If the national renewable-energy tax credits aren’t extended at the end of the year,solarinstallers and manufacturers won’t be the only ones to suffer.
Companies that finance these installations -- specifically, those that pay the upfront costs for solar-power projects in exchange for a contract requiring customers to buy the resulting electricity from them -- also could see slower-than-expected growth, according to a panelist at a Greentech Media conference in San Francisco on Monday.
Jon Guice, a partner at sustainable enterprise research and consulting firm AltaTerra, co-authored a Greentech Media report last month forecasting that such financing models, called power-purchase agreements (PPA), would drive 75 percent of non-residential solar installations this year (see Power-Purchase Agreements to Spike).
But tax credits -- including a tax break for 30 percent of commercial solar investments -- have been a key driver for power-purchase agreements, he said at Monday’s Solar Finance & Forecast conference. Guice said he expects those agreements to make up only 50 to 65 percent of non-residential solar installations in 2008 if the credits, set to expire at the end of this year, aren’t renewed.
Since the total number of installations is expected to grow this year, that’s still an increase from PPAs making up about 10 percent of new U.S. installations in 2006 and about 50 percent of those installations in 2007, Guice said.
Still, in the absence of tax credits, the number of installations using PPAs will drop even more. That’s because PPAs generally rely on corporate tax credits to get large companies to invest in solar projects for smaller businesses that normally wouldn’t be able to take advantage of tax breaks in the same way. Guice estimates that the share of new installations using PPAs will drop below 50 percent, even in a slowing market.
Guice also warned that if tax credits aren’t extended by the end of 2008, the situation could get worse next year. "If there is nothing passed at all in 2009, we are actually going to see negative growth" by late 2009, he said. "PPA sales are particularly sensitive to tax incentives."
The solar industry has been lobbying to extend the credits for anywhere from a year to eight years, but has failed to push an extension through the U.S. Senate so far (see Solar Sharpens Weapons for Incentive Battle).
With the investment tax credit cutting about 30 percent of the initial project costs today, according to Guice, it’s no wonder the industry is feeling the pain of uncertainty and rushing to try to complete projects before the end of the year.
With all the uncertainty Hugh Kuhn, vice president of operations for Solar Power Partners, said solar integrators can expect to see tax-credit contingency clauses appearing in their contracts starting immediately. Such clauses could call for integrators and installers to take "liquidated damage responsibility," meaning they would have to pay the difference if they don’t finish the projects in time to take advantage of the national tax credit, Kuhn said. He added that in other cases, projects that can’t be finished by the year’s end will be put on hold, with their futures contingent on the renewal of the tax credits.
For the most part, the solar industry remains optimistic that the tax credit will get at least a year’s extension, panel members said. Still, they acknowledged the possibility that Congress might not extend the credits until early 2009, making them retroactive from the beginning of the year.
Ben Cook, director of structured finance for SunPower Corp. suggested that if credits aren’t extended soon, companies installing new U.S. projects will have to ask themselves one question: "Do you feel lucky?"
It’s unclear how companies will answer.