Arizona Solar Tax Credit

Phoenix Business Journal

October 3, 2008
Patrick O'Grady

Arizona's solar and wind energy industries got a big boost from a bailout laden with tax incentives, one of which extends credits in those industries that could spur more growth.

The $700 billion bailout focused on Wall Street was amended with $150 billion in tax breaks, tax credit extensions and other items. Among them was an eight-year extension of the solar investment tax credit and a one-year extension of the wind energy production tax credit.

The solar tax credit may be the biggest boon for Arizona, after numerous bills through the summer saw its prospects dimming as the 30 percent credit was slated for a two-thirds cut if it was allowed to sunset on Dec. 31.

The passage means Arizona Public Service Co. can move forward with its plans for the Solana Generating Station, a 280-megawatt solar powered plant to be built near Gila Bend.

"We¹ve been confident that this legislation was going to get passed," said Jim McDonald, spokesman for APS.

The passage was needed so that APS's partner, Abengoa Solar S.A. of Spain, could get financing. McDonald said the tax credit was essential for Solana to move forward.

The legislation also may allow utilities such as APS and Salt River Project to construct their own solar power plants instead of relying on other companies to do the work as required by the current tax credit.

The eight-year window also would allow for the potential construction of multiple solar power plants, McDonald said.

Being able to have utilities and their partners build solar plants with a federal tax credit is a boon for Arizona, which enacted a renewable energy standard through the Arizona Corporation Commission in 2006. It requires utilities regulated by the state to have 15 percent of their power produced by renewable sources by 2025.

Officials at the Greater Phoenix Economic Council were pleased with the legislation's passage. The group has been putting a hard push on landing solar manufacturing jobs for the state and view the federal tax credit as another boost for the industry as a whole.

"Now that the uncertainty for solar industry projects in the U.S. has been eliminated, it is critical that Arizona act quickly to capture these opportunities to help diversify our economy and propel us as a solar leader," said Barry Broome, GPEC president and CEO.

The change already is affecting business for installers. Mark Holohan, president of solar installer Code-Electric in Tempe, has had some interest already on what the new numbers will be for large commercial projects.

"I just filed a 200 kilowatt reservation recently, now I have a customer asking me to show them the new numbers before the ink is dry," he said.

Two changes in the bill could greatly broaden solar's appeal. The first is a change that allows those who use the alternative minimum tax credit to apply for the solar credit. In the past, that was often a challenge and sometimes those who went that route found they couldn't get the solar credit, Holohan said.

The other is lifting the $2,000 cap a homeowner was limited to for installing solar systems. They also now get the full credit, Holohan said.

"It's a strong message of endorsement at the federal level that solar is the right thing to do," he said.

Sean Seitz, president of Scottsdale-based American Solar Electric LLC, also said the change for residential use could be a key to driving up demand for solar beyond large users.

"Today's historic vote in the U.S. Congress established the foundation of what will become the world's largest market for photovoltaic power systems," he said. "The expansion and eight-year extension of the federal tax credit for residential solar electric property is the cornerstone of this foundation. When combined with Arizona's existing incentives, the uncapped 30 percent federal tax credit creates an unprecedented opportunity to own a residential solar electric power system."

Spurring demand is key to driving the alternative energy industry, and had the credits dried up it could have put the technological innovation in the industry at a standstill, said Steven Zylstra, president and CEO of the Arizona Technology Council.

"This is great news," he said. "Without the solar tax credit extension, the demand side of the solar industry in Arizona would have been stifled. Lower demand translates into few customers for the technology producers, system installers and utilities."

Wind energy also got a boost with the extension of its production tax credit, which allows a 1.5 cent per kilowatt hour credit for wind power.

Although it was only extended through the end of 2009, it could move forward more as both presidential candidates, Sens. Barack Obama and John McCain, have made alternative energy a fixture of their campaigns.

"We are very pleased that Congress extended the Production Tax Credit for wind, enabling our industry to continue our rapid growth and U.S job creation," said TPI Composites CEO Steven Lockard. "In 2009, we hope the focus turns to providing long-term stable policy to support continued expansion of wind energy"

Scottsdale-based TPI manufactures blades for utility-grade wind turbines at facilities in the U.S., Mexico and China.