CAUTION: If you adhere to the adage, “Don’t ask a question you don’t know the answer to,” read on at your own risk.
Our state and local governments are challenged every day with the demands of delivering public services efficiently while making public investments necessary for long-term, lucrative economic development.
In an ideal world, objective experts provide our policymakers with data-based cost benefit analyses they use to determine if and how incentives and subsidies deliver widespread, positive outcomes for individuals and businesses. In the real world, bias and emotions interject as different alliances petition for the same scarce public resources.
Whatever your personal view of solar tax incentives, would you like to know their true, real-life impacts on your state and local jobs, tax revenues, economic well-being, electricity rates, and of course, the climate?
North Carolina may have your answer. Let’s start with a snapshot of the state’s solar market today (Sources: U.S. Solar Market Insight, The Solar Foundation, and EPA U.S. Greenhouse Gas Equivalencies Calculator):
- 2nd highest state for solar PV installation capacity with 397MW installed in 2014(2nd only to California)
- 11th highest number of solar jobs per capita, up from #25 in 20132
- +2,500 solar jobs in 2014 to total over 5,600
- 177 solar companies at work throughout the value chain
- 1,011MW of solar energy currently installed, ranking the state 4th in installed solar capacity
- $652 million invested in solar installations in 2014
- Enough solar energy installed in the state to power 110,000 homes or offset carbon emissions from 749 million pounds of coal burned
This solar prosperity evolved after the state’s policy initiatives including a Renewable Portfolio Standard (RPS) target of 12.50% by 2021, a 35% tax credit through 2015, and standard-offer PPA contract from the utilities at a fixed rate of approximately equaling about $0.068/kWh for up to 15 years for projects up to 5MW (AC).
So, here’s the question: What happens to North Carolina’s solar industry and the state’s economic well-being without these policy tools?
The General Assembly is thinking about this question right now. In fact, the House has already passed House Bill 332 that would: 1) halt North Carolina’s RPS at six percent, scaling its original commitment back by more than half; and 2) reduce the current threshold for Qualifying Facilities eligible for the standard-offer PPA program from 5MW down to 100kW. Now, the Senate is doing their analysis.
Does it make sense to pull the plug half way through a policy initiative that has slingshot North Carolina into national leadership for solar capacity and jobs? What if North Carolina’s policymakers did what many businesses do to uncover economic outcomes of two possible courses of action? An A/B split, or randomized experiment, is a common, proven method to test two hypotheses over a specific period of time. A population is randomly divided into two groups where one is the control group, maintaining the existing offer, and the other group receives a test offer.
CAVEAT: The A/B test idea is a hypothetical, folks. It’s meant to elicit ideas about how to test how the true, real-life upside potential and downside risks shake out in the public interest.
North Carolina is ripe for an A/B test. The state could be randomly divided into two groups of counties, where, for one year, one group of counties – Group A – keeps all incentives as they are, and the other group of counties – Group B – operates without the 35% tax credit, and under the scaled back to proposed House Bill 332 levels.
At the end of the year, counties could report the annual changes in solar jobs, solar investments in dollars and megawatts, solar-related tax revenues, electricity rates, and other key indicators to determine if and how the incentives benefit the people and businesses of North Carolina. If the A/B split were to happen, which group would you rather be in?
SIDE NOTE: We ran a 100kW project in North Carolina through our proven financial model to see if it could pencil should House Bill 332 pass and cap Qualifying Facilities at that size. We plugged in several scenarios of build costs, PPA rates, and other transaction inputs. Each time, it broke the model – meaning there was no cost of capital that can make this size transaction work. The implications of this finding are significant: our investors would have no choice but to seek investments in other states.
ABOUT SOL SYSTEMS
Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for over 200MW of distributed generation solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management. For more information, please visit www.solsystems.com.