Will the Solar Industry Survive After the End of the 30% ITC?

The most valuable incentive today for solar projects – the 30% investment tax credit (ITC) – will be drastically reduced after 2016. Many sources are predicting a collapse of the solar industry and curtailment of new projects at a time when electricity demand is pushing the limits of the grid. I believe we can look to the impact of the Tax ReformAct of 1986 to get an idea how those of us in the industry will be impacted.

In 1984, I was a real estate broker and a registered broker-dealer for real estate limited partnerships. Prior to the tax law changes at that time, real estate limited partnerships were very lucrative tax advantaged investments – much like PV ownership is today. The Tax Reform Act eliminated a host of incentives and created a bloodbath in the real estate industry – especially for those dealing exclusively in real estate limited partnerships.

Those most affected were the developers who were deep in debt for projects based on tax benefits rather than real value. I didn’t see a single one of my friends in the real estate limited partnership business survive. That included the established real estate development company I worked for that had been a leader in the real estate industry for decades. I believe that we will also see a great deal of turmoil in the solar industry after December 2016; much like the real estate industry experienced in the mid to late 1980s (barring no extensions to the current ITC).

Solar industry supporters are lobbying tirelessly to get the 30% ITC extended. My company would certainly be among those who would benefit from an extended ITC, and I would support the extension. However, I also believe that the ITC is causing inefficiencies in the solar industry that will only be prolonged with an extention. When the real estate industry collapsed in the ’80s, the damage was widespread. The oil and gas industry, banking, manufacturing, retail – literally every major industry in the U.S. – was seriously affected. However, there were a select few that not only survived the real estate bust of the 1980s, but became very successful afterwards.

In today’s economy, loss of the solar industry wouldn’t cause a national crisis, but it will affect everyone in the PV industry in some fashion. Based on my experiences with the real estate crash of the 1980s, here are a few of my predictions:

  • In mid to late 2016, solar companies will be working feverishly to sell and complete projects before the looming Dec. 31 deadline. A number of projects won’t make the deadline, leaving behind many very angry customers.
  • Start-up solar companies will fail. Most start-up companies fail when times are good, so 2017 won’t be much different, except that a higher percentage of start-up solar companies than the average will not survive.
  • Over-leveraged established solar companies will fail. Take a look at your business model. If it is based on sales that will occur only when the 30% ITC is part of the deal, then now isn’t too early to be rewriting your sales formulas. If your overhead is so high that you cannot survive one to two years with little or no business, then it may be time to pay off debt and economize.
  • Small to over-leveraged large solar suppliers and manufacturers that don’t close their doors will be absorbed into other companies.
  • Expect bargains on surplus solar panels and inverters, as well as slightly used late model fully equipped pickup trucks.
  • Solar companies that can find value in other forms other than with incentives, will continue to find business and will come through the disruption stronger and more successful. Those companies will be the ones that have the highest quality standards for their goods and services; do not oversell projects they can’t complete by the end of December 2016; their employees produce more value than it costs to employ them; debt is replaced with cash reserves; and overhead is well below the industry average.

When the smoke clears, there will be fewer, but well-seasoned solar companies that will compete head-to-head with other electricity generation industries. Those companies will become highly successful and will be around long after this and other disruptions occur in the marketplace.

If the 30% ITC is extended; great! That outcome will give all of us a little more time to get our affairs in order. But in my opinion, we should be working towards an industry that can succeed in the absence of incentives. When events out of our control occur, such as tax law changes or reduction/elimination of local incentives, we will still have our doors open for business years from now. And, a strong solar industry will be here for years to come.

