Roger CaiazzaPeople ask me questions about aspects of the articles I write. I recently described the New York Office of Renewable Energy Siting (ORES) approved Hecate Energy’s permit for the 500-megawatt (MW) Cider Solar Farm. The question that came up asked about the business model of the solar developers. I did some digging and found enough information to eviscerate any claims that solar developers do not get subsidies.
Climate Act Background
New York’s Climate Leadership and Community Protection Act (Climate Act) Act establishes a “Net Zero” target (85% reduction and 15% offset of emissions) by 2050. I have written extensively on implementation of the Climate Act. Everyone wants to do right by the environment to the extent that efforts will make a positive impact at an affordable level. My analysis of the Climate Act shows that the ambitions for a zero-emissions economy outstrip available renewable technology such that the transition to an electric system relying on wind and solar will do more harm than good. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.
The Climate Action Council is responsible for preparing the Draft Scoping Plan that will “achieve the State’s bold clean energy and climate agenda”. The basis of the document is strategies developed in the integration analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants. The Draft Scoping Plan projects total solar resource capacity will be between 41,420 and 43,432 MW in 2040. There is a target for 10,000 MW of distributed solar so for an upper bound assume that utility-scale solar resources of at least 31,420 MW will be needed by 2040.
Solar Subsidies
A reader asked about the subsidies available to solar developers. This article will address direct subsidies that are the ones we usually think of and I will also describe a massive indirect subsidy.
The solar industry story as exemplified by the Hecate Energy Cider Solar Farm description about solar’s affordable energy states:
Because sunlight, the fuel source for solar energy, is free, solar energy has steady, predictable power production costs. As the price of other power generation grows, solar energy will help to mitigate overall electricity price increases.
In theory because the solar farm doesn’t need to pay for fuel their generation costs are so low that they should be profitable just getting the market price of the power that they produce. However, there are direct subsidies that are available to solar developers.
New York provides so many incentives that companies that provide financial capital for solar development have web pages devoted to New York. For example, SolRiver Capital is “interested in New York because of its strong state programs and incentives for solar, including remote net energy metering and the NY Megawatt (MW) Block program. In addition, the state has a high volume of direct PPA’s and utility PPA’s with high-quality offtakers.”
SolRiver Capital describes the incentives. Remote net energy metering or RNEM “allows a farm or non-residential utility customer to generate energy in one location to apply against their meter in another location. This enables customers to use solar that would otherwise have a site that’s unsuitable or too small for it.” The New York Megawatt Block program “provides regional incentives for commercial and industrial solar projects (>200kW). The incentive comes in the form of a $/kWh rebate based on the expected system production.” In my opinion these subsidies don’t have much of an effect on consumers.
A Utility Purchase Power Agreement (PPA) is an agreement between a utility and a generator, in which the utility buys power from a solar system that’s interconnected to the utility grid. In addition to buying power, it’s common to see a utility purchase renewable energy credits. New York utilities are required to disclose environmental information on “the types of fuels used to generate electricity, air emissions resulting from generating electricity, and a comparison of those emissions to a statewide average.”
If they are not already doing so the electric service providers will be required to provide certain percentages of renewable energy to their customers. In order to track those energy attributes, the state has set up the New York Generation Attribute Tracking System (NYGATS) which is used to track renewable energy credits. In order to meet the mandates, the utilities have to buy the renewable energy credits in a purchase power agreement and those costs are passed on to consumers.
A direct power purchase agreement refers to an agreement between a customer and a generator, in which the customer buys power from an on-site solar system. According to SolCapital “This is a plain-vanilla structure and very common for solar projects”. This is another subsidy that I don’t think has much of an impact on consumer costs.
In addition to those subsidies, developers get Investment Tax Credit for solar developments. Commercial and utility-scale projects which have commenced construction before December 31, 2023 may still qualify for the 26 or 22 percent ITC if they are placed in service before January 1, 2026. NYSERDA provides subsidies that vary by location and by each bidding round.
There are non-recourse loans for solar project development cost plus exemption from sales and mortgage taxes and fees plus state mandated payment in lieu of taxes agreements imposed on local governments. I have no idea how much those direct subsidies total but those costs are eventually passed on to consumers.
Indirect Renewable Energy Subsidy
In my opinion, the biggest effect on consumer costs are the indirect costs needed to make renewable energy work. Wind and solar resources and intermittent and diffuse. A reliable electric power system is very complex and must operate within narrow parameters while balancing loads and resources. Obviously, the energy generated from solar facilities is zero when the sun is not shining and zero from wind turbines when the wind is not blowing. In order to provide the energy needed at all times someone has to pay for the storage resources needed when wind and solar resources are unavailable.
Because those resources are diffuse the transmission system is necessary. It turns out that wind and solar resources do not support the grid. New York’s conventional rotating machinery such as oil, nuclear, and gas plants as well as hydro generation provide a lot of synchronous support to the system. This includes reactive power (vars), inertia, regulation of the system frequency and the capability to ramping up and down as the load varies. Wind and solar resources are asynchronous and cannot provide this necessary grid ancillary support.
Some, but not all of the disadvantages of solar and wind energy in this regard can be mitigated through electronic and mechanical means. When these renewable resources only make up a small percentage of the generation on the system, it is not a big deal. The system is strong enough that letting a small percentage of the resources that don’t provide those services to lean on the system. But as the penetration of solar and wind energy increases the system robustness will degrade and reliability will be compromised without costly improvements. All of these costs are necessary and none of those costs are supported by the wind and solar developers.
In my Draft Scoping Plan comments on the electric system I estimated the costs for the projected generating capacity described in the Draft Scoping Plan Integration Analysis. I estimated that the mitigation scenarios overnight cost just to develop the resource capacity needed to transition to a zero-emissions electric system in 2040 range from $220 billion to $400 billion.
I also found that the costs for energy storage and the zero-carbon firm resource necessary to provide power when there is an extended period of little to no wind and solar resources were more than half the total cost. In other words, wind and solar developers are indirectly subsidized because they do not pay for the resources needed to make the electric grid reliable at all times. That cost appears to be on the order of the cost of the development itself.
Conclusion
There is no question that there are massive subsidies for wind and solar development that will affect the energy costs of all New Yorkers. I believe that at the end of the day affordability will become a major issue in New York just like it has in every other jurisdiction that has attempted a net-zero transition.
In my recent post on the Hecate Energy Cider Solar Farm I expressed my disappointment that the State has abrogated its responsibility to protect prime farmland from solar development. Given all these subsidies it is obvious why a solar developer can out-bid a farmer to rent prime farmland. Until there is a state policy that codifies the Department of Ag and Markets prime farmland protection guidance for solar development, out-of-state developers will come in and plop down solar farms wherever they can outbid farmers for land that is easiest and cheapest for them to build.
Roger Caiazza blogs on New York energy and environmental issues at Pragmatic Environmentalist of New York. This represents his opinion and not the opinion of any of his previous employers or any other company with which he has been associated.