Tax breaks fuel Vermont’s solar gold rush

first_imgHow do community solar projects work?Company B builds a 150-kilowatt community solar array in 2014. The array costs $600,000. The state gives Company B a $37,500 net-metering grant, and the company gets a $180,000 federal tax break on those panels. Company B attracts 30 homeowners who are interested in investing in the project. Nineteen of those households have roofs that can’t structurally support solar racking systems, and 11 that can’t afford up-front costs for solar. All of the households get a 7 percent discount on electricity bills. The education property taxes on the structure, which sits on an acre of land, are $600, paid directly to the state. How much money can developers make on commercial solar?Company A builds a 2,200-kilowatt (2.2 megawatt) commercial solar project and sells the energy to a local utility through the grid. Company A’s project costs $6 million, and the energy sells for between 10 cents and 11 cents per kilowatt hour.The revenue from the energy, assuming the panels are 14 percent efficient, is between $270,000 and $297,000 a year for 20 years. The education property taxes for the structure, in addition to the 15 acres of land underneath, would be $8,800. The company could take a $2 million federal tax break or sell the project to an investor who wants to add clean energy to its asset portfolio. How big are home and community solar projects?Community solar arrays are usually 150 kilowatts but can be up to 500 kilowatts. The power is shared among households. A roof-mounted solar array on a home is usually around 6 kilowatts. How can net metering be used on solar farms?Net metering can also be used on larger solar farms, up to 500 kilowatts, provided there’s a specific entity using the energy produced. In that situation, the developer would act as a middle-man. A developer can plan a solar farm and then seek out a town or school to be the end-user of the energy. The town would benefit by building up energy credits at a 19-cent net-metered rate while paying the developer 18 cents under a contract. The developer gets most of the money.Since projects that are any bigger than 500 kilowatts can’t use net metering, there is an incentive for developers to build either under the 500 kilowatt cap or way above it. Above 500 kilowatts, the going rate for energy is about 11 cents per kilowatt. That’s why developers are likely to build in the 2,000-kilowatt-or-bigger range. How much money can a homeowner save on electricity?Homeowner C made $80,000 in personal income in 2011 and decided to install 6 kilowatts of solar on the home she built in 2009. She paid $27,000 up front for panels and used a $4,500 state net metering grant to offset the cost. On her federal tax return, she deducted $8,100. She now produces more energy on her home during the summer than she can use, and pays $0 for electricity for that period. Green Mountain Power gives her credits for the extra energy because of Vermont’s net-metering law, so she pays very small electricity bills during the winter. There is no property tax on the panels because the installation is under 15 kilowatts. What is a commercial solar project?Projects larger than 500-kilowatts (equal to 5,000 watts or a half-megawatt) are considered to be commercial-scale. The largest commercial solar installations now in operation are about 2,200 kilowatts (2.2 megawatts), but the amount of energy solar installations generate is going up. Four recently proposed projects would produce 20,000 kilowatts each.Read more(link is external) SunCommon ExpandingEnter SunCommon, the company building a grassroots effort to have solar on every home and place 150-kilowatt community arrays throughout the state. The company launched its community solar program in fall 2014, right when Public Service Department grants were drying up.James Moore, the co-president of SunCommon, says four people started the company in 2012 with the idea that everyone should have access to clean energy. SunCommon has grown each year since. The money households pay for community solar goes right to the cost of construction, and the profits have been invested in the company, Moore said.“We’re definitely still in that startup phase, but we effectively launched a new business by launching our community solar program,” he said. “I don’t know when we’re going to be out of startup mode.”Emily McManamy, a spokesperson for SunCommon, said Vermonters rushed to buy solar through SunCommon when word got out that the Public Service Department grants were drying up at the end of 2014 and that the Investment Tax Credit could be gone by the end of 2016. More Vermonters than ever are signing up for SunCommon solar services, the company says.“We welcome that federal money flowing into Vermont,” McManamy said of the federal tax breaks. “A big message to people now is there literally has never been a better time to get in on solar.”SunCommon is expanding in Vermont because of its grassroots marketing approach. The company installed residential solar on 250 homes in 2012; on 450 homes in 2013; and 890 homes in 2014. The company expects to install solar on 1,100 homes in 2015.SunCommon has 69 limited liability companies registered with the state under “Sun CSA” for 150-kilowatt community solar arrays. Ten have been connected to Vermont’s power grid. Each community project is designed to provide power for 30 households. SunCommon takes the federal tax credit for itself and gives Vermonters who buy shares in the solar farm a 7 percent discount on their electricity bills.