New Washington State Legislation is Expected to Spur a Regional Solar PV Market in the State

(This article is included with the permission of RenewableEnergyAccess.com. It is reprinted from their weekly newsletter.)

With Gov. Christine Gregoire's recent signature, what is being called the most progressive renewable energy legislation ever passed in a U.S. state is now a reality. The two new laws reflect a fresh policy approach to promoting renewable energy at the state level and already have the full attention of industry manufacturers who expect the measures to kick-start a new regional market in the U.S.

The two bills — SB 5101 and SB 5111 — steamrolled their way through the state's legislature earlier this spring, winning overwhelming bipartisan support from lawmakers interested in creating a thriving market for renewable energy that would specifically foster new high-tech manufacturing in the state.

The first bill, SB 5101, is responsible for driving strong market demand for small renewable energy projects, especially solar photovoltaic (PV) energy. The law establishes a renewable energy "feed-in" production incentive, the first such application of this approach in a U.S. state. Homes and businesses with solar PV and wind power systems would earn a credit of 15 cents per kWh of electricity generated by their renewable energy systems up to $2,000 annually — roughly tailored to the yearly market output of a typical 3.5 kW PV system.

In addition to the feed-in credit, the bill is progressive because it combines economic multipliers to increase the system owner's credit if the project's components are manufactured in Washington. This can raise the 15 cent per kWh credit up to as much as 54 cents and this rate would be available for a fixed 10 year period beginning July 1, 2005.

With the first bill taking care of the demand side of the equation, the second bill would take care of the supply side by nurturing new, high-tech manufacturing of renewable energy components. SB 5111 will provide tax breaks for renewable energy businesses that currently reside in the state or choose to relocate there. And the bill goes above that to offer higher tax breaks to companies that locate themselves in economically depressed areas.

A New Policy Approach

The feed-in credit, SB5101, is particularly relevant to the larger renewable energy effort in the U.S. because it reflects a new policy approach for the state-based promotion of clean energy.

Denis Hayes, founder of Earth Day, former director of the federal Solar Energy Research Institute and current President of the Bullitt Foundation, described SB 5101 "as the most important solar legislation ever introduced in any American state legislature."

While it would represent a paradigm shift for solar legislation in the U.S., it's not an altogether new approach. Any solar PV installer trying to order or maintain a good supply of solar modules knows where else this approach has been staggeringly effective: Germany.

Since enacting a national production incentive, Germany has been a veritable black hole for solar panels, sucking up worldwide supplies of PV at a time of increasing demand and limited manufacturing capacity.

"The eyes of much of the country will be on this performance-based approach," said Tom Starrs, Chair of the American Solar Energy Society, and Vice President of Marketing and Sales with the Washington-based Bonneville Environmental Foundation. "It's a very innovative idea, I've been a strong proponent for creating incentive programs that focus on paying for performance, as opposed to capacity-based dollar per watt incentives."

Capacity-based incentives, like those in California, require the state or utilities to pay an up-front rebate for the cost of a solar PV system based on a dollar per-watt of a system's installed capacity. For example, at the current California rebate rate of $2.80 per watt, a payment of $8,400 is paid out for a 3 kW system. A production-based approach provides a rebate per kWh of energy produced over a fixed period of time. It's a more gradual approach that lends itself to flexible, creative financing mechanisms. It also promotes the maximum efficiency of the solar projects over the course of their 20-30 year lifespan. In a capacity approach, since the entire rebate is dolled out all at once, there is no guarantee the solar production capabilities are maintained by the owner.

Starrs said that during his 20 years in the industry he has seen capacity-based incentives "basically fail," leading to what he thought were counter-productive results with both wind power and solar thermal. Production-based incentives were later offered to US wind power which then thrived under the new model.

"Conceptually, performance-based approaches tie the incentive more closely to what the goal is," Starrs said. "It's not to get stuff on the roof, but to produce electricity. It discourages systems that don't perform as well as they could. It creates a better match between the policy goal of supporting renewable energy and the energy itself — and therefore it's more defensible from a public policy perspective."

Getting State Utilities on Board

In legislatures all across the country, many a worthy renewable energy bill has been crushed under the weight of influential electric utilities which have traditionally been against two items: renewable energy and mandates of any kind.

Mike Nelson, Manager of the Washington State University Northwest Solar Center, who had a technical role in crafting the legislation, said utilities have actually become some of the bill's strongest supporters.

Residents and businesses taking part in the production credit will be provided the per kWh credit (up to $2,000 annually) from their local utilities but those utilities are not required to take part in the program. No mandate. What could be read as a toothless piece of legislation is really a case of offering a carrot and not a stick. The utilities are allowed to write-off the cost of providing the credits against their state taxes, so they see an inherent value in participating.

"The Public Utility Districts Association getting behind this really started to make this bill move," said John Friederichs, Conservation Director, for Ferry County PUD, one of the 64 utilities in Washington state. "If this passes the house, how can you miss, you get paid to create electricity. It's too good an idea not to pass."

Continued…

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