Why federal tax credit expiration would hit Midwest solar the hardest including Indiana

Posted by Laura Arnold  /   November 16, 2015  /   Posted in Federal energy legislation, Uncategorized  /   No Comments

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Why federal tax credit expiration would hit Midwest solar the hardest


Solar advocates nationwide are holding their breath as Congress debates extending the Investment Tax Credit (ITC) for solar, a crucial tool for financing residential and commercial installations.

Legislators who support solar are pushing to include the ITC in a broader tax extenders bill making its way through Congress.

Midwestern renewable energy developers and advocates say this region may have the most at stake with the ITC’s fate. Midwestern states typically lack strong state-level policies to support the nascent but promising solar industry, they say, and low electricity prices mean the payback time for solar is longer than in other regions.

The ITC offers credits on federal income taxes for individuals and businesses equal to 30 percent of the cost spent on solar installations. Without the extension, the commercial break will drop to 10 percent and the residential support will be eliminated when the credit expires at the end of 2016.

Without the credit, many installations would simply not be built, developers and advocates say.

“It’s crucial...it truly is a main factor for the majority of projects we win,” said Ray Davis, president of OGW Energy Resources, an Ohio-based developer that does commercial, industrial and residential solar across the Midwest. “As we are primarily a coal region, our grid kilowatt-hour costs are relatively low as compared to other regions. Therefore the ITC truly is the part of the puzzle that makes solar fiscally feasible in the Midwest.

“It’s an integral part of the decision-making,” for clients, he continued. “If we’re dealing with a business we eventually get to a CFO or controller who has a fiduciary responsibility to protect their employees and shareholders. If the system doesn’t make sense financially, they’re not going to do it.”

Legislators negotiating

The tax extenders bill passed by the Senate Finance Committee in July currently includes a two-year extension of the Production Tax Credit for wind and other renewables, which expired at the end of 2014. But the bill does not include the solar ITC.

The version of the tax extenders bill passed by the House Ways and Means Committee does not include either clean energy incentive.

Legislators have reportedly proposed an addition to the bill that would allow solar projects to collect the ITC as long as they are started, not completed, by the expiration date. There is reportedly bi-partisan support for this measure, including from Republican Sens. Dean Heller (NV) and Rob Portman (OH), and Democratic Rep. Ron Wyden (OR).

During the hearing on the bill in the Senate Finance Committee last summer, Heller said, “I'm disappointed that we can't reach consensus on language that would truly give parity for an industry that is not only important for my home state of Nevada, but frankly, helps to diversify our nation's energy portfolio.”

‘Seeing the ITC drop off a cliff would have a devastating impact on Midwest installers.’

The offices of Portman and other Midwestern legislators – Sen. Debbie Stabenow (D-Mich.), Sen. Chuck Grassley (R-Iowa) and Sen. Mark Kirk (R- Ill.) – did not return calls and emails for this story.

Meanwhile solar energy advocates are pushing for a five-year extension of the credit, through 2021, in addition to the deadline policy revision.

“Seeing the ITC drop off a cliff would have a devastating impact on Midwest installers,” said Amy Heart, senior manager of public policy for the solar developer Sunrun Inc. “Because state-level policies in the Midwest have come and gone, installers in the Midwest have really benefited from and rely on that federal solar ITC. That’s kept this market going and allowed people to keep planning for the future.”

A drastic difference

An analysis by Bloomberg News Energy Finance (BNEF), commissioned by the Solar Energy Industries Association (SEIA), found that a failure to pass the ITC extension could mean significant declines in installed solar energy in the Midwest.

For the states of Illinois, Indiana, Ohio, Missouri, Minnesota, Iowa and Ohio, BNEF predicted a cumulative 3,428 MW of solar installed by 2022 with an extension, and 2,331 MW without one. Currently, there are close to 500 MW installed in these states.

Nationwide, BNEF estimated, cumulative installed solar in 2022 would be 95 GW nationwide with an ITC extension and just 73GW without one. Utility solar installations would make up the biggest sector of that amount. On the residential front, BNEF forecast that in 2021, more than 4 GW would be built with an ITC extension, compared to 2.5GW without it.

“With the ITC expiration, we expect solar companies to downsize and retrench to their strongest states, those where they’re already established and sound state policies are already in place,” said SEIA spokesman Dan Whitten.

“This obviously leaves many consumers in Midwestern states waiting to take advantage of the benefits that solar currently provides to customers in states like California, New York and Massachusetts. This would be a major setback to the Midwest both economically and environmentally, as solar creates more jobs per megawatt than any other technology, creates zero carbon emissions and can be deployed cost-effectively and quickly.”

