Solar Tax Credit Hooks Another Major Utility

The solar investment tax credit is turning out to be the bait the industry needs to keep money flowing in an economy running short on investors willing to fund renewable energy projects.

When the federal tax incentives package was passed last October, which included the solar investment tax credit, there was some hand wringing over whether the inclusion of utilities would wrest business from private solar producers. Under the new law, the 30 percent investment tax credit for solar energy properties was extended to utilities for the first time. Prior to its passage, utilities were required to buy solar power from third-party developers.

Pacific Gas & Electric this week joined a growing list of major utilities to announce large-scale solar power projects. The utility giant, encouraged by the 30 percent tax credit, has plans to spend $1.4 billion over the next five years to install 250 megawatts of solar photovoltaic power in California. PG&E will contract with private solar developers for another 250 megawatts. Those solar projects will be built and owned by private developers in projects ranging from 1 megawatt to 20 megawatts in size.

The PG&E announcement follows two others this month from major utilities including a plan between New Jersey-based utility NRG and eSolar to build 500 megawatts of generation, and another between Southern California Edison and BrightSource to add 1,300 megawatts of solar power.

“We expect a number of other major announcements throughout the year,” Julia Hamm, executive director of Solar Electric Power Association told me in an interview. “I think utilities are giving this serious consideration now that they can access the tax credit.”

California’s renewable energy policies, which requires utilities to generate 20 percent of its energy from renewables by 2010, have driven much of the recent activity.

Look for more utility-driven projects in states like California with progressive and sweeping renewable energy policies which place strict standards on utilities. “Really, we’ll probably see projects all over the place,” Hamm said. “But I’d maybe watch states like Florida, where we’ve seen a lot of activity lately or in New Jersey.”

PG&E’s project is unique in part because the utility will build 250 megawatts on its own. The other projects to date are being built by solar companies, so this is a bit of a departure from tradition. The tax credit has made it affordable for utilities to develop their own solar facilities and it’s going to help us try and grow the market, PG&E spokesman Jonathan Marshall told me in an interview.

PG&E, sitting on considerably more cash than independent solar producers, might even consider becoming a third-party lender for some of the privately-built projects, Marshall said.

Marshall noted that even without a lending program, PG&E’s financial security will likely attract the independent producers, who are suffering from a shrinking pool of investors. “If they sign a contract they know the money will be there,” he said. The utility already has fielded some calls from interested companies since Tuesday’s announcement, Marshall said.

Concerns still exist in solar industry that utilities, who can now access the tax credit, will take business away from independent producers, Hamm said. But she noted there appears to be some softening in their stance.

“The economic situation is changing opinions of solar companies,” she said. “We can’t meet the demand out there. And the industry is so young, there’s so much potential and there’s still plenty to go around for everyone.”