Thoughts on Solar by Run on Sun's Founder & CEO, Jim Jenal

We have written before about the importance of the federal section 1603 Treasury Grant Program as a means to spur further growth in solar.  Well it is crunch time and if you agree with me that this is a program that needs to be continued, there are a couple of things you need to do, NOW.

The good news is that it is easy, thanks to the 1603 Coalition folks over at SEIA - here’s what you need to do:

• First, place a call to your U.S. Senators urging them to support an extension of the 1603 program.  If you click here you will be given the opportunity to fill-in your information and then the system will place the call for you!  (Isn’t hi-tech wonderful?)


• Second, send a brief letter to the editor of your local paper.  Again, SEIA has made this easy - click on this link to see the local papers in your area - they even give you a draft letter to work with as a starting point!  (What could be easier?)

We have railed in the past about the PR problems plaguing solar - well, here is a way for you to help counter some of that by making a little positive PR of your own.  If everyone who supports solar were to take five minutes today to do these two things, we would be well on our way to getting the 1603 program extended for another year - and wouldn’t that be a swell way to ring in the New Year?

We previously wrote about how Congress could help grow the economy by extending the section 1603 Treasury Grant Program. Now there is a Coalition being formed to help get solar companies to sign on to a letter to Congress. Run on Sun is a signatory and we encourage our fellow solar participants to do so as well.

First some background.  The section 1603 Treasury Grant program allows commercial solar power system owners to receive the 30% federal investment tax credit in the form of a grant.  This has two grant advantages: first, not every commercial operation has a “tax appetite” that is big enough to fully utilize a tax credit of that size.  The grant solves that by not being tied to the particular tax position of the receiving commercial owner.  (Sadly, the grant program is not open to non-profit or government owners.)  Second, because the grant is issued by the Treasury upon completion of the project, the 30% payment is received sooner than would the corresponding tax credit.

Unfortunately, the 1603 grant program is scheduled to expire at the end of this year - which is where the Coalition comes in.  Organized by the folks at SEIA, the Coalition has a short letter that will be sent to members of Congress (the text of the letter is reproduced below and a pdf version is attached).

We urge all solar companies and organizations related to this field to join Run on Sun in signing on to the letter.

You can do so by following this link to the SEIA site. 
The deadline to participate is November 23.

Here is the letter in full:

TEXT OF THE COALITION LETTER:

Dear ________,

The undersigned companies, small businesses and organizations are writing to ask that you extend the highly effective Section 1603 Treasury Program before it expires on December 31, 2011. Extension of this program will create jobs, spur economic growth and promote private sector development of energy technologies.

The Internal Revenue Code provides a host of tax incentives designed to spur the development and use of domestic energy sources and technologies. Project developers commonly monetize these tax incentives by partnering with tax equity investors who have the liquidity and tax liability to utilize the credits.

The 2008 economic crisis and the economy’s subsequent downturn drastically reduced the availability of tax equity, severely limiting the financing available for energy projects. The Section 1603 Treasury Program, which was enacted in 2009 and extended in 2010, allows energy developers to receive a federal grant in lieu of taking an existing energy tax incentive they are otherwise entitled to claim. This is simply a change to the timing of when an energy incentive can be claimed. This change in timing, however, provides the liquidity needed for the further development of domestic energy projects.

The 1603 Treasury Program has been a resounding success. Since its enactment, the program has leveraged over $21.5 billion in private sector investment to support over 22,000 projects utilizing a wide range of energy technologies in all 50 states. This has resulted in thousands of new American jobs. The 1603 Treasury Program is an efficient finance mechanism that allows taxpayers and small businesses to maximize the return and value of existing energy tax incentives, and is technology neutral so it encourages the development of a wide variety of domestic energy technologies.

Lastly, there remains a need for the 1603 Treasury Program. The tax equity market modestly improved in 2010, but still has not recovered to pre-recession activity. A July 2011 survey of the major tax equity investors by the U.S. Partnership for Renewable Energy Finance estimates expiration of the program would shrink the total financing available for energy projects by 52 percent in 2012. This would stifle job creation and severely restrict the market’s ability to leverage private sector capital to finance new domestic energy projects.

Thank you in advance for your consideration. We look forward to working constructively with you to meet the nation’s economic and energy policy goals.

