Solar energy encompasses a wide variety of technologies, such as solar photovoltaic (PV), solar thermal for power generation, and solar thermal for heating and cooling. Solar power has a number of urban applications, including integration into the design of buildings, cars or parking lots, as well as utility scale projects covering fields and brownfield sites. Technological advances and rapid deployment have dramatically lowered costs (see figure below) and increased efficiencies. Mass manufacturing in countries such as China have accelerated this trend. New designs and applications are consistently pushing the boundaries of what solar energy can offer. Cities have been quick to act on the potential of solar power for their communities, with more than one aiming for 100% solar energy. La Paz, Mexico, for example, currently generates 64% of its power from solar PV, and is set to reach 100% solar by mid-2015.
Legislation and Policy
The primary policy mechanism that has been used to support solar energy has been the feed-in tariff model, which pays generators of solar energy a fixed rate for the power produced by their project. Although state or national governments have typically been responsible for implementing supportive policies, such as feed-in tariffs or net-metering, local governments have also taken an active role. For example, in the US the cities of Austin, Palo Alto, Los Angelas, Anaheim and Gainesville have all implemented a feed-in tariff model to support solar PV. Reductions in the support levels for solar PV have been implemented in recent years, however growth in the industry has continued at rapid rates, with a new record set in 2013 with over 38,000 MW installed in a single year. The continued growth in the industry reflects the decreasing need for subsidies as a result of higher efficiencies and lower system costs.
Cities have also been driving deployment of solar thermal energy. For example, the city of Beijing is one of a growing number of jurisdictions that has implemented a requirement that new buildings incorporate solar thermal hot water systems. Solar thermal systems are relatively low cost and easy to install, making widespread implementation a realistic approach for many municipalities.
Building Political and Citizen Will
Similar to the wind energy sector, there is a long history of community participation in solar energy projects, through cooperatives and direct ownership by homeowners. Solar energy is flexible in terms of size, application, cost and technology, which makes the power source more accessible to individuals than other renewable energy systems. Local ownership helps to build support for renewable energy in municipalities, with citizens clearly seeing the benefits of distributed generation, either through load displacement or through revenues generated from selling solar energy to the grid.
Finance, Investment and the Business Case
A challenge for financing solar energy projects is the relatively high capital cost, particularly in the case of solar PV. Payback periods can be long, depending on the resource and the remuneration structure. Although investors are becoming more familiar with the technologies and revenue flows, solar is generally still considered a high risk investment. Low-interest loans and feed-in tariffs, for example, can help improve the financeability of these projects. Municipal backing or investment in projects can also send a signal to the investment community that these are proven, attractive investment opportunities.
In many jurisdictions, solar is already very competitive with other sources of energy. Chile, for example, has a growing number of solar PV ground-mounted projects that are ‘merchant generators,’ with revenues generated from market-based power rates rather than fixed through a long-term contract. The solar business case depends on the resource; module and balance of system costs (which can vary significantly in different jurisdictions due, for example, to rooftop and land rental rates); transmission constraints; local wholesale electricity prices; and the policy framework. Cities, such as Lancaster in California, that have high energy prices and an excellent solar resource, can make a strong case for solar from a cost, reliability and economic development perspective.
Technology and Infrastructure
An advantage of solar is that the energy is typically produced when it is needed, for example during the day when the demand from air conditioning or heating is high. Furthermore, weather forecasting makes solar energy production relatively predictable, both on an hourly and yearly basis. This helps from a system operation and reliability perspective with the integration of solar into the electricity or heating network. Solar energy also has the advantage that it is often consumed at the site where it is produced, which can reduce the need for investment in new distribution infrastructure. However, on the flip side, distributed solar generation displaces demand from the electricity grid, which can create challenges for the revenue flows of local utilities. Addressing the transition of the traditional utility model to a distributed generation and consumption model will be a key challenge in the coming years.
Looking ahead, continued improvements in the efficiency of PV modules are anticipated, as well as even greater reductions in the costs of both the modules and the balance of system costs. New technologies are using fewer input materials and are producing thinner panels, which will increase their effectiveness in building integrated designs. Furthermore, new applications for solar that include storage and combined heat and power applications will improve the attractiveness of these projects and improve system operability and integration.
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