California has been basking in a solar energy boom, as companies and homeowners scramble to install solar panels by the end of 2016. That’s when a hefty tax credit is due to fade away.
Right now, the federal solar investment tax credit saves businesses and homeowners 30 percent off the price of solar installations. That credit is slated to disappear completely for residential installations at the end of 2016. At the same time, businesses will see it drop to a 10 percent tax credit. While it’s possible Congress could extend the subsidies, it has made no move to do so yet.
If the subsidies shrink, the state’s solar-induced economic growth spurt – which has produced jobs, corporate profits and lower electric bills for homeowners and businesses – also could sputter.
“There’s a lot of guessing going on right now,” said Severin Borenstein, a UC Berkeley economist who studies the energy market.
Borenstein wonders if solar costs will decrease fast enough so that by the end of 2016 solar would still be attractive, even with drastically cut incentives.
Last year, California invested $11.75 billion in solar installations, more than any other state and an increase of 66 percent from a year earlier, according to the Solar Energies Industry Association. Solar now employs 54,700 people, a nearly 16 percent increase from 2013, according to the most recent census from the Solar Foundation, which tracks the industry. Those figures are expected to rise another 17.2 percent in 2015. The Solar Foundation’s study did not look beyond 2016, when the federal incentives taper off.
With the potential end to the current incentive structure a little more than a year and a half away, many companies and homeowners are rushing to lay on panels while the money is still available.
“There’s definitely a rush,” said Erik Fogelberg, who deals with commercial projects at San Mateo-based SolarCity, the largest solar installer and financier in the U.S. Currently, California has a few large installers and hundreds of smaller ones. If the subsidies dry up, those smaller outfits might wither as well.
“There’s probably going to be a massive fallout of companies that can’t survive that change,” Fogelberg said.
SolarCity’s earnings report from February shows some concern about the bubble bursting when incentives go away: “Reductions in, eliminations of, or expirations of, governmental incentives could adversely impact our results of operations and ability to compete in our industry,” it says.
$11.75 billion How much California companies and consumers spent on solar installations last year
Solar City employs 5,300 people in the state, half of whom work in Northern California, including 500 at a regional office in Roseville.
In the short term, the company is riding a massive expansion. In the first quarter of 2015, Solar City reported a 74 percent increase from a year earlier in the amount of solar power it installed, at 237 megawatts.
“What we’re likely to see between now and 2016, barring any change in the tax regime, is this Oklahoma land grab, if you will,” said Peter Kelly-Detwiler, co-founder of the Massachusetts-based energy consulting firm, NorthBridge Energy Partners, which helps companies and government agencies negotiate energy contracts and secure energy sources. He calls commercial solar “the next big, emerging, growing sector.”
Kaiser Permanente, the Oakland-based medical provider, is one of the companies taking advantage of the current incentives. It has installed solar panels at 11 sites in the state, including Modesto, Vallejo, Livermore and Santa Clara. At Kaiser’s hospital in Irvine, nearly 5,000 solar panels already sit just off Interstate 5, glinting in the golden sunlight.
Kaiser’s solar installations are producing more than 13 million kilowatt hours of solar power each year. That’s enough to power about 1,950 California homes.
“It takes a few years to break even,” said Scott Wendling, who oversees the company’s sustainable resources, but the company is already seeing a drop in the amount of power it needs to draw from the grid. The Anaheim solar panels are saving Kaiser in the ballpark of $10,000 to $20,000 a month in lower electricity costs, depending on the weather, he says.
Kaiser is “hedging its bets,” said Wendling, by locking in lower electricity prices for 20 years by installing solar panels now.
The company plans to expand its solar project to up to 170 locations in California, making it the largest independent on-site solar project in the country. The project is expected to be complete within two years.
Companies like Target, Walmart and Whole Foods have all invested millions in recent years to install photovoltaic solar panels.
For large companies, solar incentives add up. A typical 300 kilowatt system on top of a store might cost somewhere around $1.4 million to install in California, according to figures from the U.S. Department of Energy’s Lawrence Berkeley National Laboratory.
A 30 percent tax credit saves about $420,000 on a single installation. Multiply that by 25 stores and solar saves $10.5 million in taxes. In contrast, if the tax incentives drop to 10 percent at the end of 2016, the same installation would net $140,000 for a single location in saved taxes or about $3.5 million on 25 locations.
Those figures don’t include an additional 10 to 15 percent in other tax savings or the money saved by locking in electricity costs by leasing back the solar at a fixed, lower price for 20 to 25 years.
As of January 2015, the federal government reported that commercial electricity costs 13.98 cents per kilowatt hour in California. That’s up more than two cents per kilowatt hour from two years ago.
Given the other financial advantages solar offers, Kelly-Detwiler said he doesn’t think the industry will fall apart long-term after the tax credits go away.
“I think it’s going to be like when you overeat at your Super Bowl party, then you don’t have an appetite for a little while afterward,” he says, adding, “What will happen is everyone’s going to jam projects in before the end of 2016, as many as they possibly can. And then, on the other side of that, there’s going to be a pretty significant slowdown for a few months. But the economics are still so good. … The costs aren’t done falling.”