Investors shouldn’t consider cash based incentives when investing in solar and luckily they don’t have to

Solar performance based incentives were critical in sparking the solar revolution, but now they just don’t make sense for investors or taxpayers. Competitiveness, efficacy, and securitization will continue to drive solar growth.

The latest edition of Lawrence Berkeley National Laboratory’s annual Tracking the Sun report outlines the correlation of falling solarcosts with expiring performance based incentives (PBIs). PBIs are direct cash incentives like rebates. In some states PBIs began around $8/W (adjusted for inflation) in the early 2000s (Fig. 1). Of course, more early adopting states, states that highly encouraged solar development and are considered today’s leaders, made the upfront investment with taxpayer dollars. Today, these states have virtually zero solar PBIs and have been able to put tax revenues to other causes. More laggard states have adopted and continue to use a PBI system, however, the application is limited.Â

PBIs are historic and fueled the solar economy for sometime. But, just as fossil fuels continue to be a distant dream of demand, PBIs are no longer needed. PBIs, in short, just don’t make sense. Why put the tax payer’s dollar towards a technology that is already competitive on its own? Why spend millions of public funds when private investors are fighting to get in on the next deal? Fig. 2 depicts just how drastically costs for solar systems have fallen. The technology for such projects has become more efficient and cost competitive. Today, solar isn’t just good for the environment, it’s good for the bottom line.Â

In a comparative analysis of Fig.1 and Fig. 2, solar PBIs once covered over 50% of solar project costs. Since then, PBIs have been phased out in the larger markets of California, Massachusetts, and Arizona, and equate to roughly $0.5/W in other states. This is all okay. Other incentive markets such as tax credits and solar renewable energy certificates have pushed out the direct cash incentive market. And general market forces have rationalized solar projects for the average investor. Overall, the solar energy industry is maturing at a faster rate. More investment incentives are being phased out as we see in the scheduled step down in the solar ITC and increasing securitization in the market. And with maturation comes more competition. The innovation in technology and influx of capital by investors will be the driving forces to keep the solar fire burning stronger than ever.Â