With just 13 months until the solar industry loses its federal tax incentive, the industry is trying speak with a unified voice about the need to extend the 30 percent credit for a few more years.
Tens of thousands of jobs will be cut and billions of dollars in investment will be lost without the full tax credit, say advocates.
But not everyone doing business in solar agrees.
Sunnova, a top financier of residential PV in the U.S, is calling on Congress to let the credit die. Last week, Sunnova CEO John Berger sent a letter to top lawmakers outlining his opposition to an extension of the Investment Tax Credit.
The ITC steps down to 10 percent in 2017 for utility-scale projects, commercial projects and third-party-owned residential systems. It falls to zero for residential systems paid with cash or financed through loans.
Berger called claims about job losses "extreme" and said the industry is prepared to reduce costs in order to thrive in a post-ITC world.
"The solar industry is increasingly an established industry that no longer needs government subsidies to survive," he wrote. "While we understand that some fear it could be difficult and even disruptive to transition away from such a significant subsidy, we do not believe this is a crisis for the industry."
There has always been some disagreement within the solar industry over the need to extend the credit. But this is the first time a major solar company has lobbied Congress and publicly contradicted the messaging of national and local lobbying groups.
According to analysis from GTM Research, 2017 and 2018 will be tough years for solar in the U.S. if the ITC is not extended. Utility-scale installations could drop by 70 percent, non-residential installations could fall by more than 20 percent, and residential installations could decline by 15 percent.
In California and Hawaii -- states where the economics of solar are very good even with substantially fewer subsidies -- installations could still grow. But in the dozen other states around the country where the economics less favorable, solar could take a big hit.
"Unequivocally, solar economics for the U.S. industry will be worse without the ITC, which means some markets will certainly roll back and those on the cusp may be set back by years," said MJ Shiao, the director of GTM's solar research practice.
For a deep look at what would happen to the solar industry without the 30 percent credit, listen to the Interchange podcast -- available to subscribers of GTM Squared.
So why would Sunnova's CEO call for ending the ITC?
The company has raised nearly $900 million in equity and debt to help finance residential solar installations around the country. Sunnova is positioning itself to rely less on expensive tax equity, and believes a shift away from the 30 percent tax credit will ultimately bring cheaper sources of capital into the market from non-traditional financiers. Berger argued that the industry has had many years to prepare for changes to tax policy.
Berger isn't calling for a complete end to federal support. Rather, he thinks lawmakers should focus on extending master limited partnerships -- a tax benefit for publicly traded real estate and fossil-fuel infrastructure companies -- to solar and other renewables.
"The solar power industry is now ready to use capital market structures that other, more mature energy sources have access to, such as Master Limited Partnerships," he wrote. "If legislators are interested in supporting the continued growth of the industry, we encourage them to support the MLP parity act rather than an extension of the ITC."
The letter was sent last Thursday to ranking members of House and Senate finance committees. Read it in full below.
Dear Chairman Hatch, Chairman Brady, Ranking Member Wyden, and Ranking Member Levin:
I am writing to share Sunnova’s perspective on the Investment Tax Credit (ITC), a 30% tax credit for solar installations that will be stepping down to 10% in some circumstances and will be eliminated entirely in others in 2017. We do not believe an extension of this credit is necessary for the continued health of the solar industry. In fact, quite the opposite is true. If the credit is allowed to step down as planned, the industry will remain more robust in both the long- and short-term.
Sunnova is a residential solar energy company that is active in 23 states and territories including Puerto Rico, the U.S. Virgin Islands, Guam and Saipan. We founded Sunnova in 2012 and have since grown the business to tens of thousands of solar customers across the country. We work with local installation partners in the markets in which we operate to install and maintain rooftop systems on homes.
The solar industry has been aware since 2008 that the ITC would be stepping down to 10% starting in 2017. This six-year window has given the industry ample time to prepare for the decrease in the incentive. In fact, all of the largest solar power service companies, including Sunnova, have stated publicly and to investors that they are prepared for the decrease in the ITC and that their pricing and installation projections will be unaffected after 2016.
Yet, there has been an organized effort by many in the solar industry to convince legislators that the need for a five-year, or even permanent, extension of the ITC is necessary to the continued functioning of the industry. Extreme claims are being made about the number of jobs that will be lost and the number of companies that will go out of business once the ITC steps down or sunsets as planned.
At Sunnova, we respectfully disagree with these claims. We firmly believe the ITC has served its purpose and that it is now time to allow it to step down as planned. The industry made a deal with Congress in 2008 that it needed the ITC’s support until 2016 and then it would be able to operate and, indeed, flourish without it. We, collectively as an industry, should honor that deal.
We also advise against allowing “commence construction” language to be included in any ITC-related legislation. This provision is unnecessary for residential solar projects because residential construction timelines are short enough that such language would have no bearing on a company’s ability to raise tax equity to finance them. Also, under this provision, companies will be able to claim that the project has technically “commenced” although no customers have actually been identified. In reality, such a provision would just provide an additional subsidy to solar firms that have resources to—as they did with the Treasury Grant Program—buy large numbers of panels and store them for future use. This would then allow systems built with those panels in the future to qualify for the ITC because 5% of the project had “commenced” with the purchase of the panels. This loophole would unnecessarily extend the impact of the ITC for years beyond its sunset date.
The solar industry is increasingly an established industry that no longer needs government subsidies to survive. Rather, the solar power industry is now ready to use capital market structures that other, more mature energy sources have access to, such as Master Limited Partnerships. The MLP Parity Act, sponsored by Senators Moran and Coons in the Senate and Representatives Poe and Thompson in the House, has strong bi-partisan support. The bill would level the playing field among various energy sources, not just solar, by allowing them to access the MLP capital structure, thereby giving all energy sources access to lower cost capital. In contrast to the ITC, the MLP Parity Act is supported equally by both parties and applies to multiple technologies. If legislators are interested in supporting the continued growth of the industry, we encourage them to support the MLP parity act rather than an extension of the ITC.
Additionally, if legislators are interested in enabling the continued growth of the solar industry, I encourage them to join the discussion about what the next generation of the electric grid will look like. As more distributed energy resources are employed by individuals, businesses and utilities, we will need to level the playing field and allow all types of energy and technologies access to our shared electrical system. We must push for grid neutrality in order to ensure that no technology is valued or favored over any other. The result will be a more efficient overall system that will provide the most competitive and cost-effective choices for consumers.
In the meantime, I want to make it clear that Sunnova and the rest of the solar industry are well-positioned to respond to a decrease in the ITC starting in 2017. We have had ample time to prepare and are now a mature enough industry to no longer need the government to support 30% of the cost of our projects. While we understand that some fear it could be difficult and even disruptive to transition away from such a significant subsidy, we do not believe this is a crisis for the industry. Rather, it is an opportunity to explore broader, more conventional sources of financing that will allow the industry to continue expanding.
As the solar industry, technology, and the grid evolve, so must policies that encourage and support their growth. A policy such as the ITC that was implemented for a market that existed almost a decade ago is no longer the best option for meeting renewable energy goals in today’s world. Therefore, we encourage you to ensure that no new legislation is passed to create a new or extended ITC subsidy.
We recently debated the need for the tax credit on the Energy Gang podcast. Listen: