Green Articles
Solar industry lobbies to keep credits
by Emma Ritch - Silicon Valley/San Jose Business Journal - November 19, 2007
Renewable energy companies across the country are battling to keep federal incentives for consumers in an energy bill expected to pass Congress by year's end.
California's solar industry would suffer -- but not collapse -- if the bill passes without an extension of the tax credits for consumers and without other provisions that could boost the market for renewable energy, say several industry leaders. The collapse would be prevented, they say, by state help: California's aggressive subsidies for early adopters of renewable energy.
Oil companies are among the groups lobbying against the renewable energy industry's recommendations for federal incentives.
Losing them would have two major immediate consequences, according to industry leaders.
First, fewer California businesses would be able to justify the upfront cost of solar systems to shareholders and investors because it won't be as inexpensive as traditional energy.
Second, without large-scale U.S. adoption of solar in order for the economies of scale to bring down the cost, industry prices would continue to remain out of reach for many consumers.
"The future of the federal incentive inserts a lot of doubt into the future of the solar industry in the U.S. in terms of the ability to scale up as fast as we can," said David Hochschild, vice president for external relations for Solaria Corp. "It's not that the solar market is going to die in the U.S. It will just be a much more robust growth if we get the solar tax credit."
The current federal subsidies expire in December 2008. The incentive in place since 2005 offers a 30 percent tax credit for the cost of the system, capped at $2,000 for consumers.
Congress will likely decide on the future of energy incentives before it breaks for the Christmas holidays. An industry-supported version of the energy bill passed the House in June, but the Senate version doesn't include an extension of the tax credits. Lawmakers met several times the week of Nov. 12 to find a compromise, which could include a short-term extension, and now industry leaders in Silicon Valley are meeting with U.S. Rep. Nancy Pelosi and other lawmakers to protect the budding renewable energy market.
"It's not a done deal. We're working hard to get these incentives included," said Tom McCalmont, CEO of REgrid Power Inc. in Campbell and president of SolarTech, a Silicon Valley-based consortium of solar companies.
"We encourage the public to call their representatives and senators. Renewable energy is good for the economy. It creates jobs, economic opportunities and new markets."
The main inhibitor to growth in the solar market is the upfront cost of solar panels. Hochschild said that price would drop if companies knew there was a strong future demand because they could buy the materials, such as silicon, in bulk to save money.
"If the solar tax credit is extended for eight years, [companies] can do projections on how much bigger the market will be and make a bigger investment. In turn they'll get a lower cost on silicon, and in turn they can scale up manufacturing, and that is how costs come down," Hochschild said.
Losing the current federal tax credits would mean slower adoption among consumers, but it would virtually halt the commercial adoption of solar panels because it would no longer make financial sense, McCalmont said.
Currently, dividing the cost of a solar system over its 30-year life means that solar power for residential customers in California averages 20 cents a kilowatt-hour with the current federal and state incentives. For business customers, it's about 15 cents.
Traditional electricity for consumers ranges from 15 to 35 cents a kilowatt hour, depending on the rate structure and usage. For businesses, it's about 15 cents.
Hochschild, McCalmont and other industry leaders didn't have data on the precise economic impact of losing the incentive.
"You'd see a slower pace for market growth. Some people would choose to go ahead, but for businesses that's not the case. They have specific market goals," McCalmont said.
The current federal incentives allow businesses to recover their investment in four to five years, but with only the state incentives California businesses would take eight to 10 years to make up those upfront costs, McCalmont said.
"That's too long a payback for many businesses," he said. "If we don't get an extension soon, you'll see beginning early next year those commercial projects will start drying up."
The industry-backed version of the energy bill asks for an extension of current programs and some changes, including: A Renewable Electricity Standard that requires utilities to supply 15 percent of their electricity from renewable sources like solar and wind An eight-year extension of the 30 percent business income tax credit to encourage investment in solar power equipment. An extension of the 30 percent residential income tax credit and elimination of the $2,000 cap. Allowing people and corporations who qualify for the alternative minimum tax to claim the incentives.
The oil industry is fighting that version, saying the proposals would cost nearly 5 billion jobs and drain $1 trillion from the U.S. economy, citing a study commissioned by the American Petroleum Institute released in early November.
But an American Solar Energy Society report, also released in early November, shows that major investments in renewables and energy efficiency retrofits could produce 40 million jobs and generate $4.5 trillion in U.S. revenue by 2030.
"It's poorly understood how big a growth opportunity renewable energy is," Hochschild said. "With solar there's always going to be work installing the systems on rooftops."
About 32,000 solar energy systems have been installed in California, making the state about 80 percent of the U.S. market, he said.
That market share is in part because of California's incentives to consumers for renewable energy, which scale back over time. Now it's $2.20 for each watt installed.
Solar company Oerlikon Solar, which is looking to locate manufacturing facilities in the U.S., said the state incentives are vital for creating a demand for the product.
"The main driver for incentives in the United States is state government, not the federal government," said Helfried Weinzerl, vice president of sales and service in North America for Oerlikon USA. "Oerlikon Solar is hopeful that the U.S. federal government will show a greater long-term commitment with regard to the new energy bill. ... We are glad to see that California and some other states have realized the tremendous opportunity of solar power and photovoltaics and are at the forefront of the clean technology business."
Large-scale adoption of solar would "bring down costs and get rid of the need for any incentives. It's a clear path to sustainability," said Adam Browning, executive director of The Vote Solar Initiative, a nonprofit organization with the mission of stopping global warming and increasing energy independence by bringing solar energy into the mainstream.
About 15 states offer consumers incentives to use solar or wind energy, he said. Those incentives help with costs, but losing the federal tax incentives could put large-scale solar deals -- like Pacific Gas and Electric Co.'s Nov. 5 agreement to purchase 177 megawatts of solar thermal power from Ausra Inc. -- in jeopardy because agreements with multi-year construction windows won't be completed in time to receive the current incentives, Browning said.
"The problem is big solar plants need to know before they start building what the long-term incentive policies will be, otherwise they'll never start building," he said. "A short-term extension is almost just as good as nothing at all."