SUBSIDY DEBATE KEY TO STATE’S SOLAR FUTURE
At issue: Tax credits, other incentives for industry, customers
“Subsidy” and “incentive” are fighting words in Arizona’s intense debate over solar power, with emotions riding high over how much help, if any, the solar industry should get.
The state’s fledgling solar economy is beginning to take root, but it can’t yet stand on its own without support from the federal government, states and utilities.
Solar supporters say that the industry won’t need subsidies forever but that incentives such as the 30 percent tax credit on the price of solar panels are essential to get it established and competing with
I know the industry has been good for the economy.”
who runs Harmon Electric, which gets 60 percent of its work from solar
traditional power sources.
In addition to the tax credits, utilities give homeowners with rooftop solar panels full retail credit for the electricity they send to the grid. However, utilities want to cut that credit because they say it is more expensive than buying power on the market from power plants. Homeowners with solar — or those considering adding the panels — don’t want the payments for power they contribute to the utility grid to drop.
Arizona Public Service Co. and other utilities say the growing number of solar customers can put an unfair burden on customers without solar, who tend to be less well off than solar users. That’s because the solar customers who receive credits for selling power back to the grid don’t pay as much as non-solar customers to maintain the grid.
Other solar opponents contend that tax credits and incentive programs for homeowners with solar are bound to distort the market
and create an unequal playing field for energy sources such as natural gas and nuclear power.
Even though many forms of energy benefit from government subsidies, the debate over taxpayer support for solar intensified after Californiabased Solyndra Inc., a manufacturer of unique solar products, filed for bankruptcy in 2011 after getting more than $500 million in government loans.
“California’s new Solyndras, Sunrun and SolarCity, are getting rich off hardworking Arizonans,” says the voice-over in a video posted by one of the secretive groups fighting subsidies in Arizona.
A Washington, D.C.based conservative organization called 60 Plus, which focuses on seniors’ issues such as taxes, Social Security and Medicare, produced the online video and created a website, azsolarfacts.com.
APS officials pay a consultant with ties to the group, but officials from the utility said they were not sure if their money was used to produce the video.
Arizona’s utility regulators will have to make decisions this year on the incentives, and federal lawmakers will have to decide whether to extend the industry’s tax credits.
Decisions they make will affect the future of solar in the state.
Amid the debate, new ideas are emerging on how to best support solar and other renewable forms of energy.
One strategy involves taxing carbon, the gas emitted by coal and natural-gas power plants that contributes to climate change. A carbon tax would make cheaper, polluting fuels like coal more expensive, bringing them more in line with costs associated with renewable fuels like solar and wind.
Carbon policies are generally opposed by groups that either don’t see climate change as a threat or don’t want the U.S. economy to suffer while addressing that problem.
Yet another strategy involves opening up the electricity markets to competition, a move that would allow consumers to choose which company to buy power from.
Those policies are generally opposed by those who would prefer the government to force the use of renewables, rather than leave it to consumer choice.
Gautam Gowrisankaran, an economics professor at the University of Arizona, said strategies that address climate change by stepping up the use of alternative energy can have a positive economic impact.
“I think it would generally be good for the economy,” he said. “It would spur technological development to reduce carbon emissions and would also cause us to limit how much carbon we are using. In the long run, that is good.”
Credit expires in ’16
The 30 percent tax credit that can be claimed by homeowners on the price of rooftop panels has an expiration date, and the solar industry is already lobbying to extend it.
The subsidy, which was enacted in 2006 and can also be claimed by big power plants, created the boom in solar installations, said Rhone Resch, president and CEO of the Solar Energy Industries Association in Washington, D.C.
The credit was extended in 2008 and is now set to expire in 2016.
Although that expiration date is three years away, it likely already is affecting the amount of solar planned because some large projects cannot be planned, permitted and built by the expiration date, Resch said.
“All energy technologies receive some type of federal support,” Resch said. “Oil and gas have received tax support since 1916. Coal since the 1930s. Nuclear since the 1950s. It wasn’t until 2006 that solar had the investment tax credit.”
Solar-installation costs have come down more than 80 percent in the seven years since the credit was implemented, according to Resch. The tax credit is working, but the industry needs more time, he said.
“It’s been a very short time period to build a massive industry as part of our energy infrastructure in the country,” he said.
Resch said the cost of the tax credit to the federal government has declined along with the cost of solar panels. A project that cost $10 per watt in 2006 would get a $3-per-watt tax credit.
The same project today might cost $3 a watt to install, thus qualifying for a 90-cent-per-watt tax credit, meaning the government gets more power per dollar spent on the tax credit today.
“As Congress looks at the various tax policies, the economic benefit to this country and to our energy security (from the credit) greatly exceeds any costs with the tax credit directly,” he said.
Credits studied
The largest utility in Arizona, Arizona Public Service Co., is seeking to change the way it credits rooftop-solar customers for the electricity they send to the power grid.
The proposal, which has drawn intense opposition from the industry, would not affect current solar customers, other than possibly making it harder to sell their homes that have solar. But those who add solar after Oct. 15 would not get as much of an economic benefit from the panels and would end up paying $50 to $100 more a month than customers with solar on their roofs today.
APS officials say that they spread the cost of new power lines and other infrastructure among all customers. But when customers install solar and generate enough power on their own to offset almost their entire bill, they aren’t contributing to the larger grid investments anymore.