“Many Vermonters on fixed incomes, disability and Social Security are not able to benefit from federal tax incentives,” McManamy says, “so we set up the ownership structure for the arrays in a way that maximizes the ITC and other federal incentive programs.” What is residential net metering?Net metering is a complex system that gives Vermonters big benefits for producing electricity through solar panels.A homeowner who installs a solar system can essentially sell back excess solar power to a utility through the net metering program at a fixed rate of 20 cents. If the homeowner purchases power from the utility at a rate of say 15 cents, the 5-cent difference is applied as a credit for future power bills. Low cost, high demandAndrew Savage is the chief strategy officer for AllEarth Renewables, owned by renewable energy magnate David Blittersdorf. The company has built 12 megawatts worth of solar farms across the state. Another part of the company sells pole-mounting systems to other developers.Savage, who is also on the board for the Solar Energy Industries Association, said his company builds solar projects under separate limited liability companies with “AllSun Solar” in the name. Once the projects are built, they seek an investor who will buy the project from them, take the 30 percent tax credit for themselves and manage the project in the long-term.“They can own it for five years and sell it to someone else, or they can own it for 25 years and have it be a long-term annuity,” Savage said. “The payback period can be anywhere from 5 to 8 years. The investor is going to want to make somewhere between an 8 to a 12 percent return. If it’s lower, they might as well just put money in the stock market.”The 3.6-megawatt Essex solar farm, Vermont’s largest so far. Courtesy photos.Savage said the industry is benefiting from low interest lending rates, the declining price of solar panels and a growing consumer demand for solar.“[Panels] sort of steadied out around 70 cents per watt, but they came down from about $4 per watt,” he said. “Solar is a pretty stable investment. The economics really are there.”Savage said the expiration of the Investment Tax Credit would slow growth in the solar industry, but demand will remain because companies “can go to a customer and offer significant energy bill savings.”“It is definitely going to cause some contraction,” he said. “It’s definitely going to cause a change in the business model, but it’s clear that the technology is sound, and the demand for solar is increasing.”Gary Skulnik, director of marketing for groSolar, sees things differently. The 15-year-old company is based in White River Junction and has an office in Maryland.In 2015, groSolar had two commercial projects in Rutland Town and Hartland approved by the Public Service Board. Rutland Town is now challenging the board’s decision to approve the 2,300-kilowatt array.Green Mountain College solar project.Skulnik says the federal tax breaks may make building solar worthwhile, but the array of cash incentives that Vermont offers, and a political environment that has made it possible to develop solar virtually anywhere in the state, makes Vermont a great place to be a solar developer.“Vermont has some good land, some good sites, and it’s got a citizenry that for the most part is very supportive of switching to clean energy for a clean environment and to fight climate change,” Skulnik said. “It all helps, and it’s part of what makes Vermont attractive.”“Of course it doesn’t have the solar coverage of Texas or Oklahoma, but it’s got enough [incentives] to make these profits worthwhile,” Skulnik said. “If [Texas and Oklahoma] had the incentives that Vermont had, people would be building like crazy there.”Skulnik says his large-scale projects take his company about three months to build. He said if developers don’t start construction on new projects by Dec. 1, 2016, “you’re probably not going to make it in time” for federal tax breaks.“It’s not going to be the end of the solar industry,” he said. “However, we do want an extension.” How efficient is solar energy?The efficiency of any type of energy is measured by a physics term called the “capacity factor,” which is usually about 14 percent for solar in Vermont.Only a small percentage of the sun that shines on solar arrays gets turned into energy, especially in a place like Vermont, which has long winters and frequent rainfall in the summer months.To know how much energy a project produces in a year, physicists multiply the theoretical capacity of a project by the number of hours in a year (8,760) by the “capacity factor,” which measures the efficiency of the technology.While the capacity factor for solar is 14 percent in Vermont, according to the U.S. Energy Information Administration, wind by comparison is 33 percent efficient, hydropower is 38 percent, geothermal is 70 percent, and nuclear energy is 90 percent. Hydro trumps solar as share of Vermont’s energyThe state aspires to get 90 percent of its energy from renewable sources by 2050. Most of the renewable energy Vermont uses now comes from hydropower because solar panels are comparatively less efficient and the energy is more expensive.The Ethan Allen Institute, a conservative think tank, estimates that Vermont would need to install panels on 100,000 acres of land to meet 90 percent of its electric energy needs through solar.At Green Mountain Power, which serves about three-quarters of Vermont households, 42 percent of the company’s energy portfolio comes from hydropower from Canada.According to Kristin Carlson, spokesperson for Green