BLM Should Re-Think its Failed Solar Auction to Drive Innovation

Last month the Department of Interior (DOI) Bureau of Land Management (BLM) held its first competitive auction for commercial solar development on public lands, offering three parcels for lease with a collective acreage of 3,700 in the San Luis Valley of Colorado. The three leases are located in two of DOI’s designated “Solar Energy Zones,” which the DOI carved out for quick solar development due to access to existing transmission, limited environmental impacts, and cheap land rental.

If fully developed, these two Solar Energy Zones could potentially produce 400 MW of energy, enough to power an estimated 125,000 homes. Unfortunately DOI was alone in their enthusiasm as the auction drew zero bids from solar companies. Moving forward, DOI should learn from this initial failure and expand its Solar Energy Zones to also act as a test bed for next-generation clean energy designs, not just off-the-shelf technologies.

The auction outcome took DOI and solar advocates by surprise because the leases were such a good deal and there is significant interest in solar development in Colorado. Leases were offered at fairly low starting bonus bid minimums ($3,352; $4,035; and $4,284 for the three leases, specifically). And according to BLM, the Bureau received 27 inquiries about the sites and auction and five applications from solar companies for use of the land in the lead-up to the sale. Additionally, earlier this month, Xcel Energy submitted a plan to the Colorado Public Utility Commission to add 170 MW of new, cost-effective utility-scale solar power (along with additional wind and natural gas generation) in the state.

The results of this auction are even more surprising when compared to the significant success of DOI’s competitive offshore wind auctions this summer, which offered almost 300,000 acres of ocean off the coast of New England and Virginia. As Matt Stepp wrote here in July, the offshore auction served as a logical extension of an already cohesive (but still developing) innovation strategy for wind within the Department of Energy, allowing established companies to test existing designs connected to the grid, and startup companies to build designs to commercial scale. As he pointed out, “The significance of the DOI auction is really more about public sector support for offshore wind innovation rather than how many homes the leases will potentially power.”

So what happened to the solar auction? So far, solar companies haven’t offered a hard explanation. BLM is labeling it as a “learning experience.” Ken Johnson of the Solar Energy Industries Association (SEIA) told the Denver Post briefly that continuous challenges for solar developers, including financing large solar projects and navigating the unclear “ground rules” of BLM’s regional development strategy for solar, may explain the ultimate lack of interest in the leases. SIEA’s Solar Market Insight Report for the second quarter of 2013 cites “tepid growth” of commercial solar markets, compared to residential solar which has grown rapidly due to new financing innovations such as those used by SolarCity. Much of the successful momentum of commercial and utility-scale solar has been driven by states like New York, New Jersey, and California, where solar deployment is heavily subsidized and mandated by Renewable Portfolio Standards.

While these factors cannot explain exactly what happened with the DOI auction, they do indicate that weak spots in solar market certainty and technology readiness may be more significant than solar advocates let on. Policies in the United States supporting solar energy have recently been focused on lowering soft costs – including permitting, inspection, installation, and financing costs – through various DOE programs, and most specifically through DOE’s SunShot Initiative, which targets significant reductions in soft costs by 2020. However, as Matthew Stepp and I argue in ITIF’s new report Challenging the Clean Energy Deployment Consensus, significant technological breakthroughs in solar (and utility scale storage) are still necessary to access the kinds of cost declines that will allow significant solar market penetration independent of subsidies.

DOI’s competitive auctions for developing renewable energy on public lands are part of President Obama’s Climate Action Plan, which emphasizes the goal of deploying 20 GW of renewable energy on public lands by 2020. These auctions are an integral policy instrument in bridging the commercialization valley of death, but the strategy should mimic DOE’s lease auction for offshore wind by offering the opportunity to next-generation technologies as a test bed, instead of just offering the deal to commercial technologies. For instance, Universities, National Labs, start-ups, ARPA-E, and other research institutions should coordinate with DOI to use the Solar Energy Zones to test emerging technologies in real-world circumstances and overcome final technical barriers to market. If anything, the failed auction shows a broader strategy is needed to make utility-scale solar a widespread reality.

Renewable energy development on public lands has the potential, as demonstrated by the offshore wind auctions, to drive clean energy innovation forward by offering companies large and small the opportunity to test, demonstrate, and scale up technologies. But these efforts should be tied to a coordinated strategy that emphasizes rewarding innovation and consistent performance and cost improvements, and not just as another avenue for commercially-available technologies. Let’s hope BLM is on board with an innovation approach to developing those Solar Energy Zones the next time around.

Originally posted on Energy Trends Insider.