); you do not know what will be the price for this generation. The price plus the quantity is the key point, because that will be the cost for the electricity customers who are also your voters. So you have to be careful with that because otherwise you can make your citizens to pay so much for the electricity if the price plus the quantity is too high or you can make them not to gain the benefits of renewals if the renewals were not developed due to low prices which do not make the investments profitable. The two methods are good if they are well designed, but that is not the common case.

The Feed-in Tariffs
In the Feed-in Tariffs option, the government decides what will be the price of the renewable generation. That has enormous advantages for developing the market because it is very easy for developers, investors and financial institutions to know what will be their retribution and the Internal Rate of Return (IRR) for their investments. It is easy to calculate the IRR and if the FiT is well calculated -the price will be a bit more than the cost of capital- then the development of renewable is smoothly and a reasonable cost for ratepayers, being the society awarded with the benefits of clean generation.
Spain has become a power in renewals thanks to FiT. The government support has been very strong and determined. Spain has been successful implementing some FiTs, for instance in the case of wind, but has made huge mistakes in solar PV. Spain started to use FiTs in 2000, and ten year later, the 35% of the total generation is using renewals (2010).

In the following graph you can see the average cost of electricity in the wholesale market (black line), the LCOE of wind power (blue line) and the FiT (yellow and red line). As long as the FiT is above the cost, the investment is interesting. This FiT was well calculated to make the investor obtain a 5-7% IRR.

Spanish Fit in wind

In the following graph you can see the objective in wind (red bars) and the actual development (blue bars). As you can see, the development has been constant and progressive.

Spanish wind development vs objective

That is the successful example. But what did it happen in solar? In the following graph you can see the average cost of electricity in the wholesale market (black line), the LCOE of solar power (red line) and the FiT (yellow line). As you can see, the FiT was much more than the cost, so the investors obtained more than 11% IRR.

Spanish Fit in solar PV

What was the result? An over investment in solar PV power. Government wanted 400MW and they obtain more than 3,000MW. That implied a huge cost for citizens, and, as a result, the FiT has been reduced dramatically.

Spanish solar PV development vs objective

Renewable Portfolio Standards
With this method, the Government fixes the quantity of renewable generation that it wants, but not the price. That makes that the developer, the investor, and the most important, the financial institution that is going to put the money on the table, they do not know what will be their IRR before they start to promote a plant. So they have to deal with a lot of risk if they want to build a renewable plant. That is crucial, because at the end, the development of the renewals results too slowly.

You can see the example of the US. The US was the first country in building renewable plants in the 80’s, but now, only the 10% of the total generation is renewable (being 7% big hydro). So they have thirty years of expertise in renewable and only 10% as a result.

The US uses the RPS. That is an objective that some states try to achieve. For example, California has a RPS of 33% renewable in 2020. This objective becomes an obligation for the utilities, which have to provide a 33% of their portfolio using renewals.

Not bad, but then why have they achieved so few renewable generation up to now? Because two things: first of all, they make auctions to know the price of generation (trough Request for Proposals) and due to the competition, many of the bidders offers a price below the real cost, thinking that when they will build the plants, the technological development will made the cost reduced. But that not happened, and now there are a lot of projects that will not be ever built because the developers offered a very low price. Second, because, in fact, the utilities are not penalized if they do not comply with the RPS. So they do not have real incentives to buy more expensive energy that will make their ratepayers to pay more. As a result, the real price of renewals is not revealed.

Conclusions
We have seen to examples of trying to internalize a positive externality. But it is not easy because it is extremely difficult for a legislator to put a price for all of these things that are not in the market. Nevertheless, from the errors, we learn, so, these experiences will improve Government thinking. Benchmarking is also good thing to do for legislators to learn from the errors of the neighbours.

Nevada Solar One and Hoover Dam, two great champions¡

If you go to Las Vegas, it is sure you will have a great time. But if you have enough time, I recommendo you to visit the Hoover Dam and Nevada Solar One.
The two plants are a very good examples of how we can obtain energy for free. In fact both plants are distant only 10 miles, and are two examples of how Americans can be the leaders if they want.
Hoover Dam was built in 1936 during the Great Depression, (in Spain we have finishing our inglorious war by the time), and cost over 100 lives. It was named in honor of President Herbert Hoover. It is placed between Arizona and Nevada, in fact there are different times zones in each side of the dam¡
From Hoover Dam
The size of the canon is awesome and the construction is anyway beautiful. The two jet-flow gates are one of the most well-known images of hydraulic engineering of the world. By the time of constructuion, such a large concrete structure had never been built before, and some of the techniques were unproven, so they was pioneers in the engineering limits.

Compensation towers Hoover Dam
Compensation towers Hoover Dam

The maximun capacity of the power plant is 2080MW, amazing¡ The intakes provide a maximum hydraulic head (water pressure) of 590 ft (180 m) as the water reaches a speed of about 85 mph (140 km/h). The entire flow of the Colorado River passes through the turbines.

In the other side, Nevada Solar One is also a type of innovation. It is a Concentrate Solar Power Plant built and operate by a Spanish Company, Acciona, and it represent the first big CSP facility built after the Kramer Junction plants in the 80’s. It was finished in 2007 and has a capacity of 64MW.

Nevada Solar One
Nevada Solar One

When I visited it, I felt like in a museum of energy enginnering. It was an absolutely honor to stay so close of one of the plant I have much admired before. This plant sells its electricity to Arizona Public Service (APS), which is estimated to be 134 million kilowatt hours per year. The CO2 emissions avoided is equivalent to taking approximately 20,000 cars off the road annually.The project required an investment of $266 million USD.
At the door of Nevada Solar One
At the door of Nevada Solar One

These two plants are the best example of the human willing to dominate the forces of nature to do whatever we want.