Photo Credit: PAMPLIN MEDIA GROUP FILE PHOTO  - The price of installing solar panels is coming down, causing some to rethink the role, and amount, of various subsidies. When 65-year-old Judy Barnes buses down Portland’s Southeast Hawthorne Boulevard on a sunny day, she peers through the window and focuses beyond the busy streetscape, gazing at empty rooftops.

Some of those bare-topped homes and businesses could generate clean, renewable solar energy, Barnes says — but it all boils down to the state’s energy policy.

Oregon’s solar subsidy programs have delivered an eightfold increase in solar installations in just four years, jumping from about 1,000 in 2009 to 8,000 in 2013. But solar still only provides 0.02 percent of Oregon’s electricity — despite the state’s promotion of solar since the late-1970s.

Now state solar policies are at a crossroads, with some subsidies facing close scrutiny and possible cancellation.

According to a new Oregon Public Utility Commission report, the cost of home solar installations dropped 29 percent in the past two years, from $6.63 per watt in 2011 to $4.69 per watt in 2013. Equipment costs will continue plummeting, the PUC forecasts, falling in half between now and 2020.

One reason the Oregon Legislature commissioned the PUC report was to evaluate the state’s solar pilot program, which launched in 2010 and is set to end in May 2015. The pilot is modeled after a feed-in tariff system, which vaulted Germany to world leadership in solar production and brought stellar results in other nations.

Under feed-in tariffs, each homeowner becomes an independent power producer, selling electricity to their utility at artificially high prices fixed in long-term contracts. The above-market prices provide the incentive for people to install solar panels and get loans to pay for installation.

In the Oregon pilot, utilities agreed to buy a capped amount of solar energy from a limited number of residents and other customers, at rates set by the PUC every three months — often three times the current market rate or more — on 15-year contracts. Utilities recoup the cost of paying above-market prices by raising rates for all customers a smidgeon. Participants forgo the ability to get state tax credits or other rebates, though they still qualify for federal tax credits.

Everything on table

The standard solar subsidy package in Oregon, a mix of state and federal tax credits and Energy Trust of Oregon or other rebates, also is in limbo. The state residential tax credit is set to sunset January 2018 unless the Oregon Legislature extends it. The state business energy tax credit ended July 1 for new applicants. And the federal tax credit is scheduled to expire for residential systems and decrease by 10 percent for commercial systems in December 2016.

A key advantage of the pilot program is nixing state subsidies, freeing money for schools and state services. But that shifts the financial burden to utility ratepayers. Pacific Power and PGE customers already pay for Energy Trust rebates via a 3 percent surcharge on monthly bills.

The standard subsidy model also relies on net metering, a law that obligates utilities to use the surplus solar energy produced via rooftop solar panels that’s not needed at the time by homeowners, such as on sunny days. Residents get credits for future electric bills, effectively using their utilities to bank their solar power until it’s needed. In some states, utilities are leading a drive to undo or alter net metering laws.

Tinkering with pilot

Barnes and the group she co-founded, now called Oregonians for Renewable Energy Progress, lobbied heavily for the modified feed-in tariff pilot, and want to see it retained and strengthened. The PUC, for example, capped the energy utilities must buy at 90 percent of each home’s electricity usage. Barnes says that causes some people to install fewer solar panels than the optimal number and removes their incentive to conserve energy.

The solar pilot works better for older and low-income residents, Barnes says, because they often don’t earn enough to take full advantage of state income tax credits.

Return on investment often drives people to install solar, Barnes says. “You don’t have to be an altruistic environmentalist.”

Mark Pengilly and Kathleen Newman, current leaders of Oregonians for Renewable Energy Progress, say the pilot program is very confusing. Newman calls it “net metering on steroids.”

The PUC stopped short of deploying a German-style approach because of Federal Energy Regulatory Commission rules governing the wholesale sale of electricity. That’s where the program got complicated for participants and utility companies, Newman says. But she calls it a bookkeeping issue that can be improved if the program is extended.

Both systems needed?

Sunbridge Solar owner Jordan Weisman says the pilot program was a “huge help” that enabled him to launch his company in 2010. He now employs seven people.

“I think production incentives like a feed-in tariff work the best,” Weisman says. It is “affordable for a lot of people.”

However, Weisman says there’s a natural “sweet spot” right now that makes the standard subsidy package more viable for systems producing less than five kilowatts. Anything above that, he says, is more lucrative with a feed-in tariff model.

Oregon City’s Springwater Environmental Sciences charter school, where Weisman installed a 30-kilowatt system, saves $1,000 a year and got a return on its investment after four years, Weisman says. “That could not have been done without a feed-in tariff,” he says.

His biggest frustration with the pilot program was that eligible participants were chosen in a matter of minutes each time the PUC opened the program to new people. He says the PUC set the rate too high.

Weisman wants to see the program retained and restructured.

“The ultimate goal is to have a sustainable industry without any incentives at all,” Weisman says. For now, Oregon must look at what incentives work best because they are still necessary, he says.

Trade group prefers

old system

Renewable Northwest, a trade group that advocates for wind and other renewable energy development in Oregon, Washington, Idaho and Montana, prefers the standard approach to the feed-in tariff model. It’s simpler to use, and the subsidies are provided up front, says Michael O’Brien, Renewable Northwest policy associate.

According to the PUC report, the standard federal and state tax credits, rebates and net metering package led to 7,000 solar system installations in Oregon from 1999 to 2013.

The pilot program led to about 1,300 installations from 2010 to 2013.

Though Oregon hovers in the top 10 states in solar production, O’Brien says, “for a state as progressive as we are, we should be doing better.”

Advocates for the solar pilot say the PUC could have signed up many more people, since it filled up within minutes each quarter when it took new applicants. However, that would require more subsidies from other ratepayers.

PUC stays neutral

The PUC report wound up making no recommendations, concluding that “no single program appears to be more effective than others at lowering installation costs.”

The state agency suggested workshops for all stakeholders this fall, to promote further discussion. The report also suggested the need to evaluate cost-shifting caused by net metering.

Maury Galbraith, administrator of PUC’s Energy Division, says the pilot was implemented successfully. He was most proud of the high public interest despite the declining price offered when the program was reopened each quarter, based on high demand. Shifting from a competitive bidding approach to a lottery system for applicants also improved the program, he says.

Galbraith notes the pilot program seemed to co-exist with other incentives and did not cause their use to decline.

However, simplicity is important, he says, and having one program “would probably be a good idea.”

Now, he says, it’s up to the Legislature.

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