Sincerely,

[Companies and organizations in alphabetical order]

Our friends over at the Solar Energy Industry Association (SEIA) are out today with a new poll commissioned by SEIA and Schott Solar and performed by independent polling firm Kelton Research.  Not surprisingly for those of us who regularly talk to the public about solar - but something largely missing from most press accounts - is the overwhelming public support for solar.  Indeed, the poll found that 9 out of 10 Americans (89%) understand that it is important for the United States to develop and use solar energy. More significantly, that support cuts across the political spectrum with support from 80% of self-identified Republicans, 90% from Independents and 94% from Democrats.

Apart from a free lunch, it is hard to imagine anything with greater popular support.

One of the more interesting findings in the report was how knowing that a product was made using solar power would increase the likelihood of a consumer purchasing that product:

This result begs the question: Who makes up that 7% who would be less likely to buy a product if they knew it were made using solar?

“No thank you, I prefer to only support products that are actively polluting the environment!”

Seriously?

(Of course, if you are a manufacturer who wants to take advantage of that solar marketing edge, you need to avoid leasing!)

Here are the main questions and results from the poll:

Question 1: If you were in charge of U.S. energy policy and could choose to provide financial support in one of the following energy sources during your term in office, which would you choose?

• Thirty-nine percent chose solar, compared to 21 percent for natural gas, 12 percent for wind, 9 percent for nuclear and 3 percent for coal. Among Independents, solar is more than twice as popular as any other energy source (43 percent to 20 percent for natural gas).

Question 2: How important do you think it is for the U.S. to develop and use solar power?

• Nine out of 10 Americans (89 percent) think it is “extremely important” or “somewhat important.”


• Eighty percent of Republicans, 90 percent of Independents, and 94 percent of Democrats agree with this statement.

Question 3: How important do you think it is for the federal government to support U.S. solar manufacturing right now?

• Eight out of 10 Americans (82 percent) think it is “extremely important” or “somewhat important.”


• A majority of Independent voters (51 percent) think it is “extremely important.”

Question 4: Would you be more, less or about as likely to buy a product that you knew was made using solar energy?>

• A majority of Americans (51 percent) would be more likely to buy products produced with solar energy.


• Sixty-one percent of consumers in the key age demographic of 18 to 44 years old would be more likely.

Question 5: Which of the following best describes the biggest concern you would have with choosing solar energy?

• Cost was the most common concern (48 percent), followed by reliability (25 percent), uncertainty about the benefits (9 percent) and aesthetics (3 percent).

Question 6: The federal government currently gives subsidies, such as federal tax credits and grants, to traditional sources of energy, such as oil, natural gas and coal. How likely would you be to support similar subsidies for solar energy?

• More than eight out of 10 Americans (82 percent) would be “extremely likely” or “somewhat likely” to support federal investments in solar. Seventy-two percent of Republicans support federal investments, as well as 87 percent of Democrats and 82 percent of Independents.

Couple of final thoughts: First, it is encouraging to see that younger people show greater support for solar than do their elders.  Solar needs to be a big part of the future and those who will inhabit that future get it.  Second, cost is still the major concern for most potential solar clients.  Yet the cost of solar has dropped dramatically in the past several years - a key fact about solar that rarely makes it into print.

It will be interesting to see how much press this poll gets - given the steady pummeling by the media the industry has taken since Solyndra failed, a little equal time to report on how the majority of Americans view the solar industry might just be, dare we say it, “fair and balanced"?

Hard on the heels of our posting about the importance of proper solar policies, the Solar Energy Industry Association (SEIA) today released a report showing the potential for additional job growth in the solar industry simply by extending the section 1603 Treasury Grant program.  This is an important policy development and Congress should extend the program through 2016.

The Section 1603 Treasury Grant Program

First some background - the section 1603 Treasury Grant Program (TGP) is an alternative to the 30% investment tax credit for solar.  The tax credit allows a commercial client to receive a credit on their income taxes for 30% of the cost of installing a solar power system.  However, not all potential clients can use a tax credit of that size (or at all) since their taxable income may not be that great.  Moreover, in many commercial transactions, financial partners are often brought in to support the project through a power purchase agreement and again, the revenue may not be sufficient to make the tax credit attractive.