Hitting a cliff

Heart said that not only is an extension needed, but Congress needs to pass it quickly.

“Acting on it this fall is really important,” she said. “It expires at the end of 2016, but if we don’t have it [passed soon], sales stop in March – because [qualifying projects] have to be operational by the end of 2016.”

She added that distributors of solar equipment and solar developers are “already in crisis mode” trying to get projects completed by the end of 2016. So smaller Midwestern installations are at a competitive disadvantage compared to larger planned arrays in California or other states with well-developed solar markets.

Heart said solar advocates only want a “level playing field” with other energy sources that have long enjoyed government subsidies. And, she said, developers expect the Midwestern market could eventually reach a level where it can thrive without supports.

“As the market builds, that incentive or tax credit fades away – it’s a ramp-down, not a cliff,” she said. “An extension of a few years with a planned ramp-down – that’s absolutely up for conversation. But [the 2016 expiration would mean] the damage of 10 years of support and investment, then just when we’re getting our feet under us in the Midwest, we hit a cliff. That’s never good economic design.”

The bigger picture

Davis said the constant battle to extend the ITC for a year or two at a time “drives me crazy.”

‘If there were no subsidies associated with energy, solar would be competitive in and of itself.’

“If renewables are to be part of our country’s economic and energy future, the ITC should not be extended for a year or two, it needs to be a 10-year proposition or longer,” he said. “I really despise the kick-the-can-down-the-road mentality. If it makes sense then make it permanent, or very long-term.”

Jason Edens is co-founder of the Rural Renewable Energy Alliance (RREAL), a Minnesota-based non-profit organization that specializes in making solar accessible to lower-income customers. He notes that the ITC, like all tax credits, is a benefit mainly for more affluent companies and individuals who have income tax liabilities large enough to benefit from credits. If someone does not owe much in income taxes, they can’t really collect the 30 percent credit for a solar installation.

This is among the reasons he and others say that ultimately, a truly “level playing field” is the way to shift to a cleaner energy future.

“In an ideal world energy wouldn’t be subsidized, period,” Edens said. “If there were no subsidies associated with energy, solar would be competitive in and of itself. Coal and electric generation in general has been highly subsidized since World War II. Solar needs tools such as the ITC in order to prosper given the disparity. But if we move beyond incentives and truly internalize the environmental costs of different types of energy, it will be a slam dunk for clean energy.”

WSJ: Will Solar Energy Plummet if the Investment Tax Credit Fades Away? Yes and No

Posted by Laura Arnold  /   November 16, 2015  /   Posted in Federal energy legislation, solar  /   No Comments

Will Solar Energy Plummet if the Investment Tax Credit Fades Away?

Many solar supporters say the loss or reduction of the credit will be a ‘cliff’ for the industry. But others say the credit’s impact is overstated and solar will continue to grow.

What’s going to happen when a huge incentive to invest in solar power shrinks or vanishes?

At the end of next year, the 30% investment tax credit for solar and other renewable power is set to expire for residential systems and plunge to 10% for commercial installations. Boosters are calling for Congress to extend the credit in its current form.

The tax-credit crunch is looming at a time when solar is on the rise. Solar installations increased 30% last year, thanks partly to cheaper photovoltaic panels. Solar proponents note that the solar industry employs more than twice as many U.S. workers as coal mining and has added jobs 20 times faster than the rest of the economy.

Many supporters say the abrupt end date of the 30% credit represents a “cliff” for the industry. Without the current incentive, they argue, installation of solar-power systems will plummet, and thousands of jobs in the industry will be lost as a result.

Others, however, argue that the cliff isn’t as steep as it appears, and that solar will continue to grow even without the 30% credit—albeit not as quickly as before.

Amit Ronen, director of the GW Solar Institute and a professor at the Trachtenberg School of Public Policy at George Washington University, argues that the end of the 30% credit will send solar off a cliff. John Farrell, director of the Democratic Energy initiative at the Institute for Local Self-Reliance, says the impact of the tax credit is overstated and the solar market will continue to rise.


YES: The Industry Will Need Many Years to Recover

By Amit Ronen

The 30% investment tax credit is paying dividends for America. Solar is growing faster than any other domestic energy source as prices continue to plummet, even beating out coal and cheap natural gas in some markets. The solar industry created one in 78 of our country’s new jobs last year and provides living-wage salaries for more than 200,000 Americans.

But without congressional leadership, the credit will expire for consumer-owned systems and shrink for commercially owned systems at the end of 2016. When it goes, it will have a dramatic effect on the industry—and economy.

