Solar is the fastest-growing source of energy in the country, and Vermont’s solar industry is growing dramatically. The solar industry is booming nationwide because of multibillion-dollar federal tax breaks, and developers have their eyes on Vermont because of its additional cash incentives.
In 2014, the state ranked at 22 out of 50 states for total solar capacity nationwide. Vermont’s industry employs about 1,500 people at 72 companies, and produces $76 million in output, making it the state with the most solar jobs per capita.
In just the past eight months, Vermont’s Public Service Board has approved 79 nonresidential solar projects across the state, including 11 commercial-scale installations. Last year, the board approved 138 nonresidential solar projects, including 23 commercial-scale installations.
Over the past 10 years, the total number of net-metered solar projects in Vermont has grown exponentially. The number and proposed size of commercial projects is also shooting up. The Public Service Department is now reacting to a handful of 20-megawatt commercial projects — which are 10 times larger than any of the existing projects in Vermont.
The growing size and amount of solar arrays is directly related to a 30 percent federal tax break for unlimited investments in solar projects. The tax breaks are designed to drive the nation away from fossil fuels, and supporters hope that solar energy use will help to combat climate change.
While state incentives pale in comparison, Vermont offers a tax structure that keeps solar developers rushing in, and a net-metering program that requires utilities to buy solar at a higher rate.
The federal government’s Business Investment Tax Credit, or ITC, which lets corporations write off 30 percent of construction costs, is set to drop to 10 percent at the end of 2016. That means if developers want to write off one-third of each solar project’s installation costs, they need to get their applications in as soon as possible and make sure their projects are built by Dec. 31, 2016.
The looming expiration date for the tax breaks has sparked a gold rush because developers know there is no guarantee that Congress will extend the federal Investment Tax Credit this year. U.S. Rep. Peter Welch, D-Vt., has signed on as a co-sponsor of a bill in the House that would extend the credit through 2022.
The plummeting cost of solar panels in the past decade is another contributing factor. The cheapest ones come from China, and while they’re slightly less efficient than the more expensive products from the U.S., Korea or Japan, developers can install inexpensive panels across a larger land area to produce the same amount of energy.
While solar arrays continue to sprout up across the Green Mountain State, the amount of energy from commercial and residential solar is rising, but in total remains only 2.3 percent of the energy portfolio of the state’s largest utility, Green Mountain Power. Canadian hydropower, in contrast, represents more than 40 percent.
Chris Recchia, commissioner of the Public Service Department, says that while the state offers incentives to solar developers, the Investment Tax Credit is the main driver of the nationwide solar boom.
“You’re going to see a lot of applications this year for construction next year because the thing has to be operational by Dec. 31 of next year to be eligible for tax credits,” Recchia says. “I think that’s probably the biggest interest in why we’re seeing those [solar projects] now.”
Sen. John Rodgers, D-Essex/Orleans, said subsidies on solar should end now that the industry has proven it can make money. Solar should be treated like any other business, he said, and developers should get the same level of subsidies as his masonry company, which is zero.
“The people who are putting up the projects are millionaires or corporations held by very wealthy people, and the tax dollars are paid by all of us,” Rodgers said. “These solar deals seem to be very lucrative for them, and it’s on the backs of the taxpayer and the ratepayer.”
Doug Tolles, a New Haven Selectboard member, also says the industry is dominated by people who are in it to make money. He opposes solar energy altogether, and his town has been at the forefront in land use debates.
“This is corporate welfare is all it is,” Tolles said. “It drives me crazy. The Legislature has changed the rules so that the solar industrial generating plants get tax breaks, and the towns that host them get screwed.”
Developers look for flat land near three-phase power infrastructure that gets virtually no shade. That’s what makes the South and the Midwest popular regions to install solar systems.
When developers come to Vermont, they usually steer clear of roof-mounted arrays that require expensive racking systems. Putting arrays in fields is more attractive because installation is cheaper and construction takes six weeks to three months.
“The solar boom is not equal across the country,” says Andrew Perchlik of the Public Service Department. “It’s a combination of federal policies and state policies. There are some other states where you can’t do net metering, for example.”
