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Quiet Solar Revolution Unfolding In U.S. Despite Low Oil Prices

Oil is enduring a tough month, as further worries about the ongoing supply glut and declining demand push prices to their lowest point in three months.

Yet as fossil fuels struggle, the quiet revolution in renewable energy continues to push forward. Attention has been focused on high-profile ventures like Elon Musk’s Gigafactory and the recent roll-out of Tesla’s (TSLA) long-term plan. Musk hopes to single-handedly transform the world’s energy infrastructure, with factories like the Gigafactory run on renewable energy, producing cheap lithium batteries of electric cars.

Musk has also positioned himself as a key figure in the future of solar power, serving as chairman and major shareholder of SolarCity (SCTY), the largest American solar energy firm, which is now on the verge of being formally taken over by Tesla.

Skeptics however have pointed to the poor profitability of Tesla, which has lost hundreds of millions, and the potential for lithium demand to be held up by problems with supply.

But behind the scenes, renewable energy continues to steadily move forward, with major companies investing in green energy. Global demand for solar power, driven by declining costs, changing regulations and an altered political and cultural atmosphere impacted by awareness of climate change, is likely to accelerate, despite the current glut of oil and natural gas in the market. The EIA anticipates renewable energy to account for about 25 percent of global consumption by 2040.

Solar will grow faster than any other energy sector and is already competitive with natural gas in terms of costs, potentially upsetting natural gas’ anticipated role as the transition fuel of choice, and could provide 13 percent of world energy consumption by 2030, according to the International Renewable Energy Agency.

China leads the world in the production of solar power and the manufacturing of panels, and the Chinese government has made it a point to steer the country’s energy infrastructure away from fossil fuels and towards renewables. At the moment China draws 43 GW from solar panels, though that marks an increase of 20 GW in 2016 thus far, a 30 percent increase from last year. China is now both the largest producer of solar panels and their largest emerging market.

The Chinese government had anticipated an increase of 18 GW in the first half of 2016, which was below market expectations and a further sign that the country is attempting to slow down its overall energy usage: there are plans to end the construction of coal-powered power plants, while plans to import LNG from overseas suppliers are modest in scale.

Nevertheless, the country’s Thirteen Year Plan calls for 15-20 GW of power to be added per year. Right now a lot of China’s solar panels, which lie in the more sparsely-populated western and northern provinces, lie dormant, the power they produce largely wasted (though a wasted solar panel has few negative side-effects). While the Chinese government claims it is committed to a clean-energy future and promises to meet its Paris Agreement climate change goals, the move is largely a political one to staunch the enormous levels of poisonous smogaffected China’s major cities.

With present infrastructure in place and home-grown demand, Chinese solar companies like Ja Solar and Trina Solar look set to have a banner year, as long as the state continues with its agenda.

The United States currently encourages solar power largely through a 30 percent tax credit for installation. Solar panels have proven to cut deep into domestic energy budgets. However, the economic costs of solar power and the regulatory difficulties of integrating residential panels into urban electricity grids present challenges for more the more widespread use of solar power for domestic electricity consumption.

California, by far the nation’s largest utilizer of solar energy, reached a milestone of 8 GW in July. That’s 2 GW higher than May and nearly twice the amount produced in 2014. Renewablescurrently provide 29 percent of the state’s power and the goal is to reach 33 percent by 2020.

A potential problem arises from how to measure solar electricity when it enters into a municipal grid. With potentially thousands of houses plugging their panels into the general grid, questions arise over how to measure the cost of that electricity relative to what is produced by a power-plant.

Minnesota, which has pushed for a strong renewable agenda, is the first state in the nation to introduce “value of solar” measurements in order to differentiate power produced by domestic panels. Under the previous system, solar energy was metered at the base rate, giving solar panel owners access to much cheaper power than non-solar panel owners.

Regulators, who have been working on this idea for more than two years, adopted the social cost of carbon model in order to measure the value of solar, though the exact cost of a ton of carbon has been debated.

Minnesota hopes to produce more through community power projects, but so for only three have come on-line, with total output under 1 MW. Xcel Energy, the state’s dominant utility, expects that figure to reach 200 MW by the end of the year, with the total power produced by community projects reaching 400-450 MW by 2017.

That may be small potatoes, but it augurs well for regulators elsewhere, who are looking for a formula to integrate solar into the larger electricity infrastructure. If other states follow Minnesota’s path, it’s possible a more concerted effort to make solar power accessible for businesses and homes may take place elsewhere.

This article was originally published on Oilprice.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Oilprice.com

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