The Lagunitas School District in San Geronimo, Calif., spent nothing for its solar power installation, but the project’s developer tapped state subsidies and federal tax incentives.
By JIM WITKIN
IT’S Earth Day, and among the many activities planned for students at the Lagunitas school campus, about 30 miles north of San Francisco, is a field trip to visit a solar power installation, where they will learn how photovoltaic technology converts the sun’s energy to electricity.
In operation since 2008, the system provides about 70 percent of the school’s annual electric needs and will save more than $100,000 on its energy bills over the next 15 years.
Installing it cost the school nothing. In a business arrangement becoming common for solar projects like this, the project developer, Solar Power Partners, installed, owns and operates the system. It then sells power back to the school through a long-term power purchase agreement.
Retaining ownership lets the developer and its investors take advantage of federal tax incentives and California state subsidies, which in turn allow them to compete on price with the local utility.
Government incentives to private industries are nothing new. In 1917, the federal government offered a tax credit to a young oil industry to encourage exploration and drilling, opening up an industry that transformed our economy, while creating thousands of new companies and many more jobs. Today’s solar power proponents hope generous federal and state incentives, along with creative business models like power purchase agreements, will provide the same result.
Photovoltaic technology has been around since the 1950s. It was originally used to power sites far off the utility grid. The market for building solar electric systems on homes and commercial properties, however, really took off when the federal Energy Policy Act of 2005 raised the investment tax credit for solar projects to 30 percent. Almost all of these systems remain connected to the utility grid, so the customer, like the Lagunitas school, can still buy power from the utility when its solar energy system does not meet its demands. And when they generate a surplus, they can put power back on the grid and receive a credit on their utility bill.
The market almost stalled in late 2008, when the federal tax credit was set to expire. With much pressure from industry groups, Congress extended the credit to 2016. And when the recession tightened credit markets and flattened investors’ profits, making tax credits less attractive, the federal government offered the option of a 30 percent upfront grant instead of the tax credit, as part of the 2009 recovery act.
Even with a recession and tough credit markets in 2009, another 429 megawatts of grid-connected photovoltaic solar power came online last year, a 38 percent increase over 2008, said Larry Sherwood, an analyst with the nonprofit Interstate Renewable Energy Council. A megawatt of solar electric capacity can power up to 270 average homes, according to Energy Acuity, a clean-tech research firm.
While more established energy companies like Chevron are in this market, the incentives have started an entrepreneurial rush of regional start-up companies and created thousands of local jobs in installation, construction, maintenance and finance. Energy Acuity is tracking just over 1,000 American companies active in the solar industry. A majority of these are small businesses with 50 or fewer employees.
This year has started strong, and many of these companies are finding they have more work than workers. Paul Detering, chief executive of Tioga Energy, a California solar project developer, said his company has added 40 percent to its payroll since the beginning of 2010, based on growing customer demand. Navigant Consulting estimates that the eight-year extension of the Investment Tax Credit in 2008 could create up to 230,000 jobs by 2016 in the solar photovoltaic market.
Not surprisingly, the number of installations has grown the most rapidly in the states with the most solar-friendly policies and regulations, especially those that require the utilities to obtain a certain percentage of their power from renewable sources. California still leads the market nationwide, but states like New Jersey, Arizona, Florida and Massachusetts each doubled their capacity in 2009, Mr. Sherwood said. He also estimated that total grid-connected photovoltaic capacity could reach 2,300 megawatts by the end of 2010, roughly the equivalent of four average-size coal or gas-fired power plants.
Many of the state programs reduce the level of incentives as more capacity is brought online based on the idea that as the industry matures, the price of materials, construction and financing should come down. This has certainly held true for solar panels, which can account for up to 50 percent of the cost of a project. An industry rule of thumb observes that every 18 months, solar panel production doubles, bringing prices down 20 percent.
Local governments are also finding innovative ways to reduce financing costs. Earlier this year, the Morris County, N.J., improvement authority sold $21.6 million in municipal bonds to finance 3.2 megawatts of solar projects across several facilities in the county.
“Not only are there economies of scale in aggregating several projects,” said Steve Pearlman, a lawyer representing the county, “but the lower cost of public capital allows the project developer to pass those savings on to the county.” Tioga Energy, the project developer, will repay the bond from the revenue it receives from power purchase agreements.
Providing electricity at a price competitive with local utilities without the benefit of incentives and subsidies is the aim of the solar industry. Most industry watchers view 2016, when the federal investment tax credit expires, as the target.
A maturing solar industry with declining costs set against rising energy prices for fossil fuels should help. But Bob Powell, chief executive of Solar Power Partners, said parity will come only when the full cost of dirty energy is charged versus clean energy. “There must be some way to account for the cleanup required with burning coal, which you don’t have with solar, to achieve long-term parity,” he said.
Solar power advocates hope a government-organized cap-and-trade or carbon tax system will provide such an accounting and keep the industry growing.
By JIM WITKIN/The New York Times