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Showdown on solar subsidies?

Rocky Mountain News

Published November 1, 2008 at 10:05 p.m.

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The governor and solar industry interests are decrying Xcel's recent move to reduce its renewable energy credit from $2.50 per watt to $1.50, saying it jeopardizes the installation of some home solar systems, at least in the short run.

They may be right, but that clearly is not Xcel's intent. As the company explained in a letter to the state Public Utilities Commission, the purpose of lowering the credit is to keep the total subsidy - federal and local - at about 50 percent of an installed solar system. And the fact is that thanks to the recent Wall Street bailout package - you read that right - the federal tax credit for solar-energy systems was not only extended for eight years but also greatly enhanced.

As The Wall Street Journal explains, "Even more beneficial for homeowners is a provision in the bailout bill that removes a $2,000 cap on the tax-credit benefit. Here's why: For families that buy the average rooftop solar system at a cost of between $25,000 and $30,000, the change means they'll get a much bigger rebate. Instead of a $2,000 tax credit for a system, homeowners would be looking at around $9,000."

Wow. This largess comes with a multibillion-dollar price tag for the rest of us, of course, but let's not worry about that for the moment. The point is that the new federal tax enticements, combined with subsidies Xcel will continue to provide, should reduce a homeowner's out-of-pocket expenses by roughly the same amount as before, by Xcel's calculations.

Now, if Xcel is wrong, then the PUC or governor's office should demonstrate as much with hard figures and the company should rethink its policy. But if Xcel is essentially correct, then it's hard to fault the credit reduction - especially because the company plans to shift the savings into other renewable projects. Indeed, it has no choice.

As far as we're concerned, this controversy points to a more important question for Xcel, the governor, the PUC and, of course, utility ratepayers. What is the most productive use of the clean-energy funds? Should they be spent on providing deeper subsidies for a smaller number of customers or smaller subsidies for a larger number of customers?

We think there's a compelling case for the second course. On-site solar subsidies tend to flow disproportionately into the pockets of well-to-do homeowners, who surely should be expected to pick up 50 percent of the tab without cries of indignation. The further afield the subsidies are dispersed, the better.

It may even be that the most effective way to spread the benefits of solar-energy subsidies directly to all ratepayers as opposed to a select few is through a more aggressive pursuit of central solar power plants. These larger projects may be more likely to push down the cost per kilowatt hour of solar, too.

After passage of the recent federal tax credits, solar power advocates declared the provisions a " 'game changer' that will send a signal to global investors that the U.S. solar market is open for business for the long term," according to the Journal. If that's truly the case, it's hard to see how Xcel's decision is likely to snuff out demand for home solar systems - particularly if the cost of on-site solar electricity continues to decline as expected in comparison with electricity from the traditional grid.

Comments

  • November 2, 2008

    5:42 a.m.

    Suggest removal

    eoj writes:

    Solar energy can you afford it??

    Recently DOE announced their solar power system at the Washington DC Headquarters building.
    Cost $30 Million, electric power savings projection of $26,000 per year.
    System will generate 200 MW hours of electricity per year. Panels have an expected life of 25 years, so $26,000 times 25 years equals $650,000. Now let’s divide $30 Million by $650,000 equals 46 times what they would have paid for electricity from the grid. Most of the USA is going down this same path regarding renewable energy with no publicizing the real cost. DOE is proud of this installation, I’m embarrassed that they can’t do the simple math that would demand cost effective solutions. We as a country are simply better than this.

    We need reasonable electric power solutions. When energy solutions are created out of the political mind they are always wrong. Business advances are always the result of proper cost benefit analysis. This needs to be in front of the American People and Congress as they continue down this very expensive path.
    Reference Links;
    U.S. DOE Headquarters to Get $30 M Solar PV System
    February 14, 2007
    http://www.renewableenergyworld.com/r...

    September 9, 2008

    U.S. Energy Department Turns on Headquarters’ Solar Energy System
    http://www.energy.gov/news/6521.htm

  • November 2, 2008

    6:48 a.m.

