Solar Plant Development Impeded by Tax Credit Reductions

by Niti Nagar

Solana, a solar thermal power plant in the Arizona desert has been functioning for more than a year now. Developed by the Spanish energy and technology company Abengoa, it has succeeded in producing energy when the sun is not shining, allowing solar production to continue at full capacity long after 6 o’clock at night. According to Brad Albert, the general manager for resource management at Arizona Public Service, this feature adds a lot of value because the customer demand for electricity is so high after the sun goes down. The Solana uses parabolic mirrors that direct sunlight on pipes that carry the heat to tanks of salt. The heat is contained for up to six hours until the plant converts it to make electricity via steam.

Abengoa opened a similar plant on January 23, 2015 in the Mojave Desert in California, which is expected to supply enough power for 91,000 homes. However, despite the success of the technology, Abengoa and other power plant developers are hesitant to build more solar plants in the United States. This is due to the large uncertainty regarding an Investment Tax Credit worth a whopping 30 percent of the project’s cost. The subsidy is set to remain until 2016, but this does not give developers enough time to secure land, permits, financing and power-purchase agreements. The Solar Energy Industries Association hopes to lobby Congress to extend the credit beyond 2016 before it drops to 10 percent in 2017. Despite the technology feasibility to offer an alternative form of energy in the United States, government policies and the lack of tax incentives are forcing developers such as BrightSource to focus on other countries, including China and Israel.

However analysts say some solar companies have responded well by implementing cost reductions in their technology development. To further spur interest from investors, advocates are urging the Obama administration to extend master limited partnerships to include solar projects in real estate investment. By expanding solar energy to different markets, companies can take advantage of tax benefits that would otherwise be unavailable. According to former Senate Finance Committee staff member, Paul Bledsoe, Congress is keen on eliminating many of the 42 existing energy tax subsidies with Republicans largely against subsidies for renewables and Democrats largely against those for fossil fuels. Now that the technology exits, the overarching question is whether the government can find a way to effectively phase out incentives over the years (perhaps will a gradual reduction rather than a steep 20 percent decrease) and replace them with other technology-neutral approaches.

Cardwell, Diane. “Worry for Solar Projects After End of Tax Credits.” The New York Times. The New York Times, 25 Jan. 2015. http://www.nytimes.com/2015/01/26/business/worry-for-solar-projects-after-end-of-tax-credits.html

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