Retooling Incentives for Renewables

Our country’s effort to support renewable energy is still in its early stages of development and ripe for adjustment. The maturing of the renewable industry can positively affect job growth, technological innovation and increased efficiency, but there are a number of ways we can be doing those things, even within the umbrella of sustainability (smart grids, alternative transit infrastructure, electric cars, building systems,etc.) The real goal of governmental support for renewables should be getting more clean megawatts attached to the grid.  If that is the goal, then we should be retooling our system of incentives to make that goal a reality rather than dilute its effectiveness due to a lack of focus.

A large portion of the aid being given to renewable energy comes in the form of tax-based subsidies meant to promote the expansion of renewable energy through the grid by deferring the cost through tax savings. Though each state has a slightly different concoction of local incentives to compliment the over-arching 30% federal tax credit, the strategy on renewable subsidies is dancing between making them available to more consumers and allowing large-scale, concentrated capital to deploy watts of new capacity. The result is committing to neither. If the real goal is actually getting more clean power built, the structure of our tax-based credits may have to change.

Both federal and local governments should decide who are the best suitors for building new capacity and cater to them if we want to progress these industries forward. Either we should be making small scale installations available to the largest segment of consumers, or we should be bolstering the ability of corporate or utility interests to install larger scale farms of clean energy. I will use new solar power as an example.

For potential projects in New York City, a first glance at the assistance for solar power appears to be very strong. Starting with the 30% Federal Tax Incentive, the State of New York offers an Income Tax Credit of 25% of the system cost up to $5,000. The New York State Energy  Research and Development Authority (NYSERDA) adds a cash rebate of $1.75/watt on new installed systems. Finally, the City of New York offers a property tax abatement on 8.75% of the installed system cost per year for four years. Quite the combination of financial incentives. Some NYC residents can end up paying for a fraction of their solar panels.

As an architect, I am always in favor of utilizing on-site power generation where it makes sense on a new project. Our office is currently working for a client that manages a low-income housing complex who was thinking about pursuing photovoltaics in a large renovation project. With a combined four buildings, the complex represents a notable power load and the considerable height of the towers leaves them basking in the sun all day long. At first I was pretty excited, thinking this could be a great model project for a broader application to the diversity of New York’s neighborhoods.

However, it ended up taking all but a couple minutes to realize that aside from the local NYSERDA credit, this client would not gain anything from the bulk of incentives offered by the government. Why? They pay no taxes. Ironically, given the population of low-income citizens have a difficult time paying for life’s basic necessities, having their power bill eliminated in under a decade would constitute a considerable benefit. These people should arguably be getting the most taxpayer help. Instead they get the least.

This may be the extreme example, but it highlights the fact that our current system of consumer-grade subsidies may be misappropriating our tax dollars by giving the most to the smallest group of people who also need it the least. Given so many credits are tax related, the consumers with the highest tax rates (who have the largest incomes) will actually get the most tax payer dollars to pay for their personal solar systems. This strikes me as backwards and effectively causes our programs to target the upper class, which we all know is a relatively small portion of the country. This would be like having a Cash-for-Clunkers program that applied to the BMW 5-Series rather than the Ford Focus.

combined renewable energyIf our national goal is the expansion of renewables through the consumer marketplace then we should craft our incentives to give the most help to the largest consumer population. This could take the form of more cash-rebate programs to even the playing field or even reversing the tax-based incentive payouts so that higher tax brackets get the least tax payer help.

On the other hand, one could make the argument that targeting consumer level deployment is not efficient or cost effective and instead, we should be making it easier for corporations to construct utility scale farms of renewable energy. Larger companies certainly have access to more capital and debt to spend on new systems.

Companies are also installing loads on a scale multiples higher than a single family. These quantities makes economies of scale possible, likely lowering the price per watt that panels can be purchased and installed for. Each installation ends up being a notable contribution to the local grid that can be responded to and accommodated by demand rather than an endless series of piecemeal installations. Given the near certainty of perpetually rising power rates, more panels also means more savings over time for a system that can be amortized over decades as part of a company’s assets.

Unfortunately, outside of the federal tax credit many of the incentives we have come with caps that stop granting subsidies once a new array has reached a certain number of kilowatts or the total project cost has hit a given ceiling. Not only do credits like NYSERDA’s incentives have limits on their capacity, but Con Edison puts limits on how much they will allow a property to have, drawing the line at %110 of peak power load. This means that entities cannot make an investment to produce notably more than they need by taking advantage of these subsidized routes. If we are going to subsidize the systems and want to have more PVs in operation then we should be opening the flood gates to companies that are willing to invest the money.

As a colleague recently pointed out to me, one of the downfalls of this model is how money is spread (or in this case not) through local economies. If the market for solar panels was just between large companies who make solar panels and large companies who buy solar panels then there would be no local businesses in distribution, sales and installation. The money exchanging hands may indirectly trickle down to similar ends eventually, but there is something about taking renewable energy out of the realm of big business and having it be present on the human scale that strikes a chord with what sustainability is all about: a mantra and lifestyle which acknowledges that the actions of everyone contribute to the function of our society—not just large companies.

Regardless of which direction we go, our current model is lingering in the mediocrity of indecision. Our government’s lack of clear preference–in perhaps trying to please everyone–ends up ratcheting down the positive long term effects of the program. (The same can be said with the misguided doling out of High Speed Rail subsidies.) The sooner we focus on a clearer objective, the sooner we can have the combination of legislation, investment capital and taxpayer dollars producing more substantial results.

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