Solar Is Being Held Back by Regulations, Not Technology - Harvard Business Review

Due to the drop in costs for solar technology and increases in electric utility rates, solar photovoltaic-generated electricity is now less expensive than grid electricity, and adoption is rising rapidly throughout the U.S. In fact, Bloomberg reported that the American solar industry had a record first quarter in 2016, and for the first time, it drove the majority of new power generation. As I previously wrote, the U.S. solar industry is now creating enough jobs (hiring new workers 12 times faster than the overall economy) that it could actually absorb all the coal jobs that would be lost if the coal industry was completely shut down.

And yet there’s room for even more industry growth, and more savings for American consumers: a recent study my team conducted found that antiquated regulations are costing the growing solar market an additional $70 billion.

To understand why, we have to start by looking at the market for solar. Most people jumping onto the solar bandwagon at this point are doing it for the cost savings. As Elon Musk, the CEO overseeing the Solar City–Tesla marriage, pointed out, solar cells are extremely cost-effective for consumers. The wealthy can now install large high-power solar energy systems that produce enough energy to meet their needs for an entire year. Even families without the up-front capital can rely on zero-money-down financing programs, like those offered by Solar City and other solar lease providers. Consumer Reports points out such consumers don’t save as much money, but they still come out comfortably ahead—they save thousands on electricity bills, while helping to green and modernize the grid by generating non-polluting power.

However, for many people, it is still difficult to invest in solar. The average American moves more than 11 times over their lifetime, and more than a third of Americans rent housing, which makes a 25-year investment in a rooftop solar system challenging. How can these people take part in the solar energy revolution and all the money savings that come with it?

One technical solution to this problem are plug-and-play solar systems. These are affordable (you buy one solar panel at a time for a few hundred dollars) and portable solar electric systems that tie into the electrical grid. They can be installed on a porch or backyard by an average person with no training, and they can be transported from home to home. While plug-and-play solar does not normally cover a household’s entire energy needs, it does cut down on the grid electricity used. (The number of panels needed depends on the person and home – a single person living in a small place might need four, while a family in a big house might need 40 to cover all their needs.) Countries like the United Kingdom, the Netherlands, and Switzerland already encourage plug-and-play solar. Consumers can buy modules and install them in small quantities, providing up to 1 kW of power.

However, these plug-and-play systems are prohibited in many instances in the U.S. because of outdated federal, state, and regional regulations. These encompass, for example, arbitrary fees or paperwork that make it harder for people to get permission to install these solar systems, and help utilities retain their monopoly on energy generation. Some utilities interpret the regulations to not allow distributed generation at all. Many of these regulations were put in place before modern inverters (which allow solar electricity to safely feed back to the grid) existed, and so local utilities are largely responsible for interpreting them, despite the inherent conflict of interest to maintain their monopolies.

This leads to an intricate web of confusing rules. Even if it is legal for you to install a plug-and-play system, your neighbor across the street who is serviced by a different utility may not be able to, while your parents living in a different city may be able to only after paying hundreds of dollars in arbitrary fees. It all depends on the utility, and customers currently have to check which rules apply to them. This patchwork of regulations and interpretations limits the solar industries’ rate of growth.

My research group conducted an exhaustive technical/safety analysis of the relevant regulations of plug-and-play PV in the U.S. and found no valid technical concerns for this patchwork of rules. There is nothing stopping the United States from following the trends in other advanced industrialized nations and allowing plug-and-play solar in America. We suggest that a blanket federal U.S. electrical regulation, streamlining hundreds of conflicting regional rules, would allow plug-and-play solar in the future—and foster business competition that benefits Americans. Such an update in regulations could radically alter the solar market by opening up investment in solar to everyone – just not the upper-middle class and above. And that could have a tremendous impact on household savings.

Our study also estimated the potential savings for consumers who produce more energy than they can consume (and thus can deposit some energy back into the grid). We wanted to know how a new U.S. market for plug-and-play PV systems would affect these “prosumers.” We looked at electric rates and how much solar energy was available across the country, and we calculated the cost of solar electricity compared to the grid in each region. Then we correlated demographic data with geographic information to estimate the total market for plug-and-play solar.

The results showed the total potential U.S. market would reach to over 57 million households. Thus, plug-and-play solar represents over 57 gigawatts (GW) of new energy production, which is equivalent to what 57 large coal or nuclear power plants would produce. (For comparison, there are less than 100 nuclear plants in the U.S.) These plug-and-play systems would generate approximately 108,417,000 Megawatt-hours/year, which would be four times the electricity generated from U.S. solar in 2015. This is remarkable because it would come from home solar systems that only consist of one-to-four solar panels at a time. This new distributed solar energy could save American consumers approximately $13 billion a year in utility costs.

Economic benefits would also go to companies. Perhaps most interesting to investors is the effect this deregulation of the electric system would have on American retailers, like WalMart, Costco, Home Depot, Lowes, and Target, who would be able to sell plug-and-play solar products. Taking the capital costs into account, our calculations showed that allowing plug-and-play systems could result in $14.3–$71.7 billion in sales. Not exactly pocket change for a new market.

In sum, outdated regulations are preventing small solar plug-and-play systems from competing in the electric market. A federal rule making plug-and-play legal nationally would wipe away hundreds of these conflicting regulations, and allow U.S. consumers to save much more on their electric bills. It would also boost the energy capacity of the solar industry and provide U.S. retailers with a new source of sales revenue. It certainly looks like good business.

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