I spoke this week on a panel at REFF Wall Street about the U.S. utility solar market. REFF is one of my favorite conferences in the renewable industry. It’s well attended and presents a mid-year opportunity to catch up on the year’s progress and compare notes on the challenges ahead.
This year my message was mixed. On the one hand, there’s much to be excited about. According to a study from the American Public Power Association (APPA), solar is now has 30GW of pending applications in the pipeline, more than any other generating technology or fuel.
What this reflects is a swell in the industry pipeline of solar projects making its way to the grid. It’s a direct response to declining solar costs and the alignment of state and federal solar policy. As someone who’s been working in solar for 10 years, it’s tremendously exciting to see these kinds of volumes in development. It means that solar is on the verge of becoming a mainstream energy source.
However, when you look downstream, solar accounts for only 6.2GW of permitted plants (#4 by capacity) and only 1.6GW of plants under construction (#5 by capacity). What stands between those 30GW of projects pending application and real, in-the-ground operating projects is a gauntlet of permitting, interconnection, and financing uncertainties. All of that potential solar hangs in the balance as we sort through some challenging policy issues.
The biggest potential risk facing the industry now is the looming expiration of the deadline to qualify for the 1603 Treasury Grant Program at the end of this year. The 1603 Treasury Grant Program allows developers to receive a grant in lieu of the 30% Investment Tax Credit eligible for solar projects. Without the grant program, solar projects will be stuck with tax credits that are almost impossible to finance in the market today. Without access to financing, a developer can’t build out its pipeline and all of that progress comes to a halt.
What’s important to note is that there is not a shortage of investors interested in solar projects. There’s a shortage of investors who are eligible to invest in tax oriented projects due to strict limitations on who can participate. To solve this problem and ensure those 30GW of projects can ultimately generate power, we need to do one of three things: (1) extend the 1603 grant program deadline, (2) make the Investment Tax Credit refundable, or (3) open solar project investment to a wider range of investors by allowing use of Master Limited Partnerships (MLPs) that are commonly used to finance real estate and oil and gas projects.
With the climate in Washington hostile to ‘stimulus’ and tax incentives, it’s going to be hard to deliver any of these solutions. My hope is that we can make the case and deliver a smooth transition. My worry is that lawmakers will once again let key policies lapse and precipitate a crisis before acting—while the industry will inevitably survive as it always has, it seems a waste to follow a path that will needlessly destroy industry progress, jobs, and investment.