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How Strategic Policy Stacking Can Lead to Solar Market Success

December 08, 2014 by Elizabeth Doris

If economics were the only factor driving the installation of photovoltaic systems, then all states should see similar growth in installed PV capacity because prices for solar continue to decrease. What we are actually seeing in the field, however, is different rates of solar adoption despite these ongoing price reductions. This occurrence indicates that other factors are at play.

Since 2008, NREL has been looking at how state-level policies can be “stacked” to further solar market growth. Policy stacking refers to the sequential order in which solar legislation is put in place. The policy stacking theory holds that policies, many of which are less expensive to government, are able to support sustainable markets when aligned with best practices and state contexts.

In our original data analysis on the subject, NREL examined how demographics and non-financial incentive policies—such as interconnection, net metering, and renewable portfolio standards—could explain about 70% of PV capacity growth. Further research showed how extreme values of non-policy factors—including personal economic context, solar resource availability, competing electricity prices, and interest in sustainability—impact solar installation rates.

This year, we evolved our strategy of evaluating policy effectiveness in light of a state's demographic characteristics to better understand why some policy implementation strategies are more successful than others. Our research, which has just been published in a report titled, "The Effect of State Policy Suites on the Development of Solar Markets," answers questions like, "Will a policy in Illinois function the same way in Rhode Island? How about in Florida? How can we better inform policymakers about what works in their specific context?"

This latest report shows just how important it is for states to have a solid foundation of best-practice net metering and interconnection policies in places. As you can see in the animated graphic below, states with net metering and/or interconnection as well as one other market enabling policy (the red and yellow diamonds) have greater installed capacity levels—especially when the policies have been in place for four or more years—than states without these foundational policies or additional third-party ownership (TPO) and renewable portfolio standard (RPS) solar set-asides.

We’ve now come up with some general rules-of-thumb for implementing effective solar policy. First, states in all contexts experience more robust markets with the implementation of interconnection and net metering. Second, states with higher-than-average lifetime revenue potential from solar installations and best-practice “foundational” policies (net metering and interconnection) have higher per capita distributed solar when they also have policies that allow for third-party ownership. Third, the effect that falling costs have on solar development depends, at least to some extent, on other policy and contextual factors within the state. Fourth, RPS solar set-asides that build upon strong net metering and interconnection standards are valuable for successful solar markets, especially in states with less favorable demographic and economic backgrounds. Finally, the effectiveness of TPO policy is strongly dependent on the state context.

To illustrate these points, our latest report includes state-specific case studies. We found that third-party ownership policies haven't been as successful in Illinois as they have been in California—a state that has a similar policy suite—because the three-year average electricity price and solar rooftop potential are significantly lower in Illinois than in California. By comparing Illinois with Pennsylvania—a state with similar demographic and economic contexts—we identified a solar set-aside as a policy that could favorably impact the market. Michigan, like Illinois, could also benefit from a market creation policy with specific targets for solar PV, while Rhode Island might experience more growth by modeling its third-party ownership program after California's.

More details about our findings are available on NREL's State and Local Governments website.

Tags: Policy