Wednesday, March 4th, 2020 at 8:57pm
Dylan Westerlin of NM Solar Group carries solar panels on the roof of First Presbyterian Church, 215 Locust NE. The state Legislature has approved Senate Bill 29, which offers a 10% state income tax credit for individual solar systems. (Roberto E. Rosales/Albuquerque Journal)
Steven Cordova, left, and Dylan Westerlin, right, both of NM Solar Group, install solar panels on the roof of the First Presbyterian Church in Albuquerque. (Roberto E. Rosales/Albuquerque Journal)
Copyright © 2020 Albuquerque Journal
After nearly a two-year slump in New Mexico’s solar market, business is booming again at Albuquerque-based installation and wholesale firm Affordable Solar.
Company revenue grew by 330% to $140 million in 2019, CEO Ryan Centerwall said. That includes 18% growth in residential installations and robust hikes in commercial and utility-scale activity.
“2019 was a record year for us,” Centerwall told the Journal. “We grew our workforce by about 42% to 128 people.”
After a severe slump in 2016 and 2017 due to the loss of state tax credits, solar companies in New Mexico are experiencing a surge, for several reasons.
The next two years look even better than this year, Centerwall said, because many consumers are rushing to install solar systems before a longtime federal income tax credit goes away.
The credit, which has allowed individuals to receive tax rebates equal to 30% of a photovoltaic system’s cost, helped jump-start the PV market among homeowners and small businesses over the past decade.
But the credit began ratcheting down for the first time this year, dropping to 26% in January. It will decline again to 22% next year and disappear in January 2023.
The scramble to access the credit before it sunsets is helping reverse a two-year decline in demand that buffeted the local solar industry in 2017 and 2018. But it’s only a short-term boost, given the pending cutoff in 2023.
To help sustain industry momentum beyond the loss of federal credits, the governor and legislators pushed in this year’s legislative session to reinstate the 10% state income tax credit that ended in 2016. The Legislature approved the legislation, Senate Bill 29, and Gov. Michelle Lujan Grisham signed it into law Tuesday.
In the short term, the bill could significantly accelerate consumer demand, since the state and federal tax credits together will allow individuals and small businesses in New Mexico to cut more than 30% off the price of a solar system, generating optimism among local installation businesses, such as Affordable Solar, at least for the next three years.
“We believe 2020 will be another record year in residential business, and 2021 as well, given the new state tax credit and the urgency for consumers to get systems in before the federal tax credit goes away,” Centerwall said.
Bill supporters are hoping SB 29 will help boost market momentum in the long term, as well, since the state rebate will remain in effect through 2028, said Louise Martínez, director for energy conservation and management at the Energy, Minerals and Natural Resources Department, which will manage consumer rebate applications.
“It’s the disappearance of the federal credit that made passing the state tax credit this year so important,” Martínez said. “We all see that cliff coming.”
Government officials and industry leaders say loss of the state credit in 2016 contributed significantly to industry decline in 2017 and 2018. The rebate had been in effect for nearly 10 years.
Before the credit ended, the local market was expanding aggressively, with some 60 solar design and installation companies operating around New Mexico. In addition, national firms began canvassing for local customers, including Solar City, Vivant and ZingSolar, all of which offered solar leasing options for the first time for homes and businesses here.
But after the state tax credit disappeared, the market dropped rapidly. The local industry lost a third of its workforce from 2017 to 2019, falling from a peak of about 3,000 employees in 2016 to just 2,000 last year, according to the Washington, D.C.-based Solar Foundation’s latest annual Solar Jobs Census, released in February.
The hemorrhaging included the loss of Solar City, which abandoned New Mexico in 2018, plus cutbacks and company closings among local businesses.
Longtime installer Consolidated Solar Technologies shut its doors in January 2019, and statewide installer Sunpower by Positive Energy closed its Las Cruces office and cut its workforce by about 24%.
Other local and national factors also hurt the industry, including federal imposition of a 30% tariff on photovoltaic imports from China and other countries; market saturation among early, higher-income solar adopters; and fierce competition among solar companies to start signing up less wealthy consumers.
The solar tariffs, combined with new tariffs on imported steel, particularly hurt, said NM Solar Group President and CEO Nick Kadlec. That company managed to grow during the down years by aggressively pursuing new customers in eastern and southern regions of the state where market penetration is still low, but tariffs raised prices, making sales more challenging.
The solar tariffs raised costs for PV panels and the steel tariffs hit prices for the mounting hardware, Kadlec said.
At Affordable Solar, tariffs cut into the utility-scale installation business.
“Without the tariffs, our commercial and utility-scale projects would easily grow by 30% to 40%,” Centerwall said.
For Consolidated Solar, competition from national firms offering leasing options created hardship, said electrical contractor Jerry Mosher, CEO of Mosher Enterprises Inc. and co-founder of Consolidated Solar.
“Leases killed us,” Mosher said. “These guys came in with aggressive marketing of no-money-down deals on immediate installations. They hit neighborhoods everywhere, canvassing them and offering free solar.”
Many of those challenges remain, but market conditions have improved. For one thing, consumers are now purchasing more than leasing systems, in part because buying them outright offers more savings and benefits, and some customers have been hurt by “misleading” lease practices, Kadlec said.
In addition, financing for systems has gotten better, with more lenders, longer loan terms and better interest rates.
“It’s easier to qualify for credit now, even with lower credit scores,” Kadlec said.
And solar tariffs have begun ratcheting down by 5% a year.
Perhaps most importantly, despite tariffs, continual improvements in technology, system efficiency and installation practices, combined with economies of scale, have markedly cut retail prices over the past decade, making PV more affordable for consumers. The average cost nationally for residential solar systems fell from $7.24 per installed watt in 2010 to $2.80 in 2017, according to the National Renewable Energy Laboratory and Barclays Research.
Early-adopter saturation still makes sales challenging, but the overall market remains huge and the new 10% state tax credit will help build demand, Kadlec said.
“We believe the state credit will provide a significant increase in sales over the next two years,” Kadlec said. “And it will mitigate job losses as the federal tax credit goes away.”
EMNRD estimates the new credit will lead to 4,000 more solar installations per year. The program is capped at $8 million in collective payouts annually, with a $6,000 ceiling on individual rebates.
“There’s a lot of backlog demand built up since the tax credit went away in 2016, so we believe we’ll reach the $8 million cap every year,” said SB 29 sponsor Senate Majority Whip Mimi Stewart, D-Albuquerque. “But we lowered the upper limit from $9,000 per system under the previous law to $6,000 now to spread the wealth around and finance more systems.”
Apart from creating jobs, SB 29 will help New Mexico achieve its goal of 50% renewables by 2030, 80% by 2040, and carbon-free generation by 2045, Stewart said.
Indeed, with nearly 20,000 individual solar systems currently connected to Public Service Company of New Mexico’s grid, customer-sited installations now account for about 131 megawatts of power, compared with the 237 MW PNM currently gets from utility-scale solar systems.