Value of solar tax credit might be known only when gone

ASHEVILLE – Without a shift in course by North Carolina legislators, advocates for the state's solar energy sector fear it could drift into shadows in coming years.

The N.C. Senate in its budget proposal contains no proposal to extend the solar tax credits, which for years have helped make North Carolina a leader in solar energy use. The state House includes a provision that would extend the credits for another two years.

The credits are scheduled to end for most on Jan. 1. Though Republican Gov. Pat McCrory signed a law in April that extended the tax credits to some projects.

Members of both chambers have considered the cuts a way to save taxpayers millions.

But if the tax credits disappeared, "I wouldn't be surprised if a number of solar companies just closed up shop," said Dave Rogers, state director of Environment North Carolina, a Raleigh-based nonprofit organization.

"There would be a drop in the number of installations, which would mean less solar coming onto the (power) grid," Rogers said. "Layoffs — of sales people, site developers, installation crews — would follow pretty quickly."

The Pew Charitable Trusts, using 2013 data, reported in an October study that North Carolina was No. 3 in the country in both new capacity and private investment, which was measured at $1.2 billion.

That same paper found the state placed fourth in total capacity and fifth in solar-powered homes. North Carolina came in 10th with 3,100 solar industry jobs, according to the Philadelphia-based nonprofit public policy organization.

The Solar Energy Industries Association, a Washington, D.C., trade group, gauged the sector performed even better in 2014, tallying total jobs at 5,600, at 177 companies.

Total power in North Carolina generated by solar equaled about 1 percent from Jan. 1 through March, according to data from the U.S. Energy Information Administration.

Republicans supporting an end to the tax credits say it could save the state money being used to prop up an industry that cannot stand on its own.

Rep. Chris Millis, R-Pender County, said earlier this year that the solar tax credits subsidize a special interest "off the backs of our taxpayers."

A ray of hope

At Fairview-based Sugar Hollow Solar, a company that installs residential and commercial photovoltaic systems, sales manager Ben Yoke predicts solar companies would survive, but "it certainly would not be pleasant."

"The industry has grown," Yoke said. "We'd hope to weather it."

Strategies of doing so could include working with area weatherizing companies and community solar projects "that often are more cost-effective," Yoke said.

Projects with less than 65 megawatt capacity and are at least 80 percent complete by Jan. 1, now have until Jan. 1, 2017, under the extension reached by McCrory and state lawmakers. Those greater than 65 megawatts that are at least 50 percent complete also were granted an exemption until Jan. 1, 2017.

Tax returns last year generated $250 million in renewable-energy tax credits, said Jonathan Tart of North Carolina's nonpartisan General Assembly Fiscal Research Division.

The end of the solar tax credits on Jan. 1, and the end of those credits that McCrory and the General Assembly extended until Jan. 1, 2017, will save the state roughly between $600 million and $800 million over a period of five years, Tart said.

Some rays of hope exist for solar advocates, however, said Katie Bray, founder and director of Asheville-based Clean Energy for Us. That statewide nonprofit grassroots organization educates people about solar energy and connects them with vetted and qualified solar contractors.

Bray and others cited the solar battery being developed by researchers at the California-based Tesla Motors.

The home battery charges with solar-panel generated electricity and provides power at night. Deliveries are scheduled to begin this summer, according to the company's website.

"If that happens, it would be a game-changer, regardless of what happens with the solar credits," Bray said.

Another possibility is the passage of a bill written by Rep. John Szoka, R-Cumberland County.

He proposes allowing third-party sales in the solar industry. That means individuals or company officials could lease solar-panel arrays, rather than purchase them, from manufacturers to save money on their energy bills.

North Carolina is one of only four states that bans any form of third-party sales, Szoka said.

Sunny years for North Carolina

A 15-year-old tax credit for solar-project owners is partly why North Carolina has climbed into the top 10 across an array of national solar energy rankings.

