Page 7 fedgazette NINTH DISTRICT FEATURE JANUARY 2012

Incentives promote a boom-and-bust pattern of development—a rush to install systems when incentive dollars are available, followed by a period of retrenchment when support fades. This phenomenon, known in the industry as the “solar-coaster,” is particularly evident in the market’s response to rebate programs.

Solar forecast: Sunny with a chance of rain Solar-electric installs have surged in the district, but the industry remains dependent on subsidies

By PHIL DAVIES Senior Writer

In 2008, general contractor Jim Davis saw an opportunity in the shining new world of photovoltaics—generating electric- ity from the sun’s rays. Increasing numbers of homeowners and businesses were interested in the technology as a way to produce their own power, and generous government incentives defrayed the high cost of solar-electric systems. Davis and a partner founded Synergized Solar, a one-stop shop for professional installers of solar photovoltaic systems. The River Falls, Wis., wholesaler sells solar PV systems that include everything from silicon panels to motorized racks that follow the sun to wiring that ties the systems into the electric grid. Synergized has sold hundreds of systems for both commercial and residential projects to installers in , Minnesota and other Midwestern states. But today the company’s prospects don’t look as bright. Competition from national solar PV wholesalers in a grow- ing but still very small equipment market has cut into sales; last fall, 2011 revenues were on pace to fall below the $2 million the firm took in the previous year. In addition, cuts to a state rebate program in Wisconsin brought equipment orders from commercial installers in that state “to a screeching halt,” said Davis, the company’s chief operating officer. He isn’t sure whether the firm will turn a profit this year. “We teeter between break-even and

being in the red every single day,” he said. : EDEL RODRIGUEZ ILLUSTRATION

Continued on page 8 Page 8 fedgazette NINTH DISTRICT FEATURE JANUARY 2012

Cuts to a state rebate program in Wisconsin brought equipment orders from commercial installers in that state “to a screeching halt,” said Jim Davis, Synergized Solar’s chief operating officer.

