By Manish Nayar, founder and managing partner, OYA Solar
The COVID-19 pandemic has shown us the massive unforeseeable impact that unknown viruses can have on national and global supply chains. Economies around the world are at a standstill as several billion people have been told to physically distance in an attempt flatten the curve, the effects of which we do not yet fully comprehend. The U.S. has not been left unscathed. To date, nearly 26 million Americans have filed for unemployment benefits as a result of the astonishingly swift economic shutdown.
The country’s efforts to date have rightly been to manage the immediate health and economic needs of our citizens. But the federal government must now start thinking about its strategy to revive the economy once it is safe to get back to work. If it does not, the country risks a prolonged recession with a slow uptick in jobs that could take several years to restore.
The good news is that Congress has taken some intermediate steps via the recently passed CARES Act, a $2 trillion aid package to help lessen the immediate financial impact for many American people and businesses via a mix of grants, SBA loans and tax deferrals. However, the next recovery bill needs to include a comprehensive, forward-looking, infrastructure plan with specific assurances for renewables in order to ensure re-employment of residents in rural parts of the country. Specifically, extending the solar Investment Tax Credit (ITC) at 30% and reintroducing the 1603 cash grant program would allow many shovel-ready solar projects that are stalled due to financing uncertainty to break ground this year.
The Investment Tax Credit is a long-standing mature market mechanism that is critical to financing solar projects. Since it was enacted in 2006, the solar industry has grown an average of 52% annually and invested billions of dollars in the U.S. economy. But this year, similar to what happened during the financial crisis of 2009, we expect to see lower and potentially negligible corporate profits amongst the usual ITC participants as a result of the pandemic.
Without corporate profits to utilize the ITC, the engine driving thousands of megawatts of solar projects planned for construction this year and next cannot move forward. An otherwise mature and liquid market for capital is frozen and jobs are in turn lost in the process. Akin to the Federal Reserve’s intervention in the banking sector to foster certainty and liquidity, the solar industry needs to be able to rely on market mechanisms to maintain employment and make capital investments.
Reinstating the Treasury’s 1603 cash grant program and maintaining the ITC at 30% for two years will ensure the solar industry does not lose momentum this year. A failure to do so would risk permanent damage to the sector and continued job losses. In 2009, Congress understood this and included a provision in the American Recovery and Reinvestment Act that directed the Treasury to provide cash grants in lieu of tax credits for renewable projects. By the end of 2010, solar projects had received $413 million in cash grants at an average installed cost-per-watt more than double what it costs to build solar today. The cash grant was more successful than originally intended, with over 100,000 projects installed through 2015.
Solar jobs have grown at five-times the rate of overall U.S. job growth in the last five years. Before the COVID-19 pandemic, the sector employed over 250,000 people as compared to 95,000 in 2009 and the United States expanded its solar capacity by a factor of 76. A little certainty goes a long way.
Further, solar job growth extends to communities where job creation is most challenging. Many of our community solar and utility-scale projects are located in rural areas of the country, where we can draw on skilled local labor faster than other industries.
Our projects impact entire communities and make them more resilient. During construction, our investment encourages the use of local manufacturing, distribution and professional services. They also inject dollars into the tourism and hospitality industries. The economic impact is amplified post-construction, as the communities continue to see financial benefits through lower-cost energy, increased property tax payments (without increased expenses) and a cleaner local environment. Residents and businesses see energy savings immediately and typically continue to save for another 20 to 25 years.
A recent Harvard study found that people in communities with higher levels of air pollution are more likely to die from COVID-19, highlighting the link between climate change and public health. Community solar projects add resilience to the grid and help reduce reliance on carbon-based fuels, improving air quality. Further, as an industry already focused on scaling safe and clean energy, we will be among the first in deploying the enhanced health and safety requirements and smart social distancing policies to protect our employees and communities from COVID-19.
The solar industry’s capacity to scale up and construct projects quicker than oil, natural gas or nuclear power has been largely responsible for the astonishing growth the sector’s seen over the last decade. Just last year, solar capacity increased 23% over the year before. Coupled with a lower cost of energy, solar projects, which accounted for 55% of all new energy capacity last year, have become fundamentally more attractive to investors.
Some state governors already understand that stimulus does not have to come at the expense of our climate goals, but rather can be bolstered by them. For example, Governor Cuomo continues to push ahead on renewable energy reform in New York. In April, New York passed legislation that will create an Office of Renewable Energy Siting to improve and streamline the process for permitting large-scale renewable energy projects across the state. It is a first in the nation, and other states and the federal government should be modeling their post COVID-19 stimulus and climate goals with this framework and the many other climate initiatives New York has pioneered in mind.
The solar industry was expected to have a record year of growth prior to the pandemic. Now, with the support of state level policies like those in New York, we continue to move our projects forward with hopeful optimism to break ground on many of them this year. Extending the 30% ITC and reinstating the 1603 cash grant will provide the industry the certainty it ultimately needs to continue to make capital investments in new projects and avoid a loss of the significant gains it has made in the last decade.
Manish Nayar is the founder and managing partner of OYA Solar. Nayar has led the growth of the company and its resulting 1000 MW+ North American development pipeline. Nayar has developed, constructed or transacted on over 500 MW of solar assets in the last 10 years.