Vermont’s net-metering law, which passed in the 1990s and was updated in 2014, allows residents to build as much solar as they need and essentially sell unused energy to their utility company at a higher rate than what they pay for the energy they use. In exchange, they receive credits to lower future energy bills. Developers can build large net-metered projects up to 500 kilowatts and enter into contracts with institutions, such as schools, towns or businesses, which essentially invest in the project.
From 2004 to 2014, the Public Service Department gave cash incentives to Vermonters who wanted to install net-metered solar projects on their property. The department offered $2,500 per kilowatt in 2004; the number gradually decreased before disappearing at the end of 2014.
Vermont continues to offer solar developers a 7.2 percent personal income tax credit for construction costs. Piggy-backed on the federal government’s tax credit, the state tax break means solar developers can subtract up to 37.2 percent of the price of installing solar farms directly from their taxable income.
Vermont law says utilities like Green Mountain Power must pay 19 cents per kilowatt hour for energy from net-metered solar projects. In real terms, credits on a 150-kilowatt net-metered project add up to about $35,000 in revenue per year. Revenue on a 500-kilowatt net-metered project would be about $117,000 per year.
For commercial scale projects, those larger than 500 kilowatts, developers only get 11 cents per kilowatt hour. That’s an incentive for developers to build either 500-kilowatt net-metered projects or multi-megawatt commercial projects. In contrast, utilities could pay between 4 cents and 8 cents per kilowatt hour for hydropower.
“The savings to (utilities) is worth that (few) cents per kilowatt hour for renewable energy generation,” Recchia says, adding that it saves Green Mountain Power from having to buy energy from the rest of the Northeast electric grid.
The state has also set a special formula for the assessed value of nonresidential solar arrays. Property owners pay $4 per kilowatt directly to the state’s tax department, which deposits the money into the Education Fund.
In real terms, developers pay $600 per year in property taxes on a 150-kilowatt community solar farm sitting on roughly an acre of land or $8,000 for a 2-megawatt farm sitting on about 15 acres of land.
Enter SunCommon, the company building a grassroots effort to have solar on every home and place 150-kilowatt community arrays throughout the state. The company launched its community solar program in fall 2014, right when Public Service Department grants were drying up.
James Moore, the co-president of SunCommon, says four people started the company in 2012 with the idea that everyone should have access to clean energy. SunCommon has grown each year since. The money households pay for community solar goes right to the cost of construction, and the profits have been invested in the company, Moore said.
“We’re definitely still in that startup phase, but we effectively launched a new business by launching our community solar program,” he said. “I don’t know when we’re going to be out of startup mode.”
Emily McManamy, a spokesperson for SunCommon, said Vermonters rushed to buy solar through SunCommon when word got out that the Public Service Department grants were drying up at the end of 2014 and that the Investment Tax Credit could be gone by the end of 2016. More Vermonters than ever are signing up for SunCommon solar services, the company says.
“We welcome that federal money flowing into Vermont,” McManamy said of the federal tax breaks. “A big message to people now is there literally has never been a better time to get in on solar.”
SunCommon is expanding in Vermont because of its grassroots marketing approach. The company installed residential solar on 250 homes in 2012; on 450 homes in 2013; and 890 homes in 2014. The company expects to install solar on 1,100 homes in 2015.
SunCommon has 69 limited liability companies registered with the state under “Sun CSA” for 150-kilowatt community solar arrays. Ten have been connected to Vermont’s power grid. Each community project is designed to provide power for 30 households. SunCommon takes the federal tax credit for itself and gives Vermonters who buy shares in the solar farm a 7 percent discount on their electricity bills.
“Many Vermonters on fixed incomes, disability and Social Security are not able to benefit from federal tax incentives,” McManamy says, “so we set up the ownership structure for the arrays in a way that maximizes the ITC and other federal incentive programs.”
Only a small percentage of the sun that shines on solar arrays gets turned into energy, especially in a place like Vermont, which has long winters and frequent rainfall in the summer months.
To know how much energy a project produces in a year, physicists multiply the theoretical capacity of a project by the number of hours in a year (8,760) by the “capacity factor,” which measures the efficiency of the technology.
While the capacity factor for solar is 14 percent in Vermont, according to the U.S. Energy Information Administration, wind by comparison is 33 percent efficient, hydropower is 38 percent, geothermal is 70 percent, and nuclear energy is 90 percent.