    Suggest removal

    Mike_In_Hartsel writes:

    Solar joins E85 as a hoax that is costing the taxpayer billions of dollars.

    Throw out the bums who voted for either.

  • November 2, 2008

    7:09 a.m.

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    greenleaf writes:

    To me, this seems a reasonable compromise considering the fact that the cost of solar installations is dropping due to improved technology, economies of scale and the renewed and enhanced solar rebate program. Sometimes worthy new technologies need an initial hand up to get them moving, but I believe that we have passed an initial tipping point and that Xcel is right in lowering its subsidy in the interest of maintaining a more affordable price structure for all of its customers.

    Solar will never be the total answer for our energy challenges but it is one tool in the box of solutions. We need to use it!

  • November 2, 2008

    9:24 a.m.

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    mmannino writes:

    The new energy economy is a fraud. However, the extent of the fraud will not be revealed for 5 to 10 years. After all the proposed coal and nuclear plants are cancelled, there will be huge rush on renewables. Politicians (mostly Democrats) will try to hide the real cost of the renewables but undoubtedly energy costs will rise substantially. The unreliability will be impossible to hide. The scale up required for 20% to 25% of renewables will not work as planned. We will be left with power shortages, unplanned outages, and eventually energy rationing.

    My advice is to plan on generating your own power. I have no illusions that generating your own power is cost effective. However, you will have some ability to generate power when the grid becomes unreliable. In addition, you should obtain fire arms training. You will need to defend your home when the energy crisis occurs.

  • November 2, 2008

    9:56 a.m.

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    greenleaf writes:

    mmannino,

    Wow, buddy, and I thought I was cynical. I am also impressed with the irony: you seem to be saying: "the sky is falling, the sky is falling!" I can't tell you how many times I have had that little snippet used against me by those who disagree with my stand on energy and the environment. Now, it seems to be the traditional energy, damn the environment guys that it best applies to.

    I shouldn't offer advice, but I will anyway. A very wise relative of mine once said that things are almost never as bad or good as they may seem. His belief was that the majority of the time the truth lay in the middle ground.

    Solar and renewable energy isn't the total solution to our problems that environmental cheerleaders would have us believe. Neither is it the villain that believers in traditional carbon based energy sources present it to be either. It is part of our energy solution, but isn't all of it. We will be using coal and oil for many years to come, like it or not. We owe it to ourselves to make the cleanest, most efficient use of those resources even as we develop alternative energy sources from solar and wind to geothermal and nuclear. Production of energy carries with it responsibility to health, the environment and to world politics and world peace. Some of these considerations come at additional cost but also pay significant dividends. I trust the power engineers to advise us and to devise diverse systems that work.

  • November 2, 2008

    10:02 a.m.

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    johnhargissr writes:

    I wrote a letter to the editor some time ago, comparing a solar furnace and geothermal electricity storage to the present electric grid system. The idea was to develop a accumulation of municipal bond plans from towns that would be on such a grid, to generate funds to build such a plant, as was done in California and Nevada, in this way the community owns the grid, sells access power back to Excel and accumulates dividends to disperse to taxpayers, or to improve social services to the disabled and elderly.

    it is long past time to depend on government and corporate America to find answers to reduce energy dependency and cost of living increases. Take this idea to your community leaders.

    John Hargis Sr Del Norte Co, candidate for U.S. Senate 2010

  • November 2, 2008

    10:35 a.m.

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    mmannino writes:

    greenleaf,,

    I trust engineers, investors, and the utility industry. I do not trust politicians. The renewable energy mandates are politically driven. They are not driven by the utility industry and energy investors. I have nothing against any energy source. There is some fantastic work being done on renewables. Without mandates and operating subsidies, renewables would find a reasonable niche in the energy portfolio. I just do not want politicians running the energy industry. I support reasonable environment constraints. CO2 limits are not reasonable. Environment constraints must be subject to some cost benefit tradeoff. Currently, environment regulations are not subject to cost benefit tradeoffs.

