Solar takes stock after tax-credit battle

Renewable energy leaders fought for nearly a year to secure the U.S. federal tax incentives that passed late last week. But with Wall Street turmoil and unexpected additions to the incentives package, energy leaders are entering a much different landscape than they expected.

In the short term, the $18 billion incentives package could strain the supply of solar panels. In the long term, the investment tax credit (ITC) signed into law on Oct. 3 could change who profits from renewable energy.

One of the most pressing problems could be that portions of the solar-module supply have been sent to Europe because of uncertainty in the American market. However, industry leaders say those conditions are likely to change by the start of 2009.

“Panel shortage is now the most significant issue and will get worse now that the ITC has passed,” said Tom McCalmont, CEO of Campbell, Calif.-based installer REgrid Power and chairman of SolarTech, a Silicon Valley-based industry group. “They were being diverted to Europe, but that may be lessening due to Spain decreasing their feed-in tariff.”

Germany is also expected to lower its incentives early next year, which McCalmont said could free panels for the U.S.

“The question will be whether or not demand will decrease now with the pending recession,” McCalmont told the Cleantech Group. “If that happens, then we could even see a glut of panels.”

Barry Cinnamon, CEO of Los Gatos, Calif.-based solar installer Akeena Solar, said he thinks slowed demand in other countries will result in plenty of solar panels if the U.S. wants them.

“Over the next 12 months because credit has tightened everywhere, worldwide demand for solar is going to get hit with a double whammy,” Cinnamon said. “Incentives in Europe are going down, and right now it’s tough for projects to get financing, which means there’s going to be an abundance of product for us.”

The incentives package extends the 30-percent solar tax credit for eight years for residential and commercial installations and allows power companies to benefit from the credit for the first time. Under the old law, utilities had to buy solar power from third-party developers.

As a result, utilities are expected to play a much larger role in solar than ever before. More power companies are likely to begin their own distributed generation projects, said Adam Browning, executive director of the nonprofit Vote Solar.

A few utilities have already announced projects that place solar panels on rooftops in order to generate power from a number of locations. Charlotte, N.C.-based Duke Energy (NYSE:DUK) and Southern California Edison, a unit of Rosemead, Calif.'s Edison International (NYSE:EIX) have said they plan to pay rent to place solar panels on roofs of privately owned buildings in order to generate power for the grid (see Duke Energy seeks $100M in solar equipment).

The fear is that by owning and installing such projects, the utilities could squeeze out private companies looking to sell into the markets, Browning said. But with the right oversight, there could be huge potential for private companies to also benefit, he said.

“We are intervening there in order to leverage this into open markets for all other participants,” Browning said. “Utilities getting the investment tax credit will accelerate this movement, and this will see more utilities follow this model, which gives us more opportunities to make the case that more players need to have access to these markets.”

That power could also put pressure on manufacturers to lower prices of solar panels. But those manufacturers are already seeing a spike in demand for commercial projects in the U.S., industry leaders say. It’s unclear how tightened lending will impact the ability to finance the remaining cost of commercial projects.

Akeena Solar expects to increase its staff to meet the demand for commercial projects, Cinnamon said. Last year, deferred commercial projects led to layoffs within the company.

However, the residential market could see a slump until January, he said. The new ITC eliminates a $2,000 cap on the residential incentive, so homeowners who wait until January can save $9,000 instead of $2,000 on a $30,000 system.

The energy credits are funded by limiting tax breaks for the oil and gas industry. Other aspects of the incentives include:

• $800 million for clean energy bonds to pay for power plants using wind, biomass, geothermal, garbage and other sources.
• Rebates of $2,500 to $7,500 for drivers who buy plug-in electric cars and trucks.
• An incentive of $3,000 per kilowatt or 30 percent of the capital cost for fuel cells.
• An eight year extension for small-scale wind and geothermal for residential and commercial projects.
• A one-year production tax credit extension for geothermal, closed-loop biomass, hydropower, landfill gas, and trash combustion facilities (see Glitnir projects $29B U.S. geothermal energy sales).
• A one-year extension of the production tax credit for wind
• A new, two-year ITC for marine power projects.

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