For decades California has lead the US solar industry, and is home to half of the installed photovoltaic solar capacity for the whole country. While California is known for its abundant sunshine, its affinity for solar power and its large solar market are based on far more than this. One of the biggest reasons why California has led the US solar industry has been the subsidies the state has provided through the California Solar Initiative (CSI) and other programs before this. But the subsidy outlook is changing in the months and years ahead, which may have a significant impact on the solar industry there.
Subsidies have always played a major role in the solar industry (as they do for other energy resources as well), helping the industry to grow and costs to fall.
A 30% federal tax credit and other incentives help solar businesses across the country, but state subsidies and utility rebates make a big difference in the solar market from state to state. The California Solar Initiative was initiated in 2006 to reduce the cost of installing solar for customers of investor owned utilities, returning rebates of 9-14% for each installed PV system that qualified, on average. The CSI was started with the goal of installing 1940 new MW of solar generating capacity between 2007 and 2016. The growth of the solar market across the US was helped by California’s leadership, helping the solar industry to scale up, develop innovative solar solutions, and bring costs down.
The CSI has been a great success, so successful in fact that the solar rebate program is years ahead of schedule. The rebates have already declined to about 4% of the system cost, as was scheduled in the CSI program as it proceeds. Now that CSI is nearing its end this seems likely to change the California solar market once again.
If no new state subsidies are put in place in California, the market for solar could slow and create increased competition among installers. With growing competition, solar installers will find it increasingly important to differentiate themselves through cost, service, and additional services. Financial models like solar leasing and PPAs are increasingly common as home equity loans are less available, helping the solar industry to adapt.
The changes are likely to create opportunities for solar companies in California as well. One direction will be for solar companies to grow larger, pushing for economies of scale through consolidation and acquisition.
Another trend may be for businesses to focus on various elements of the industry such as brokering sales, setting up relationships as a solar broker with a variety of preferred installers and manufacturers. A solar broker is analogous to an independent insurance broker, working independently of specific installers to help clients through the solar sales process. By getting multiple bids from different installers, a solar broker can provide residential and non-residential customers with options that no single installer can and make the whole process go more smoothly.
Although the solar market may change in California with the decrease in state subsidies, it won’t go away. The solar market has continued to grow in California even with the decreasing CSI subsidies, making it likely that the solar industry will continue to grow and innovate with new business models like solar brokers even as the CSI program concludes. The possibility of new subsidies to replace the CSI is being discussed, hopefully long-term incentives that provide the stability that the solar industry needs. On the east coast, states like New Jersey are using SRECs (solar renewable energy certificates) as solar incentives to meet the states renewable portfolio standard, providing for a major boom in the solar industry there.
As the need for clean energy becomes increasingly apparent across the country and around the world, the outlook for the solar power market should continue to shine even as subsidies change. The Japanese nuclear crisis, unrest in the Middle East, and the heavy environmental cost of coal worldwide have pushed governments, businesses, and homeowners to give solar a fresh look. To the extent that government policies create a favorable business environment for solar in states like California, New Jersey and Maryland, solar will continue to provide strong a strong bottom line and opportunities for those with a good solar business plan and the ability to compete.
Glenn Croston is the author of “75 Green Businesses” and “Starting Green”, providing training and education for Prime Solar Network and helping businesses everywhere to start and grow green at Starting Up Green.