Companies are building solar farms to sell power to utilities in the U.S. as fast as possible in order to beat a potential drop in an important U.S. federal incentive, according to a new report from research firm IHC. Called the federal investment tax credit, the subsidy offers solar farm owners a 30 percent tax credit, and it could drop down to a 10 percent tax credit starting in 2017.
The tax credit was first implemented in 2006 and was meant to help the solar industry compete with other cheaper power sources (like coal and natural gas) in the early days of the solar industry. The tax credit was never meant to be permanent and was planned to be lowered, or eliminated, as solar technology became cheaper.
But the subsidy has been repeatedly extended at the last minute, causing a frenetic boom-and-bust cycle for solar project developers. The U.S. wind industry has faced the same ups and downs with the same subsidy. Companies rush to get solar and wind farms built by the deadline, don’t create a pipeline for solar and wind projects after the deadline, and then are stuck waiting to see if the incentive will be extended again.
The boom part of the cycle this time around has skewed the market and created a flood of more modest solar projects in non-contentious areas. There are currently 32 gigawatts of solar farms, between the sizes of about twenty and a hundred megawatts in size, planned for the U.S. (many are in California) by the end of 2016, says IHS.
For comparison sake, one gigawatt is like one large natural gas plant. There are only around 20 gigawatts worth of solar farms currently installed in the entire U.S., according to the Solar Energy Industry Association (SEIA).
Some of the first utility-scale solar panel farms that were initially built in the U.S. were very large, like Topaz at 550 megawatts near San Luis Obispo in California (9 million solar panels spread across 10 miles). There are about a dozen of similarly-sized mega solar farms in various stages of construction in the U.S. Southwest.
But this current boom trend is for much smaller solar farms (20 to 100 megawatts) that can be built quickly, and mostly on land that isn’t sensitive to environmental concerns or which would otherwise face extended negotiations or long approval processes. This is partly a good thing because some of the mega solar farms faced lengthy delays, and smaller projects can be more flexible and accommodate land needs more easily.
But because there’s only so much land that meets this criteria, IHS says that there seems to be “a saturation of PV [photovoltaic] projects in certain areas.” Photovoltaic is the industry word for solar panels. Some of these projects could not be completed by the deadline, which could very well not be renewed this time around.
Most in the solar industry want, and say they need, the tax credit to keep the current solar farm boom going in the U.S. The solar industry saw a huge jump in the U.S. in 2014, installing over 6 gigawatts of solar panels, and accounting for about a third of all new electric generating capacity last year, according to SEIA. The industry now employs close to 175,000 workers, which is more than Google, Apple, Facebook and Twitter combined.
Not everyone thinks the recurring incentives are a good thing, though. Some solar execs are calling for an end to the subsidy to remove the boom-and-bust cycle for good. In that way, the solar industry would finally be moving closer to being a mainstream source of electricity in the U.S.
If the tax credit isn’t renewed there will likely be a drop in the solar industry in 2017, followed by an eventual recovery in the years after the transition.