What are the origins of the solar cluster in Washington? Can we quantify the industry’s current status? What state-level policies influenced solar’s growth? This section will attempt to answer those questions.
Incentivizing Solar Adoption
In 2005, the Washington state legislature enacted the Renewable Energy Cost Recovery Incentive Program (RECRIP). Taxpayers installing residential renewable energy systems receive either a check or utility bill offset for locally-produced electricity. Reimbursement rates are highest if residents purchased inverters and PV modules from in-state manufacturers. In the same year, Congress passed the Energy Policy Act of 2005, instituting a 30% tax credit to offset taxpayer investments in residential renewable energy systems. These two subsidies created a new payback landscape for solar energy, dramatically improving the attractiveness of solar investments. Washington residents, already exhibiting a strong culture of environmental stewardship, took advantage of the incentives and began purchasing residential solar.
Many excellent publications already examine the value propositions and growing market for solar in Washington. Additionally, detailed descriptions of Washington’s “Renewable Energy System Cost Recovery” program and other solar industry tax incentives can be found online through the Department of Revenue. To avoid redundancy of already-published information, this report focuses in on a few key highlights as well as presenting any updated, unpublished data.
Current Penetration & Market Growth
There is no single source of information to document Washington’s solar installations or production. Therefore this report uses certifications a proxy for installed capacity. A public records request filed with the Department of Revenue returned a total number of individual and community solar certifications issued under the RECRIP, corroborating very closely with nonprofit and trade group estimates. From July 2005 to June 2012, the Department of Revenue (DOR) issued 2591 individual and nine community solar certifications under RECRIP. Participation increased 147% in the three years following.
As of September 23, 2015, the DOR has issued 8,990 individual renewable system certifications and 44 community solar certifications. Assuming each individual solar system averages 5.5 kW in nameplate capacity, residential solar system capacity in Washington stood at 49.45 MW. This is just one-tenth of the nation’s total installed residential capacity. For comparison, 49 MW is roughly equivalent to the generating capacity of the Tacoma PUD’s Alder Dam Powerhouse, providing enough solar energy to power 29,670 homes. Expansive growth is expected to continue into 2016. One manufacturer opined that the state market is likely to expand at a pace of 20 MW/year, or the energy capacity for 12,000 homes a year. This roughly matches 2014 and 2015 installation trends.
The RECRIP program has incentivized residents expedite their decision to buy solar, as systems installed earlier benefit from a longer time horizon of payback. Interest in the program has been steadily growing. A public records request filed with the DOR revealed public utility tax credits claimed each year since 2005. (The public utility tax credits are directly equal to the production incentives paid to Washington residents, as the utilities are a pass-through entity for this state program.) DOR records show that utility payments have risen nearly 90% each year since 2007. As of September 23, 2015, Washington’s state budget has forgone $17,023,303 in public utility tax receipts. The state has spent that sum instead on payments for electricity generated through certified renewable systems, the bulk of which are residential rooftop solar systems.
A third metric to assess PV market strength in Washington is through net metering participation. Under the state’s current policies, all utilities are required to make 0.5% of their peak demand available to net metering systems. Though that cap might suffice most utilities in present day, four utilities are already near to the 0.5% allotment: Seattle City Light, Puget Sound Energy, Jefferson County PUD, and Clallam County PUD. As net metering is available on a first-come, first-serve basis, many consumers will be dis-incentivized to purchase solar as the return on investment drastically differs without net metering. Some consumers quickly understood the environmental and economic value proposition and made the investment. At one public workshop, Seattle City Light (SCL) reported overseeing about 50 rooftop solar installations a month in 2015, up dramatically from former years where annual installations were in the double digits. Puget Sound Energy has likewise seen a dramatic increase in grid-connected solar installations over the past five years. SCL’s net metering cap is $4.01M, or 20 MW, which they expect to hit by June 2016. After the cap is reached, SCL plans to allow new solar consumers into incentive payments by tapering rates for all. Even though not legally required to do so, SCL is also generously allowing new PV customers to participate in net metering. PSE’s net metering cap is 50 MW, an estimated $10.1M. As of 2013, PSE’s net metering participation levels stood at 10.8 MW. If truly near their cap, around 39.2 MW of consumer generator capacity was added in 2014 and 2015.
PV market growth is evidenced along the entire supply chain. One local PV installer, having operated 14 years in Puget Sound, reported a twofold increase in demand for their services over just the past two years. This installer shared that Washington-made inverters and panels are keeping up with demand. However there is a shortage of electricians, slowing down the process of connecting PV system installations to the grid. Other potential roadblocks in the supply chain, be it permitting, installer skills, or rainy weather were not current issues.
