By Rhone Resch, President & CEO – Solar Energy Industries Association (SEIA)
You ever play that game Whac-a-Mole? That’s kind of how I’ve felt over the last few months when separating fact from fiction about the solar energy industry in the U.S. We keep knocking down myths about solar, but they just keep popping up somewhere else.
But an op-ed by T.J. Rodgers in the Wall Street Journal last week really took that dynamic to a whole new level.
First and foremost, what really struck me most was who wrote the article. After all, Mr. Rodgers himselffound a great investment opportunity in the solar industry because the very incentives he criticizes helped open market opportunities for his company right here in the United States.
I’m not knocking him for that. The U.S. solar energy industry is now one of the fastest growing industries in the United States because of innovation by companies like those Rodgers found to be smart investments.
The solar investment tax credit that Rodgers references in his piece has done exactly what it was meant to do. It has opened new markets in states across the country, creating jobs and making solar more affordable for average consumers each and every year. In fact, the price of solar panels has fallen 40 percent since the beginning of the year.
Today, the solar energy industry employs more than 100,000 Americans at 5,000 businesses located in every state. Many of these are small businesses that are finding new opportunity for growth in the solar industry. It is leading to rapid innovation — across the spectrum from factory improvements to new financing and sales mechanisms that are allowing more and more Americans to go solar.
In fact, the third-party ownership model that Rodgers criticizes has made solar more accessible to homeowners and small businesses than ever before by eliminating what has always been the biggest barrier to adoption: the upfront cost. Solar energy is not a luxury item for the wealthy. Two-thirds of California home solar installations since 2009 have been in zip codes with median annual household incomes of less than $85,000 and not in the wealthiest areas of the state.
Rodgers is correct that buying a system outright is ultimately the most cost-effective option. But because you are essentially prepaying your electricity bills for the next 30 years, for most homeowners and small businesses, this is simply not an affordable option. This is no different from purchasing a new car: leases and loans enable more people to enjoy the benefits of owning a new vehicle. So flexibility in financing for homeowners has been a game changer that is saving homeowners money, allowing businesses to grow, and yes, being increasingly viewed as a profitable investment by Wall Street.
The notion that we are creating “employee-less corporations” is laughable. As I mentioned earlier, the solar industry in the U.S. employs 100,000 Americans, more than twice as many as in 2009. With the growth in popularity of these new financing mechanisms, small businesses across the country are finding that they need to hire skilled workers to meet increased demand. Roofers, electricians, plumbers and contractors — skilled labor professions that have been hit hard by rampant unemployment in recent years — are finding new opportunities to put their expertise to work in the solar industry.
It is true that the global solar manufacturing industry is experiencing a transition, with a global oversupply of PV panels and questions looming over Chinese trade practices which will be determined over the coming months. But Rodgers ignores the intricacies of the solar manufacturing supply-chain and oversimplifies a complex challenge for manufacturers — both in the U.S. and abroad.
Yes, solar energy products enter the U.S. from China. They also enter from Europe, South Korea, Japan, Mexico, Taiwan and dozens of other countries, just like thousands of other goods enjoyed by Americans every day. But this is unusual: the U.S. exports solar energy products as well. In fact, the U.S. was a $2 billion net exporter of solar energy products in 2010, even a net exporter to China. Solar energy projects also create significant value beyond the price of physical components. Factors such as site preparation, installation labor, permitting, financing and other soft costs account for a significant percentage of a U.S. solar energy project. These are factors that cannot be outsourced. In 2010, 75 percent of the direct value created by domestic solar energy projects accrued to the U.S.
Rodgers also spreads the myth that incentives for energy technologies are a new phenomenon in the U.S. The truth is, when it comes to our energy portfolio, free markets have never existed. The government has chosen for over a century to incentivize energy production because it is the heart of our economy. From 19th-century coal through 20th-century oil, natural gas and nuclear, all energy industries in the U.S. have received substantial, permanent subsidies from the federal government. It was right to invest in those industries to power our economy then; it is right to invest in solar to power our economy now.
With a combination of technological and financial innovation, market access, and effective federal incentives, the U.S. solar industry is driving down the cost of solar and rapidly scaling an industry key to America’s energy future. The ultimate beneficiary is American consumers. Homeowners, small businesses, retailers, churches, community centers, cities — all of these can benefit from cheaper, cleaner solar energy.
Rodgers is correct in one respect. Since its beginning in 2006, solar project developers found it difficult to actually use the investment tax credit. This is because most developers were either small businesses or startups that did not have the “tax appetite” to use the 30 percent credit. Put another way, they did not yet have the taxable profits necessary to use the full 30 percent credit on their returns.
This is where tax equity players came in as partners with project developers. These were large firms — like investment banks — that did have taxable income. Where Rodgers sees a scam, most people saw a win-win-win. Tax equity players found a solid investment, solar energy businesses were able to continue building projects and creating jobs, and consumers saw solar energy as an increasingly affordable energy choice.
But the financial crisis in 2008 decimated the availability of tax equity in the marketplace. Banks that were hanging by a thread no longer had the tax appetite necessary to continue investing in projects and developers suddenly faced an overwhelming shortage of available capital. Tax revenues across all sectors sank, shrinking the national pool of tax equity almost overnight. Meanwhile, thousands of parts of our economy who rely on tax policy still sought to use the shrinking pool, meaning demand far exceeded supply and little was left for solar. What was left was expensive to get.
Recognizing that the tax credit was not working as they intended, Congress passed the Section 1603 Treasury program as a temporary fix while tax equity markets recovered. The 1603 program allows flexibility in how project developers monetize the tax credit. Instead of writing off 30 percent of the cost on their tax return in April, which was impossible for businesses with small profit margins, developers could now opt for a direct upfront payment and solving the tax issue. The amount and cost to the Treasury was the same, but that critical change in timing made all the difference for energy project developers across the country.
This program has been a resounding success, not only for solar energy developers, but for developers in over a dozen energy technologies. The program has leveraged $23 billion in private sector investment for more than 22,000 energy projects located in all 50 states. And it’s not a new credit: the 1603 Treasury Program is merely a tweak to the tax code to allow what Congress intended to create — an incentive for energy technologies to help power our economy and increase national security by diversifying our energy resource mix.
The program is set to expire at the end of this year, despite the fact that the tax equity markets have not yet recovered to their pre-financial crisis strength. The U.S. Partnership for Renewable Energy Finance estimates that available financing for renewable energy projects will be cut in half if the 1603 program is allowed to expire. For solar energy in particular, they estimate that more than $10 billion worth of solar energy projects will not proceed if it expires on December 31.
This is why a broad coalition of more than 750 companies and business associations is calling on Congress to extend this program before the end of the year. An extension of the program would create 37,000 jobs and add 2,000 megawatts of additional capacity in just the solar industry alone. And that is just one of a dozen energy technologies affected by this program.
Make no mistake, if the program expires, we will start to see projects scrapped and jobs lost almost instantly in 2012.
You can help us make sure that the solar industry continues to create jobs and investment across the U.S. Call your Senators or send them a message and tell them not to let this job-creating program expire. There are only a few days left in the year and this is an all hands on deck effort for the solar energy industry and our allies in other energy sectors. If you want the U.S. to meet its potential as a powerhouse in renewable energy, this is one simple way you can help. Or we can let Congress do to renewables what this guy is doing to electronic moles.
Originally published on Huffington Post.
Rhone’s full biography and information about SEIA here.