Ken Silverstein EnergyBiz Insider Editor-in-Chief

The idea is to make solar power accessible to the masses. By providing tax credits, the new energy bill seeks to lower the costs and interest more homeowners and businesses in the concept. In turn, solar panel manufacturers will find profit opportunities and new entrants may subsequently bring additional products and services to market. The influx of new business would then enhance efficiencies and improve production, thereby bringing down the current high prices of equipment.

"Installing solar energy on your roof is one of the most meaningful steps an individual can take to reduce our reliance on foreign sources of energy and help declare energy independence," says Solar Energy Industries Association President Rhone Resch. With the new energy law, "solar comes with a more affordable price tag, and more consumers will take a step towards energy independence by choosing solar power."

Despite the available sunlight, worldwide solar electricity accounts for only one thousandth of the total electricity supply. The U.S. energy bill signed into law in August might prove to be a key motivator -- particularly important because key parts of this country are primed to take advantage of solar power.

The law, which takes effect this coming January, gives homeowners who install solar energy systems a tax credit worth 30 percent of the system cost, capped at $2,000. Businesses get the same credit. Eligible technologies include photovoltaics (PV), solar water heaters, concentrating solar power, and solar hybrid lighting. The credit reverts back to 10 percent level after two years.

Clearly, the goal of some scientists is to harness the power of the sun and to deliver it in the form of electricity. Currently, 742 megawatts of solar cells are produced annually worldwide. Germany has 500 megawatts of solar energy already installed. That market, along with Japan's and the United States', accounts for 75 percent of the world's solar PV market. Globally, the market value tied to solar power is pegged at $4 billion.

Key Impediments

The key impediment, obviously, is cost. The solar association says that the new tax credits will help reduce the hurdles to gaining greater economies of scale. It will do this by lowering retail solar electricity prices from the current rate of 18-25 cents per kilowatt-hour to 5.7 cents per kilowatt-hour in 10 years. The industry might then be a $34 billion enterprise, it adds.

"We also need to make sure that these tax dollars are spent for renewables to help launch new technologies, not permanently subsidize them, and that the amount of money spent bears some relationship to our total energy," says Sen. Lamar Alexander, R-Tenn., chairman of the Senate Energy Subcommittee on Energy. In a speech on the Senate floor, he adds that the new legislation will cost $380 million over 5 years.

Here's how solar power works: Once the sun's radiation travels to earth, the challenge is to capture it and to generate power with solar panels made of silicon material or a system that heats fluids by concentrating the sun's energy. The two most prevalent forms of solar technology are photovoltaic systems and solar thermal systems, some of which can be hooked into an electric power system's distribution grid.

The typical cost to install a system is around $10,000 per rated kilowatt. That is about 10 times more expensive than a coal plant and 20 times more expensive than a gas facility. But costs are dropping with each new innovation.

Another major challenge that solar power faces is where and how often the sun shines. The American Southwest, for example, has double the production potential of the Northeast, but that's where more people are located. Moreover, the sun only shines about 30 percent of the time even in the brightest locations, after factoring in darkness, dawn, dusk and clouds. That makes it difficult currently to cover the cost of paying off a capital-intensive technology.

The good news for solar advocates and solar equipment makers is that public opinion polls are saying that a clean environment is a top priority. Solar power plants have almost no carbon dioxide, sulfur dioxide or nitrogen oxide emissions tied to them. They typically produce power during peak demand when it is most needed and displace coal-and-natural-gas fired units in the process. Green energy participants have successfully marketed these ideas and used them to persuade policymakers to enact progressive measures, such as the tax credit for solar panel installation.

California has passed laws to increase the use of solar power there and aims to build 3,000 MW by 2018, requiring annual installations would have to increase by 20 percent each year. At the same time, Nevada law requires electricity providers to increase their use of renewable energy sources by two percent annually until they make up 15 percent of their portfolios; solar has to comprise five percent of the total. And the Sacramento Municipal Utility District operates several photovoltaic solar systems providing power to customers for about half the typical price of an installed system.

The result of more proactive government policies is additional participation: BP and Shell as well as Mitsubishi and General Electric are among the players. And the energy venture capital sector is also finding investments in solar technologies to be attractive, as evidenced by the community's investments in firms such as Konarka, Nanosolar and Nanosys. Green energy can be profitable, advocates say, noting that the solar equipment industry has grown at a 24 percent annual rate in the United States over the last decade.

"An energy supply portfolio should include 10 percent renewables," says Amory Lovins, head of the Rocky Mountain Institute in Colorado. "They may cost more initially but they hedge against price volatility and displace some fossil fuels. Green power can cost less than brown power."

Renewable power generally provides a fraction of all electricity consumed in this country and abroad. But the drumbeat to increase those stakes is intensifying. As a result, solar energy is entering a new phase. Financial and competitive impediments remain. But costs and quality are destined to improve as new tax credits and environmental regulations attract some powerful solar manufacturers into the field.