Identifying a solar site suitable for a utility-scale solar project is a bit like playing the board game Battleship. Regardless of the skills and knowledge deployed by the players, there is still a significant amount of luck involved and the results can be hit or miss even for the savviest of participants. Thankfully, the hit-or-miss aspect of solar development may begin to change. The recently passed Inflation Reduction Act contains provisions with the potential to aid the participants in honing in on their targets and perhaps remove some of the risks from the game.
Diana Rivera, a Development Director for Lightsourcebp, a subsidiary of BP energy, told Harvard Business School that identifying the right site, in the right location that ultimately will be commercialized for a solar project requires skill but also a lot of luck along the way. “Finding the right connection point on a grid where you can transfer capacity is like winning the lottery.” Even a site with all of the physical characteristics necessary for a utility-scale project may not be commercialized because of the uncertainties involved with large utilities, municipalities, line capacity and interconnect arrangements. These all represent vital pieces to an approved project, but also are items over which a landowner or investor has no control.
For energy markets to operate more efficiently, utilities, regulators, and interstate compacts need to provide a much more transparent look at places where opportunity exists for new projects. All stakeholders involved in the game, from landowners to developers to producers would benefit from a better flow of information. Until August 16th, too much of the process was akin to playing Battleship with a field as large as a state and players only making educated guesses as to where to make their move. In the end, most of those who “won” could attribute much of it to luck.
The United States is nearing a junction point, where more manufacturers, after experiencing supply chain issues during COVID, are looking to bring their operations stateside. Major companies like Intel, TSMC, AMD, Nvidia, Ford, General Electric, and General Motors have all announced expansions into the United States, and they aren’t alone. This growth in the manufacturing base means that there will be greater demand for electricity. Diana Rivera notes that the solar and wind industries are breaking records for output, but an analysis by Level Ten points out that the biggest challenge comes from getting that output onto an aging US power grid.
How Will the Inflation Reduction Act Benefit Solar Projects?
On August 16, 2022, when the Inflation Reduction Act was signed, more than $115 Billion dollars were set aside for infrastructure improvements. These improvements are intended to ensure more produced energy can efficiently get to the market.
The legislation also provides for a solar investment tax credit of 30% and an extension of that credit to 2032. This is significant in that it accounts for the fact that most utility-scale projects take time to be approved. The tax credit being extended helps with the future underwriting of the projects as they are in the approval pipeline. Diana Rivera noted that most projects take several years before completion, making the impact of the investment tax credit significant for states, municipalities, energy companies, and residents.
A lack of understanding of the regulations around solar has impacted its broad acceptance. Feasibility studies, location, connection to substations that can handle the influx of new power, and profitability provided within the state are all key to giving every one of the stakeholders a reason to stay involved.
For landowners, the potential of a solar project being developed on their property presents an opportunity to receive an income stream that can be life-changing and allow them to retain their family farm. In the current market, farmers, ranchers, and landowners are left with uncertainty as to whether or not their site would be a potential fit for solar usage. While there will always be a risk, the hope is that some of the changes set in motion by the Inflation Reduction Act will reduce the uncertainty for landowners possessing land suitable for solar development.
It will take some time before the true impact of the law is felt by landowners and solar developers. That said, the commitment to upgrade our American energy infrastructure and to include solar as a critical piece of our future energy policy has been made clear with the signing of this bill. An invigorated manufacturing base awaits our growing energy capacity and will depend on its stability and reliability in order to prosper.
Edited by Peter Mazeine