Solar incentive on life support

A critical financial incentive that encourages businesses and homeowners to install solar energy systems is in jeopardy, threatening to stall projects large and small in the North Bay.

A divided Congress has not extended a federal tax credit that has cut costs for thousands of solar energy systems across California.

Although the tax credit won't expire until the end of the year, its looming demise is already having an impact, according to local solar installers.

Businesses that have not yet signed contracts to install a solar system may not be able to obtain permits quickly enough to qualify for the federal tax credit. As a result, some are already holding back until the situation is resolved.

"It's already kind of hamstringing us," said Dan Thompson, founder and president of SPG Solar, a Novato company that designs and installs solar systems.

Residential projects, which are faster to complete, have not yet been impacted. Nor have state rebates, which are another financial lure designed to encourage the spread of solar power.

But the future of the federal tax credit for solar power remains bogged down.

The solar credit would be extended six years for residential projects and eight years for businesses under legislation supporting a variety of renewable energy sources working its way through Congress. Two measures have been defeated in the past three months. Critics -- including President Bush -- are opposed, in part, because the credit would be funded by repealing tax subsidies for oil companies.

Utilities, solar businesses, environmental groups and private investors are pushing for an extension. Proponents contend another defeat will hobble solar's growth and lead to industry layoffs.

"It's absolutely on life support," Thompson said. "This is extremely critical. We've got so much momentum going that this is just a crime."

Billy Coughlan, owner of Hahn Automotive in Santa Rosa, said he couldn't have afforded his $65,000 solar energy system without both the federal tax credit and California's rebate. They offset more than half the cost and shorten the time for paying off the system through lower utility bills.

"It's all about money," Coughlan said. "Being able to go solar was a longtime goal. But I couldn't have done it without the incentives."

The federal tax credit pays 30 percent of costs for businesses and $2,000 for residences. Combined with California's rebate, businesses can cut total outlays in half and homeowners by a third.

Even with those incentives, however, putting in solar projects remains costly. Residential systems typically cost $35,000 to $40,000. Commercial systems can range from $50,000 to as much as $7.5 million -- the price of the giant array installed at Sonoma Mountain Village in Rohnert Park.

Embracing solar for environmental reasons remains the most powerful lure, as Americans become increasingly aware of renewable energy as a way to ease global warming.

But cost remains a significant barrier. One industry veteran said only 5 percent of those considering solar ultimately purchase a system.

"This only makes it harder," said Craig Carlock, with Solar Works, a Sebastopol solar installer. "The system is going to pay itself off, but the rebates accelerate it."

Solar energy has been booming the past several years due to several factors.

Technological advances have made photovoltaic cells more efficient in converting sunlight to electric power, as well as helped ease installation.

More states are providing financial incentives for property owners to put up solar energy systems.

Driving up demand for solar power has boosted wholesale production and increased competition among companies that design and install systems. More than a dozen companies now operate in Sonoma County, double the number from two years ago.

But costs have not come down, largely due to volatile silicon prices and higher costs for construction materials, notably copper wiring and conductors and steel for system frames.

Cutting incentives such as the federal tax credit could stifle the industry's growth, said Keely Wachs, a PG&E spokesman.

"Not only does it provide a financial incentive, but it also sends a very clear market signal that there's going to be a future for investments in this," he said.

PG&E officials remain optimistic solar energy will continue to fill a greater portion of Northern California's power needs. But losing the federal tax credit could cut into the number of projects, Wachs said.

Commercial projects are particularly important because they generate significant amounts of electricity.

"We remain hopeful that people want to do the right thing," Wachs said. "But it could affect the timing. It's going to take longer for them to raise capital and get projects in the ground."

Solar Works has been expanding its sales into the business sector. The prospect of losing the federal tax credit doesn't help, Carlock said.

"When we're talking about the viability of a system, I tell them this tax credit is due to expire at the end of this year. People are surprised. People often say you'd think they'd try to help us afford renewable energy with the frozen economy and energy prices shooting through the roof," Carlock said.

Coughlan converted his automotive shop to solar after reducing energy use with fluorescent lights and more efficient machinery. He said it's the right thing to do and makes business sense due to long-term cost savings – he has cut the monthly electric bill from $1,000 to $100.

"We're a green building," he said.

Still, Coughlan considers himself fortunate to have completed the installation by the end of last year. "We got in just under the wire," he said.

You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.