Are Utility Tax Credits Good for the Solar Industry?

While most sectors of the economy are in a state of cautious reserve, the solar industry has been celebrating the eight-year extension of solar tax credits. This includes two revisions that promise to have a large impact on the industry: the removal of the $2,000 cap on residential systems and the opening up of solar tax credits to utilities. While much hoopla has been made about the removal of the residential cap, very little has been said about the new power granted to utilities.

Currently, utilities usually purchase renewable power from third-parties or fund solar projects through solar companies that do receive the tax credits. Yet the new provision, which allows utilities a foot in the investment door, is turning out to be quite mysterious. It seems widely unclear how this new twist will affect the industry, from solar firms to homeowners. Whereas now power purchase agreements (PPA) are a dominant way to fund solar projects, that may change significantly says Julia Hamm, executive director of the Solar Electric Power Association.

Shift in Power, from the Customer Generator to the Utility

What does this mean for the solar industry and the relationship between solar company and utility?

The first result seems a shoo-in. There will be an even more potent shift toward large, utility-scale power generation. Given that utilities can now fund – and be credited for – their own solar projects, will they have any motivation to remain “friendly” to small, customer-distributed systems? In states with renewable portfolio standards, the need for a broad range of renewable sources of power will remain necessary as utilities attempt to reach those goals. But in the long term?

In our current system, where investor-owned utilities dominate and there is always money to be made, how is it that owners of small-scale or rooftop solar systems can expect fair play? Not that utilities should not be allowed to produce their own power – especially renewable power – but shouldn’t there be some kind of check to prevent a monopoly on solar power? This is, after all, free energy.

Perhaps some initiatives that are popular and successful elsewhere would be appropriate. Feed-in tariffs for the purchase of customer-distributed electricity would be a good start and a good trade in exchange for utilities’ reception of the tax credits. Secondly, these are federal tax credits, but where is the enforceable RPS to assure the rapid growth we need?

Utilities Taking Advantage of New Power Dynamics

Indeed, signs of the shift in power and a major dynamic change in the solar industry are already coming to light. Southern California Edison has begun making demands from suppliers, apparently telling Suntech Power that it would only buy panels for 20 percent below average market prices. Proponents of the shift in tax investment claim that such undercutting will drive innovation and, over the long term, benefit the industry as a whole. But this does not always mean lower costs on the power bill.

In addition, Xcel Energy, a Colorado utility, is using the renewal of the tax credits as reason to cut its solar credits by 40 percent; from $2.50 per watt to $1.50 per watt. This applies to systems less than 10 kilowatts in size. Could this be a harbinger of things to come?

I admit that I myself, upon learning of utility eligibility, was initially excited about the prospect. Yet I have lived primarily in an area with a municipal utility, where customers tend to have more sway. Now as we see the first glimpses of what effect this turn may have, there is a tendency to reel back. Utilities, which have a good share of capital, will now have the ability to drive down prices from solar suppliers and installers. This could have serious ramifications for small solar companies and really consolidate the industry.

Posted on November 4th in Solar Politics by Dan.