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North Bay Business Journal

Monday, August 4, 2014, 6:30 am

Solar tax credit expiration raises concerns

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    Nate Gulbransen, president of Westcoast Solar Energy, stands among 600 panels his company installed on the Blentech Corp. roof in Santa Rosa. Blentech took advantage of the solar investment tax credit in 2013 and today offsets 100 percent of its power needs with solar energy.

    Speculation is rising in the North Bay about what the U.S. solar market will look like in the wake of the expiration of the federal 30 percent solar investment tax credit for residential and commercial properties at the end of 2016.

    While an eight-year tax-credit extension was granted in 2008, many expect the 30 percent benefit to be reduced to 10 percent in 2017 — or possibly eliminated.

    The last extension helped annual solar installations in the U.S. grow by more than 1,600 percent since the investment tax credit, or ITC, was first implemented in 2006, representing a compound annual growth rate of 76 percent, according to the Solar Energy Industries Association (SEIA).

    Should the federal solar investment tax credit be allowed to expire in 2016?

    • Yes (40%, 16 votes)
    • No (53%, 21 votes)
    • Don't know (7%, 3 votes)

    Total voters: 40
    Polling period: August 6, 2014 @ 12:00 pm – August 13, 2014 @ 12:00 pm

    Loading ... Loading ...

    In 2013, 140,000 solar systems were installed across the country, the group said. In the first quarter of this year, photovoltaic systems capable of producing 1,330 megawatts of energy were installed nationwide — the second biggest quarter ever. Today there is a total of 14.8 GW of solar capacity in the U.S., representing 440,000 installations, enough to power three million homes. Roughly half of the market is in California.

    Adoption has increased dramatically. Approximately 158,000 solar roofs were installed on California homes in 2013, double the number from 2012, according to CalSEIA.

    Two California cities lead the nation. Los Angeles, with 132 megawatts of installed capacity, is rated first of the top 20 U.S. cities, and San Diego (107 megawatts) is second, according to Environment California Research & Policy Center. They are followed by San Jose (94 megawatts), fourth; San Francisco (26 megawatts), ninth; and Sacramento (16 megawatts), 12th.

    Solar critical mass

    Bill Stewart, president and co-founder of SolarCraft in Novato, believes the solar industry has reached critical mass and that policy changes should not have a serious impact on the industry.

    “Solar just passed a key milestone and now employs more people in California than all of the state’s investor owned utilities combined. However, a tax-credit reduction to 10 percent would affect third party ownership and leasing.”

    He said that while the PUC and Governor Brown favor solar, a rate reform case is under consideration that will look at ways to maintain rates so all solar customers pay their fair share.

    “Net energy metering (NEM) is a good deal, and NEM 1.0 is still in effect through 2015,” Mr. Stewart said. “NEM 2.0 may see solar customers paying a small grid connection fee. Utilities are looking for an accommodation so they won’t see power credited back at less than retail rates.”

    Mr. Stewart said the cost of solar panels and modules is rising due to a trade case with new tariffs being levied on China. As a result, Chinese manufacturers have cutback on importing solar products to the U.S. until all of this is sorted out. In the past U.S. solar manufacturers could not make money by having to match China’s low, subsidized prices.

    Not an ‘industry-killer’

    Peter Renfro, general manager of Westcoast Solar Energy based in Rohnert Park, and interim executive director of Solar Sonoma County, believes a tax-credit reduction would certainly have an impact.

    “We’ve experienced ups, downs and question marks over the years,” Mr. Renfro said. “The net effect of an expiration with no extensions or replacements would make sales more crucial for pending contracts triggering a flurry of activity prior to the expiration, since a solar project must be completed before the Dec. 31, 2016, deadline.”

    He doesn’t think the credit’s absence would have an insurmountable impact on the industry.

    “There is still time for other market changes or product offerings, such as NEM with Sonoma Clean Power SCP incentives to bridge the (tax-credit) gap,” he said.

    “NEM programs are undergoing their own restructuring in the coming 18 months,” he added.

    Local net metering

    Sonoma Clean Power launched its version of net metering in May, enabling those with solar and wind power systems to earn credits for power produced to offset some, or all, normal power usage charges.

    Two electrical inverters take DC current from solar panels on the roof and convert it to AC power to supply all of Blentech Corp.’s electricity needs. The system was installed by Nate Gulbransen’s Westcoast Solar Energy.

    With net metering, when consumption exceeds production, the rate schedule applies. But when more power is produced than is used, the meter spins backward and billings reflect credits based on the difference.

