Federal support will undoubtedly languish under Trump. But
that’s OK, argues Noah Kirsch.
What does the confirmation of new EPA head, Scott Pruitt,
mean for the solar industry?
Pruitt, considered a long-time ally of the fossil fuel
industry, has promised to quickly withdraw the Clean Power Plan
rule developed by the Obama administration in 2014.
The CPP sought to reduce carbon emissions from the electricity
sector by 32
percent from 2005 levels by 2030, and would have accelerated investment in
renewables in multiple ways, including the Clean Energy Incentive Program and the option to price carbon emissions from the power
sector.
With the Clean Power Plan likely withdrawn this week and the
prospects of a carbon tax or cap-and-trade unlikely, federal policy to
accelerate renewables will lessen considerably.
So is there any cause for panic in solar? I’d argue that
there's not. And here are three reasons why.
First, during the 2015 budget resolutions, the federal
Investment Tax Credit, which provides an immediate tax credit to owners of
solar, wind or other renewable generation systems equal to 30 percent of the
system value, was fully funded and incorporated in the GOP-led
and bipartisan-approved budget through 2022. (Please read this if you’re asking yourself the very logical
question, “What if Congress gets rid of the ITC?”)
Federal Bonus MACRS benefits were also extended, allowing
borrowers to capture up to an additional ~15 percent of system value in the
first year. Combined with state depreciation benefits, system owners are able
to get up to 50 percent of the cost of their system back in tax benefits by the
time they file a year later.
Second, certain state markets continue to offer
solar-friendly renewable energy credits and tax breaks. Massachusetts, New
Jersey and Washington, D.C. all have strong and stable SREC markets, with
average prices between $0.25 - $0.50 per kilowatt-hour of energy produced.
For context, the average commercial utility rate is $0.10.
Other states like South Carolina, New York and Wisconsin
have introduced hefty utility rebates, including Duke’s $1-per-watt rebate in the Palmetto State.
As a solar financier, we are seeing building costs in the C&I space as low
as $1.50 per watt on the low end, meaning that in some instances utility
rebates can provide up to two-thirds of the system value as a rebate upon
receiving permission to operate, in addition to available state and federal tax
credits.
Third, and most critically, are the relentless cost
reductions the solar industry continues to make. At the end of 2016, solar
panels dropped an unexpected 30 percent. Prices have dropped by nearly 60
percent in the last five years, driving a 119 percent growth in
installations in the U.S.
Outside of the U.S., utility-scale plants are on track to
generate some of the cheapest power ever produced. A PPA bid in Dubai recently
went for $0.02 per kilowatt-hour -- a 150x net reduction in
price since 1975.
On the soft-cost side, the emergence of new project
origination models are driving down customer acquisition costs, typically a
considerable and stubborn portion of residential
and C&I project costs.
Financing is now cheap and readily available for
residential and utility projects, while emerging players are finding
innovative ways to expand access to capital into underserved segments of the
market, like small-scale C&I.
As a result, our internal estimates indicate that solar is
at or near grid parity in five states, not including any federal or state
subsidies. And 2022 will be an important year. That is the year when the
federal tax benefits for solar will fully sunset, and solar will have to stand on its own
two legs (not counting available state assistance, of course).
This naturally leads to a crucial question: Will the
industry enter a recession when the tax benefits expire? I would argue that the
opposite is likely to occur. Using conservative predictions, the cost of solar
is expected to fall 50 percent in the next five years, which
we estimate will make all 50 states accessible for solar by 2022.
The solar industry is likely to thrive in the next few years
on the back of falling costs, supportive state policy, and the 2015 budget
deal. While the federal government is unlikely to accelerate the adoption of
solar for the foreseeable future, the industry will be more than OK.
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