Saving a federal tax credit that shaves 30 percent off the cost of new solar energy systems was so important to SolarCity CEO Lyndon Rive that he flew to Buffalo to join U.S. Sen. Charles E. Schumer at a news conference Tuesday to hail the five-year extension of a subsidy that he says will allow the industry to keep growing.
“It’s super important,” Rive said outside the sprawling solar panel factory that SolarCity is building in South Buffalo. “It certainly will mean that the solar industry will continue to grow from here.”
That growth was very much in doubt until Congress agreed last week to extend the investment tax credit that was set to expire at the end of next year. Solar industry supporters had predicted that, without the tax credit, solar installations would plummet in 2017 and many businesses within the industry would shut down because unsubsidized solar energy still costs more than utility-generated electricity in most of the country.
Rive said the extension, which keeps the tax credit at 30 percent through 2019 and then drops it to 26 percent in 2020, 21 percent in 2021 and 10 percent for commercial projects after 2022, will give the solar energy industry much-needed time to drive down its costs so it can better compete with conventional sources of electricity, generated by coal, natural gas or nuclear power.
“We now have seven years of tax breaks,” Schumer said. “That’s going to be a huge incentive for people to buy solar.”
It also gives support to an industry that can help reduce the greenhouse gas emissions that are causing global warming.
“It’s critical that we get off fossil fuel,” Rive said outside the 1 million-square-foot factory that will be able to make as many as 10,000 solar panels each day once it reaches full production in mid-2017. The plant, being built with $750 million in state subsidies, is expected to employ 1,460 people.
“This clearly sends a message to the rest of the world that the United States takes climate change seriously,” said Rive, who attended the United Nations conference on climate change in Paris two weeks ago.
SolarCity in late October said it was scaling back its growth plans in anticipation of the expiration of the tax credit. Instead of growing by more than 80 percent a year, the company said it now expects to grow at about a 40 percent annual rate as it focuses more on structuring its business so that it generates more cash than it uses. SolarCity currently consumes about $70 million to $80 million in cash beyond what its business brings in each quarter, Rive said.
Rive said SolarCity isn’t backing away from its scaled-back growth target, although the pace of its future expansion likely will depend on how much growth its cash flow can support. And that industry growth is likely to be faster now that the tax credit has been extended.
Without the tax credit, Rive said SolarCity would have been able to survive, since its costs are low enough in states like California and parts of downstate New York that solar energy can be competitive with utility-generated power.
But many other solar companies would not have been able to compete and likely would have gone out of business, setting the solar industry back at a time when awareness is rising about the need to reduce greenhouse gas emissions.
“We would have been one of the handful of companies left standing,” Rive said. “Most of the industry would have felt tremendous pain.”
“It would have worked, but it would have barely worked.”
Now, with the tax credit in place for another five years, the solar industry should be able to further reduce its costs and continue its rapid growth. While solar energy still accounts for less than 1 percent of all electricity generated in the United States, it was the biggest source of all new electric generating capacity installed last year.
“It’s not about a survival mode,” Rive said. “It’s about a transformation.”
The extension was part of a deal within federal tax legislation that allowed for the extension of the solar tax credit, in exchange for lifting a ban on crude oil exports that Republican lawmakers had been seeking. The deal also included provisions to allow consumers installing solar energy systems to collect the tax credit up front, rather than having to wait until the project was completed – a lucrative perk for commercial and utility-scale solar projects that can take months to complete, Schumer said.
The deal, Schumer said, is good for SolarCity’s manufacturing plans in Buffalo, and good for the solar industry as a whole.
“It cements our future as the solar manufacturing center of the United States, and it cements the position of solar energy as the top new energy source,” he said.