The TGP simplifies that process by allowing commercial clients to apply directly to the treasury for a grant of 30% of the system cost, regardless of their tax appetite.  Moreover, the grant can be applied for upon project commissioning, meaning the payment is received possibly well in advance of receiving the corresponding tax benefit.

Advantages of Extending the TGP

The SEIA report - prepared for them by EuPD Research - outlines several significant advantages from extending the TGP.  In particular:

One-Year Extension

A one-year extension of the 1603 Treasury Program through 2012 would have the greatest impact on economic activity in 2012 and 2013, as well as enable growth through 2016 as projects complete construction and come online.

• An additional 37,000 jobs would be supported by the solar energy industry in 2012, a 12% increase over baseline.
• The additional cumulative capacity installed (2012-2016) would be about 2,000 megawatts over baseline, enough to power 400,000 homes.

Two-Year Extension

A two-year extension of the TGP commence construction deadline through 2013, would yield 1,000 additional jobs in the solar energy industry in 2013, a 16% increase over baseline, and would result in 3,600 megawatts of cumulative additional capacity installed from 2012 through 2016.

Five-Year Extension

A five-year extension of the TGP to coincide with the term of the investment tax credit would support an additional 114,000 jobs in the solar energy industry in 2015, a 32% increase over baseline, and would result in 7,300 megawatts of cumulative additional capacity installed from 2012-2016. A predictable five year policy framework will generate an environment that fosters industry growth larger than the potential year-to-year extensions and would create sustained momentum for the industry.

Here is what that would mean graphically:

Sadly, what should be a straight-forward policy decision that produces good, American jobs, reduces pollution and increases domestic energy production will no doubt face a stiff fight in Congress this Fall.

Still, as the industry prepares to meet at the annual Solar Power International Conference in Dallas next week, it is time for solar advocates to lace up their work boots and push back against those who would gut our industry just as we are starting to make a real difference - and isn’t making a difference why we got into this business in the first place?

We recently came across some analysis of future energy trends depicted in the International Energy Outlook 2011 published by the U.S. Energy Information Administration (hat-tip to the folks at Climate Denial Crock of the Week). What struck us was how a simple change in U.S. tax policy will have a potentially devastating impact on the solar industry in this country.

Here is a graph that we have derived from the IEO data which shows the projected growth in installed solar generating capacity based on existing government policies for the US, Europe, Japan and China.  (IEO’s total predicted solar capacity worldwide by 2035 is 119 GW.)

The first thing we noticed is that the US - the blue line in the graph - takes off in 2008, stays ahead of both Japan and China until 2017 when China shoots past us, and stays largely flat thereafter.  Flat, as in dead, moribund, kaput! Meanwhile, Europe leads everyone, but sees its explosive growth scaled back dramatically in 2013.  Even China’s growth is projected to flatten out after 2020.  Indeed, only Japan shows significant growth after 2017, tripling its installed capacity from 9 to 27 Gigawatts by 2032.

We will leave it for others to comment on what is happening elsewhere, but here in the U.S. the obvious reason for the enormous reduction in growth after 2016 is the expiration of the 30% federal investment tax credit for solar installations.  Indeed, the U.S. growth rate from 2008 to 2017 is just under 27%!  But under the existing law’s sunset provision at the end of 2016, the overall projected growth rate from 2005 to 2035 is only 8.8%, with nearly all of that front-loaded.

Which has us wondering, what might happen if the U.S. were to retain its existing tax credit for solar installations indefinitely?  After all, federal tax subsidies for the fossil fuel industries have been in place for a very long time so it only seems fair to give the new kid on the block a similar benefit.  Here’s the chart again this time showing the U.S. with a long-term tax subsidy in place, but with somewhat moderated growth, declining from the ~27% depicted before to just 20%.

Wow - let’s hear it for compound interest!  A stable U.S. tax policy for solar investment, even with a moderated growth rate, could lead to this country more than doubling the EIA’s present-policy prediction for worldwide solar by 2035!  Put another way, under such a policy and growth rate, the installed U.S. solar generation capacity would be roughly one-fourth of the present U.S. total capacity of just over 1 TW.

All of which is just another reminder that policies matter and choosing leaders with the vision to support such policies is a very important piece of building a future where solar and other renewables can move us away from polluting energy sources.