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Washington State Talks Strategies for Weaning Solar Off Subsidies

Almost 10 years after instituting financial incentives for Washington residents to install solar panels, the state is debating if those tax breaks are too generous for an electricity source that amounts to a pittance of its renewable energy portfolio.

The number of solar panels installed has grown dramatically in the last several years, but costs are also plummeting as better, cheaper technology has been developed. Many of these tax breaks are set to expire in the coming years, and could be finished entirely by 2020 unless the Legislature extends them.

A cohort of energy interests have come to the table in recent months to discuss if the tax breaks are still necessary in light of the dwindling cost of installation – in some circumstances they more than cover the cost – if the incentives disproportionately favor higher-income earners who can afford to put solar electric panels on their homes, and how Washington could get larger-scale solar projects built. Their next meetings are Oct. 21 and Oct. 27.

Gov. Jay Inslee set the discussions in motion this spring, when he issued an executive order requesting a review of the state’s solar energy program. Looming in the background of the talks is compliance with the initiative voters passed in 2006, Initiative 937, which mandates that larger utilities with more than 25,000 customers have to derive 15 percent of their power from renewable energy sources by 2020.

It’s a delicate subject in the renewable energy realm – solar producers have come under heavy criticism from conservative economists as being unable to justify the level of subsidy their energy production receives. The state also has a glut of hydropower at the moment.

The Bonneville Power Administration, which markets hydroelectricity produced in the Columbia River Basin, has been paying wind-energy generators not to produce at times in the last several years so the grid isn’t overloaded in times of peak river flows, usually in the spring. Dam operators have to balance spilling water for adequate fish flows, while not spilling too much, which would harm fish species, according to BPA.

“It’s never going to be something that’s going to take over the marketplace,” said Jake Fey, director of the Washington State University Energy Program, of solar power. “It will play a role, but it won’t be the role of natural gas. We do need to make some fundamental improvements.”

Absent much higher incentives, Fey said solar energy won’t likely see market penetration like California, Nevada or Arizona because solar energy panels here can’t generate as much electricity as they do in those states. Solar panels in Phoenix will generate 50 percent more than they do in the Puget Sound region, and 33 percent more than panels in Eastern Washington, according to WSU.

Since 2005, when the Legislature began the program, Washington has given tax incentives to install more than 5,600 systems that generate more than 29 megawatts of power, according to the WSU Energy Program.

Using equipment manufactured in state and taking advantage of federal and state tax incentives, residents can get up to 54 cents per kilowatt hour subsidized, while the out-of-state incentive amounts to 15 cents per kilowatt hour.

Still, solar energy amounts to a small portion of the state’s renewable energy production. Wind energy generates more than 2,800 megawatts annually, while biomass produces 400 megawatts, according to the American Council on Renewable Energy. The U.S. Environmental Protection Agency considers hydropower a renewable resource, but it doesn’t count under I-937’s provisions. That energy source generates more than 20,000 megawatts of carbon-free electricity each year.

The solar energy incentives come at a cost to state tax coffers, of course. A production incentive has utilities pay residents up $5,000 to generate solar electricity – particularly if they used in-state manufacturers of solar panels – and utilities then claim an equal amount of tax credits to the state. The maximum claim is capped at $100,000.

In 2013, 34 utilities claimed $3.8 million in tax credits, according to the Department of Revenue. In 2012, the amount was $1.9 million; since 2005, $8 million of the credits have been claimed.

The state also exempts sales tax on purchases of solar equipment, which is a tougher hit to gauge to state coffers because it isn’t often reported, Fey said. Still, Department of Revenue researchers said the state has refunded $387,000 worth of claims over the last two years.

In-state manufacturers also can claim a reduced business and occupation tax rate, which has cost the state $1.4 million in revenue in fiscal year 2011, the last year figures were available, $1 million in 2012, and $492,000 in 2013. The federal government allows residents to exempt up to 30 percent of the system cost on their income tax returns, and solar generator can also use net-metering – where utilities give them credits for excess energy put back into the grid.

Wind energy also garners state and local tax breaks. A 20,000-acre, 267-megawatt wind energy project in Columbia County that’s worth $500 million will get $32.5 million in state subsidies, and another $8 million in local tax breaks, according to the Department of Revenue. The project is scheduled to come online in 2015.

“There just is layer upon layer of government subsidy,” said Todd Myers, director of the Center for the Environment for the Washington Policy Center, of solar energy. “The people who are receiving these subsidies are not the poor. They’re not the middle class. They are the wealthy.”

Joni Bosh, a policy analyst with the Northwest Energy Coalition, said everyone in the discussion agrees the subsidies should be reduced, but the debate has centered on to what extent the subsidies should remain – and for how long. Bosh said renewable energy advocates don’t want to see the program sunset in 2020, a financial “cliff” for solar energy, as she called it, that would hamper future gains in solar energy system growth.

“The bigger problem for the incentive program is that it just cliffs out in 2020,” Bosh said. “The amount is very generous. I haven’t heard anyone in this process say it shouldn’t come down.”

There’s also been questions of whether to extend the tax breaks to third-party financiers, who would pay the upfront installation costs of rooftop solar systems and sell power back to residents while also qualifying for production incentives in the form of tax breaks.

A California-based firm, SolarCity, has specialized in using millions of dollars in federal and state tax subsidies to expand to residential markets across U.S. states, although it hasn’t yet taken hold in Washington because its leasehold system doesn’t qualify under state rules for the incentive programs. SolarCity requires customers to sign 20-year contracts but has been criticized for then leaving consumers vulnerable to spikes in their electricity costs.

“They don’t harvest the sun, they harvest subsidies,” Myers said.

Washington’s program has largely been limited to residential rooftops, and the state has no utility-scale projects – defined as generating more than one megawatt of power – and few commercial scale solar projects. Residential makes up almost 80 percent of the state’s solar market currently, according to the according to the WSU Energy Program.

“This has to pass legislative approval,” Fey said. “We haven’t settled on specific numbers yet. This was never supposed to be a permanent fixture. It was to bolster up the market.”


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