Scratching the ITC

pv magazine: A few months ago, it appeared the Investment Tax Credit (ITC) had dismal odds of being extended. I didn’t see a lot of excitement in the industry about the policy going forward. What changed to get where we were in late December?

Nat Kreamer: Great question. Here’s a bit of background about general industry sentiment and the actual dynamics that drove the Solar Energy Industry Association (SEIA) to invest in this.
Everyone in the industry knows the ITC has been a bedrock policy that’s allowed us to drive low-cost financing. Our technology has high CAPEX, low OPEX. So low-cost financing is really important to our industry, no matter your business model, and the tax credit essentially gave us a way to get that.
Solar previously had an eight year extension of the ITC; that allowed people to make long-term investments in the industry, which resulted in tremendous cost improvements, and a larger and more competitive industry. Every additional taxpayer dollar invested resulted in more clean energy, more jobs, more low-cost energy and more innovation.
People became very discouraged with the gridlock in Washington. They viewed it as too challenging to get Washington to implement policy proactively, even one that had true benefits for all Americans and had bipartisan appeal.
Most people would have said the likely course of action was that the tax credit would expire, and then there would be a tremendous lobbying effort to extend it after the fact. That’s what we’ve seen in the wind industry, so people were not optimistic. The fact that the 30% step down coincided with a major election cycle made people even more pessimistic. It’s not that people didn’t think extending the ITC was important. It’s that they just didn’t view an extension as a likely outcome.
Behind the scenes, a number of industry leaders and companies said, “We don’t think it can be done, so we’re going to plan for it not happening.” Other companies and industry leaders like me said, “You have to plan for success and you have to be ready to act if you don’t succeed.” I’m not sure people in solar understand how much the SEIA does for them. SEIA lobbies for core policies that support the industry in Washington and in state capitals. It covers topic areas ranging from consumer protection to federal tax policy to state policy to solar heating and cooling to distributed generation and rooftop solar. The Board works with the management team at SEIA to pull all that into a comprehensive policy agenda.
I strongly advocated for investing in policy success. If we didn’t fight, then we had no chance of winning and it would become a self-fulfilling prophecy. I believed so strongly in success that I refused to discuss what we’d accept as a policy alternative. There was no point talking about our fallback position because that could turn into us bidding against ourselves.

SPI 2014 in Las Vegas was the first big announcement I heard from SEIA that they’d be taking this on. Can you talk about the role of individual actors vs. SEIA in getting the ITC extended?

SEIA two years ago ratified its top priorities: Number one was creating and protecting policies that enabled low-cost financing. The best way SEIA believed it could do that was by an extension of the tax credit.
There were literally hundreds of leaders in the industry who pushed for an extension. SunPower and SolarCity took very active roles. I personally reached out to Al Gore, and he steppedinto this with his relationships. And a number of organizations that are not specifically solar companies also took an active role.
One of those was the Truman National Security Project. It’s a think tank and advocacy organization made up of Iraq and Afghan veterans. They advocate for increased use of clean energy by the DOD, and they’ve also put in grassroots efforts on behalf of the U.S. solar industry.
During the intense lobbying in the days up to the close of the bill, I asked Truman CEO Mike Breen to come up to the Hill and sit with key Republicans and explain to them the connection between clean energy and national security and what it meant for veterans’ jobs. When you have more than 25,000 veterans willing to get out on Election Day, it makes a difference.

Solar is something Obama called for and there’s been support among Democrats. I know there was a lot of skepticism about whether this could get passed in a Republican House and newly Republican Senate. How did it work on a bipartisan level?

The bipartisan aspect of this really came down to finding champions who believed in and saw the many benefits of solar. In Republicans, we found champions who believed in energy choice vs. socialized energy, and who loved the growth in local jobs and businesses.
Many understood that the tax credit was fundamentally a policy Republicans should advocate for, as opposed to direct government investment – the tax credit drives innovation, creates jobs, and grows the private sector.
And then there was a national security nexus. We need to be energy rich and understand that clean energy will help our environment. Generally, even the most conservative Republicans understood the national defense connection and appreciated that. When you hear from the commandant of the Marine Corps how important renewables, and particularly solar, are, you’re less likely to be skeptical. And everyone understood the connection between veterans and solar jobs: Veterans make up a bigger percentage of the solar industry than any other industry today.
Western Republicans appreciated the nexus of drought and water. Fossil fuel power generation evaporates a lot of water. If you live in California or Nevada and evaporate water, you don’t see that water again as rain – you export it across the country. So using solar leaves more water for local uses. Western Republicans like job creation, water conservation, and they like the idea that they have a lot of sun and this industry would be in their districts, and they like individual choice.
Ultimately, it came down to understanding and communicating how solar has ubiquitous and bipartisan appeal. We’ve demonstrated that and shown that Congress is capable of making the right investments. Senator Casey from Pennsylvania joked that we found the one thing Democrats and the Tea Party can agree on.

Moving back to the solar industry: I’ve found a lot of diversity of opinion in the industry. Sunnova called for ITC to lapse, and Jigar Shah said it kept industry dependent on tax equity. Was a lack of consensus in the solar industry a stumbling block?

