Will the sun set on solar? Regulatory treatment of industry may change economics of solar power
Premium content from Charlotte Business Journal by John Downey, Senior Staff Writer
Date: Friday, November 30, 2012, 6:00am EST – Last Modified: Thursday, November 29, 2012, 1:25pm EST
Chapel Hill's Strata Solar took the renewable industry by storm in 2012. It's on the cusp of completing solar farms with 70 megawatts of capacity – seven times its production in 2011 – and has plans for two 20-megawatt projects in Tennessee next year.
“We have more than 400 people in the field building our projects this year,” says Markus Wilhelm, chief executive. “Next year we will need 300 more than that” for construction work. “These are not temporary jobs. We are building year-round.”
Strata is the clear leader of the surging N.C. solar industry. But it is not alone.
The industry is hitting its stride, with homegrown developers increasingly planning large-scale projects. Supply-chain companies are starting up or moving in, and out-of-state developers are ramping up operations here.
But the industry is worried that a change in state policy could bring dark days.
The N.C. General Assembly intends a thorough review of state-tax incentives that benefit solar power. And the legislature may eliminate the 35% tax credit for renewables. That would make it harder for solar developers – whose expenses are all upfront – to make the numbers work for new projects.
Sen. Bob Rucho (R-Mecklenburg) is leading an effort by the Senate Finance Committee to review the more than $4 billion in tax credits offered by the state for all businesses. The renewable-energy industry accounts for less than $20 million of the total. But the impact on the industry would be severe if the legislature decides to kill the subsidy.
At the same time, the avoided-cost rate for N.C. utilities – a key price set every two years by the N.C. Utilities Commission – is under review. That rate sets a floor on how much utilities must pay for the power produced by projects with a capacity of 20 or fewer megawatts. If the rate drops enough, industry officials say, future contracts could suffer for at least a couple of years.
With the decline in natural gas prices, the rate is expected to decline, but utilities are proposing a 20% cut. Development of most solar projects would be undermined by a reduction of that size, industry experts say.
Joel Olsen of O2Energies Inc. in Cornelius says the state's tax credits and renewable-energy requirements have given the solar industry traction in North Carolina. That's meant the creation of project developers like his own (founded in 2009) and businesses that supply the industry.
At the dedication last month of a 3.5-megawatt solar plant his company built in Bunn, Olsen cited figures from the N.C. Sustainable Energy Association that $11.3 million in tax credits awarded in 2010 led to solar projects valued at $108 million.
“We are attracting a lot of solar supply-chain manufacturers to the state,” he says. They include Schletter Inc., which announced last summer it would build a 300-employee plant in Shelby to make racks that hold solar panels. “But the developers are mostly N.C. companies,” Olsen says. “We have created a domestic solar industry, keeping jobs here and growing jobs here.”
Strata Solar's Wilhelm claims some of the credit for Schletter, which supplies the company with racks and moved to the state, in part, to service Strata Solar's growing construction plans.
A key to Strata's success has been to cut construction costs by standardizing its projects. That reduces design costs, allows economies of scale in purchases and makes training the work force – a key consideration in a young industry – easier and faster.
And it attracts vendors that can rely on Strata as a steady customer.
Wilhelm notes an aluminum-extrusion company is considering a plant in the state to serve Schletter, adding another layer to the growing supply chain keyed to the N.C. solar industry.
Wilhelm and Olsen are part of a rising cadre of developers across the state. They are working on large, utility-scale projects that would have been hard to imagine just five years ago.
Huntersville's SunEnergy1 remains an active player, particularly in the eastern part of the state. There it's building a project that could generate more than 16 megawatts. The company also is building a project for Duke Energy Renewables – an unregulated subsidiary of Duke Energy Corp. – that will be at least 12.5 megawatts and could grow to twice that capacity.
But increasingly, the state is attracting attention from outside developers as well. The N.C. Sustainable Energy Association lists all solar projects – built or proposed – in the state. Strata leads the pack by a large margin. But three of the next four developers are from out of state – Arizona, Florida and California, respectively. O2Energies, SunEnergy1 and Charlotte's Armand Energy Solutions also rank in the top 10.
Donna Raubichaud dealt with developing renewable-energy projects for the unregulated and regulated sides of Duke's business. She took a buyout in the company's merger with Progress Energy Inc. and set up QF Solutions in Charlotte. The company assists out-of-state developers on N.C. projects.
“At Duke, I was in a position to see how things could grow in the state,” she says. “I have talked to half a dozen companies from outside the state who are interested in coming in. They're looking at multiple projects adding up to 100 megawatts or more.”
Tom Hunton, chief executive at American Capital Energy in Boston, says his company is eyeing several projects in North Carolina, and is working with Shawn LeMond of Davidson's Sustainable Energy Community Development Co. Some projects could be announced in coming months, Hunton says.
But after that, Hunton is likely to curb his activity until he sees what the legislature does with renewables and how regulators rule on the avoided cost.
Raubichaud gets the sense that fear of adverse decisions by the legislature and commission already have deterred some projects by outside developers.
“Some of them have said they want to see how the avoided-cost thing plays out,” she says. “The pending decisions could slow things down for at least a couple of years.”
Wilhelm says it makes no sense for the legislature to attack the tax credit at a time when his industry has been creating jobs and attracting manufacturers to North Carolina.
“The state-tax credit is a big issue,” he says. “That could really hurt the industry.”
LeMond works with in-state and out-of-state companies to direct solar projects to economically distressed N.C. counties. He says killing the credit would prove to be an “elimination event” for many companies unless the legislature offers some offsetting benefit. He's part of a group started by Mike Whitson of Paradigm Consulting Group that formed to lobby the legislature to protect tax credit.
Solar supporters also are working to ease the impact of a lower avoided-cost rate. Wilhelm notes the irony of reducing the rates utilities will pay power producers while utilities are raising their electric rates for customers.
Hunton says regulators should recognize solar power helps utilities cut the use of peak plants in the summer. “When the utilities are most stressed, solar produces the most power,” he says. Peak power costs more than production at other times of day. Hunton says the commission should consider setting an avoided cost for solar based on peak rates.
Raubichaud says the industry likely won't know the regulatory outcome for seven to nine months. The next legislative session will wrap up in mid-summer, and hearings on avoided costs won't start until February.
