Thursday, June 30, 2016

The Future of Solar Tax Credits in Utah: Part 1

I recently participated in a stakeholder meeting hosted by the Governor's Office of Energy Development.  The purpose of the meeting was to discuss Utah's policy of issuing $2,000 tax credits to consumers for rooftop solar systems and its impact on the industry and state budget.

The meeting was spurred by legislation I ran in the 2016 General Session to unwind the solar tax credits under the premise that the industry has matured to the point that tax payer subsidies are no longer required.  At that time, the industry disagreed with me.

At the root of the issue is the purpose of the tax credits.  Are they to help move forward in time the market adoption of this new technology?  Are they there to act as a form or corporate welfare to lift a struggling industry?  Is it a feelgood policy that exists because renewable energy is the "in" thing right now?  Defining the purpose of the credit is important to how me move forward.

 At our meeting, we discussed some serious challenges being faced by the State regarding the credit. To put some sunshine on the subject (pun!), lets take a look at this graph:

The solar tax credit right now is mushrooming in usage. The left hand axis shows the number of credits claimed by consumers for installing rooftop solar systems on their homes.  As you can see, there is a hyperbolic increase since 2012.  Interestingly, last year saw 3,174 credits issued. In 2016, at its current pace, it is projected that 12,500 credits will be issued!  That is a 400% increase in one year.

So why is this a problem?  There are several reasons.  First, every credit is a silent drain on the education budget.  The total credits issued have ballooned from less than $1 million 2012 to $6.3 million last year.  This year will cost the education budget $25 million in unrealized revenues.  With solar panels becoming ubiquitous, the credit threatens to put a major damper on funding Utah's education needs.

The second problem is administrative in nature.  Utah does not budget any money to administer this tax credit.  The funds used to pay for state employees to administer this credit come from Federal grants.  Historically, only one employee has been needed on a part time basis to handle the workload.  However, that has increased in recent years and with the surge in popularity, a staff of 6 to 8 full time people (paid $75,000 salary and benefits per year) will be required to continue administering the credits.  This poses a funding problem to the Legislature and raises red flags about the program.

The third issue facing the credit is the philosophical one.  What is its purpose?  In our stakeholder meeting, a lot of time was spent by stakeholders trying to solve the administrative funding problem.  As if to say that if the administrative funding issue could be resolved, the flow of credit money could continue unabated.  But, the sheer magnitude of the credits are now threatening our education programs.  So, something has to change.

At the conclusion of our meeting, we asked the stakeholders to come up with ideas to discuss in our next meeting in July.  Some ideas included a full repeal of the credit, a taper or wind down over time, shifting the credit to another budding technology (like batteries), or whatever idea they could come up with.  I look forward to the discussion.  It is hoped that the solutions we come up with will be forwarded to our Revenue and Taxation Interim Committee to draft a committee bill for the 2017 General Session.