Andrew Savage is the chief strategy officer for AllEarth Renewables, owned by renewable energy magnate David Blittersdorf. The company has built 12 megawatts worth of solar farms across the state. Another part of the company sells pole-mounting systems to other developers.
Savage, who is also on the board for the Solar Energy Industries Association, said his company builds solar projects under separate limited liability companies with “AllSun Solar” in the name. Once the projects are built, they seek an investor who will buy the project from them, take the 30 percent tax credit for themselves and manage the project in the long-term.
“They can own it for five years and sell it to someone else, or they can own it for 25 years and have it be a long-term annuity,” Savage said. “The payback period can be anywhere from 5 to 8 years. The investor is going to want to make somewhere between an 8 to a 12 percent return. If it’s lower, they might as well just put money in the stock market.”
Savage said the industry is benefiting from low interest lending rates, the declining price of solar panels and a growing consumer demand for solar.
“[Panels] sort of steadied out around 70 cents per watt, but they came down from about $4 per watt,” he said. “Solar is a pretty stable investment. The economics really are there.”
Savage said the expiration of the Investment Tax Credit would slow growth in the solar industry, but demand will remain because companies “can go to a customer and offer significant energy bill savings.”
“It is definitely going to cause some contraction,” he said. “It’s definitely going to cause a change in the business model, but it’s clear that the technology is sound, and the demand for solar is increasing.”
Gary Skulnik, director of marketing for groSolar, sees things differently. The 15-year-old company is based in White River Junction and has an office in Maryland.
In 2015, groSolar had two commercial projects in Rutland Town and Hartland approved by the Public Service Board. Rutland Town is now challenging the board’s decision to approve the 2,300-kilowatt array.
Skulnik says the federal tax breaks may make building solar worthwhile, but the array of cash incentives that Vermont offers, and a political environment that has made it possible to develop solar virtually anywhere in the state, makes Vermont a great place to be a solar developer.
“Vermont has some good land, some good sites, and it’s got a citizenry that for the most part is very supportive of switching to clean energy for a clean environment and to fight climate change,” Skulnik said. “It all helps, and it’s part of what makes Vermont attractive.”
“Of course it doesn’t have the solar coverage of Texas or Oklahoma, but it’s got enough [incentives] to make these profits worthwhile,” Skulnik said. “If [Texas and Oklahoma] had the incentives that Vermont had, people would be building like crazy there.”
Skulnik says his large-scale projects take his company about three months to build. He said if developers don’t start construction on new projects by Dec. 1, 2016, “you’re probably not going to make it in time” for federal tax breaks.
“It’s not going to be the end of the solar industry,” he said. “However, we do want an extension.”
The revenue from the energy, assuming the panels are 14 percent efficient, is between $270,000 and $297,000 a year for 20 years. The education property taxes for the structure, in addition to the 15 acres of land underneath, would be $8,800. The company could take a $2 million federal tax break or sell the project to an investor who wants to add clean energy to its asset portfolio.
The state aspires to get 90 percent of its energy from renewable sources by 2050. Most of the renewable energy Vermont uses now comes from hydropower because solar panels are comparatively less efficient and the energy is more expensive.
The Ethan Allen Institute, a conservative think tank, estimates that Vermont would need to install panels on 100,000 acres of land to meet 90 percent of its electric energy needs through solar.
At Green Mountain Power, which serves about three-quarters of Vermont households, 42 percent of the company’s energy portfolio comes from hydropower from Canada.
According to Kristin Carlson, spokesperson for Green Mountain Power, solar is currently 2.3 percent of Green Mountain Power’s energy portfolio, and about half of that number comes from commercial solar projects of 500 kilowatts or more. Green Mountain Power’s percentage of solar power the utility uses has increased from 0.5 percent in 2012, 0.8 percent in 2013 and 1.6 percent in 2014.
Forty-four percent of Green Mountain Power’s electricity is miscellaneous power from the New England grid. The company values solar because it produces the most electricity during summer days, lining up conveniently with when Vermonters are using air conditioners.
Residential solar, according to Carlson, reduces what the utility needs to buy from energy wholesalers. Green Mountain Power is now developing a mapping tool that would help the utility figure out which areas of Vermont need energy.
Green Mountain Power wants to develop a strategy for purchasing solar power. The utility has not yet had to reject energy from a solar developer.