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Will the Economy Slow Utilities Entering Solar?

When Congress passed $18 billion in national renewable-energy tax credits in October, it also approved a provision allowing utilities to take advantage of the credits for the first time. That led to wide speculation among solar insiders that utilities would be entering the industry en masse (also see stories here and here).

“A lot of utilities do want to operate and own and they have the tax appetite [to take advantage of the tax breaks,” Julia Hamm, executive director of the Solar Electric Power Association, told me then. Now, the economic slowdown is leading some insiders to wonder whether that trend is also slowing, in spite of an announcement last week that Southern California Edison completed the first of its planned 150 commercial rooftop installations, albeit four months later than originally expected.

“Utilities are taking a step back,” Michael Butler, CEO of investment bank Cascadia Capital, told me. “Not completely, but they’re being smarter with their cash.”

Stephen Simko, an analyst at Morningstar, said he’s been hearing similar rumblings. “We’ve heard a lot about U.S. utilities that had planned activities cut back in 2009, saying ‘we have to save money.’ We’re seeing some projects from utilities, but not as [many] as we’d thought.”

Meanwhile, Nathaniel Bullard, an analyst at research firm New Energy Finance, says he hasn’t seen a pullback from utilities yet. Because utilities are generally fiscally conservative, it would likely have taken a few months or a year after the passage of the tax credits for them to begin monetizing the credits anyway, he says. “SCE, PG&E and Duke are the only ones that really had plans, and I haven’t heard of them pulling back,” he said. Other utilities that hadn’t yet announced plans to own solar projects might not have taken action on the credits for some time, regardless of the economy.

Marcelino Susas, vice president of marketing for Energy Conversion Devices, which makes thin-film solar, also doesn’t expect that utilities will be dissuaded by the economy. “They may be indirectly impacted because their customers are having problems, but utility bills are usually paid first — you typically have low default rates on utilities — so I wouldn’t think they’d have a cash-flow issue,” he said. “In Europe, utilities are already in solar in one form or another, and I think the U.S. will follow suit now that there’s more incentive in place to do that.”

Many industry insiders, like Susas, think the long-term prospects for utilities owning solar look good. Now that utilities are eligible for tax credits, it will likely make more financial sense for them to own projects outright than to buy solar electricity from companies in the business of financing and owning such projects now, Bullard said.

In any case, it’s clear that utilities could have enormous influence on solar, so the question of what they will do – and when – is bringing more uncertainty to a market already suffering from unknowns about what the next quarter will bring (see examples here, here and here).

With many utilities’ responses to the tax credits still under wraps, the added economic complications mean that uncertainty is likely to continue.

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