A big drop ahead

Can the solar industry survive without the current credit? Yes, but not as we know it today.

According to Energy Information Administration data, if the 30% credit is not extended, rooftop solar photovoltaic installations will plunge 94% in 2017 from a year earlier and utility-scale projects will decline 100%, with neither recovering anywhere close to today’s levels even a decade from now. Bloomberg predicts solar installations will drop by two-thirds in 2017, which the Solar Energy Industries Association estimates will cost America 100,000 jobs.

What the solar industry needs is the same as every business: certainty. The multiyear assurance provided by the eight-year, 30% credit leveraged billions in new high-tech innovation and project development, lowered risks to allow startups to launch new products and services, and resulted in tens of millions of panels installed across America.

Now installers are rushing to complete projects before 2016, with many larger projects already shelved. A multiyear credit extension would provide developers and financiers a long enough runway to stay in the game and make solar projects a comfortable investment play. Even a gradual ramping down of the credit is preferable to the economic shock embedded in current law.

Misreading the situation

Some take a more optimistic view of the days ahead, saying the estimates I’ve cited are far too severe. But the numbers come from three of the leading prognosticators of solar-industry growth rates, relying on extensive data, surveys and expert interviews. They are the best estimates we’ve got.

The argument that financiers, not developers, grab about half of the tax credit anyway, so the loss of the incentive won’t hurt that much, also doesn’t match real-world practices. The credit has proved an essential financing mechanism to getting solar built, even though some projects rely on complex tax-equity markets to monetize the credit.

The logic behind the optimists’ argument is that middlemen, not developers, grab about half of the tax credit anyway, so the loss of the incentive won’t hurt that much. The problem is that most estimates say middlemen capture a much lower percentage than half; some put it below 10%. Obviously, that’s a much more significant hit for developers to face.

Optimists also speculate that it will get easier for people to finance solar systems themselves with loans if the credit goes away. The residential solar market is shifting to

more self-financing, but rising prices in the absence of the credit could make solar uneconomical and scare off buyers. The lack of a credit will also make it harder for utility-scale projects, which account for most solar investment dollars, to compete for scarce capital and against more carbon-intensive generation alternatives.

The tax credit has been a solid investment for America, which shouldn’t be abandoned abruptly or prematurely. If our goal is to diversify and decarbonize our nation’s energy portfolio, why would we eliminate the credit before removing billions of dollars of subsidies for fossil fuels? If our goal is to provide more consumer choice and lower electricity bills, why would we want to cut off the credit just as it is starting to benefit America and its households?

If our goal is to create tens of thousands of new jobs, the 30% credit should not be allowed to expire just yet. It’s simply working too well.

Mr. Ronen is director of the GW Solar Institute and a professor at the Trachtenberg School of Public Policy at George Washington University. He can be reached at reports@wsj.com.

NO: Grim Forecasts Overstate the Drop For Several Reasons

By John Farrell

The approaching expiration of the 30% federal tax credit for solar energy has created talk of a cliff that will put a hard end to solar’s recent and rapid growth.

In fact, the abrupt fall may remove several barriers and allow the solar market to continue its rise.

I don’t have a problem with subsidizing solar power, a socially useful activity. But it’s clear that solar can survive—and thrive—without the investment tax credit for consumers and a lessened one for commercially owned systems. A study from Bloomberg estimates that the loss of the tax credit will cause solar capacity to only quadruple, instead of quintuple, by 2022—still a substantial increase. Our own analysis reinforces this assessment: In 22 states, at least one gigawatt of solar (and often much more) could be installed at a comparable cost to retail electricity prices by 2017, tax credit not included.

So why are the grimmer predictions about the future of solar incorrect? For starters, the cliff that people talk about is smaller than it appears. Most folks with solar on their rooftop used a third-party lease or power-purchase contract. That third party took on much of the financial risk and the responsibility for redeeming the 30% tax credit. These financial middlemen have absorbed nearly half of the tax credit, and as a result, solar developers and customers have received an effective discount of 15% instead of 30%. So the current incentive isn’t as big as it looks, and the effect of losing the incentive won’t be as severe as many think.

Another factor behind the dire predictions: There’s been a surge in development to secure the tax credit by the end of 2016, artificially inflating the 2016 numbers with projects that otherwise would have been completed in 2017. That means that the percentage decline after 2016 looks worse than it actually is. Meanwhile, some sources that are making downbeat predictions have consistently underestimated the development of solar and other renewable energy.

What loss of certainty?

