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Google, KKR Deal on Fringe of Solar's Future (Update 1)

Stocks in this article: FSLR BRK.B GOOG KKR

Harris said there will continue to be questions around the issues of natural gas pricing and what price we as a nation are willing to pay for renewables and the "clean portion" of energy, including the avoidance of carbon costs.

"We struggle to answer these questions, and the path is driving costs down so renewables are increasingly at parity and that makes the questions begin to fade and the difficulty disappear," Harris said.

Early attempts to create FIT programs in the U.S. also posed legal questions related to the role of the federal government and Federal Energy Regulatory Commission (FERC) in regulating power rates under interstate commerce law.

"Municipalities are in general risk-averse now," said Stifel analyst Jeff Osborne, who added that several of the public companies in the renewable energy market that he covers, and who sell to municipalities, have seen a softening of business in 2011.

The primary example of the local FIT scheme in the U.S. is the Gainesville, Fla., municipality, but it's one of only a few FIT programs. Osborne says the future of solar financing in the U.S. is likely to reflect this limited role for FIT programs. "What normally drives demand is tax equity or a cash grant," Osborne said.

There are additional reasons to expect the FIT will have a limited role in the deployment of solar in the U.S. beyond the austerity budget concerns and the role of rate payer boards in the utility business across the U.S. and on a local basis.

For example, the major deployment of solar has come through renewable portfolio standards in states, including California, where investor-owned utilities had been required to increase electricity generated from renewables up to 20%. "Municipal utilities is a tougher market to sell into compared with investor-owned utilities," Osborne said. Though municipal utilities are now included in the new renewable portfolio standard in California which mandates 33% renewable generation by 2020.

Harris added that for the time being, "The only way we get the kind of money needed to transform the grid and develop billions of dollars in solar projects in the U.S. is to provide a rate of return that is attractive, and that's a good thing."

The investment from Google and KKR is a positive for solar, but as Osborne remarked, "It's a sign we are moving forward but FITs won't be a mainstream market in the U.S. FITs will be on the fringe."

-- Written by Eric Rosenbaum from New York.

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>To contact the writer of this article, click here: Eric Rosenbaum.

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