Solar energy owners are allowed to claim a 35 percent state investment tax credit for renewable energy projects, up to a maximum of $2.5 million per project and 50 percent of their tax liability over a five-year period, said Stephanie Hawco, spokeswoman on energy issues for the North Carolina Department of Environment and Natural Resources.

But a solar tax incentive has existed in the state since 1977, Rogers said.

The 1973 oil embargo imposed on the United States and other countries by the Organization of Arab Petroleum Exporting Countries sparked a federal-level culture of encouraging "renewable energy and homegrown energy," Rogers said.

President Jimmy Carter also founded the Department of Energy in 1977 as a response to the crisis.

Solar tax credit value

Opponents of the tax credits, such as House Majority Leader Mike Hager of Rutherford, argue that the incentives cause North Carolina electricity customers to pay higher rates.

The state's largest power company, Charlotte-based Duke Energy, does not support or oppose solar tax credits, said Randy Wheeless, a Duke spokesman.

"Instead of being for or against, we support a more collaborative stakeholder process to deal with these issues," said Wheeless, who noted that Duke has benefited more than any other company in the state from tax credits. "We want to build a consensus."

One economist who has analyzed solar tax credits said it's simple to understand why some lawmakers take a dim view of the subsidies.

"I'm not aware of one solar project that has had a positive impact on a state budget," said Loren Scott, an economist based in Baton Rouge, Louisiana. He is professor emeritus of economics at Louisiana State University, where he served on the faculty for three decades.

"There's no place the solar industry is making it on its own," said Scott, who also runs an economic consulting firm. "If you take away its subsidy and tax credit, it can't make money and it'll go away."

Scott predicted that North Carolina's solar sector would vanish if the General Assembly eliminated the tax credit.

That wouldn't be a bad thing in his estimation because the jobs in the industry aren't worth saving.

"They have a low multiplier effect on the economy," Scott said. "If they were paying $75,000 a year, that'd be one thing. But at most, you're talking about $30,000 a year."

But data from the U.S. Bureau of Labor Statistics and The Solar Foundation, a nonprofit advocacy group in Washington, D.C., show solar-industry jobs pay higher than $30,000 annually.

Solar installers, for example, make about $42,000 a year, according to BLS figures.

And foundation figures put solar-system designers' annual salaries between $62,000 and $83,000, and sales representatives' annual salaries at roughly $92,000.

Scott's conclusions reveal a common oversight regarding the energy industry, Szoka said.

Fossil-fuel industry exemptions, such as the oil-field depletion allowance, are included in the U.S. tax code, said Szoka, a retired Army lieutenant colonel who graduated from West Point.

"Tax breaks are given to private corporations to keep oil prices low and oil exploration going," Szoka said.

And companies that build nuclear plants are allowed to charge consumers prior to the facilities coming online, then increase fees due to rising operation costs, he said.

"If that's not a subsidy, I don't know what is," Szoka said.

The difference between renewable energy subsidies and traditional energy breaks are that the former are "out there for everyone to see as a direct payment," he said. The latter, however, are hidden.

RTI International, a nonprofit research institute based in Research Triangle Park, provided another way to value the solar tax credit.

About $2.7 billion was invested in clean-energy development in North Carolina between 2007 and 2013 compared to roughly $135 million worth of incentives, according to a 2014 RTI report.

"Clean energy projects were nearly 20 times as large as the state incentives for them," the authors wrote.

The solar industry accounted for 98 percent of the clean-energy capacity added in 2013 in North Carolina, The Pew Charitable Trusts reported.

Szoka said he arrived at the General Assembly in 2012 as "an anti-renewable energy guy. They don't need tax credits," he said was his belief at the time.

But once he applied the master's degree in statistics he received at the University of Texas at Austin, he became an advocate.

"And not because I wanted to hug a tree or kiss a unicorn — but because it made economic sense," Szoka said.

Military-base and Walmart officials have told him they have saved on energy costs by installing solar systems at their facilities, Szoka said.

"If these organizations have the opportunity to save money, let the market decide," he said.