Pessimists also say that businesses and investors demand the certainty that the credit provides. But one could argue that the change in the tax credit at the end of 2016 is certainty—it has been in statute since 2008.

What’s more, the change to the tax credit will open up new options for financing. Solar energy’s low risk and steady returns are attracting new investors whose profit expectations are much lower than those of Wall Street financiers. One company has already offered the first solar securitization, packaging its solar leases into vehicles for institutional investors.

If the change in the tax credit opens the door to more sizable, low-margin investors that offer a discounted cost of debt and equity for solar projects, we estimate that the net cost of solar would rise just 2.5% with the loss of the tax credit.

New ways to finance

The change to the credit may also drive prospective solar clients, with decent credit, from leasing to lower-cost self-financing. With less paperwork to file, the relatively lower costs and higher returns of ownership become more evident.

A November 2014 pro forma analysis by the National Renewable Energy Laboratory suggests that self-financing lowers the cost of solar by 23% for residential customers and 87% for commercial customers.

It’s easy to assume that losing the federal tax credit is nothing but a 30% cut in the growth potential for solar energy. But this ignores several countervailing forces, from the middlemen’s current cut to falling costs to the advent of low-cost financing. Even though coal and gas retain subsidies like heavily socialized pollution costs, solar doesn’t need the federal tax incentive to compete. Instead, the market provides several ways to glide over the solar tax cliff.

Mr. Farrell is director of the Democratic Energy initiative at the Institute for Local Self-Reliance. He can be reached at reports@wsj.com.






IBJ: Groups push Pence to work on state energy plan as court considers EPA rule

Posted by Laura Arnold  /   November 15, 2015  /   Posted in Indiana Municipal Power Agency (IMPA), solar, Uncategorized, wind  /   No Comments

Groups push Pence to work on state energy plan as court considers EPA rule

November 14, 2015

Indiana has vowed to fight tooth and nail against President Obama’s proposed Clean Power Plan, the federal rule that seeks to limit greenhouse gas emissions from power plants.

But there is a growing sentiment here among key energy leaders—even from those who oppose the EPA plan—that while Indiana is fighting the rule in court, the state should develop its own compliance plan that focuses on realistic strategies to decrease carbon emissions and diversify its energy mix.

They say it beats being a slave to the federal rules—should they be upheld—that weren’t written with Indiana in mind. Twenty-four states have sued to stop the new rules.

“History has tended to say that a state plan is more applicable and tailored to Indiana,” said Mark Maassel, president of the Indiana Energy Association, which represents the state’s investor-owned utilities.



“We certainly are expressing to people we should litigate,” he said, “and that we need to develop a state plan on the chance that it is upheld.”

The holdup: Gov. Mike Pence. The Republican is charged with the final decision about whether the state prepares its own plan or simply takes a chance that the federal rules will be struck down.

But Pence hasn’t yet decided how to act.


“The governor has not made a final decision about whether to submit a state plan in compliance with the Clean Power Plan,” said spokeswoman Kara Brooks. “As he weighs this decision, he is meeting with stakeholders to hear their reasons for and against submitting a plan.”

Meanwhile, Indiana groups say they are eager to get to work soon so Indiana has enough time to develop a meaningful plan that addresses environmental issues while taking into account what’s best for the state’s economy.

“If you don’t develop a state plan, you have a federal plan imposed upon you,” said Jodi Perras, the Indiana representative for the Sierra Club’s Beyond Coal campaign. “You’ll have more flexibility if you develop a state plan.”

Pence has directed state agencies, including the Indiana Department of Environmental Management, to work with the Governor’s Office to help him understand the state’s options, Brooks said.

Federal push

The EPA has directed states to submit compliance plans or request extensions by next year in its goal to reduce carbon dioxide emissions 32 percent by 2030.

President Obama and other proponents say the EPA plan will provide public health benefits, spur investment in clean energy, and create thousands of jobs. Opponents say the plan will be costly to implement, especially in states like Indiana where the majority of the state’s electricity generation comes from coal.

Coal-fired electric power plants in July provided around 80 percent of the state’s net energy generation, according to the U.S. Energy Information Administration, compared to about 35 percent nationally.

The Indiana Municipal Power Agency, a not-for-profit wholesaler power provider to about 60 Indiana cities, “does support a state plan—but only over having a federal plan forced upon us if the Clean Power Plan survives the legal challenges,” said spokeswoman Niki Dick.

Indiana Coal Council President Bruce Stevens said the state should request an extension from the EPA to investigate the economic impact on Indiana of reducing the use of coal. The state estimates the mining industry supports about 3,600 jobs here.

