While nearly all the players in the solar industry count the recent extension of the U.S. investment tax credit as a win, perhaps no group stands to benefit more from this legislative victory than utility companies. Previously, utilities were subject to an exemption barring them from taking advantage of a 30 percent investment tax credit for solar power projects. This exemption effectively eliminated utilities from owning solar power stations outright, forcing them instead to buy solar-generated electricity from third-party financiers under power purchase agreements. Utilities were also bound on the other side by state renewable portfolio standards, especially in states with solar cutouts. These two forces left some utilities in a precarious position -- unable to include solar power stations as a capital asset for rate-basing, but forced to pay higher-than-avoided cost prices for electricity. Lifting the public utility exemption, which lets utilities take advantage of the 30 percent investment tax credit, will make solar power system economics more attractive for utilities than in the past. Tax equity potential combined with the continued downward march in module average selling prices and cheaper, faster installation methods may provide the necessary groundwork for a shift in how utilities relate to the rest of the solar industry. The most significant aspect of this is the allowance the exemption’s elimination gives utilities to start acting like, well… utilities. In nearly all states, utilities participate in a tightly regulated process that determines the return on equity they are able to receive for a given asset investment. Return on equity is recouped from consumers in the form of a tariff on top of the electricity rate. Rate-basing is standard practice, but can only be done when the target asset is under utility control. With solar this was previously not the case. Instead of owning projects outright, the exemption forced utilities to enter into power purchase agreements with solar financing companies like SunEdison. The new legislative regime may force a shift in utility renewables strategy, moving them from electricity buyers to system buyers. With this shift it is likely utilities will start buying solar power systems outright from turnkey project developers, effectively cutting out the third-party financiers that have become so prevalent in the past four or five years. This is a net benefit for the solar industry. First, it will get utilities to think constructively about including solar power in their asset portfolio. Second, it will allow more projects to be built, giving domestic solar suppliers a market potentially on par with those of their German and Spanish counterparts. Getting utilities to think constructively about solar power is crucial for increasing the penetration of solar power in the domestic generation portfolio. Utilities must now face crucial questions regarding the integration of solar power into their preexisting load. This will likely lead to an increase in the deployment of next-generation transmission and distribution capabilities as well as the increasing use of smart grid technologies to manage a hybridized load portfolio. Ultimately, lifting the utility exemption may be the single best thing for the domestic solar industry. Utilities, which have always had access to lower-than-average costs of capital will be able to outcompete third-party financiers in this increasingly dry credit market. This means more projects will get built at lower prices, but with stable and known rates of return. A little certainty is good for any industry, but especially for one that has gone so long without it.

Here's a fun update from Green Inc., the New York Times blog. Two years ago, Mike Strizki garnered lots of headlines with his plans to sell zero-emission homes equipped with solar panels and hydrogen storage units. Since then, however, his company Renewable Energy International, has yet to install a single home and is still looking for funding. The problem? The 3,000 square foot prototype costs $500,000 to build. “Two years from now, I’m going to be installing these things all over the world,� he told Green Inc. “I’m going to be licensing out franchises. And I’m going to be working on improvements to the units every day.� Well, I guess that proves there's a hype cycle, to some degree, in greentech. Energy is a thorny problem and replacing a fossil-fuel infrastructure that's over 100 years old will take time and money. Stirzki, though, isn't alone in having trouble getting off the ground. Several cellulosic ethanol plants have been postponed. Electric cars aren't exactly churning off the assembly line. This is due, in part, to the high price of batteries. EEStor has yet to show the world its ultracapacitors. Many of these companies have also burnt through millions. It's also important to point out that his ideas aren't wacky either, not even the hydrogen part. Several startups are selling (or gearing up to sell) modular, energy-efficient homes. And Panasonic is working with Japanese utilities to sell a hydrogen home heating and storage system. Nanoptek, which received funds from the Quercus Trust, is working on solar thermal collectors linked to hydrogen.

Green technology companies are already feeling a pinch from the world credit crisis, but, if history is any guide, the problem will get worse three years from now. That's the word from Richard MacKellar, managing director at Chrysalix, an early-stage energy venture fund and one of the first VCs to invest in clean tech. (MacKellar will speak at Greentech Innovations: End to End Electricity on November 17.) The problem is that VCs operate on a different timeline than the rest of the economy. A large number of firms already raised a significant amount of capital in 2006, 2007 and the first half of 2008. They now have to place this money somewhere. As a result, startups will continue to receive funding. The money spigot may not be turned up on high anymore, but VC millions will still find their way to the market. But three years from now, new startups and those who are emerging now will need another infusion of capital. By then, a good portion of these existing funds will have been used and limited partners may still feel conservative. Thus, getting cash will be tougher. A similar phenomenon happened in the first part of the decade, MacKellar said. The stock market cratered in mid-April 2000. (I remember that Friday well -- the open period for options at my old company was slated to begin the coming Monday). Still, VCs invested $105 billion that year, according to the National Venture Capital Association. In 2001, when employees at Web companies were getting squishy balls and T-shirts in lieu of actual money as severance pay, VC investment came to $40.6 million. It plummeted further to $22 million in 2002, but it didn't hit rock bottom until dropping to $19.7 million in 2003, which, if you recall, was the year the overall recovery began. Similar patterns can be found in previous decades, he said. Several factors could mitigate or change the pattern. Unlike the dotcom crash, many energy startups are being propelled by government regulation and subsidies. If several jurisdictions impose carbon caps or green building codes, those companies like Integrity Block or Serious Materials that make building products will likely get funding. The government never stepped in and mandated consumer deliver of pet foods and chew toys, which could have helped the oft-maligned Pets.com. Then again, the plummeting price of oil may dampen the enthusiasm for biofuels -- it has happened before. Ergo, some investment categories may decline and not rebound. The Chrysalix portfolio, by the way, is always an interesting one to check out every once in a while. They tend to place some long bets on technologies, like nuclear fusion (General Fusion) and hydrogen.