Financial constraints on the development of solar energy— and suggested government action to mitigate such constraints

Abstract

Solar energy applications can be separated into six categories: 1. (A) retrofit of existing buildings, 2. (B) altered structural designs for new buildings, 3. (C) solar collectors for low-temperature water and space heating, 4. (D) relatively small on-site solar generators (including windmills), 5. (E) large-scale solar or wind powered electric generator or cogenerator installations, and 6. (F) widespread dispersion of solar generation with an integrated electric supply system. Decisions to opt for solar applications in the first three categories are largely made by individual homeowners, landlords, small business entrepreneurs, and corporation executives, while the development and installation of facilities in the last three categories are clearly affected by the financial and regulatory constraints and incentives faced by local energy supply utilities, especially electric utilities. Government actions to stimulate solar development are different for the first three categories than for the last three. While it is frequently suggested that our local utilities should play a key role in the first three categories, ultimate success in obtaining widespread activity will depend upon providing the homeowner, landlord, or business with a clear financial incentive to act; removing legal restrictions that now inhibit commercial participation by electric utilities; and establishing a broad network of insulation and equipment suppliers based upon commercial considerations. Because the last three categories are concerned with solar generation of electricity, the electric utilities' role is necessarily crucial. On a per kilowatt basis, such generating facilities are the most capital intensive of all forms of electric generation. And many electric utilities are in such poor financial condition that they could not pay for high capital cost solar facilities even if they could be shown to be the economic choice. If electric utilities are to be induced to install solar generation facilities, existing rate-making practices must be revised. Several additional federal actions might be taken to provide utilities and others, including large industrial power users, with economic incentives to install solar and wind power generation. Such actions include tax incentives, subsidies, and legislation to allow electricity generated from new installations to be sold at no less than its replacement value in terms of oil displacement. An important tax change would be to make the extra 15% energy tax credit available for solar generation installed by public utilities. A number of such actions will be required if significant solar and wind power installations are to be achieved.