That wasn’t a stumbling block to the ITC extension. Sunnova was one company that hadn’t successfully raised tax equity and was advocating for a position to benefit itself. By Sunnova doing that, it actually motivated more industry leaders to get involved in the fight. People realized they needed to speak in a united fashion, so they spoke up. The press loves controversy, so one anecdotal data point got a lot of coverage.
I respect Jigar’s creative thought and what he’s accomplished. But he’s not running a solar company. I went to DC with people who had three, five, 15 thousand people working for their companies delivering utility, commercial and residential solar systems, and they were really speaking for the solar industry. The only thing that anyone ever discussed is how much should we invest in policy success, and when.

I recall the meeting where SEIA rolled out its plan for this big campaign pushing for the ITC extension. About 85% of the people in the hall walked out and didn’t go meet SEIA to talk about this. It seemed like a lack of enthusiasm. Were there prominent actors in the solar industry who just sat this out?

Like large companies? Not really. There were two main challenges to get people to double down and invest in policy success: First was the concern that Washington was too fractured to take early action. Second is that when solar was growing and equity valuations were high, it was hard to imagine a future state where things weren’t going well. So the apathetic sentiment you referenced was a function of either the first, the second, or both. The truth is, you can’t invest in policy success at the last minute.
There were core sets of leaders, including the SEIA Board and me, who were adamant we invest early. The truth about the extension is that we were good, we did a lot of things right across the industry, and we were also lucky. A lot of other political forces aligned that helped us make this succeed.
I would love to see a program that effectively has the entire U.S. solar industry pitching into either advocacy or promotion of solar in general. It’s a relatively small group of companies that do a lot of the work.
There’s a general sense that we’ve got to find a way as an industry to grow up and have more people participate. If you look at more mature industries, people understand they have to participate in policy advocacy. Take the utility and oil and gas industries – look at their organizations and advocacy efforts vs. SEIA and all other advocacy groups in solar, and you’ll see we’re outspent 10 to 1.

A number of leaders I spoke with both inside and outside the solar industry were calling for graduated step down vs. extension with another cliff. How did the step-down end up in the bill? Whose brainchild was that?

I helped SEIA come up with a framework, and we consulted with constituents across the industry to garner broad-based support. SEIA then provided the framework to solar champions on both sides of the aisle.
What happened was people broadly understood that the step down allows the industry and investors to plan for gradual changes. The challenge with a cliff is that it might drive innovation for cost declines, but not consistently. The industry learned from programs like the California Solar Initiative that gradual step downs drive constant innovation and work well.

I think that is what is so surprising about this extension – not only that it happened, but that it is also so well-designed. How is it that the solar industry managed to get the perfect ITC extension?

We have strong bipartisan champions. What’s unique about solar vs. the other generation technology types that go for incentives is that we have a broad number of consumers who buy our product, we have more than 200,000 people who work in industry and a supply chain that is creeping toward a million workers in the U.S., and what we do at utility scale reduces costs to ratepayers.
When you look at that, you realize that we enfranchise a lot of constituents. Politicians get paid in votes. Other technology types are typically only utility-scale and their supply chains tend to be narrower, and so they don’t enfranchise and benefit as many voters. Many leaders on both sides of the aisle also realized a lot of innovation can still happen in solar and that fundamental technology change could make this an ever-more competitive and widely adopted solution to our energy problems. But the only way to get that is long-term surety. We needed a long-term extension to do that and to continue to build large-scale projects, which have long lead times but benefit ratepayers and utilities in their states with a commodity price hedge, low cost power, and clean power. Looking at those three reasons, the long-term extension makes more sense for solar than any other technology type. That’s why a long-term extension was accepted.

Anything else about how this came about?

I personally reached out to environmental leaders and shared the following: “If the US solar industry doesn’t get a long-term extension of the tax credit, you’ll see a tremendous decline in the amount of solar installed in the U.S. and a serious setback to our ability to move to a clean economy. Our rate of change and growth as an industry is so strong that we have a real shot at moving to that clean energy economy.
“There will be fossil fuel companies – oil companies – who will advocate for their position. They’ll ask for things in this bill and whether they get what they want or not, it won’t matter. They’ve drilled the oil and will pump it with or without incentives.” I said: “I understand that you may not like how these things get paired in the final bill, but I’d strongly ask you not to oppose it. The tax credit extension is an existential problem for solar. For oil and gas, it’s a nice to have.” So my request was that they lodge a protest but don’t actively oppose.
I think everyone in the solar industry feels passionately about renewables. We want to be right and have it our way. This time, it was way more important to be right and get what we needed than to get it the way we wanted. I told other solar leaders I was going to take that position and would be willing to say it publicly, so I am. We will be doing a lot more good for the environment with the ITC for solar.

There were definitely environmental leaders, including Bill McKibben, who opposed the compromise that enabled this extension.

People in the solar industry, because they’re by and large also environmentalists, had a hard time saying to environmentalists, “We’re going to have to disagree, because I will make the change that needs to happen to get to a clean economy and I can’t do that without this extension [of the ITC].” I look out my window in Noe Valley and I can see dozens of houses with solar panels: That’s driving change. The fact that Porsche wins races with electric cars and people are buying Teslas tells me the future of our power-train will be clean and we won’t have soot and grime build up in cities. I think that’s a future anyone with an environmental bent can get excited about, but if you don’t have clean energy industries that are large and robust, you’ll never get there. Ultimately, getting the ITC extended was a total team effort.