Tax credit sunset could dim solar business prospects

Last year was a bright spot for solar energy with a boom in residential and commercial installations, but the industry's prospects may be dimmer for 2016 after a North Carolina tax credit reached its sunset with the new year.

The state's solar tax credit was the nation's most generous. Homeowners and businesses could write off up to 35 percent of the cost of a new solar panel installation when filing their state income tax returns.

“We saw a huge boom last year as people rushed to put on their installations," said Maggie Leslie of the WNC Green Building Council. " I think we’re all waiting to see what happens now, but business is probably going to slow down.”

While North Carolina lawmakers let the solar tax credit go dark, a 30 percent federal tax credit was extended in the budget deal worked out by the Republican-controlled Congress and the Democratic White House.

North Carolina has more solar power capacity than the rest of the Southeastern states combined, and ranks second in the nation behind California for pulling power from the sun. Statewide, 189 companies are in the solar business, but many of those companies might struggle this year if people install fewer solar energy panels.

“As a small solar company, we’re keeping our fingers crossed,” said Phelps Clarke of Sugar Hollow Solar. Clarke and his cousin, Doug Ager, have watched their Fairview company grow to 13 workers and they’re booked through February with installations.

The 35 percent increase in cost could be misleading, Clarke said. Many people were unable to take the full credit on their tax returns, while the declining price of solar components has offset the loss of the tax credit.

But credits aside, Clarke argues that solar is still a good long-term investment.

“We try to talk about the cost of doing nothing.” If a homeowner pays $100 in monthly power bills, that adds up to $60,000 over a 30-year mortgage. With residential systems typically running between $15,000 to $30,000, the homeowner could see substantial savings after only 10 years, he said.

After the solar rush

“We certainly remain optimistic, but it’s tricky now," said Erika Schneider, community outreach coordinator for Sundance Power Systems.  “There was a year-end rush that we had to scale up for."

Many homeowners and business owners pushed ahead with installations. Asheville Eye Associates hired Sundance in October to install panels for its 38,000-square foot facility off Sweeten Creek Road. The panels will generate about 20 percent of the practice’s electric demand.

“We wanted to supplement our heating and cooling system with a more environmentally viable option in an effort to reduce our fossil fuel consumption,” said Dr. Edward Isbey III. “The desire to “go green” and reduce greenhouse gas emissions and pollution led us to investigate renewable energy systems."

Economics was another factor in the practice’s decision to install solar panels. “The technology has developed to the point that it is a sound long-term investment due to increasing energy costs and PV technology becoming more accessible and affordable,” added Dr. Robert Wiggins Jr.

Sundance is also finishing up a 1 megawatt solar system for Catawba Community College in Statesville, just east of Asheville. “We’re seeing more educational institutions interested in solar,” Schneider said.

With the tax credits uncertain in North Carolina, Sundance has been expanding its business into South Carolina, which has kept a 25 percent tax credit for solar.

Duke Energy’s plans to modernize Western North Carolina’s grid system could still boost the area’s solar businesses, Schneider said. “They might be looking at energy efficiency and solar for the region and that could be a big shift.”

The great unknown

While a fledgling solar industry collapsed in the 1980s when the first federal tax credits were phased out, Schneider said the demand for alternative energy is more established. “The industry is strong enough to handle what we hope is just a bump in the road. In the short term, that leaves us with a great staff, but the great unknown is how to keep them busy.”

That uncertainty could have an effect on new buildings in Asheville’s red hot-housing market, said Realtor Mary Love, who specializes in green properties. "The bottom line about solar tax credits is that the majority of people will no longer be able to do solar. It will be too expensive. It will take this year to see if current homes with solar will increase in value. I think they will.”

North Carolina had started the energy tax credits around 2000 to make cleaner renewable energy like solar and wind more attractive financially, but only through the end of 2015. Gov. Pat McCrory and the state House had pushed for a two-year extension, but the N.C. Senate had no provision. The credits didn't make the final budget hammered out in negotiations and passed last summer.

In 2014, the tax credit for renewable energy claimed by the state’s businesses and residents totaled $126 million, but it generated $717 million in spending, according to the N.C. Department of Revenue.

Green advocates don’t buy the argument that government shouldn’t be subsidizing alternative energy, pointing to the many tax breaks that larger fossil fuel companies still enjoy, Leslie said. “I think letting the tax credits expire was premature. But solar is here to stay. It’s still a solid investment and people do see it as a tried and true product. It’s just not going to grow as fast.”

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The solar state of North Carolina

North Carolina has 189 solar companies, employing 5,600 people statewide, according to the Solar Energy Industries Association. In 2014, North Carolina ranked second in the nation, with 397 megawatts of solar energy added to generate power for homes, businesses and utilities. By the second quarter of 2015, the Tar Heel state saw another 76 megawatts installed, pulling power from the sun  - a 117 percent increase over the previous year.

  North Carolina has seen an estimated $2.6 billion in investment from alternative energy since 2007.

Last year was a bright spot for the solar industry with a boom in residential and commercial installations, but prospects may be dimmer for 2016 after a North Carolina tax credit reached its sunset with the New Year.