Mountain Power, solar is currently 2.3 percent of Green Mountain Power’s energy portfolio, and about half of that number comes from commercial solar projects of 500 kilowatts or more. Green Mountain Power’s percentage of solar power the utility uses has increased from 0.5 percent in 2012, 0.8 percent in 2013 and 1.6 percent in 2014.Forty-four percent of Green Mountain Power’s electricity is miscellaneous power from the New England grid. The company values solar because it produces the most electricity during summer days, lining up conveniently with when Vermonters are using air conditioners.Residential solar, according to Carlson, reduces what the utility needs to buy from energy wholesalers. Green Mountain Power is now developing a mapping tool that would help the utility figure out which areas of Vermont need energy.Green Mountain Power wants to develop a strategy for purchasing solar power. The utility has not yet had to reject energy from a solar developer. by Erin Mansfield is external) Vermont Business Magazine Contributed to This Story Solar is the fastest-growing source of energy in the country, and Vermont’s solar industry is growing dramatically. The solar industry is booming nationwide because of multibillion-dollar federal tax breaks, and developers have their eyes on Vermont because of its additional cash incentives. In 2014, the state ranked at 22 out of 50 states for total solar capacity nationwide and 8th highest in solar per capita. Rutland itself is now the ‘Solar Capital of New England.’ Vermont’s industry employs about 1,500 people at 72 companies, and produces $76 million in output, making it the state with the most solar jobs per capita.In just the past eight months, Vermont’s Public Service Board has approved 79 nonresidential solar projects across the state, including 11 commercial-scale installations. Last year, the board approved 138 nonresidential solar projects, including 23 commercial-scale installations.RELATED STORIES:SunCommon part of group to expand community solar in VermontRutland becomes the ‘Solar Capital of New England’Over the past 10 years, the total number of net-metered solar projects in Vermont has grown exponentially. The number and proposed size of commercial projects is also shooting up. The Public Service Department is now reacting to a handful of 20-megawatt commercial projects — which are 10 times larger than any of the existing projects in Vermont(link is external).The growing size and amount of solar arrays is directly related to a 30 percent federal tax break for unlimited investments in solar projects. The tax breaks are designed to drive the nation away from fossil fuels, and supporters hope that solar energy use will help to combat climate change.While state incentives pale in comparison, Vermont offers a tax structure that keeps solar developers rushing in, and a net-metering program that requires utilities to buy solar at a higher rate.Solar home in Rutland.The federal government’s Business Investment Tax Credit, or ITC, which lets corporations write off 30 percent of construction costs, is set to drop to 10 percent at the end of 2016. That means if developers want to write off one-third of each solar project’s installation costs, they need to get their applications in as soon as possible and make sure their projects are built by Dec. 31, 2016.The looming expiration date for the tax breaks has sparked a gold rush because developers know there is no guarantee that Congress will extend the federal Investment Tax Credit this year. U.S. Rep. Peter Welch, D-Vt., has signed on as a co-sponsor of a bill in the House that would extend the credit through 2022.The plummeting cost of solar panels in the past decade is another contributing factor. The cheapest ones come from China, and while they’re slightly less efficient than the more expensive products from the U.S., Korea or Japan, developers can install inexpensive panels across a larger land area to produce the same amount of energy.ISO New England (the regional transmission manager) released its “Final 2015 Solar PV Forecast Details” last spring (SEE REPORT)(link is external).Because of the loss of the ITC, solar installation, and therefore the increase in output, declines significantly starting in 2017 and continuing through 2024. However, by the end of 2024, assuming no change in the ITC, Vermont’s total installed capacity would increase from 81.9 MW in 2014 to 234.7 MW in 2024.ISO NE said in its report: “PV projects should continue to offer strong investment returns in the next couple of years if all incentives can be monetized. Recent trends in PV deployment should continue through 2016, and may accelerate near the planned decline of the federal Investment Tax Credit (ITC).”ISO suggests that the following trends in New England will likely result:• Policy drivers that do not significantly constrain the timing of PV development (SRECs, net metered project growth below caps) will likely facilitate accelerated deployment until the slated ITC reduction• Policies that involve periodic procurement or solicitation (CT ZREC, RI Renewable Energy Growth, Vermont Standard Offer) will likely facilitate more consistent, incremental growth• The planned decline of the federal ITC beginning in 2017, together with the planned reduction of some state PV policy support, creates more challenging overall PV economics in 2019 and 2024, as compared to 2015. Much more uncertainty regarding PV deployment in the region from 2017 onward• By the 2024 timeframe, the overall economics of PV investment does not entirely recover from the ITC