To fix the issue, APS wants to change how solar customers are credited for their electricity. When they are not using the power from their panels, it goes to the grid and on to the next house. In a process called net metering, they get a one-to-one credit for each kilowatt-hour and use those credits to offset the electricity they use from the grid at night.
APS is proposing to reduce the credit solar customers get for their electricity, which would reduce the economic incentive of going solar. If that economic incentive is cut too much, solar supporters argue that the industry will wither.
The industry opposes any reduction, arguing that utilities are not taking into consideration the benefits that solar offers. Industry officials argue that simply getting credit for the power solar customers produce should not be considered a subsidy.
“There does need to be some review of the rate structure and allow them to recover their fixed costs,” Resch said. “We need a more advanced rate structure that allows for our 21st-century infrastructure to be built out. Our argument is not to look at the costs, but at all the benefits in the full lifetime of the customer’s solar system.”
He said rooftop solar helps APS avoid electricity lost in transmission through long interstate power lines, fuel costs at power plants and other system upgrades, not to mention externalities such as pollution.
“The second part is that it is also a property-rights issue,” Resch said. “Homeowners should have the right to install solar on their home or business and sell that electricity. It really is a propertyrights issue. That plays well in communities in Ar- izona and throughout the U.S.”
Industry impact
The impact of the tax credits and net-metering rates affect the entire solar industry, all the way down to those who support and install the systems.
Dan King runs Harmon Electric with his wife, whose father owned the business before them. They have been installing rooftop solar since 2008. Before that, the Phoenix company focused mostly on commercial electrical projects.
Without the solar business, which now provides about 60 percent of the company’s work, he said, the business might not have done as well during the recession, and it certainly wouldn’t be employing 100 people today.
Some of that business is in the rapidly growing solar-lease market. Harmon builds solar-panel arrays on homes whose occupants will lease the panels.
“We are constantly presenting to everyone that the industry needs some level of certainty,” King said. “I don’t know that we have ever had a good level of certainty (regarding solar regulations).”
He is hopeful regulators can agree on a way to credit rooftop-solar customers that does not cut off the hundreds of people a month now seeking such systems.
“I hope the outcome is good for the solar industry,” he said. “I know the industry has been good for the economy.”
A carbon tax?
Some national experts argue that a better way to support alternative fuels is to handicap carbon, the gas emitted by coal and natural-gas power plants.
Carbon is linked to climate change and is a major reason many people support subsidies for clean, renewable forms of energy.
“What we are looking for is a true cost comparison between the competing fuels,” said Bob Inglis, a Republican who represented South Carolina in the House of Representatives for 12 years and who now serves as executive director of the Energy and Enterprise Initiative at George Mason University in Virginia. “We don’t want the government in the business of picking winners and losers. We don’t want the government, through fickle tax incentives or clumsy mandates, distorting the market.”
Taxing carbon would make cheaper fuels like coal more expensive, bringing them more in line with the costs associated with renewable fuels like solar and wind.
The current tax credits and other subsidies for solar and other renewable forms of energy create too many unintended consequences, Inglis said.
For example, because wind farms get a credit based on how much electricity they generate, they can sometimes dump excess electricity on the grid and force utilities to turn back their nuclear generators.
That’s inefficient because nuclear reactors are most efficient when run at full power.
Nuclear reactors don’t emit carbon, so utility customers are paying a premium for electricity with no additional benefit when that occurs.
“The complexities that arise there, that’s emblematic of the problem with the government stepping in to markets and trying to put a thumb on the scale of one or another fuel source,” Inglis said.
Though conservatives have opposed laws that would target carbon because they could harm the economy, Inglis said he sees selling points for conservatives.
“You can actually get a smaller government out of this,” he said. “The reason it is government shrinking is it opens up the possibility of reducing some EPA regulations that are cumbersome and replacing them with an elegant price signal.”
Inglis also said the United States might be able to apply a carbon tax on imports from other countries, though he said experts disagree on whether such a move could be written in a way to pass muster with international trade regulations.
“If we price carbon only in our own economy, energy-intensive industries will necessarily be looking to move elsewhere,” he said.
Choosing a provider
Another possible way to give alternative power sources such as solar a chance to stand on their own in the marketplace is to open up retail competition. Big utilities would still control the power grid and distribution of electricity, but customers would be able to choose who provides the electricity itself.
In May, the Arizona Corporation Commission voted to open a new proceeding to examine such a move.
Interested parties are filing their comments with regulators now, and meetings on the issue could begin this fall.
The Goldwater Institute, a conservative think tank, is promoting deregulation.
The group led an unsuccessful, years-long effort to repeal the Corporation Commission’s requirement for utilities to get 15 percent of their electricity from renewable sources but sees hope in retail competition.
“Hopefully, they will move us closer to consumer choice and competition and supply,” said Nick Dranias, director of policy development and constitutional government for the institute.
APS and AARP have come out against electricity deregulation, citing concerns that it would not benefit customers.
Dranias said that if rooftop solar power is truly a competitive technology, “the best thing you could do is get rid of the regulated monopoly.”
“It all depends on whether you believe rooftop solar is a competitive and desired form of energy,” he said.
“I think a very strong case can be made that it is. … The technology is moving so fast in renewables, with or without mandates or subsidies, nobody knows what this market will look like in five years.”
In markets such as Texas where utilities are deregulated, renewable energy has done well, he said, with customers choosing to purchase wind power.
“There is a strong market for people willing to pay a premium for green products,” he said.