Solar subsidies dim, putting future of industry in doubt

In this Aug. 3, 2011 file photo, solar panels are seen at a solar farm in Avenal, Calif. (AP)

For decades, supporters of renewable power have been singing the praises about the possibilities of capturing energy from the sun.

The solar industry got a huge boost during President Obama's first term when the stimulus package threw billions of dollars in subsidies at solar power companies in hopes of dramatically increasing production. Generation has increased in that time -- but now federal, state and local incentives are being slashed, leading some to conclude the future of solar power in the U.S. is dimming.

"The fundamental problem is it's not economically sustainable," said Todd Myers of the Washington Policy Center, a think tank in Washington state.

Federal stimulus incentives have run out and are not being renewed. States are also slashing their solar power subsidies. Oregon recently cut its solar business tax credit by 99 percent. And utilities all over the country are complaining about lost revenue.

One major issue is that homeowners have been taking advantage of subsidies and the dropping price of solar panels thanks to cheap imports from China. But as those customers buy less electricity, utilities are being forced to raise rates on non-solar customers to pay for infrastructure. Southern California Edison will reportedly transfer $400 million in annual costs to people without solar systems.

The solar industry is keenly aware of the subsidy issue and acknowledges some incentives may need to be tweaked, but leaders argue that cutting too much runs the risk of throwing the brakes on a growing industry.

"The industry's cognizant that some of the subsidies need to be adjusted to reflect the decline in cost," said Carrie Cullen Hitt, vice president of the Solar Energy Industries Association. "At the same time you don't want to have a hard stop on these, not just because you'd stop installations, but you'd impact that economic growth."

At the heart of this dilemma are what's known as net metering customers. These homeowners and businesses produce solar power which they use, but then they're able to sell power they don't use back into the grid. They're compensated at retail rates and can currently receive a check at the end of the year.

In Idaho, the largest utility in the state -- Idaho Power -- is trying to change the rules. And net metering customers like Courtney White are angry.

"We're insubstantial in terms of affecting other ratepayers," says White.

She and her husband put solar panels on their house last year and anticipate breaking even in 14 years, but if the Idaho Power changes go through, they may never recoup the $25,000 solar panel investment they made.

The utility wants to quadruple the monthly fee net metering customers pay for being on the system, and it plans on ending the practice of cutting checks at the end of the year. Instead, any benefit from leftover credits would be shared by all ratepayers. Idaho Power officials say it's about fairness. Because net metering customers buy substantially less electricity than other customers, they pay less for the utility's fixed costs.

Idaho Power argues that being forced to buy solar power at the more expensive retail rate amounts to a subsidy that is paid by all other ratepayers. The utility has plenty of support in the state legislature.

"To me, the test is how cost effective it is," said state Rep. George Eskridge, vice chairman of the Energy Committee. "When solar is more expensive than other resources, I don't think the other consumers in the system should have to subsidize that power resource."

While Idaho's solar generation is tiny, California is another story. The Golden State now has 116,000 net metering customers who are producing 1,200 megawatts of electricity. That's nearly half of the solar power generated across the entire country. New Jersey is a distant second.

Critics point out even with the growth in recent years, solar power is still by far the smallest contributor to the grid supplying just one-tenth of one percent of the country's electricity. Coal remains the biggest chunk at 36 percent, followed closely by natural gas. As for renewable sources, wind is at the top at 3.2 percent.

Germany, by contrast, has been held up as a solar leader. On some days, solar power has nearly met the country's energy needs by itself. Yet, even with 1 million solar systems in the country, they account for less than 5 percent of the electrical generation. The price of electricity is high in Germany, and the country just slashed subsidies paid to generators.

"Everywhere you go, solar energy requires massive subsidies, which eventually blow a hole in the federal or state budget, and then are dropped," said Myers. "Solar is a bad way to go."