Solar from page 7

Synergized’s experience in the solar- nected PV systems were installed in ligible solar PV development; installa- district state requires special training electric market illustrates both the 2010, a 45 percent increase over the tions over the past decade have been for PV technicians.) Many of these promise and the frailties of this nascent number installed the year before, too few to be tracked by government installers are electricians who jumped industry. On the one hand, producing according to the Interstate Renewable agencies and renewable-energy organi- into the solar market after housing con- power from the sun is a growing enter- Energy Council (IREC), a nonprofit zations. struction crashed at the start of the prise nationwide and in some parts of group that tracks renewable-energy Lower installation costs have con- recession, said Davis of Synergized the Ninth District. Both Minnesota and development. New systems totaled tributed to the overall increase in solar Solar. Wisconsin have seen big year-over-year almost 900 megawatts (MW)—double PV activity. Nationwide, average installa- Synergized itself made that leap—ini- increases in installations and capacity the generating capacity added in 2009. tion prices for PV systems fell by about tially into installer training, then into since the mid-2000s. Some industry analysts were expecting 17 percent from 2009 to 2010 and con- wholesaling. Today the four-employee A sharp drop in the price of solar annual installed capacity to double tinue to fall, according to a recent company faces stiff competition from panels over the past two years has again last year. report by the Lawrence Berkeley much larger distributors drawn to the helped to make solar-electric systems Belying the common misconception National Laboratory. In Minnesota, the growing solar market in Minnesota and more affordable, which creates oppor- that cold places lack solar potential, the Commerce Department found that the western Wisconsin. DC Power Systems, a tunities for installers, vendors such as sun shines as brightly in the district as it average cost of PV systems dropped large solar distributor based in Synergized Solar and local PV system does in many warmer parts of the coun- from $10 per installed watt in 2008 to California, opened a sales office in the manufacturers. try. Montana and the Dakotas receive under $8 in 2010—a $10,000 saving on Twin Cities last year. On the other hand, for all this about the same amount of annual solar a 5 kilowatt (kW) system. Most solar PV systems installed in the progress, the future of solar PV in the radiation as Florida and Georgia, Rapidly falling prices for PV mod- district are made elsewhere—China is a district is somewhat clouded. Despite a according to the National Renewable ules, the panels that make up the heart major exporter of inexpensive PV mod- high rate of growth, total solar-electric Energy Laboratory. So there’s plenty of of a solar array, are a major driver of ules—but two PV panel manufacturers capacity in the region is minuscule, pro- raw solar energy in the region for PV cost reductions. The price of polycrys- have set up shop in Minnesota. Silicon ducing only enough electricity to power systems to tap into. (Sunlight can also talline silicon, the raw material used to Energy, a solar PV manufacturer based a couple of thousand homes. Though be used to heat water for washing or for make the most common type of solar in Washington state, began producing system prices have fallen, the technolo- space heating; this is a different tech- panel, plummeted from 2009 to 2010 rugged, weather-resistant solar panels at gy still can’t produce electricity as effi- nology called solar thermal.) because of slack global demand during a new factory on Minnesota’s Iron ciently as alternative sources of power Since 2008, installations and capacity the recession and ramped-up produc- Range last August. in the such as coal, natural gas and wind. The have surged in the eastern part of the tion before and after the downturn. Twin Cities has developed flat-roof PV industry has long depended on govern- district, which has seen modest but (Montana is a major producer.) Larger- modules for commercial applications ment subsidies—tax breaks, grants and increasing solar PV development over scale, more efficient manufacturing has that produce up to 50 percent more utility rebates—for sales. Where solar the past 10 years (see Charts 1 and 2). also helped to lower PV module costs. electricity than solar panels of compara- incentives are weak, very little solar In Minnesota, the state Department of “The panel price decreases that ble size. Since its founding three years development has occurred. And when Commerce has estimated that from we’ve seen have been pretty dramatic ago, the company has expanded its pay- strong incentive programs are put on 2009 to 2010, new installations more over the last couple of years,” said Rip roll to 70 employees and raised $11 mil- hold, revenues and investment falter. than tripled to about 250, and added Hamilton of Solar Plexus, an installer of lion in capital. Arne Kildegaard, an economics pro- capacity rose almost as fast, bringing solar PV and other renewable-energy Other district firms involved in solar fessor at the University of Minnesota, total capacity to over 4 MW. systems in Missoula, Mont. He says that markets supply components and fabri- Morris who has researched renewable- In Wisconsin, annual installations dropping installation costs helped blunt cation tools to PV system manufacturers energy markets, calls solar PV an “infant more than doubled between 2008 and the impact of the recession, keeping in the United States and overseas. In industry” that won’t thrive until it can 2010, according to data on projects annual revenues steady by inducing cus- Minnesota, “many old-line manufactur- compete head to head with convention- receiving state rebates. Almost 60 per- tomers who would have otherwise ers … have looked at solar and said, ‘We al forms of power. cent of the 4.6 MW capacity increase in delayed projects to go ahead with can play in this market by making some Achieving “grid parity” will be a chal- the state over that period came from installs. fairly modest investments,’ and they’re lenge in a region with relatively low commercial projects—panels mounted doing it,” said Lynn Hinkle, policy electricity prices. And in Wisconsin and atop warehouses, retail outlets and Jumping into solar director of the Minnesota Solar Energy other district states, solar incentives may other business establishments. (These Industries Association (MnSEIA), a figures exclude projects that didn’t Rising demand for solar PV systems has not last long enough for the industry to trade group for solar manufacturers receive rebates, but such installations swelled the ranks of installers in some and suppliers. reach that goal; some policymakers are believed to be minimal.) district states and created opportunities Northfield Automation Systems in have started to push back against incen- In Montana, solar PV growth has for distributors and manufacturers of Northfield, Minn., a developer of spe- tives for solar PV and other forms of been more measured over the years— solar systems and components. cialized machinery for manufacturers renewable energy. about 1.5 MW of generating capacity The North American Board of of thin materials used in the electronics has come online since 2004—but 2010 Certified Energy Practitioners runs a industry, has carved out a profitable Here comes the sun was a bumper year for installations, certification program for installers in niche in the thin-film PV industry—the The Great Recession dampened solar according to NorthWestern Energy data renewable-energy fields. In 2008, fabrication of panels from thin ribbons PV development nationwide. But since on grants awarded to solar PV installers. Minnesota had only 13 NABCEP- of nonsilicon materials such as gallium 2009, the industry has been on a tear; Thirteen projects—a 50 percent approved solar PV installers; as of and selenium. Darin Stotz, director of in the nation and in certain district increase over the previous year— September 2011, there were 60. Over sales and marketing, said via email that states, installations and capacity have received funding, adding about half a the same period, the number certified sales to solar PV manufacturers have grown faster than at any time during megawatt in capacity to the grid. in Montana has more than doubled, to risen rapidly since 2005; today solar- the past decade. North and South Dakota, in contrast 21. (The number of uncertified related sales account for about 35 per- Nationwide, over 50,000 grid-con- to the rest of the district, have seen neg- installers in these states is unknown; no cent of company revenue. Page 9 fedgazette NINTH DISTRICT FEATURE JANUARY 2012

Achieving “grid parity” will be a challenge in a region with relatively low electricity prices. And in Wisconsin and other district states, solar incentives may not last long enough for the industry to reach that goal; some policymakers have started to push back against incentives for solar PV and other forms of renewable energy.