Lead image: Solar panels against blue sky Credit: Shutterstock

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Mr. Boyd, born in Bentonville, Arkansas, has a Bachelor’s Degree in Animal Science from the University of Arkansas and a Master’s Degree in Operations Management, also from the University of Arkansas. Additionally, he has over 30 years of management and leadership experience. His electrical career began in high school as an apprentice electrician and continued throughout his college years to follow. James served 12 years of active duty in the Air Force from 1973 to 1985 in Logistics and as a Titan II ICBM Launch Officer. He held a “Top Secret” military clearance that involved a comprehensive background investigation into every aspect of his public and private activities. From 1985 to 1990, he was a Real Estate Broker Associate and Real Estate Securities Broker-Dealer in Albuquerque, New Mexico. During that time he worked for the leading Real Estate syndication firms in the state of New Mexico: Jack Clifford and Company and RJ Schaefer and Associates. Mr. Boyd worked directly on such projects as Class A office buildings, high-rise medical offices, business parks, commercial and industrial land syndications, and a “AAA” rated RV park. His career in real estate was curtailed by the real estate crash of the late '80s. He left the Clifford Company to work with the Schaefer Company in 1986. Mr. Boyd continued to work independently in the real estate business after leaving the Schaefer Company in 1987 and had also remained in the active Air Force Reserves after leaving active duty. In 1990, Mr. Boyd was employed by the Air Force in a nuclear weapons activity and worked in a number of high-level government positions including that of Air Force Civilian Career Program Manager at Randolph Air Force Base, Texas. In 1998 he graduated from the Dale Carnegie Course receiving the Dale Carnegie Highest Award for Achievement. From 1999 to 2003, Mr. Boyd served a three-year active-duty tour at Headquarters Air Education and Training Command at Randolph Air Force Base, Texas; where he worked a special project that involved direct participation in a RAND Corporation study. This active-duty tour coincided with the 911 terrorist attacks on New York City and the Pentagon. He retired in June 2003, as a Lieutenant Colonel from the Air Force Reserves with 30 years of combined active-duty and reserve experience. He is a Vietnam Era Veteran and directly participated in the winning of the Cold War by serving as a Titan II Missile Launch Officer. He founded Premier CIRE Systems in 2002 while completing his active-duty assignment with the Air Force Reserves. That company grew from a two man operation with annual sales of $28,000 to a million dollar plus commercial electrical contracting and solar installation company. The company employed up to 20 full-time members and had a portfolio of quality commercial projects such as National Tire and Battery, Kirkland's Home Stores, Icing by Claire, Freddy's Frozen Custard Restaurants, Allied Institute of Medicine, The Shops at Creekside in New Braunfels, Texas, and others. In addition it had a service customer base that included H-E-B Food Stores, US Maintenance Services, Pilot Truck Centers and the McKenna Foundation. Premier originally focused on commercial electrical construction, and commercial service and repair. In 2007 the company added solar energy development and installation to its list of services. Beginning in 2008 the company had completed small distributed generation projects and had competed for large array solar generation development contracts. On 31 October 2009, Premier CIRE-Systems permanently closed so that Hoss could focus all of his attention on commercial solar development and integration. On 23 November 2009, Hoss founded Tierra Verde Solar Inc. The new company picked up where the old one left off, by designing and building a number of small commercial solar projects. Tierra Verde (meaning “Green Earth”) completed its first solar project in December 2009. In 2013, Hoss formed TeraVolt Energy with a broader focus on solar project development and electricity brokerage. As a supporter of Green Energy and energy conservation, Hoss is a member of the San Antonio Clean Technology Forum and the Energy Reliability of Texas Emerging Technologies Working Group. In 2009 Hoss was accepted into the MENSA organization. He is an active member of Oakwood Baptist Church in New Braunfels Texas, where he has served in the church music program and on a team that accounts for and deposits weekly church contributions. He holds the rank of Third Degree Black Belt in Soryu Karate (the fourth level Black Belt in the Soryu style of Karate) as a martial arts instructor. In October 2010, Hoss was awarded the Certified PV Professional Installer national certification by the North American Board of Certified Energy Practitioners (NABCEP). He was at that time only one of less than ten Texas licensed Master Electricians to receive this national solar certification.

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