Dr. Herbert M. Eckerlin
Since I have been involved in the solar industry for many years, people from across North Carolina often call me with their solar questions. One of the more recent questions is, “Who is paying for all these solar farms?” To properly answer this question, some back ground information may be helpful.
The size of the typical solar farm in North Carolina is 5 megawatts (MW) or 5,000 kilowatts (kW).
A 5-MW solar farm requires about 40 acres of land and costs between $11 and $14 million.
A solar farm can be erected by solar developers in two to three months. They generally do a good job and have become quite wealthy in the process. Once the solar farm is in operation, little additional labor is required.
To answer the question, “who pays?” we have to refer to Senate Bill 3, legislation that was passed by the N.C. General Assembly in 2007.
This 28-page bill was written to promote the development of renewable “green” energy in the state, but a significant portion of the bill focuses on solar energy systems.
The bill requires all utilities in the state to buy renewable — green — power in accordance with the following schedule:
•2012 — 3 percent of 2011 retail sales (in-state)
•2015 — 6 percent of 2014 retail sales
•2018 — 10 percent of 2017 retail sales
•2021 — 12.5 percent of 2020 retail sales
The law requires the utility to buy all the green power generated by the solar farms, even if the utility doesn’t need it.
In other words, the utility may have to shut down some of its boilers to adjust to the green power available.
The utility must pay the solar developer for the green power he/she has generated (at present, this cost is in the $.06 to $.07 per KWH range). The cost is substantially higher than what it costs to the utility to generate the power in-house.
Keep in mind, this green solar power is intermittent and available about five hours per day on average.
Another objective of SB 3 is to get people to invest in this new technology. This is accomplished by offering potential investors a state tax credit of 35 percent.
For example, an investor can invest $2 million in a solar farm and reduce his/her taxable income by 35 percent, spread over a five-year period.
This credit is a game changer and has attracted many investors like large banks, insurance companies, and large companies that have large electric loads (e.g., Walmart, Lowe’s, Google, Amazon, etc.).
The response to this tax credit offer has been so positive, a typical solar farm can be funded by only five or six investors. In fact, the tax credit is so attractive that the solar developer often does not have to put any of his own cash into a project.
The final step in evaluating the solar farm process is to determine the impact that the tax credits have on the state’s economy.
In 2014, for example, the tax credit incentive program enabled solar farm investors to reduce their overall tax obligation to the state by a total of $124 million.
This is a significant benefit for the solar farm investors and a significant loss to state government.
In practical terms, this loss in revenue reduces the services that the state can provide. It impacts a whole host of issues such as salary increases for teachers and state employees, economic development, highway construction, etc.
North Carolina teachers rank 47th in terms of pay. We can’t get much lower.
We also have to recognize that the $124 million loss is for 2014 alone. That figure will increase in subsequent years because so many more solar farms are being built.
And, we can’t forget that each investor will claim his tax credits over a five-year period. This means that an investor who took his/her first tax break in 2014, will still be realizing tax benefits on his/her investment in 2018. This is a bit scary.
My sense is that my friends in the solar farm business did not anticipate the negative impact that their program would have on the state’s tax structure and its economy. I certainly did not.
However, now that the results are in, it is time for the General Assembly to reevaluate Senate Bill 3 and the entire solar farm program. It is clear we can’t continue down this path if we want our state and our people to prosper.
The solar farm program as it is presently configured provides for unprecedented opportunity and prosperity for the few at the top.
But for the rest, the opportunity for success is diminishing. If we are not careful, we will be looking at two Americas. The time to change our path is now.