The US solar industry’s lobbying efforts to secure positive federal policy for the future have stepped up significantly in the wake of the Solyndra claim for bankruptcy and a widespread knee jerk market reaction.
By Gail Rajgor
Caught up in the mire of political shenanigans, the loss of the 1705 loan guarantee programme will be a blow if it happens, the solar PV industry acknowledges. After all, it has worked marvels at stimulating industry growth across the technologies, be it thin-film, PV, or CPV manufacturing and project development.
By the end of June alone, it had doled out $17.8bn for solar PV projects, with nine large-scale developments, totaling over 2.8GW, getting a combined total of $8.5bn alone. And, as the Solar Energy Industries Association notes, each programme dollar has leveraged around $13 in private project finance investment.
But even if the programme is not renewed, an industry crash is not necessarily on the cards. The US PV market is still set “to witness explosive growth over the next few years”, with a forecast of 5 GW installed during 2013, says market analysts ABI Research.
Indeed, while some companies have found 1705 loan applications unexpectedly rejected recently, or others like First Solar reporting they are no longer able to apply for loans as planned – due to the deadline for applications being brought forward to 30 September – they still expect the projects to proceed at some point, confident they can secure funding from other sources.
Reasons to be cheerful
While financial markets are constrained, policy conditions are still relatively strong for solar in North America, particularly for roof-top applications. This means project finance for quality projects should still be available.
“The US federal government continues to focus on developing energy sources other than fossil fuels by extending its Investment Tax Credits (ITC) to 2016, and US states are setting ambitious Renewable Energy Standards (RES) or Renewable Portfolio Standards (RPS),” says ABI senior analyst, Josh Flood.
Equal to 30% of costs, the ITC “provides critical policy certainty to the private
sector to catalyze private investment in manufacturing and solar project construction,” adds SEIA.
Available for both commercial and residential projects, the ITC enables investors to reduce their tax burdens. Critically, utilities and companies paying what’s known as the alternative minimum tax qualify for the credit. This means American PV solar project development is being largely driven by big corporate entities with heavy tax burdens to cut, as has occurred with the wind industry.
Of course, since the economic downturn the number of such companies has fallen and the availability of tax equity is limited. It was for this very reason the federal government allowed companies to have grants in lieu of the ITC under its 1603 Treasury Programme.
By the end of June, the 1603 programme had awarded grants totaling $1.18bn for more than 6300 solar projects in 45 states. Critically, this supported over $3.9bn in private investment, notes the SEIA. “The Section 1603 Treasury Programme is a proven success, and taxpayers are getting a good return on investment,” it stresses.
To qualify for grants, however, project construction must start by the end of this year. So while the extension of the ITC is welcome, the biggest potential risk facing the industry now is the looming expiration of the grant system deadline, says Arno Harris, CEO of Recurrent Energy, a developer of solar projects for utilities and large energy customers. If it is not renewed, industry momentum could falter.
“Solar projects will be stuck with tax credits that are almost impossible to finance in the market today,” he warns. He stresses that there is no actual shortage of investors interested in solar projects. Rather, “There’s a shortage of investors who are eligible to invest in tax oriented projects due to strict limitations on who can participate.”
Harris and the SEIA are lobbying for one of three things to be done: The 1603 grant programme deadline extended; the ITC to be made refundable; or solar project investment opened to a wider range of investors by, for example, allowing use of Master Limited Partnerships commonly used to finance real estate and oil and gas projects.
The SEIA also wants a Clean Energy Bank to be set up, as is happening in the UK. This would be “an independent, wholly-owned government corporation to support renewable energy industries via direct loans, loan guarantees, insurance and other credit mechanisms,” SEIA says.
Creating long-term demand
Meantime, around 30 US states already have RES or RPS with more expected to follow, creating a positive long-term demand for renewables including solar PV. These require major state utilities to generate or purchase a set percentage of their energy from renewable energy sources by set dates and could prove a critical life-line for large-scale array development in the eyes of project financiers.
Significantly, the Federal Energy Regulatory Commission clarified a ruling last year that previously inhibited states from setting feed-in tariffs (FITs) as part of their RES/RPS policy, says ABI. Now they can, “a number of states will introduce FITs before the end of 2012,” it says.
FITs have proved hugely successful in driving large-scale European wind power development in the last decade and, if reasonable prices are set, should go a long way to do the same for solar PV in the US. California, which has a RPS target of 33% by 2020, is likely to be the first state to introduce a FIT for PV power generation.
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