A U.S. tax break for solar energy approved by Congress on Friday will slow growth next year by about 24 percent – and that’s great for the industry.
Developers were expected to install about 11.9 gigawatts of solar panels in the U.S. next year as they raced to qualify for the investment tax credit that was set to expire at the end of 2016. The five-year extension announced late Tuesday will ease the pressure, and installations will now be about 9.1 gigawatts, according to a revised forecast from Bloomberg New Energy Finance.
The extension came as a surprise to the industry and drew cheers from companies that were expecting higher costs in 2016 as they rushed to complete projects. Slowing construction means paying less for labor, equipment, marketing and financing, said Tom Werner, chief executive of SunPower Corp.
“A turbo-charged 2016 would have an impact on jobs and make it difficult to plan hiring for the boom-bust cycle,” Werner said in a phone interview. Extending the tax credit “is a great thing. It gives us long-term visibility. Financing will be more economic. Rates will have a lower risk-premium.”
The near-term decline in solar will be more than offset by increased spending over the next several years, according to New Energy Finance. The federal investment tax credit reimburses developers 30 percent of the costs of solar projects, and extending it will drive about $38 billion of investment in solar power through 2021.
Local homebuilders praised the extension, saying the tax credit is a big incentive to go solar for homebuyers who purchase their systems, although not necessarily for those who lease them. Those who buy solar panels outright get the tax credit directly.
“The tax credit is an important instrument in making the economic model work (for buyers),” said Seth Ring, president of Toll Brothers’ Southern California division. “Without it, it’s difficult to offer this program in a way the buyer would want it.”
KB Homes also offers solar on all the homes it builds in Orange County.
“I think (the extension) will have a positive impact,” said Steve Ruffner, KB Home’s Southern California president. “It’s good for the viability of solar.”
The impact of the tax credit may be moot in California, however, unless the state Public Utilities Commission also extends “net metering” rules, said Bernadette Del Chiaro, executive director California Solar Energy Industries Association.
Under net metering, solar users get credit for power their systems send back to utilities.
California’s three regulated utilities, including Southern California Edison and San Diego Gas & Electric, are expected to hit a cap on net metering customers some time next year, meaning the option wouldn’t be available to future customers, making solar less viable.
The PUC could approve a proposed extension as soon as Jan. 28.
Still, the tax credit is important. Without it, California would “see a huge, huge drop-off in demand for solar,” Del Chiaro said.
Congress agreed to the renew the credit as part of a broader budget deal that also included a retroactive extension of the production tax credit for wind power that expired at the end of 2014. That’s now expected to lead to an additional $35 billion in wind investments.
With the solar tax credit initially set to expire in a year, the industry was expecting a big decline in 2017, with demand slumping as much as 71 percent. That will now be reversed, with New Energy Finance forecasting installations to climb 5.5 percent.
Avoiding that anticipated slump means manufacturers no longer need to plan for getting through a lean period, said Nathan Serota, a solar analyst at New Energy Finance in New York City.
“There was a big focus on cutting costs just to survive the cliff,” Serota said in an interview Thursday.
The extension will reduce project financing costs and increase profit margins at solar companies including SolarCity Corp., SunEdison Inc. and First Solar Inc., said Vishal Shah, an analyst at Deutsche Bank AG. Shares in solar companies surged this week on the news.
“Companies such as First Solar were rushing to complete U.S. projects ahead of the deadline,” Shah wrote in a research note Thursday. “We now expect these projects to push out to 2017 and see margins improving.”
Staff writer Jeff Collins contributed to this report.
Source :- http://www.ocregister.com/