Solar energy gets a tax break

The future of Arizona's solar industry is shining brighter with the extension of federal solar-energy tax credits, which was part of the financial bailout bill approved Oct. 3. Not only are tax credits extended for eight years, but the amount of the incentive has been greatly increased.

That means major solar projects in Arizona such as the Solana Generating Station near Gila Bend and the solarization of Arizona State University's Tempe campus will be able to proceed. Home-owners and businesses can more easily afford their own solar installations.

It's one of the few bright spots in the otherwise grim economic picture for Arizona.

"It really provides a foundation for a lot of the work that policymakers and business leaders are doing to advance solar energy," said Sal Rivera, executive director of the Arizona Economic Resource Organization. "We still have a lot to do, but it would have been much more difficult without these credits."

Rivera's organization has set up a solar policy committee to make recommendations by the end of this month on what more the state can do to capitalize on its natural solar-energy advantages.

Those recommendations will go to Gov. Janet Napolitano, the Arizona Corporation Commission and others involved in formulating economic-development policies.

Rivera declined to give clues on what the group is considering, but he conceded that bolstering Arizona's own tax incentives "is something that's been in the mix."

He agreed that areas that have seen the most solar development around the world are those that offer the most generous incentives.

Government inducements are still important for solar energy because it remains more expensive than conventional energy sources.

Interest in solar energy remains high, however, because there are no emissions, and, of course, the fuel is free and plentiful in Arizona.

"Now that the uncertainty for solar industry projects in the U.S. has been eliminated, it is critical that Arizona act quickly to capture these opportunities to help diversify our economy and propel us as a solar leader," said Barry Broome, president of the Greater Phoenix Economic Council and a member of the AERO solar team.

SOLAR INCENTIVES

Numerous incentives and regulatory inducements are already in place to encourage solar energy in Arizona. In 2006 the corporation commission approved a renewable energy standard that requires Arizona Public Service and other state utilities to produce 15 percent of their energy from renewable sources by 2025. The commission has authorized APS to add a $1.32 surcharge on monthly residential electric bills to pay for the program - which includes wind, geothermal and biomass in addition to solar.

Salt River Project is not governed by that regulation but has embarked on a similar renewable-energy effort.

The programs have been paying off. APS this year expects to obtain more than 2 percent of its electricity from renewable sources, up from virtually nothing a few years ago. The renewable figure for SRP is 6 percent, bolstered by hydro power from its Salt and Verde river dams.

Thirty percent of the 15 percent is carved out for distributed-energy projects - small installations at individual homes and businesses. That provision is a boost for home photovoltaic and solar water-heating systems.

The new federal tax credits are expected to make those much more attractive financially. Under the current federal law, which was set to expire at the end of this year, buyers of solar equipment could get a federal credit for 30 percent of the cost of the installation up to a maximum of $2,000. The new law extends the credit for eight years and eliminates the cap for residential users.

Added to that is a 25 percent state tax credit, with a cap of $1,000. And utilities are offering rebates on top of the tax credits to further encourage solar equipment sales.

SRP and APS are paying $3 per installed watt for photovoltaic systems, which generate electricity directly from sunlight.

A medium-sized 6.2 kilowatt system costs about $42,600 to install, according to American Solar Electric, a Scottsdale-based system contractor. The federal tax credit on such a system is $12,780. Add the $1,000 state tax credit and the $18,900 utility rebate, and the final direct cost to the homeowner would be roughly $9,920. Before the improved federal tax credit, the cost to the owner would have been $20,700.

Further benefits would accrue from reduced energy bills and sale of any excess energy back to the electric grid.

American Solar President Sean Seitz expects a jump in business after the start of the new year, when the new federal law takes effect.

"We had a fair number of customers sitting on the fence to see if it (the federal credit) was going to be extended." Then seven new customers signed up in the days immediately following the extension approval, he said.

ASU PROJECT UNDER WAY

One of the largest distributed energy projects is making progress at the ASU Tempe campus, where the university plans to install seven megawatts of photovoltaic capacity during the next few years on the roof tops of buildings and parking garages. The first phase of that project - 1.8 megawatts - is expected to be completed by the end of this year under the existing federal law.

The ASU project is structured under a purchase agreement in which the installers of the solar equipment will own the system, and ASU will purchase the power at a negotiated price over 15 years.

With the federal extension, the university can start planning for the next phase at the Tempe campus as well as additional solar installations at ASU West in Phoenix and ASU Polytechnic in Mesa, said Bonny Bentzin, manager of university sustainability business practices.

"We're still paving new ground on how to do this," she said.

MORE SOLAR POWER PLANTS

The new law also provides incentives for utilities to build large central power plants that use renewable technologies. The most notable project in Arizona is the 280-megawatt Solana Generating Station near Gila Bend, the world's largest solar power plant, which will produce enough electricity to supply about 70,000 households.

The plant, which will use solar-trough technology to concentrate the heat of the sun rather than photovoltaic panels, is being built by Abengoa Solar, and APS has agreed to purchase the output from the plant.

Other similar-sized solar projects could be in the offing, utility officials say. A consortium of utilities including APS and SRP is studying construction of a 250-megawatt solar plant. A site next to the Solana plant is one potential location, although other sites are still being considered, said Lori Singleton, manager of sustainability initiatives and technologies at SRP. It probably also would be built by a third-party investor with the utilities buying the output, she said.

APS spokesman Steven Gotfried said the Solana project remains viable even with the recent decline in the price of oil, which would reduce the cost of operating fossil-fuel plants.

"Oil prices fluctuate, and there is the threat of a carbon tax out there," he said. "This is still a very viable project."

MANUFACTURING SOUGHT

Another aspect of the solar industry is not directly affected by the federal tax credit - manufacturing solar equipment. Two large producers of photovoltaic panels - First Solar Corp. and Kyocera Solar, a unit of Japan-based Kyocera Corp. - have administrative headquarters in the East Valley. But neither does any manufacturing of solar equipment in Arizona.

To GPEC's Broome, that's a major weakness that needs to be corrected before the state can claim to have a robust solar industry. GPEC proposed a Quality Jobs Through Solar bill at the Arizona Legislature in June, which would have provided incentives for solar companies to set up plants in Arizona based on the number of jobs they create. But it failed to pass this year's session.

GPEC hasn't given up. During a trip he took to Germany, Austria and Spain last month, seven solar manufacturers expressed interest in the Valley as a location for expansion of their U.S. operations, Broome said.

But some manufacturers have already scouted Arizona and decided to locate their manufacturing elsewhere.

"As an Arizonan, I would love to see us lead the country," said Tom Dyer, marketing and government affairs vice president for Kyocera Solar. But he added that "we have considered manufacturing here, and we couldn't make a business case for it."

Because of solar's price problems, the company had to place its top priority on keeping costs as low as possible, he said. And that couldn't happen in Arizona.

"Once lower-cost manufacturing techniques are in place, and if the market is there, we could come here," he said.

A look at Solar energy incentives

Utility rebate: $3 per installed watt

State tax credit: 25 percent of installed cost to maximum of $1,000

Federal tax credit: 30 percent of installed cost to maximum of $2,000

New federal tax credit (effective Jan. 1): 30 percent of installed cost, no cap