So the fiscal cliff drama has resolved itself temporarily, with both solar and wind incentives living on for another year…
In the case of wind, Congress even enhanced the incentive, making the industry’s requested language change, so a wind system need only be “in construction” phase, not “fully commissioned” by end of 2013. Since large wind turbine projects take 18-24 months to plan, this will provide some relief, but likely only for project developers who were ready to pull the trigger ordering turbines by Q3 of this year.
In the case of solar, Congress punted the ball down the field for two months on 1603 (cash instead of tax credit) and gave a full year extension for the bonus depreciation (MACRS) tax incentive.
It’s funny to think how just a month ago, with the cliff looming, those of us in the midst of constructing projects were scrambling.
Here in New England, Varian Semiconductor had completed it’s own $8 million turbine in Gloucester, commissioning its system in early December. But down the road a private developer for an $11 million two turbine project was racing to get the systems commissioned by year-end. In the end their installation was hampered by the interconnection process with National Grid. Millions of dollars were on the line as the ball dropped on Times Square. You can bet the fiscal cliff drama had a different meaning for that management team.
At Groom Energy our team was on a rooftop getting our final utility signoff for a solar system on New Year’s Eve, not knowing if the solar incentives would be extended.
Unfortunately we’ve now become trained to expect that government and utility incentive programs will start and stop with no warning.
Just this week Arizona, the sunniest state in the country, suddenly killed it’s developing solar industry. With one quick decision they slashed all the incentives that had existing for some time. Businesses had for years been hiring based on the availability of this program, so the effect of a complete cut will be severe to say the least.
As the soon-to-be unemployed Arizona solar workers start the trek to California in search of new jobs, there is a much bigger lesson for any politician defining an industry focused support program.
Incentive programs need time to ramp up AND ramp down.
While there will be contentious debate anytime a government funded incentive is considered – once the decision is made, policy makers must design them for the long term. This means they should recognize that companies don’t hire in a day, and customers don’t make purchasing decisions the next. Programs take time to change behavior.
But when a program ends abruptly the reverse is true – customers do stop buying immediately – and businesses shut down faster than you can say shovel-ready stimulus.
So instead of basing a program’s end on the whims of future policy makers, the original authors should define price ratchets which step down over time. The ratchets should be based on real economic metrics – i.e. the number of MWs installed, the payback of a base system or the market price of a commodity. With this signaling businesses and customers can make rational decisions during the life of the program. And policy makers can show constituents that the funding will not be required in perpetuity.
Perhaps most importantly – employees can feel better that the day after the next election a newly elected politician won’t decide whether or not they have a job.
