So Far, So Good: Solar Incentives Continue Despite Divided Congress
By Kelly Davidson, Homepower Magazine
Apr/May 2011 (#142) pp. 12-13
With conservatives in control of the House, capturing more seats in the Senate, and vowing to deliver deep cuts in federal programs, competition for funding may be fiercer than ever in the coming years for energy projects and programs.
“We have had a fair amount of bipartisan support in the past, and we’re hoping it will continue moving forward,” says Dan Adamson, vice president of government affairs for the Solar Energy Industries Association (SEIA). “But there are a lot of new players, and there is definitely some uncertainty.”
If history is any indicator, then solar may survive the ensuing partisan power struggles. The investment tax credit— hailed as the single most important piece of legislation for residential and commercial solar—was originally passed in 2005 with a Republican-controlled Congress and has survived two presidencies.
Adamson says that it is too early to tell what impact— good or bad—the shift to a more conservative legislature will have. “We’re not making assumptions about anyone. We’re just doing what we can to educate all members of Congress about the benefits of solar. Job creation is one thing that all the parties seem to want, and growth of the U.S. solar market offers that,” he says.
The solar industry scored an eleventh-hour victory during the lame-duck Congress in December. The Section 1603 Treasury Grant Program (TGP), which was set to expire at midnight on December 31, 2010, narrowly escaped demise. The program, also known as the “Payments-in-Lieu-Of-Tax-Credits” program, received a one-year extension as part of a bipartisan compromise over new tax legislation.
“The makeup of the new Congress may make our task more difficult, but the need for investments in renewable technology and infrastructure has never been greater,” says Senator Kirsten Gillibrand of New
York, who helped push for the TGP extension. “This is no time to back down from our efforts.”
The TGP serves a critical function for the solar industry, providing commercial and nonprofit installations with a cash grant in lieu of the long-standing 30% solar ITC. Since the onset of the economic downturn, securing third-party tax equity to take advantage of the ITC and cover up-front costs for solar projects has been challenging, according to John Lushetsky, program manager of the U.S. Department of Energy Solar Energy Technologies Program.
The TGP was created as part of the American Recovery and Reinvestment Act (ARRA) to address this problem, essentially shifting the incentive from a back-end subsidy to an up-front cash grant.
“The investment tax credit is the cornerstone of federal solar policy, but it can only do so much in the current economy, where tax equity financing is scarce,” Lushetsky says. “The ITC is on the books until 2016, but without the treasury grant program and other key incentives in place, we are not going to see the same level of market development and job creation that we have seen over the past few years.”
As of early January, the TGP leveraged roughly $5.8 billion in federal funds to attract nearly $18 billion of outside investment for solar, wind, and other renewable energy projects. The majority of that funding—roughly $4.9 billion— went toward 223 grants for wind energy installations, with $472 million doled out for 1,430 PV and solar thermal installations in 43 states. New Jersey received the secondlargest chunk for solar projects, after California.
The TGP extension marked the end of a banner year for solar. In 2010, the United States installed 830 megawatts of PV—almost more than double that installed in 2009, according to senior analysts at GTM Research in Cambridge, Massachusetts. An additional 78 MW of concentrating solar and roughly 700 MW of solar thermal drove the total solar installations well above 1 gigawatt for the first time.
Alongside support from state and federal policies, nationwide growth is being propelled across residential, commercial, and utility-scale market segments by the continued decline of average system costs—which are below $6 per watt.
In addition to extending the grant program, Congress also approved an incentive that allows companies to write off the full depreciation on solar equipment in the first year after installation rather than over five years.
Industry leaders will be pushing to reinstate the advanced energy manufacturing credit. The $2.3 billion for the ARRA tax incentive—$1.1 billion of which was dedicated to solar projects— is now fully exhausted. Despite efforts by solar champions in Congress, the program did not receive additional funding as part of the 2010 year-end package.
Legislation introduced last year by former Congressman Phil Hare (D-Illinois) and current Senator Sherrod Brown (D-Ohio) aimed to revive the 30% manufacturing credit with an additional $5 billion in funding for new facilities and a cash-grant option similar to the TGP. At this time, the legislation has not been reintroduced.
Among those programs that may experience changes are the 1703 and 1705 loan guarantee programs through the DOE, in which the federal government shares some of the financial risks of nuclear, fossil, and renewable energy projects. Collectively, the two programs have more than $18.5 billion in funding authority for renewables. However, the $2.4 billion in appropriated funds to pay for credit subsidy costs for eligible 1705 projects—made possible through the ARRA to support an estimated $20 to $30 billion in loan guarantees—is due to expire on September 30, 2011. As of February, the programs had committed $4.7 billion in loan guarantees, and finalized loan guarantee in support of five major solar generation and manufacturing projects. Of the five projects, three have closed.
“We hope that the members of Congress realize that the tremendous impact that these programs have had, and how important it is for United States to continue to grow its solar industry,” Lushetsky says. “When you look at the amount being invested in China and other countries, these are still relatively small efforts.”
According to data compiled by SEIA, the United States accounted for more than 40% of global PV cell production as recently as a decade ago. Yet in 2009, Europe and Asia led global production, with the United States producing only 7% of the world’s PV modules. Looking at the entire solar energy supply chain, the United States remains a significant net exporter with total net exports of $723 million in 2009.
SEIA is hoping the power of bipartisanship will advance an industry-wide target of installing 10 gigawatts of solar each year until 2015. To realize that goal, the group is lobbying lawmakers to put in place a series of policies, including longer contract terms for federal power purchase agreements. Current law limits the length to 10 years, versus the 20-year power purchase agreement (PPA) model used in the private sector, which has been shown to make solar investment more cost-effective.
Also on the agenda are uniform national net-metering standards and stronger solar access laws that prohibit or limit private restrictions on solar, such as those imposed by a homeowners’ association. There are no bills or major efforts afoot on feed-in tariff legislation, although SEIA has a working group examining the issue.
What’s happening at the federal level may not touch homeowners directly, but all the efforts benefit the industry in a broader sense, Adamson says.
“These programs are creating jobs and encouraging domestic manufacturing that is helping to lower the cost of solar and allowing the solar industry to compete against the heavily subsidized fossil-fuel industry,” he says. “Ultimately, those savings trickle down to ratepayers and homeowners in the form of lower rates for utility-scale solar electricity and lower installed costs for residential systems.”