    “All NEM customers today are commercial accounts,” said Geof Syphers, CEO of Sonoma Clean Power. “Our feed-in tariff goes into effect in August and we expect residential customers will come into our NEMs program in December.”

    The feed-in tariff sets the rules and price for the power agency to purchase electricity from small-scale — smaller than 1 megawatt — wholesale renewable energy generation installations connected to the grid within the agency’s service territory.

    This tariff creates a standard offer transaction with a flat-fixed price of $95 per megawatt-hour. Applicants must be California Renewable Portfolio Standard–compliant and meet other eligibility criteria.

    Contracts will be 10 years for baseload generating facilities or 20 years for other generating facilities. Projects that meet the bonus eligibility criteria may qualify for up to $120 per megawatt-hour for the initial five or 10 years of the contract term.

    Westcoast Solar Energy President Nate Gulbransen watches Blentech Corporation’s electric meter run backward on a sunny day, thanks to 600 solar roof panels.

    Mr. Syphers said his agency is keeping its options open by discussing incentives for wind, biomass and energy storage as well as looking ways to offer a solar financing program that could be implemented three or four years from now to balance the loss of tax credits with lower cost financing.

    “SCP has 90 percent participation from Sonoma County residents,” he said. “The 10 percent opt-out population is less than half of what was forecast.”

    Woody Hastings, renewable energy implementation manager with the Climate Protection Campaign, said a tax-credit sunset would not be the end of the world.

    “We just have to deal with it,” he said. “Incentives were never intended to be permanent, but they have been renewed, evidenced by the extension of the wind power ITC last December.”

    He said the cost of solar photovoltaics has decreased by 50 percent since 2008 due in part to the tax credit and lower cost solar panels. Each year, 4 megawatts of solar are installed in Sonoma County. He believes the solar industry is not dependent on one type of incentive. More than half of solar is under power purchase agreements, or PPAs.

    Enough tax equity to go around?

    In July, Farella Braun + Martel LLP hosted a panel discussion on “Peering Off The Cliff: The World of Post ITC Solar.” The panel included Justin Amirault, managing director of acquisitions for Renewable Energy Trust Capital; Bernadette Del Chiaro, executive director of CalSEIA, and Brian Kunz, vice president of product development with First Solar.

    “Tax equity is a very important component of solar financing today, but with an oversupply of projects in the rush to closure in 2016, there may not be enough tax equity to go around,” Mr. Amirault said.

    Ms. Del Chiaro, a longtime solar advocate, said California is a strong market for solar, and renewable energy has many public policy champions, but people here are nervous about the loss of ITC and most want to see it extended.

    “We need a Plan B strategy to bridge the gap,” she said. “We’ve seen more solar installations in the last 18 months than we have in the past 18 years.”

    She said solar is achieving major penetration levels with more solar hot water systems in the U.S. than in the rest of the world. In addition, 16.5 percent of U.S. electricity is produced by solar, and 2 gigawatts come from distributed solar generation (rooftop) systems.

    “Californians deploy more solar than investor-owned utilities,” she said. “I am very optimistic, but is important not to put all of our policy eggs in one basket.”

    Long-term credit taper needed

    Ms. Del Chiaro said there is an array of sustainable energy policy initiatives in the pipeline. She hopes the tax credit can be stepped down over time, the way the 2006 California solar rebate program was handled.

    She said CalSEIA’s goal is to persuade Congress to be responsible.

    “We ultimately need a long-term plan for solar to get off subsidies completely — even if our main competitors [fossil fuels and nuclear power] are not,” she said.

    According to Mr. Kuntz, new resources are needed in California to establish a mature solar industry and public policy should provide a smooth transition to a post-tax-credit world.

    He said First Solar is building a backlog of solar projects to build before the end of 2016 as “we increase value, drive efficiency up, and costs down while investing in R&D to mitigate the loss of the ITC benefit and manage the transition. “

    Mr. Amirault said it’s important to look at the financial pipeline for such projects moving forward, while also weighing the prospect of rising interest rates.

    “My vote is for an orderly scale down of the ITC, decreasing reliance on tax equity investments,” he said. “These tax equity investments have proven to be virtually riskless, but in the future solar should be priced more in accordance to the risk it represents to investors.”

    He said he is not overly optimistic that big solar projects in 2016 will find new sources of tax-equity capital, but does believe there is ample opportunity for new entrants.

    Mr. Kunz is confident that the solar industry will be viable after 2016.

    “We’re seeing the value of solar now and 50 percent of our customers want to take advantage of ITC, but I think there will be a short term drop off in demand in 2017,” he said.

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