    Here is why I am so pessimistic on energy. Every single proposed coal and nuclear plant is being challenged. The Kansas governor cancelled a coal plant that was to supply a lot of power for Colorado. Ironically, the coal plant would have used the most modern scrubbers and pollution control devices. That coal plant was also important for wind generation in Colorado. The Kansas scenario will be played out across the country. Nuclear is off the table. We have reasonable solutions for dealing with waste but the political process will not allow these solutions. We need more power not less power. Energy assumptions used by politicians call for less power. Pennsylvania has a law requiring utilities to reduce power generation.

    The only question is will the Democrats govern according to their rhetoric. The Democrats will gain power by obstruction. They have succeeded in curtailing development of conventional energy sources. If the Democrats do not allow the proposed coal and nuclear plants to be built, we will have energy shortages in 5 to 10 years.

  • November 2, 2008

    12:35 p.m.

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    seeingeyeseesall writes:

    This is not a political issue, at least as far as Xcel's concerned, it is the result of the change in tax law that lets utilities like Xcel enjoy the 30% of cost investment tax credit on solar facilities they build for themselves.

    In the past, this credit wasn't available to utilities, so it made sense to meet mandated renewable energy percentages by offering "renewable energy credits" and rebates to third parties, who then sold the energy produced to the utility, since the utility has to have the renewable energy by state statute.

    Now, with the new tax law, it will be far less costly to build the renewable infrastructure needed to meet statute, since the energy produced is cost free once the systems are built, and with the ITC, costs to build the systems are competitive to the Xcel rebate, per watt.

    The "stink" of being a part of this rushed bank "bailout" (aka, the biggest looting of the treasury in history) will hover over solar energy for a long time, since all subsidy of this needed technology has just been shifted to the taxpayers and the large utilities have been placed in control of the industry, since they'll soon the be largest, most subsidized user of the technology.

  • November 3, 2008

    7:23 a.m.

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    VVVV writes:

    The same people, or Club as the case may be, that has opposed every nuclear and coal plant in the US in the legal system relying on judicial stagnation to impose a dogma, are going to oppose any reduction of credits to solar or wind energy in this country. It's noble and logical to think that Xcel should be able to reduce their credit, but highly unlikely that they will be able to once the propaganda and lawyers sink their teeth into it. I just feel fortunate that though I oppose the general public funding private property, I will be perfectly poised to take full advantage of the crime. Once the cost benefit analysis shows that I can greatly increase my wealth by installing solar power at other people's expense, with a payback of less than 2 years, I will jump at the chance.

    I will gladly compromise my noble morality to misguided wealth distribution.

  • November 3, 2008

    10:56 a.m.

    Suggest removal

    mytwosense writes:

    RMN: "It may even be that the most effective way to spread the benefits of solar-energy subsidies directly to all ratepayers as opposed to a select few is through a more aggressive pursuit of central solar power plants. These larger projects may be more likely to push down the cost per kilowatt hour of solar, too."

    If these plants will be publicly-owned, I agree. Private utility providers who must make a profit always charge consumers more than public utilities who just need to cover their costs.

  • January 26, 2009

    8:59 p.m.

    Suggest removal

    svankirk writes:

    Just to set the record straight, there is something wrong with the numbers here. PV is expensive, but it is not that expensive.

    This system is supposed to generate 200,000 KWHs of electricity per year. This will save between 10 and 20 thousand per year. The going price for a PV system like this should be in the range of 1 to 1.3 million dollars. Assuming increasing energy prices, this would get you a payback within about 35 years. Not really that interesting in itself, but that is for just the monetary expense.

    Now consider that a project this size will eliminate the release of over 16,000,000 lbs of CO2 over its lifetime and stop the release of 40,000 lbs of NOx and 50,000 lbs of SO2 into the air we breath. That changes the equation considerably, not to mention that these first projects help pave the way for cheaper PV systems in the future. Looking at these projects this way make them seem like a lot more of a bargain.