North Carolina’s solar farm program provides for unprecedented opportunity and prosperity for the few at the top. But for the rest of us, the opportunity for success is diminishing. Here’s why.
The typical solar farm in North Carolina is 5 MW, requires about 40 acres of land and costs between $11 million to $14 million. A solar farm can be erected by solar developers in two to three months. They generally do a good job and have become quite wealthy in the process. Once the solar farm is in operation, little additional labor is required.
Who is paying for all of these solar farms? To answer, we have to refer to Senate Bill 3, passed by the N.C. General Assembly in 2007. This 28-page bill was written to promote the development of renewable energy in North Carolina, but a significant portion of the bill focuses on solar energy systems. The bill required all utilities in the state to buy renewable power in accordance with the following schedule: In 2012, 3 percent of retail sales should be solar; in 2015, 6 percent; in 2018, 10 percent; and in 2021, 12.5 percent.
The law requires the utility to buy all the green power generated by the solar farms, even if the utility doesn’t need it. In other words, the utility might have to shut down some of its boilers to adjust to the green power available. The utility must pay the solar developer for the green power generated (currently, this cost is in the $0.06 to $0.07 per kwh range). This cost is substantially higher than what it costs the utility to generate the power in-house. Keep in mind that this green solar power is intermittent and available about five hours per day on average.
This is accomplished by offering potential investors a state tax credit of 35 percent. For example, an investor can put $2 million into a solar farm and reduce taxable income by 35 percent, spread over a five-year period. This was a game-changer and has attracted many investors such as large banks, insurance companies and large companies that have large electric loads (for example, Walmart, Lowe’s, Google, Amazon, etc.). The response to this tax credit offer has been so positive that a typical solar farm can be funded with only five or six investors. In fact, the tax credit is so attractive that the solar developer often does not have to put any of his own cash into a project.
The final step in evaluating this solar farm process is to determine the effect that the tax credits have on the state’s economy. In 2014, for example, the tax credit incentive program enabled solar farm investors to reduce their overall tax obligation to the state by a total of $124 million. This is a significant benefit for solar farm investors and a significant loss to state government. In practical terms, this revenue loss reduces the services that the state can provide. It affects a whole host of issues (salary increases for our teachers and state employees, economic development, highway construction).
We also have to recognize that the $124 million loss is for 2014 alone. That figure will increase because so many more solar farms are being built. And we can’t forget that each investor will claim his tax credits over a five-year period. This means that an investor who took the first tax break in 2014 will still be realizing tax benefits on investment in 2018. This is a bit scary.
My sense is that my friends in the solar farm business did not anticipate the negative effect this program would have on the state’s tax structure and its economy. I certainly did not. However, now that the results are in, it is time for the General Assembly to re-evaluate Senate Bill 3 and the entire solar farm program. We can’t continue down this path if we want our state and our people to prosper.
Herbert M. Eckerlin, Ph.D., is a professor of mechanical and aerospace engineering at N.C. State University.