reduction, despite the following assumptions:– Modest reductions in installed costs (in real dollars)– Improvements in system performance– Increases in wholesale/retail electricity rates– Existing net metering policies remain intact, and existing net metering caps would not be constraints on future PV investment.Small Percent of Energy PortfolioWhile solar arrays continue to sprout up across the Green Mountain State, the amount of energy from commercial and residential solar is rising, but in total remains only 2.3 percent of the energy portfolio of the state’s largest utility, Green Mountain Power. Canadian hydropower, in contrast, represents more than 40 percent.Chris Recchia, commissioner of the Public Service Department, says that while the state offers incentives to solar developers, the Investment Tax Credit is the main driver of the nationwide solar boom.“You’re going to see a lot of applications this year for construction next year because the thing has to be operational by Dec. 31 of next year to be eligible for tax credits,” Recchia says. “I think that’s probably the biggest interest in why we’re seeing those [solar projects] now.”Sen. John Rodgers, D-Essex/Orleans, said subsidies on solar should end now that the industry has proven it can make money. Solar should be treated like any other business, he said, and developers should get the same level of subsidies as his masonry company, which is zero.“The people who are putting up the projects are millionaires or corporations held by very wealthy people, and the tax dollars are paid by all of us,” Rodgers said. “These solar deals seem to be very lucrative for them, and it’s on the backs of the taxpayer and the ratepayer.”Doug Tolles, a New Haven Selectboard member, also says the industry is dominated by people who are in it to make money. He opposes solar energy altogether, and his town has been at the forefront in land use debates.“This is corporate welfare is all it is,” Tolles said. “It drives me crazy. The Legislature has changed the rules so that the solar industrial generating plants get tax breaks, and the towns that host them get screwed.”What’s so great about Vermont?Developers look for flat land near three-phase power infrastructure that gets virtually no shade. That’s what makes the South and the Midwest popular regions to install solar systems.When developers come to Vermont, they usually steer clear of roof-mounted arrays that require expensive racking systems. Putting arrays in fields is more attractive because installation is cheaper and construction takes six weeks to three months.This is Part 1 of a two-part series. Read Part 2: Rural communities push back against solar.(link is external)“The solar boom is not equal across the country,” says Andrew Perchlik of the Public Service Department. “It’s a combination of federal policies and state policies. There are some other states where you can’t do net metering, for example.”Vermont’s net-metering law, which passed in the 1990s and was updated in 2014, allows residents to build as much solar as they need and essentially sell unused energy to their utility company at a higher rate than what they pay for the energy they use. In exchange, they receive credits to lower future energy bills. Developers can build large net-metered projects up to 500 kilowatts and enter into contracts with institutions, such as schools, towns or businesses, which essentially invest in the project.From 2004 to 2014, the Public Service Department gave cash incentives to Vermonters who wanted to install net-metered solar projects on their property. The department offered $2,500 per kilowatt in 2004; the number gradually decreased before disappearing at the end of 2014.Brattleboro Savings Bank solar project.Vermont continues to offer solar developers a 7.2 percent personal income tax credit for construction costs. Piggy-backed on the federal government’s tax credit, the state tax break means solar developers can subtract up to 37.2 percent of the price of installing solar farms directly from their taxable income.Vermont law says utilities like Green Mountain Power must pay 19 cents per kilowatt hour for energy from net-metered solar projects. In real terms, credits on a 150-kilowatt net-metered project add up to about $35,000 in revenue per year. Revenue on a 500-kilowatt net-metered project would be about $117,000 per year.For commercial scale projects, those larger than 500 kilowatts, developers only get 11 cents per kilowatt hour. That’s an incentive for developers to build either 500-kilowatt net-metered projects or multi-megawatt commercial projects. In contrast, utilities could pay between 4 cents and 8 cents per kilowatt hour for hydropower.“The savings to (utilities) is worth that (few) cents per kilowatt hour for renewable energy generation,” Recchia says, adding that it saves Green Mountain Power from having to buy energy from the rest of the Northeast electric grid.The state has also set a special formula for the assessed value of nonresidential solar arrays. Property owners pay $4 per kilowatt directly to the state’s tax department, which deposits the money into the Education Fund.In real terms, developers pay $600 per year in property taxes on a 150-kilowatt community solar farm sitting on roughly an acre of land or $8,000 for a 2-megawatt farm sitting on about 15 acres of land. Who has the most solar per capita?1. Hawaii2. Arizona3. Nevada4. California5. New Jersey6. New Mexico7. Massachusetts8. Vermont9. North Carolina10. ColoradoSource: 2015 data from the Solar Energy Industries Associationlast_img read more