Solar Power's SOS: Credit Crunch is Cancelling Out Tax Credits and Obama's Win

SolarCity, based near San Francisco, is the country's biggest residential solar installer. It has more than 400 employees, 200 of them recently hired. It did great business through the fall of last year, largely because the highly profitable banks that lent money for solar could use the federal tax credits that came with installations.

A SolarCity installaton: business froze in December. (SolarCity photo)

Now, a day after Barack Obama was sworn in promising "to harness the sun and the winds and the soil to fuel our cars and run our factories," SolarCity's CEO, South Africa-born Lyndon Rive, says the company is hurting. How could that be?

Rive says he's overjoyed that Obama was elected, and that an eight-year extension of the 30 percent solar credit was passed last October, but the economic crisis has made it all but impossible to leverage existing tax policy. "Things came to a grinding halt in December," he said. "We were going to expand from our base in California, Oregon and Arizona into New York, Massachusetts and Hawaii, but all that is put on hold."

Lyndon Rive: We need solar tax reform. (SolarCity photo)

"It's an intensely Darwinian environment for small-scale solar," Arno Harris of San Francisco solar developer Recurrent Energy told Time.

The problem, Rive says, is that the big lending banks didn't make any significant profits in 2008, and so they can't use tax credits. Therefore, people who want solar can't get it. SolarCity has 1,000 people on a waiting list for installations, but they're not ready to just write a check. "Some 78 percent of all solar systems in the U.S. are financed, and the financial partners are big banks," he said. "So instead of this being an area of growth leading to energy independence and more green-collar jobs, the sector is in decline. We're starting to see layoffs in the solar industry, and we expect to see more if this problem isn't fixed."

Other solar companies, including OptiSolar, HelioVolt and SunEdison, are also reportedly cutting back. The climate is reminiscent of 1980, when President Ronald Reagan reversed many of the Carter Administration's solar initiatives. Reagan removed the solar panels from the White House, too.

In a letter to members of Congress, Rive proposed three solutions to this dilemma.

• The tax credit could be transferable from one company to another. In this scenario, a lending bank could sell its credits to a profitable company not in the business of underwriting solar;
• The tax credit could be applied retroactively to previous tax years with a "carryback," so that companies that had profits could get refunds;
• The tax credit could be made refundable for individuals or businesses that lacked tax liability. The credit would become more like a rebate.

Other renewables dependent on tax credits, including wind and geothermal, are also suffering over the same issue. "We're all in the same challenging environment," Rive said. He added that he's very supportive of the plan outlined by Van Jones in his book The Green Collar Economy, and indeed helped Jones write a curriculum for solar training. "But if we don't address this issue there won't be any green collar jobs," he said.

State programs aid solar, too, and 14 have local subsidies that are equal to or better than that of California. But California's Million Solar Roofs Initiative, for instance, is a rebate program that covers only 15 percent of the cost, not enough for people to spring for an expensive solar installation in the midst of a recession. "Without the federal tax assistance, the economics just don't work," Rive said. "When state and federal subsidies are combined, it works."

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