Solar projects hang on future of tax credit

May 27, 2008

By Ginger D. Richardson and Ryan Randazzo
The Arizona Republic

Arizona has started to embrace the idea of solar energy with some ambitious projects, but the looming expiration of a key financing tool could bring those efforts to a halt.

Congressional leaders, a majority of whom appear to support solar investment, cannot agree on how to pay for a subsidy that would give anyone who installed or built a solar-energy system a 30 percent rebate of the cost in the form of a tax credit.

“It has definitely been a challenge,” said Monique Hanis, a spokeswoman for the Solar Energy Industries Association, based in Washington, D.C. “Our view is that there is bipartisan support (for extending it), but it does seem like we are really stuck on the structure of how to do it.”

In Arizona, where the sun shines more than 300 days a year, utilities are under a state mandate to generate 15 percent of their electricity needs from renewable sources by 2025. They say solar is key to meeting their goals.

Arizona Public Service Co., for instance, has proposed what would be one of the largest solar-power plants in the world, capable of serving 70,000 homes or more. But utility executives have made it clear that they will kill the plans for the Solana Generating Station if the tax credit isn’t extended past its Dec. 31 expiration date.

Competing legislation

Language to extend the solar-investment tax credit for six years was most recently included in a larger bill, the Energy & Tax Extenders Act, which the House passed last week on a mostly party-line vote.

The measure includes rebates for homeowners and businesses that install solar and wind systems and credits for individuals who purchase electric cars.

But the bill, with all its provisions, is estimated to cost tens of billions of dollars over the next decade. It faces an uncertain future in the Senate, whose members have been loath to tie it to any proposal that would repeal tax breaks on other individuals or business interests.

Congresswoman Gabrielle Giffords, D-Ariz., a champion of solar efforts, said previous legislation would have paid for the renewable-energy tax credits by repealing credits given to the oil and gas industry. She said she hopes this latest bill, which would close tax loopholes for hedge-fund managers, overseas corporations and others, will be more “palatable.”

Fellow Arizona Congressman John Shadegg, a Republican, isn’t so sure it will be.

Shadegg said he supports solar energy and the tax-credit extension, but he voted against the latest House bill.

“Each time the issue of solar has come up before Congress, it has included tax increases, and none of them has moved in the Senate,” Shadegg said. “If we (Republicans) get to vote for these issues, and they’re not burdened by tax increases, we will approve it.”

Shadegg instead said he supports and is a co-sponsor of the House version of the Clean Energy Tax Stimulus Act, a Senate-introduced countermeasure that also would extend the solar-tax credit.

But Giffords and other House Democrats counter that that bill isn’t a good solution because it doesn’t specify how to pay for the renewable-energy initiatives.

As a result, the solar-tax credit remains in limbo.

Impact on Arizona

Arizona businesses and utilities say they are reluctant to move their proposals beyond the concept phase until they know whether the subsidy will remain in place.

The granddaddy of projects in peril is the Solana Generating Station.

APS already has signed a contract for the 280-megawatt plant, to be built near Gila Bend at an expected cost of more than $1 billion.

“We’re in a full-court press,” said APS President Don Brandt, who has discussed the tax credit with most of Arizona’s congressional delegation and several representatives from other states.

But Solana isn’t the only big solar-energy proposal on the horizon.

Salt River Project and APS have teamed up with several other regional utilities to contract for a 250-megawatt, solar-thermal plant in Arizona or Nevada.

Other projects in the state are at risk, too. Giffords wants a huge solar plant built at Davis-Monthan Air Force Base in Tucson. It would be modeled after a $100 million, 14-megawatt installation at Nevada’s Nellis Air Force Base.

“I think it is important not to think of Solana as a single, marquee project but a toe in the water, a foreshadowing of what could be in the future,” Giffords said.

“There is no state in the U.S. that has more to gain from a thriving solar industry than Arizona.”

Inroads also are being made in other areas of solar energy.

Tempe is home to First Solar Inc., a solar-panel company that gets nearly all its sales revenue from foreign nations, many of whose government incentives for solar power are generous.

CEO Michael Ahearn has said repeatedly that First Solar eventually can compete stateside without subsidies. But he also says an extension of the tax credit “would obviously be helpful.”

In addition, APS and SRP say they are reviewing several applications from Valley businesses for the installation of large rooftop solar panels.

But those businesses, the utilities say, are likely to hold off without the tax-credit extension.

What’s next

Solar advocates here are hopeful that congressional leaders will be able to work out a compromise between the dueling pieces of legislation in the coming months.

Meanwhile, Arizona utility officials say that if solar-tax credits aren’t extended, they will need to build natural-gas-powered plants to meet the rising demand for electricity in the state.

The cost of power plants, whether fueled by the sun, natural gas or some other energy, is passed on to customers. But utility officials say they are hoping to build at least some solar plants to diversify their energy sources and serve as a hedge if natural-gas prices continue their recent surge.

“If the tax credits are not extended, we would expect to see solar installations come to a halt in our service territory,” said Lori Singleton, SRP’s manager of sustainability initiatives and technology.

Click here to read the article on the Arizona Republic website