Rising in Wisconsin ... and in Minnesota

400 4 300 3

350 3.5 250 2.5 300 3 Solar PV installs Solar PV capacity Capacity (MW) Capacity (MW) Solar PV installs Solar PV capacity 200 2 250 2.5

200 2 150 1.5

150 1.5 100 1 Number of Installs Number of Installs 100 1 50 0.5 50 5

0 0 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2002* 2003 2004 2005 2006 2007 2008 2009 2010 2011 (through July 31) *Includes all previous installs (through July 31) Source: Wisconsin Focus on Energy program Source: Division of Energy Resources, Minnesota Department of Commerce

Juiced by incentives pared with the national average. In ple, has exempted the value of solar vision—a significant fillip to commer- Minneapolis, the cost of electricity pro- electric systems from property tax since cial installations, analysts say—was set to The solar PV industry may have made duced by a typical residential system 1992. expire last December. strides in recent years, but its fortunes ranges from 19 to 24 cents per kilowatt The most important state-level incen- Minnesota solar PV installs got an are inextricably tied to government sub- hour (kWh), according to local tives are rebates on installed systems. extra push in the spring of 2010, when sidies. That’s because current PV tech- installers. That’s about twice the aver- Rebate programs largely or entirely the Legislature enacted a state rebate nology is an expensive and inefficient age price charged by utilities in every funded by utility ratepayers spur PV for projects using solar panels manufac- way to generate electricity. district state, according to the U.S. sales by giving consumers cash back for tured or assembled in the state. When An average residential PV system Energy Information Administration. every watt installed. “In the solar world, combined with Solar Rewards, the with a capacity of 5 kW can cost over Solar PV isn’t even competitive with rebates drive the business,” Davis said. “Minnesota Bonus” reimburses Xcel $35,000 to install. And those expensive other renewable-energy options in the Through the state of Wisconsin’s 10- Energy customers $5 per watt—more solar panels convert only about 10 to 20 district. State renewable portfolio stan- year-old Focus on Energy program, than double the incentive available percent of incoming solar radiation dards that require utilities to obtain a homeowners (but not businesses, as of under a previous state rebate program. into electricity (in comparison, coal- minimum percentage of power from July) can claim up to $11,250 in rebates Funded by Xcel ratepayers, the fired power plants harness about one- renewable sources (see the July 2007 for small PV systems. In Minnesota, state Minnesota Bonus is slated to provide third of the energy trapped in fossil fedgazette) have done little to foster solar government and several electric utilities $19 million in rebates through 2015. fuel). Despite recent drops in system PV development because most utilities have offered solar PV rebates since the prices, the “levelized cost” of solar prefer more cost-efficient wind power: early 2000s. One of the biggest rebate All aboard the power—the price of electricity pro- Electricity generated by new, large wind programs is Xcel Energy’s Solar duced by a PV system over its 20- to 25- farms costs about the same as that pro- Rewards, which reimburses customers “solar-coaster” year operating life—still exceeds the duced by natural-gas plants. $2.25 per installed watt for systems up to Incentives promote a boom-and-bust retail price of electricity anywhere in Both federal and state financial 40 kW. NorthWestern Energy in pattern of development—a rush to the country. incentives are necessary to make solar Montana also has a rebate-like grant install systems when incentive dollars The high cost of solar-electric power PV cost competitive. At the federal level, program for solar PV, although it isn’t are available, followed by a period of has made the industry dependent on purchasers of solar-electric systems are as generous as those offered in retrenchment when support fades. This public subsidies ever since PV panels eligible for 30 percent tax credits Minnesota and Wisconsin. Solar rebates phenomenon, known in the industry as became commercially available in the intended to promote the use of renew- are unavailable in the Dakotas—a big the “solar-coaster,” is particularly evi- 1970s. “If you take away all subsidies able energy—the Business Energy reason that neither state has much PV dent in the market’s response to rebate from solar, then solar generally speak- Investment Tax Credit for firms and a activity. New or enhanced government programs. Funds allocated each year for ing is going to be more expensive than personal tax credit for homeowners. incentives are responsible for much of state or utility rebates often run out competing technologies,” said Shayle The states with the most photovoltaic the spurt in solar development over the after a few months, slashing demand for Kann, managing director of solar capacity aren’t necessarily the sunniest, past three years nationally and in some PV systems and crimping the budgets of research for Boston-based GTM but those offering the richest incentives district states. Federal economic stimu- installers and other solar-related busi- Research. that can be combined with federal sub- lus legislation allowed businesses to nesses. The economics of unsubsidized solar sidies to lower costs. Many state incen- claim bonus tax depreciation for solar- That’s what happened in Minnesota PV are even harsher in district states tives for solar and other renewable- electric installations and gave firms the last August when applications to Xcel’s because of somewhat higher levelized energy systems have been in place for option of taking a cash grant in lieu of Solar Rewards program exhausted the costs and lower electricity rates com- years; the state of Minnesota, for exam- the investment tax credit. The last pro- $4.6 million budget for 2011 rebates. Continued on page 10 Page 10 fedgazette NINTH DISTRICT FEATURE JANUARY 2012

