301 Moved Permanently
Fiscal Cliff Deal
Leaves Out Solar
President Barack Obama has signed into law the American Taxpayer Relief Act of 2012 (H.R.8), a compromise tax deal approved by Congress in order to avert the “fiscal cliff” in the U.S.
The legislation provided immediate relief to the wind industry, which saw a last-minute extension of its vital production tax credit (PTC) following an anxious pre-expiration stretch that had already led to industry layoffs.
But for the solar sector, on the other hand, the impacts of the legislation are mixed. Although the deal brought some welcome news, uncertainty still looms as the new Congress seeks to avoid triggering sequestration by its new deadline of March 1.
Solar projects currently utilize a 30% investment tax credit (ITC) that is scheduled to remain in effect through the end of 2016. The solar ITC remained unaltered by the fiscal-cliff deal.
The wind PTC and other non-solar renewable energy incentives received a favorable language change allowing projects to take advantage of tax credits as long as they “commence construction” by the deadline, rather than needing to be “placed in service” in order to be eligible.
Why was solar excluded, despite lobbying by the Solar Energy Industries Association (SEIA) and other stakeholders? Mark Regante, a partner in the New York office of Milbank, Tweed, Hadley & McCloy and a member of the firm’s tax group, says the way the current tax incentives are structured may have played a role.
“The provisions that describe the credit for solar are in a different section from the provisions that describe the other renewables,” he explains.
Given that the solar ITC was not in immediate danger of expiration, legislators may have simply taken a “triage” approach when developing the legislation, adds David Burton, a partner at Akin Gump Strauss Hauer & Feld LLP.
“When you’re dealing with the atmosphere around a fiscal cliff, it’s hard to get the attention of legislators when your problem doesn’t arise until 2016,” he says. “Solar has a long runway, which is great for the industry.”
Both Burton and Regante suspect that when the ITC’s expiration does draw near, the solar sector may find itself in the same perilous situation the wind industry faced in 2012. Politics can change in a few years, but Congress’ historical tendencies suggest that this essential incentive will be brought to the brink.
A more immediate concern for all involved, however, is sequestration, which - among other ramifications - could have major damaging effects on grants from the U.S. Department of the Treasury’s Section 1603 program.
If Congress cannot reach a workable long-term agreement by March 1 and sequestration goes into effect, existing 1603 grants could see cuts - although neither the Treasury nor the Office of Management and Budget (OMB) has provided clarity on which solar projects would be affected.
“When anyone asks the OMB or Treasury about sequestration, what they tell you is that they do not expect sequestration to occur and that they are unwilling to answer any questions about it,” says Burton.
One question that is top-of-mind for many solar developers is the project cutoff date for sequestration: Will delineation be based on the date the Treasury grant is paid, the date the application is filed or the date the project is placed in service?
Furthermore, OMB had previously indicated that cash-grant haircuts would be 7.6%, but the tax-revenue changes put in place as a result of H.R.8 could change the numbers, Regante adds.
“Because there’s no appropriation or maximum amount for the grant program, we all presume the likely application is to reduce each grant by 7.6 percent, but that’s speculation at this point,” he says.
Finally, H.R.8 extends 50% bonus depreciation through the end of this year. “That will help get solar facilities that are completed this year financed,” predicts Regante, describing bonus depreciation as useful for any capital-intensive business.
Burton, however, cautions that the incentive can be a double-edged sword for solar projects.
“It’s good for projects that can find tax equity investors to monetize it,” he explains. “But it also means companies can shelter their tax base by depreciating their own plant and equipment. So, someone wanting to get into tax equity might not because they can claim bonus depreciation [instead].”
In addition, regulators sometimes force utilities to claim bonus depreciation, which can limit their tax base and make them unable to claim other tax credits, he adds.
Calif. Incentives
Still Remain
California’s solar installers know that the California Solar Initiative (CSI) - considered the most successful solar incentive program in U.S. history - will not last forever. But as the CSI, which is designed to gradually fade in step with solar installation growth, reaches its last stages, the industry has received a surprise reprieve.
