In Hawaii, electricity costs $0.38 per kilowatt hour, almost three times the national average. Solar power, which costs as much as $0.30 per kilowatt hour is a bargain in comparison. However, in Ohio where power costs around $0.14 per kilowatt hour, roughly the U.S. average, solar doesn't compete nearly as well. So it's no wonder solar projects fell off a cliff when Ohio passed Senate Bill 310.
A little help
Solar power is increasingly affordable and, thus, increasingly viable as an alternative for homeowners and businesses. However, it isn't cheap enough to compete with utilities in most areas just yet. And it's getting a big helping hand from the government. For example, last year Clean Technica estimated that power from a solar panel installation in Los Angeles would have cost around $0.11 per kilowatt hour. However take out government incentives and the price jumped over 40% to $0.19 per kilowatt.
And there are huge variations depending on where the solar is being installed, since some areas have better sun than others and housing codes and trends differ. Still, just a short way up the coast in Seattle the cost was $0.17 per kilowatt hour after incentives and $0.29 before—roughly 40% higher again. Although solar installation costs have come down since last year, the helping hand is the highlight. And that goes beyond the financial space; around 40 states have mandates for renewable power in some form.
That puts electric utilities in the hot seat to either invest in solar or help customers invest in it, whether they want to or not. And that's a problem since the National Renewable Energy Laboratory estimates that solar won't be competitive with utility supplied power until as late as 2025. In other words, utilities are being asked to push solar even though it costs them less to run their current power plant fleets.
The big 310
That's why in a place like Hawaii where power is so expensive (the state relies heavily on imported oil) solar is expanding faster than Hawaiian Electric Industries (NYSE:HE) can tie installations to the grid. In fact, it looks like many customers aren't even bothering to tell the utility that they've put solar on their rooftops. It's just not the same in Ohio, where SB310 put a freeze on the state's renewable power mandates until 2017.
Subsequent to that bill, solar power installations went from a rate of about 1 megawatt per month to just around 100 kilowatts. Look out below, that's a 90% drop! And the market for solar renewable energy credits, which can be used in lieu of building solar for utilities, has dried up, too. Although Ohio is a relatively small market for solar, the impact of the bill on the state's solar industry was huge.
That's music to the ears of some market players, like FirstEnergy (NYSE:FE) and American Electric Power (NYSE:AEP), which operate in the state. However it shows just how vulnerable solar power is to such shifts in government largess. And SB 310 wasn't the only win for renewable power opponents, House Bill 483, signed after SB 310, made it harder to build wind farms by materially increasing the distance required between a property line and a wind turbine. Clearly, there's a push in the state to slow down on the renewable power front, and it's working.
Solar's not dead yet
Solar power is still growing fast, there's no question about it. SolarCity's (NASDAQ:SCTY) massive customer growth of over 100% a year since 2009 is proof positive of that. And it projects annual customer growth of 70% through mid-2018, which is notably lower but hardly a number to complain about.
But Ohio's move is worthy of note. Not only does it show that there's a push back against renewable power, but that without government support renewable sources like solar could start to look less compelling as an option. That may never be an issue in supportive states like California, but it's something worth watching if you're investing in solar power companies. If Ohio's push back becomes a wider trend, the solar industry could come face to face with a notable headwind.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.