Lynn Hinkle of MnSEIA echoes most market analysts in observing that the livelihoods of installers, manufacturers and other solar-related firms won’t be secure until the solar-coaster comes to rest. “We’re not looking for endless incentives,” he said. “The long-term vision is to let the market work.”

Solar from page 9

Businesses and homeowners quit order- Energy rebates for businesses are gone costs or “negative externalities” that as California, Nevada and Hawaii, are ing systems, and wholesalers like for good. In 2010, the Legislature cut aren’t accounted for on utility bills. drawing closer to that point. The U.S. Synergized Solar saw equipment sales to the program’s budget, and a new man- It’s harder to argue for public subsi- Department of Energy predicts that in installers taper off in the fall. “When the agement firm appointed by Gov. Scott dies as an economic development tool, some parts of the country, solar PV sup- rebates run out, nobody calls, because Walker’s administration is considering as industry advocates such as MnSEIA ported only by federal incentives will be nobody’s doing projects,” Davis said. reallocating funds to other types of proj- have done, because the job-generating cost competitive by 2015. “Installers are waiting for the rebate to ects such as energy conservation. Last capability of renewable-energy tech- But getting anywhere near grid pari- reload.” Solar Rewards was slated to fall, only home systems under 6 kW nologies is often overstated (see the ty is likely to take much longer in dis- receive another round of funding in were eligible for awards through the October 2010 fedgazette). And, regard- trict states because of the yawning gap January. program, and there was no date set for less of how many jobs subsidies help cre- between the cost of solar PV and aver- Uncertainty caused by the ebb and reinstating funding for commercial or ate, they distort markets by influencing age electricity rates. To break through flow of incentives threatens sustained larger residential projects. the location and investment decision of the cost barrier, district solar PV systems growth in the solar PV industry, said Last year, the Minnesota Legislature businesses. Silicon Energy President must become even cheaper to install Kildegaard of the University of Minnesota imposed a moratorium on Xcel grants Gary Shaver has said that the company and more adept at harnessing the sun’s Morris. “We saw the same thing happen for developing renewable energy proj- likely would have built in another state energy. New, developing technologies in the wind industry. The renewal or ects; new grants are on hold at least if not for the Minnesota Bonus rebate that may further improve efficiency or lack thereof of federal incentives has until July 1. And in Montana, Republican ($5.1 million in loans from the Iron lower costs include thin-film panels and caused a seesaw pattern in production, lawmakers in 2011 proposed charging Range Resources & Rehabilitation plastic PV—flexible photovoltaic mate- and that’s murder on the manufactur- owners of solar arrays and other small Board helped bring the firm to the city rials that can be integrated into transit ing supply chain, and it’s not conducive generating plants additional fees for of Mountain Iron). shelters, shade canopies and other to investment.” linking their systems to the electric grid. Time will tell how the investment structures. There’s also growing uncertainty pans out, both for Silicon Energy and Hinkle of MnSEIA echoes most mar- about whether incentives for solar PV the local economy. The enthusiasm of ket analysts in observing that the liveli- will continue at their current level. Solar sans subsidies? economic development officials for hoods of installers, manufacturers and Federal tax credits seem secure for Rebates, tax breaks and grants for solar solar manufacturing may be misplaced; other solar-related firms won’t be now, but at the state level, subsidies power raise the same economic and several U.S. solar PV manufacturers secure until the solar-coaster comes to for renewable-energy development public-policy issues that swirl around filed for bankruptcy last summer, large- rest. “We’re not looking for endless have come under increasing scrutiny. incentives for wind power (see the ly due to competition from Chinese incentives,” he said. “The long-term Around the country and in some dis- November 2005 fedgazette). Government panel makers. vision is to let the market work.” f trict states, policymakers have pared support for solar PV development may For solar PV to establish more than a back or proposed scrapping incentives be justified to promote the consump- token presence in electricity markets, it for solar and other forms of renewable tion of “clean” electricity as a substitute must achieve grid parity—producing energy. for power derived from fossil fuels. power as cheaply from the sun as from Davis and solar installers he serves in Burning coal, natural gas or oil can other sources, sans subsidies. Sunny western Wisconsin worry that Focus on cause air and water pollution—societal states with high electricity prices, such

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