[San Jose, California USA]
After an historic 2011, the US solar industry faces challenges to net metering, 1603 expiration, and ITC (Investment Tax Credit) policies and trade.
In one of three PV America West opening keynotes, all viewable here, Solar Energy Industries Association (SEIA) President and CEO Rhone Resch reflected on his tenure at the SEIA, the historic solar growth of 2011, and issues facing the US solar industry in 2012 and beyond.
As summarized in the “US Solar 2011 Year in Review in One Graphic”, United States PV (photovoltaic) installations grew a whopping 109% in 2011 more than doubling to 1.855 GigaWatt (GW) according to the GTM Research and the Solar Energy Industries Association (SEIA) report “U.S. Solar Market Insight: 2011 Year-in-Review”.
For the second year in a row, solar was the fastest growing industry in the US at $8.4 Billion in 2011 up from $5.0 Billion in 2010. California continued as the number one solar market with 543 MW of new PV installations and led the nation’s residential and utility segments. New Jersey edged California in the commercial segment for the first time with 226 MW of PV installs versus 195 MW respectively.
In anecdotal comments, Rhone Resch said:
The Cinderella story of the solar industry, Hawaii, installed over 20 MegaWatts of residential systems last year alone.
The other sleeper, the Lehigh [Ed. Note: Lehigh University] of the solar industry, is Pennsylvania which installed 70 MW this last year. Just spectacular growth for that state.
US utility scale solar installations grew three fold to 758 MW in 2011. Mr. Resch claimed a 30 GW pipeline of utility scale solar projects was under development by large Independent Power Producers (IPP) and developers across the country.
US installed system costs in 2011 dropped on average 20% as a result of module price declines of almost 50%.
Net Metering or Net Energy Metering (NEM) policies are under attack as Investor-Owned Utilities (IOUs) assert the success of distributed solar is impacting non-solar electricity ratepayers, and NEM is therefore inequitable and unsustainable. In addition to promoting hard caps on distributed solar NEM, some utilities are seeking a standby or network use charge from solar customers.
In California, the 5% net metering cap may be hit by PG&E Corporation (NYSE:PCG) in 2013 leading to a repeat of the 2009 Solar Showdown before the NEM cap was raised from 2.5%. The SEIA “Solar Net Metering in California” policy sheet outlines the issue along with a proposed method to calculate NEM cap compliance using the aggregate of individual customer peak demand instead of utility peak demand as the denominator. The current California NEM law does not specify how utilities should calculate the 5% NEM cap, and the contention is the IOU’s calculation methodology overestimates NEM grid penetration. Per “Is PG&E Overestimating the Amount of Solar?”, PG&E has done this in the past by using the nameplate capacity of the inverter instead of the solar installation system rating.
Vote Solar has been at the forefront of efforts in California to defend Net Metering and protect solar NEM users from unfair fees. Vote Solar was one of parties successful in arguing against the legality of the San Diego Gas & Electric (SDG&E), a subsidiary of Sempra Energy (NYSE:SRE), proposal for a Network Use Charge. Vote Solar has been continuing to make good on their New Year’s resolution to protect solar self-generation by organizing a net metering day of action at the California’s state capitol.
Nationwide, utilities are seeking to impose solar NEM fees with proposals under consideration in Massachusetts, Louisiana, and San Antonio, Texas. Virginia has already adopted a NEM standby charge on residential systems with capacity greater than 10 kW (kiloWatt).
On the expiration of the 1603 program, Mr. Resch said:
It’s the most popular public policy for promoting renewable energy in the entire country (period). Over 22000 projects were helped financed through the 1603 program. It supports small businesses. In fact, 22000 solar projects were supported. The average size of those projects: $150000. Those are being developed, financed and put in the ground by small businesses. 1603 is absolutely critical.
However, the Stabenow Amendment to a recent Transportation bill reauthorizing “Federal-aid highway and highway safety construction programs, and for other purposes” extending the 1603 program was rejected in a United States Senate vote along party lines of 49:49 with 60 yea votes needed to approve. I don’t believe the 1603 can be extended before the November elections unless the program extension is part of budget compromise.
Solar ITC at risk
Not unlike the mid 1980’s, the very “backbone of solar energy policy in the United States”, the 30% ITC (Investment Tax Credit) is at risk from Federal tax reform. In separate statements, Mr. Resch said:
Fundamental corporate tax reform is beginning to happen right now in Washington, DC.
It could be a mistake for us to assume the ITC is safe.
A confluence of events is aligning to force Congressional action on tax reform by the end of 2012. With the national debt viewed as unsustainable, automatic spending cuts will be triggered in early 2013 although the debt ceiling may need to be raised before the November elections because of the Payroll tax cut. Bush era tax cuts and other tax provisions are also set to expire at the end of the year.
Reducing the corporate tax rate while raising revenue is part of the emerging consensus solution gaining traction in both political parties. Eliminating tax preferences, such as the ITC, are the method to achieve both of the disparate tax reform goals. Everything is on the table in the tax reform discussion including changes to the home mortgage interest deduction, a cornerstone of the American Dream.
A concerted push to repeal energy tax incentives in Washington can be expected over the next year and has already begun. The DeMint Amendment to the same Transportation Bill mentioned above would have terminated “certain energy tax subsidies and lower the corporate income tax rate” including the repeal of the ITC. Senator DeMint’s Amendment was rejected 26:72 but gained support from senators in states with strong solar markets or solar manufacturing centers such as Mississippi, North Carolina, Tennessee, Wisconsin, Arizona, Ohio, Pennsylvania, and Florida, the self proclaimed Sunshine State.
In my opinion, the solar industry should be prepared to justify the ITC required in the later years of the existing incentive to insure the 30% level is appropriate given PV module price declines and future reductions in BOS (Balance of System) components and soft installation costs. Any extension of the ITC beyond 2016 must include a degression or be fixed at a low flat rate to foster the ongoing renewable energy transformation in support of US Energy Policy.
Just as the Department of Commerce (DOC) announced preliminary countervailing duties in the Chinese solar trade case (“Commerce Preliminarily Finds Countervailable Subsidization of Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled into Modules from the People’s Republic of China”), the SEIA called for collaboration to create a “multilateral public private dialog on trade” and “develop consensus guidelines to avoid future trade disputes”. Mr. Resch said:
So we are working with our fellow trade organizations around the world to develop this multilateral framework that promotes free and fair trade to support open markets for solar energy in all countries around the world.
Trade is a divisive issue, even in the same country, as the CASM (Coalition for American Solar Manufacturing) versus CASE (Coalition for Affordable Solar Energy) duel has illustrated. The SEIA is itself a microcosm of the global solar industry; SEIA Board Chairman Roger Efird is the Managing Director of Suntech America, Inc., a subsidiary of Suntech Power Holdings Co., Ltd. (NYSE:STP) and mandatory respondent in the DOC solar trade case. Of course, Suntech also repeated as the number one worldwide PV module manufacturer in 2011.
I don’t envy the SEIA leadership in balancing the interests of their global membership and technology portfolio to create one voice for the US solar industry.
(Full disclosure: Lehigh University is my undergraduate alma mater.)