Last fall, CSI administrators and the state’s investor-owned utilities quietly informed stakeholders that incentives would not, in fact, be eliminated once solar project capacity limits were met. Installers will still be able to take advantage of CSI rebates until allotted funding is depleted.
This procedural change will allow the U.S.’ largest solar market to enjoy a longer incentive runway than was previously assumed, says Ben Higgins, director of government affairs at Mainstream Energy. In some utility territories, the decision makes several additional months of incentivized solar installations possible, giving manufacturers and installers more time to bring down system costs before the CSI disappears.
“Over the course of last summer, there was significant industry concern that in certain parts of the state, incentives would be reduced to zero,” Higgins recalls.
The concern was most acute in San Diego Gas & Electric’s (SDG&E) territory, which had seen rapid installation growth, especially in residential solar, and was expected to reach the end of its CSI life at some point in late 2012. Pacific Gas & Electric (PG&E), meanwhile, risked losing its commercial solar incentives as early as mid-2013.
Now, thanks to the new treatment of capacity limits, SDG&E will have approximately 2.1 MW and $445,000 in incentives remaining, according to Higgins. (Because of the new treatment of capacity limits, the online Trigger Tracker, commonly used in the industry to keep tabs on incentive availability, no longer accurately reflects remaining incentives for the CSI’s Step 10 category.)
Funding is now available for nearly 100 MW of commercial solar in PG&E’s territory. “Given run rates in recent months, it appears very plausible that the incentive could last through 2013,” Higgins adds.
SDG&E’s residential funding could run out more quickly. However, the California Public Utilities Commission is currently considering an application from the California Center for Sustainable Energy (CCSE) - the SDG&E program’s administrator - to combine the residential solar and commercial solar funding pools.
If approved, this change would give SDG&E’s residential solar program another last-minute boost. It would also ensure that SDG&E meets an overall megawatt goal that has been put in place for the San Diego region, the CCSE told industry partners in an email.
Overall, although the CSI extension provides a welcome buffer to the solar sector, the end of incentives still lurks just around the corner.
“We are still in a situation - just as we were in mid-2012 - where SDG&E is the first that is likely to be incentive-free,” Higgins points out. “Our lease on life, in terms of incentives, has been extended already.”
Once CSI funds are exhausted, other solar policy issues in California will become even more important. Net metering, a provision that has led to pushback from the state’s major utilities in recent years, ranks among the top concerns.
Right now, California’s solar advocates are awaiting the results of an extensive cost-benefit study on net metering. This study will inform future policy discussion, says Higgins.
“Net metering and rate design will continue to be hot-button issues for utilities and the industry,” he predicts, adding that utilities have started to focus less on net metering specifically and more on general residential rate design reconfiguration.
All of these discussions will take place under the legacy of the CSI, which Higgins says both helped bring solar systems to “unthinkable” affordability levels and built out California’s clean energy corporate infrastructure. Thanks to the $3 billion CSI investment and the solar business environment it helped create, the industry can also learn to function without the program.
“There are systems being sold here and there that are already incentive-free,” he notes. “I am confident that when incentives are reduced to zero, we will continue to build and sell solar, and the industry will continue to grow.”
New York Expands
Solar Program
Gov. Andrew Cuomo, D-N.Y., plans to extend and expand the NY-Sun initiative, a state-wide solar energy program that he introduced last April. In his recently released 2013 state agenda, Cuomo also detailed a series of additional steps designed to make New York “the leader in the cleantech economy.”
Under the governor’s plan, NY-Sun will be expanded at $150 million annually for 10 years. He has also introduced a $1 billion “green bank” to combine public and private funding, as well as named an energy czar to his cabinet.
Richard Kauffman, a senior advisor to the nation’s Secretary of Energy Steven Chu, will “coordinate the state’s cleantech agenda and oversee the state government’s energy portfolio,” Cuomo says.
The Solar Energy Industries Association (SEIA) applauded Cuomo for expanding NY-Sun, which is aimed at quadrupling the amount of customer-sited solar in New York and attracting developers.
