The solar industry in Connecticut and around the nation had been waiting years for what happened last Tuesday: The board of directors of the Clean Energy Finance and Investment Authority approved a new residential solar incentive program.
Then the solar folks saw the details.
Instead of a long-term plan to help jumpstart an industry that had been slowed, if not downright stalled, by unreliable funding, what they got was the first installment of a program: $7.5 million in incentives expected to last a year to a year-and-a-half.
Too short, industry leaders said, to lure back companies that had left the state, entice new ones to come in or to generate new business and jobs for the ones who stuck it out through lean times.
“It’s a Band-Aid approach,” said Mike Trahan, executive director of the trade group Solar Connecticut. “I think it’s a mistake, and it will have the opposite effect of what the legislators want it to be, which is certainty in the marketplace, job growth and a reduction in prices.”
Dan Esty, who as commissioner of the Department of Energy and Environmental Protection will make the final sign-off on the program — possibly in the next week — and also serves on the CEFIA board, said he understood the industry’s concerns after a history of start-stop financing that made it difficult to build or maintain companies.
But he said: “The test of success is not whether the solar guys are happy. The test is whether and how the board gets clean energy costs down in the state.”
Esty and other board members insisted that the intention was not to cut off the incentive program when the approved money runs out. What they did, in effect, was put in place something of a stop-gap program rather than wait another six or eight months for one that was more to their liking. The industry, the board said, can count on a continued program.
“What they can’t count on,” Esty said, “Is the same program.”
But first, incentives
The new residential solar electricity program was mandated in the huge energy bill passed last year. Specifically, that CEFIA develop a plan to install 30 megawatts by the end of 2022 using incentives that would decline over time.
Incentives for solar systems have long been considered necessary because solar power costs are higher than those of standard electric rates. The thinking has been that subsidies would help build volume that eventually would lower costs to be the same as grid power — grid parity is the term. Incentives would then no longer be needed.
As solar costs have dropped in the past few years, the industry generally has not balked at the notion that incentives should decline as well. A federal tax credit of 30 percent for solar electric systems is in place through 2016.
The expectation of the board for the new residential program was that CEFIA would develop a more sustainable funding model than existed for the old one. Since January 2005, CEFIA’s predecessor, the Connecticut Clean Energy Fund, has run solar incentive programs using a portion of about $27 million it receives annually from fees paid by Connecticut Light & Power and United Illuminating customers.
The commercial solar program it ran, also from those fees, has been reconfigured under DEEP.
Both programs proved popular and repeatedly ran out of money. Under them, the Fund and CEFIA provided $24 million for 1,250 solar systems purchased by homeowners and $21 million during the three years of a lease program for 800 homes. The commercial program totaled $80 million for 210 commercial and governmental projects.
The goal in creating CEFIA, was to have it be a so-called green bank that would use investment techniques for the fees and other funds it received to generate funding streams. But board members said the initial residential solar proposal from CEFIA staff in January did not do that.
“It was an old model based on a subsidy approach as opposed to competition,” Esty said.
Contributing to the difficulty was that the green bank concept is still being created. So an interim measure was approved for the $7.5 million. First $2.5 million will be made available at one incentive level. When that’s used up, the remaining $5 million will be available at a lower level. Each of the two funding blocks will be split evenly between those who buy solar systems for their homes, and those who lease them, but with the ability to move funding between the two if one proves substantially more popular.
At a point when about $5 million is spoken for, the board will consider the next program steps.
“It’s a short-term fix to get our long-term plan to a better fiscal situation,” said Department of Economic and Community Development Commissioner Catherine Smith, who chairs the CEFIA board.
Smith said the message from the solar industry was to get something in place quickly. “We were told there would be a lot more pressure on us if we extended our time frame. We’re going work very diligently to come up with alternatives as quickly as we can.”
Trahan said: “The message is that we should tread water for another 12 months.”
But Eric Brown of the Connecticut Business and Industry Association said his group recognized that the short-term approach was intentional to help CEFIA establish its financing strategy.
“Believe me we’re pushing for a new more sustainable and predictable way of doing business on this,” he said of the solar program. “In four to six months we hope see a real shift, or at least the start of a significant shift away from highly subsidized investments to a more private sector financial involvement.”
Board members and others also noted that to take advantage of the rapid changes in the solar industry and its prices, it makes more sense to structure an incremental program.
“This board and this management is going to be very prudent about the taxpayers’ money and the ratepayers’ money,” said board member Reed Hundt, CEO of the Coalition for Green Capital in Washington, D.C. “The solar industry ought to realize it’s not in a position to be able to put butter on both sides of the bread at this point.
“I think the job is to maximize the number of panels installed and protect the ratepayer.”
Since the passage of last year’s legislation, a number of solar companies have expressed interest in getting into the revitalized Connecticut market. Earlier this month, California based SolarCity announced it was opening a Hartford office and would enter the commercial and residential market. Spokesman Jonathan Bass said the short-term nature of the residential program would not change that.
“I think this is the first step,” he said. “We know the state is committed to long-term alternative energy development.”
But SunRun, a residential solar leasing company that partners with local installers to set up power purchase agreements for homeowners and has been operating in Massachusetts, said it’s reassessing its intention to move into the Connecticut market.
“In only approving the first two blocks, it leaves a great deal of uncertainty and concern on the part of industry,” said Evan Dube, director of government affairs. “The most critical part beyond the level of incentive is the certainty and longevity of the program so we can plan around that.”