SunShot Success: Minh Le on Energy Policy and the Marketplace

In September, the Department of Energy’s National Renewable Energy Laboratory (NREL) released new research showing that the average price of utility-scale solar is now under $1 per watt, and under 6 cents per kilowatt-hour. As former director of the DOE’s Solar Energy Technologies Office, share how the Sunshot Initiative helped drive solar costs down so successfully. 

Minh Le: Now that the Department of Energy has formally declared success on one important goal behind SunShot, it’s useful to roll the clock back and think about how SunShot was formed.

Back in 2010, the cost of utility-scale solar was close to $4 per watt without subsidies. Then-Energy Secretary Steven Chu challenged my department to think about what it would take for solar to be widely deployed, so we made it our goal to get to $1 per watt by 2017. Industry leaders told us we were crazy, so we relaxed our goal to 2020—but the industry moved much more quickly than anyone could have predicted, and our original goal turned out to be very prescient.

Launching the SunShot Initiative in 2011 was truly a call to arms to the solar industry. Without it, we extrapolated that we would not have reached $1 per watt until 2025 at the earliest.

What transpired in the marketplace between 2010 and 2017 to drive the price of solar down from $4 to under $1 a watt? 

We did a lot of planning to drive the price down. Ultimately, three major factors helped to do that.

The first factor was the Department of Energy’s long-term R&D funding to improve the efficiency of solar cells. PV modules account for roughly half the cost of the system at the utility scale, so increasing their efficiency would lower costs. The DOE funded that research for more than 30 years, and that work achieved more than half of the existing world records in solar cell performance. That’s phenomenal. Without a doubt, the federal government was a significant player in advancing solar technology.

The second factor was the German market. When Germany introduced feed-in tariffs and other policies to incentivize distributed generation, it created huge market demand for the manufacture and installation of solar panels. It jumpstarted the modern market. The surety of the feed-in tariff gave companies the ability to build larger and larger factories, and achieve economies of scale.

The third factor was Asian manufacturing. Some Asian countries, like China, used incentives to bring capital into the game, and to help manufacturers access that capital. That, again, helped manufacturers in those countries to build larger and larger factories.

When I entered the solar industry in 2006, a 100-megawatt factory was considered big. You could count how many there were around the world on one hand. Today, as a result of these policies, one-gigawatt factories are the norm, and that change has driven costs down tremendously.

Elaborate on research funded by the Sunshot Initiative, as well as by California’s EPIC grants, that had significant impacts in reducing the cost of solar.

Some very important work on green integration was funded jointly by California and the federal government—work around interoperability standards, like IEEE 1547, for example. That work has now materialized in nearly every single inverter that’s on a rooftop today.

Government-funded research can take five or 10 years to materialize in the marketplace—and it’s very important for the federal and state governments to fund that kind of long-range thinking. A decade ago, when solar penetration was virtually non-existent in the U.S., we were already researching how we would support the grid if we had the level of distributed solar resources that, say, California does today. 

Address the importance of energy storage breakthroughs on the ability of solar power to overcome the duck-curve threat to the stability of the grid.

Energy storage is going to be a tremendous opportunity. But alone, it’s not the panacea that a lot of people hope it will be. Only the integration of energy storage with energy management systems and demand-response will provide the resilience that the grid needs.

I’m extremely excited about the opportunity of smart-charging for electric vehicles, which is a form of storage. EVs are perhaps the only opportunity for load growth over the next few decades in the United States, and particularly in California, where EV adoption is still fairly modest. If we can figure out an intelligent way to do daytime charging of EVs, we could begin to address the duck curve.

Stationary energy storage is already being deployed in California. After the wake-up call of the Aliso Canyon disaster, we saw tremendous opportunity and growth in stationary storage at both the utility and distribution scales. This is an area that is ripe for innovation and cost-reduction, both to better manage the grid and to help people control their energy costs.

Given the need for further innovation and cost reduction, what is your take on the value and potential impact of investments by Energy Impact Partners—a group of 16 global energy companies, representing more than a quarter of a trillion dollars in market value—for the market success of clean energy startups? 

Personally, I think it’s tremendous. It’s important that traditional utilities participate. They are the incumbent, if you will, and many of them nationally have been resistant to distributed energy. By and large, utilities in the United States have been considered the enemy by the solar industry.

I’ve never looked at it that way. In my view, utilities serve a very important function. The fact that they are beginning to contribute to potentially disruptive innovations says that they want to be part of this transition, and I see only good things coming out of that.

Vox recently called renewable portfolio standards, like California’s, “the most effective clean-energy policy [that] gets the least love.” Address the role of “policy sticks and carrots” in generating technology innovation.

The goal of the Sunshot Initiative was to enable technologies to scale without the need for additional incentives. I continue to think about how to get good benefits via market forces.