New York is currently ranked 12th among states in terms of installed solar capacity, according to SEIA’s latest U.S. Solar Market Insight report.
WTO: Ontario’s Rules
Breach Trade Law
The World Trade Organization (WTO) has ruled that Ontario’s domestic-content requirements - a key mechanism under the province’s feed-in-tariff (FIT) program and one that ensures the viability of its renewable energy supply chain - violate sections of the General Agreement on Tariffs and Trade 1994.
The WTO upheld claims made by Japan and the European Union (EU) that Ontario’s FIT program unfairly pressures producers of renewable energy to buy goods and services from Ontario-based supply-chain providers.
Ontario requires that solar energy developers - and, by extension, their supply-chain partners - that participate in its FIT program to source at least 60% of solar project content within the province.
Among numerous claims, the EU and Japan alleged that domestic-content requirements equate to a subsidy because “a financial contribution or a form of income or price support” is derived and, therefore, a benefit is gained. However, the WTO dismissed the subsidy claims.
Canada’s Department of Foreign Affairs and International Trade, in conjunction with the federal government, plans to appeal the WTO ruling.
“The WTO panel ruled that Ontario’s FIT program is a violation of the national treatment obligation under the general agreement on tariffs and trade and the agreement on trade-related investment measures,” says Caitlin Workman, a spokesperson for the Canadian government. “As this is the first time Canada has received a WTO panel ruling arising solely from provincial policy or legislation, the government of Canada will be appealing the decision as requested by the government of Ontario.”
Cabinet Members
Step Down
U.S. Environmental Protection Agency (EPA) Administrator Lisa Jackson has stepped down from her post. Jackson’s departure had been the subject of post-election rumors from leaders in the solar market.
“I will leave the EPA confident the ship is sailing in the right direction,” Jackson said in her statement announcing her resignation. Among other priorities, her department was tasked with initiatives focusing on climate change and energy independence.
In addition, U.S. Secretary of the Interior Ken Salazar plans to leave the Department of the Interior (DOI) and return to his home state of Colorado by the end of March. The DOI notes that Salazar has fulfilled his promise to President Barack Obama to serve four years as DOI secretary.
Under Salazar’s leadership, the DOI has played a keystone role in developing a secure energy future for the U.S., the department says. One of his first actions in 2009 was to issue a secretarial order making renewable energy development a top priority.
Since 2009, the DOI has authorized 34 solar, wind and geothermal energy projects on public lands that total 10,400 MW. Salazar also oversaw the development of a comprehensive Programmatic Environmental Impact Statement for solar energy development, a blueprint for solar projects in the West.
“Today, the largest solar energy projects in the world are under construction on America’s public lands in the West, and we’ve issued the first leases for offshore wind in the Atlantic,” Salazar said in a statement. “I am proud of the renewable energy revolution that we have launched.”
As of press time, replacements for Jackson and Salazar had not yet been named.
U.K. Announces
New Incentive Rates
The U.K.’s Department for Energy and Climate Change (DECC) has announced cuts to incentives for solar projects larger than 50 kW. Solarcentury, a PV installation firm in the U.K., has described the new rates as better than expected and predicts that they will allow for “steady growth” in the large-scale solar market.
Under the DECC’s ruling, ground-mounted projects will receive 1.6 Renewables Obligation Certificates (ROCs)/MWh, beginning April 1. The current level was of 2 ROCs/MWh.
A new band for building-mounted projects has been set at 1.7 ROCs for 2013 to 2014. This new division was created in order to incentivize solar projects on buildings, explains the DECC. “This will encourage the installation of solar projects at large factory or warehouse buildings,” the agency adds.
“After the uncertainties of 2012, this is good news,” says Frans Van Den Heuvel, chief executive at Solarcentury. “We welcome the fact that the government has listened to the industry and that it is introducing new ROC rates that will enable us to grow with confidence in 2013 and 2014. The new rates are tough but workable.” The decision includes no additional review mechanism, Solarcentury adds. S
Policy Watch
Fiscal Cliff Deal Leaves Out Solar