Capitol Hill eclipse for solar power?

One of the engines of growth for solar energy projects has been a federal tax credit. Now that financial incentive could be in jeopardy.

Frustrated with political deadlock, solar energy companies fear a big setback if Congress fails to renew a key federal tax credit set to expire at the end of the year.

The provision would extend a 30 percent break of up to $2,000 to homeowners. Businesses would qualify for the same percentage, without a cap.

Barry Cinnamon, CEO, Akeena Solar Akeena Solar

While the U.S. House of Representatives has passed a bill to extend the tax credit, the effort so far has failed eight times in the Senate--the latest defeat occurring on July 30.

"The delay in the ITC (investment tax credit) renewal has meant that large commercial jobs are being postponed" because of the risk that they can't be installed by December 31, said Barry Cinnamon, chief executive of Akeena Solar.

Registering concern for the future of their nascent industry, executives like Cinnamon note that the uncertainty over the tax credit's renewal has already contributed to the loss of small and medium commercial jobs. If the current logjam continues, they say the impact will likely hurt the commercial sector more than the residential sector as the residential credit is capped at $2,000--which is rarely a critical factor in a homeowner's decision-making process.

The irony is that industry lobbyists report bipartisan support for the provision in the Senate, where the vote fell nine votes short of the three-fifths supermajority needed. Six members did not vote, including Sens. John McCain and Barack Obama. (The national governor's association has also come out in support of granting a long-term extension of the solar tax credits.)

Josh Green, Mohr Davidow Ventures Mohr Davidow Ventures

One source tied to the solar industry said that many Republicans were loath to support the extension "because they don't want to give the Democratic Congress any credit" before the election. Previous attempts also were stymied by oil lobbyists, who fought efforts to close a tax loophole on oil companies to pay for the tax credit extension.

As the calendar turns to the fall, the odds increase that the solar tax extension could become hostage to the presidential contest. Several executives involved with the solar industry said that tens of thousands of jobs will be put in jeopardy and more jobs won't be added next year if Congress fails to act.

"Many of these commercial projects are in important planning stages right now, and the overall industry is at the tipping point that will lead to widespread adoption," said venture capitalist Josh Green of Mohr Davidow Ventures, who predicted that the failure to renew the ITC will result in the delay or cancellation of important commercial projects in the United States. "The absence of the ITC will kill most, if not all, of this growing momentum. We need only look to the interruption of tax credits for the wind industry for an example of something that we do not want to repeat. This would be a real shame."

Lyndon Rive, CEO, SolarCity SolarCity

At the same time, however, he suggested that the absence of an investment tax credit may have relatively little impact on businesses in the short to medium term. That's because the rapidly expanding solar markets in Europe, Asia, and the Middle East will not be affected by the controversy over the ITC and will still create plenty of customers for solar manufacturers.

"Over the longer term, however, the United States commercial market is far too important to be ignored," Green said. "A consistent ITC policy extending over several years that allows industry to grow and flourish is critical to the industry."

Despite the tough slog, though, industry players remain convinced that the U.S. government understands the investment tax credit's role and will press the case for continuing solar's domestic momentum.

Lyndon Rive, the CEO of SolarCity, a residential solar installer in California, said he remains "very optimistic" that the ITC will be renewed by the end of the year.

"The ITC has become a very politicized issue, however, and it's possible that approval could extend into 2009," he added. If the ITC is allowed to lapse, Rive predicted it would cost thousands of solar jobs and severely limit the growth of the solar industry in the U.S.

"The jobs lost in the U.S. would move overseas to more favorable solar markets," he said. "Solar power will eventually reach cost parity with other energy sources, but that will not occur in the next few years without incentives."

The worst-case scenario is painted by industry executives who envision a tremendously down year in 2009 for the solar industry with commercial installations grinding to a halt. To be sure, residential installations will continue to grow--especially in states where there are good rebates, such as in California, New York, and Connecticut. But companies that are most exposed are those that have built the bulk of their business on commercial installations. These companies will have to find some other way to pay their bills if the ITC doesn't win an extension.

 

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