RPSs are important policy tools that help early markets take hold. But I think any incentive should eventually be phased out. You can’t incentivize things forever, but you can create markets that naturally want to go in a particular direction. The California Solar Initiative, which began 11 years ago with significant incentives and ratcheted them down over time, was a good example.

Many technologies cost more when they start out, but come to cost less over time. That’s another reason not to keep incentives at fixed levels forever. After all, whether directly or indirectly, carrots and incentives cost taxpayer or ratepayer dollars.

In my opinion, you can get a lot of bang for your buck with early R&D spending. The leverage is significantly higher than direct subsidies or incentives for deployment, especially when you factor in private-sector contributions.

In practice, the best strategy, in my opinion, is a combination of the two. You need to incentivize deployment in the early markets, when things may not be as cost-effective. Once you’ve jumpstarted the market, then you should gradually transition out subsidies, while continuing to invest in R&D to help lower future costs.

VerdeXchange News recently interviewed Varun Sivaram, a fellow at the Council of Foreign Relations in D.C., who warned that we must be on guard to prevent “lock-in” of first- and second-generation technologies. How big of a challenge is that, in your opinion?

It’s a significant challenge. When potentially disruptive technologies are blocked out of the market—due to economies of scale, regulations, or other reasons—you run the risk of getting stuck on an incremental innovation curve. It’s important for government, as well as industry, to invest in the technologies that could potentially change the game.

That said, I think we can make a lot of progress using existing technologies. The majority of the 40+ gigawatts of solar that has already been deployed across the United States is based on incremental, but solid, innovation. It brought us to where we are today.

The reality is that solar’s competition is not with other solar; solar’s competition is with CO2-emitting power sources. That’s where we should be looking—not so much at whether the quadruple-junction solar cell will bring us to nirvana faster than the solar we have today.

You’ve spent years in D.C. looking at innovation from a federal perspective. What more could sub-national jurisdictions like the city and county of L.A. and the state of California do to incentivize a paradigm shift from carbon-based fuels to clean energy?

California has already made tremendous strides; it’s one of the leading states in terms of carbon emissions on a per capita per kilowatt hour basis. But we always want to do more—especially when other states are not doing what they could be doing.

One thing local governments can do is make it known to residents that switching to clean energy can actually mean cost-savings for the consumer. An average Southern California consumer could reduce their electric bills significantly by installing solar on their house, either through lease or ownership. A lot of people have not taken up this opportunity yet.

In some places, like Los Angeles, that is because there’s so much multifamily housing, and there is a particular challenge associated with putting renewable energy on those units. The industry is pushing different models to help that easier.

Local governments can also consider community choice aggregation (CCA). There are already 11 CCAs in California, and more slated to go online in the near future; L.A. County, for example, is moving quickly to set up a CCA. It’s a very complex transition, but if done well, it can increase the percentage of clean energy that is procured for residents in the community.

It must be frustrating to observe a new federal administration working to unravel the progress that has been made over the last 10 years toward a cleaner national energy portfolio. What are your expectations and fears—as well as your hopes?

I think there’s lots of hope for solar energy. Thanks to the work of the Sunshot Initiative and private industry, solar is now one of the lowest-cost energies for new generation, if not the lowest in many cases. Power-purchase agreements are being signed at 3 cents a kilowatt hour, which is tremendously low. Tucson Electric Power recently signed a PPA for solar and storage at 4.5 cents per kilowatt hour. That’s cheaper than natural gas—and it’s an assured cost, not a variable cost subject to natural gas prices. The bottom line is that costs have come down so much that solar is now competitive without the need for significant incentives.

In terms of broader energy policy, though, I worry that this administration is taking a significant step backwards that is not based on science. The data is there to support the direction we were going under the Obama administration.

The current administration has pushed a false narrative that solar and wind were responsible for the demise of coal. In reality, the data is very clear that it was natural gas. Cheap, abundant natural gas—brought about by fracking—enabled power generators to shift their generation fleet away from coal. That has been tremendous for GHG emissions reductions: One kilowatt hour generated from natural gas produces roughly half the CO2 emissions of one kilowatt hour generated from coal.

Now, Energy Secretary Rick Perry has put out of a Notice of Public Rulemaking that would effectively incentivize coal fleets—upending the wholesale market as it is today. It would prop up an industry that would not stand up to market forces on its own. And it would roll back policies that companies are already voluntarily following. That, to me, is disconcerting.

Certainly, we should help regions of the country that have historically relied heavily on coal jobs, like West Virginia and Kentucky. We should provide workforce training to help people shift to clean energy. We need to do a better job, as a country, to help people make that transition—but the transition needs to happen. There’s a famous saying that Secretary Chu used to quote: The Stone Age didn’t end because we ran out of stones.

Ultimately, I am optimistic that renewable energy will continue to make progress despite these headwinds, because I’ve been surprised before about how rapidly this industry is able to innovate, in both technology and business models, to adapt to changing markets.