“I think it’s in the best interest of everyone to look at what all the various options are,” Stevens said. “At this point, no one knows what the federal plan would look like and no one knows what a state plan would look like.”

The Governor’s Office said it is still considering whether to ask for an extension. The state has until next September to make the request.

“It is too early to determine what our course of action will be,” Brooks said.

Until then, environmental groups say they will keep trying to convince the General Assembly to act pragmatically and put pressure on the governor to develop a state plan.

Pence said in a press release last month that fighting the EPA rule in lawsuits is “another step in fighting back against the Obama Administration’s war on coal.” He told reporters earlier this year the plan was Obama trying to “address a climate agenda through a regulatory state.”

But his likely opponent in the 2016 governor’s race, Democrat John Gregg, said Indiana needs to be proactive about the issue.

“Rather than banking on a successful outcome of a lawsuit and risk a federal takeover of this process, I would have taken an approach similar to what Gov. [Steve] Beshear did in Kentucky—a state that is heavily dependent on coal,” Gregg told IBJ in an email. “He didn’t sue out of the gate. He sat down with stakeholders and the EPA and worked up a state plan that provided a longer transition period for their industry that preserves jobs and still meets the environmental goals over time.”

Uphill battle

But in Indiana, energy groups are having a hard time convincing even Democrats to work on a state plan. Activists said they were surprised when U.S. Sen. Joe Donnelly came out against the Clean Power Plan. He said the feds “had an opportunity to encourage Indiana to continue to innovate and diversify our energy portfolio in a way that was good for our environment and economy, but the EPA missed the mark.”

Environmental groups in the state say Indiana has a “moral obligation” to address climate change and that, by embracing cleaner energy, the state could spark the growth of a new industry here.


“Let’s start looking at the [EPA] plan as an opportunity, not as a liability, for the state to think hard about how we develop state-level policies that will accelerate the development of Indiana’s clean energy sector,” said Jesse Kharbanda, executive director of the Hoosier Environmental Council.

Perras said she understands the changes could have a serious impact on Indiana’s coal miners but that state leaders need to think long term about the coal industry. She said working on a state plan could start that discussion.

“It’s not a growth industry,” Perras said. “In other states, they’re having a dialogue around the fact that we owe coal miners a big debt for all they’ve done for our country. We want to make sure their families are taken care of and their kids can plan a future away from coal.”

The governors of Wyoming and North Dakota—both coal-dependent states—plan to challenge the EPA in court. But both men told Environment & Energy Publishing they were also developing “compliance plans for what they think they can achieve.”

“Eventually, we have to be able to put forward what we think is possible for the state of North Dakota, and we’re committed to carbon reduction as much as any other state,” Republican North Dakota Gov. Jack Dalrymple told the publication last month. “This is something we want to do, but we have to determine what is possible, what is even reasonably feasible.”

Perras said she hopes Indiana takes the same approach.

“It shouldn’t be a Republican versus Democrat issue. It really shouldn’t,” she said. “We’re willing to work with both sides. You have to admit you have a problem first. We haven’t done that in Indiana.”•

Surprise: ​AEP chief says Clean Power Plan can be a ‘catalyst’ for transforming the industry

Posted by Laura Arnold  /   November 12, 2015  /   Posted in American Electric Power (AEP), Indiana Michigan Power Company (I&M)  /   No Comments

Surprise: ​AEP chief says Clean Power Plan can be a 'catalyst' for transforming the industry


Ohio is among the dozens of states suing the U.S. EPA over its wide-ranging Clean Power Plan, but one of the state’s coal-centric electric utilities says it can help as it diversifies its electric generation mix.

President Barack Obama in August introduced the plan to reduce carbon emissions from the country’s power supply. Many states and utilities vowed to fight it, arguing high implementation costs and a power overreach.

Republican lawmakers tout the benefits of transitioning to more solar generation at the Conservative Clean Energy Summit.

Posted by Laura Arnold  /   November 06, 2015  /   Posted in Federal energy legislation, solar, Solar Energy Industries Association (SEIA), Uncategorized  /   No Comments



Conservative leaders outline the benefits of clean energy, like solar, at the 2015 Conservative Clean Energy Summit, sponsored by the Christian Coalition and the Young Conservatives for Energy Reform

Includes clips from:

  • Sen. Rob Portman (R) Ohio
  • Sen. Dean Heller (R) Nevada
  • Sen. Richard Burr (R) North Carolina
  • Sen. Lindsay Graham (R) South Carolina


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