The solar advocacy group SEIA reported 2,400 jobs created in Washington as of 2014. Though the Bureau of Labor Statistics does not have a NAISC code to track solar jobs specifically, two short-cut heuristics might provide alternative estimates. Method A: According to a Congressional report on PV manufacturing, one-fifth of all solar energy sector jobs are related to manufacturing, with the remaining in sales and distribution, finance, research and development, and installation. This 20 percent ratio is corroborated Census publications on enterprise-level jobs. In 2011, a total of 55.8 million were employed across all industries, and of that, 12.2 million worked in the manufacturing sector. Using a 1:5 ratio and an estimated base of 625 manufacturing jobs gathered through primary and secondary research, a “best-guess” number of 2015 solar jobs in Washington is 4,380. One Washington energy specialist uses a ratio of 3 installation jobs for every 1 job created in manufacturing. A quick calculation using that 1:3 ratio returns 3,163 installation jobs.
This solar workforce offers living-wage salaries and non-manufacturing jobs are not at risk of being offshored. According to an IBIS report, wages in the solar power industry account for 16.5% of industry revenues. “Wages as a share of revenue is expected to decrease slightly in the next five years, as the industry approaches maturity and the steady flow of new workers standardizes wage costs. Still, the industry’s high average wage indicates the highly skilled labor force employed in the industry.” Only two manufacturing firms filed disclosable annual tax reports to the DOR, limiting salary information. According to 2013 public filings, Itek’s management and sales and service positions made $15.01-$30/hour and production jobs paid $10.01-$15/hour. In 2013, 100% of REC Silicon’s 449 jobs were paid $20.01/hour or more, and all were eligible for medical and retirement benefits. An overview of solar careers is available on Energy.gov.
Solar Supply Chain
As an emerging industry, firms frequently experience booms and busts, growth and consolidation. To illustrate: Silicon Energy was a major manufacturer of PV panels in Washington. However, in the past year Silicon shifted all operations to Minnesota, leaving Itek Energy as the lone PV module manufacturer in Washington. As PV modules become commodities, significant scale (100-150 MW manufacturing production capacity) will be necessary at the firm level to maintain national competitiveness.
Given the shifting firm cycle and technological changes that will evolve the solar industry over the coming years, a detailed landscape of Washington’s supply chain will likely not be accurate one year from now. This report therefore highlights a few key features that help Washington compete on national scale in solar, particularly with states exhibiting strong or emerging clean technology sectors.
- Policymakers understand the importance of clean technologies as an emerging economic sector. In 2014, Governor Inslee created and filled a new sector lead role to oversee the economic development strategy for clean energy technologies. In the last two budgets, legislators approved giving Commerce $36M and $40M to launch and run a Clean Energy Fund.
- Nearly the entire solar industry value chain is present and growing in Washington. Silicon production occurs in Moses Lake, PV panels are produced in Bellingham, solar inverters are produced in Poulsbo, solar installation services are offered in nearly every county, both WSU and UW offer clean energy research, there is an established network of angel investors and venture capitalists, and two out of five grant-funded national energy storage pilot projects are underway here. Competitive advantages arise if these resources cluster together and fluidly operate in a collaborative ecosystem. The manufacturing sector should learn from and support the installation sector, battery storage research labs must regularly hear from and work with utilities, and non-profits and private investors must partner with the government by providing promotions, analysis, and funding. And so on.
- Solar’s growth is creating a significant new market opportunity in an industry that Washington already dominates – tech. The greater Seattle metro area has one of the top tech clusters in the world. As renewables integrate with the grid, utilities and consumers will require sophisticated software and data analysis to manage it all. Energy advisory services, distributed grid services, energy management software, smart grid software, and cyber security applications, to name a few, will be some of the highest-valued services that result from solar’s growth. Whereas manufactured components are nearly commoditized and Washington-based producers could lose their economic foothold, ancillary tech services are poised to provide substantial long-term economic benefits.
Potential Future Value of Solar & How to Capture It
It would be extremely useful to identify Washington’s market saturation point and growth forecasts for purposes of assessing solar’s impact on the utility grid and creating responsive legislation. Unfortunately no primary or secondary sources surveyed for this report consistently referenced the same market ceiling, or maximum solar potential.
There are currently no publicly available sources of data on installed solar in Washington. This research did not identify any state agency responsible for tracking and publishing in-state solar installations. There is a voluntary open source database to track nationwide PV installations and capacity. However, data is not validated and all Washington information ends in early 2014. Let’s review a few options as a starting point, with the recommendation that further studies occur
A 2013 report from the Environment Washington Research & Policy Center caps Washington’s rooftop solar market at a generous 14,800 MW, or 14.8 GW. A second approach assumes one solar system for each housing unit. Subtracting the 8,990 systems already installed under RECRIP, there remain 1,934,101 potential “solar ready” homes in Washington. At 5.5 kW per system, housing units could potentially install an additional 10,637 MW or 10.6 GW. Holding 2015’s installation rate of 20 MW constant in future years, Washington residents would finish installing all 10.6 GW in the year 2546.
Both the Policy Center’s estimate and this rough method are not sufficient to use for public policy planning or private business forecasting. Why? These figures may or may not incorporate buyer preferences, estimates on future electricity prices, or phasing out of tax credits that boost current installation rates.
A triangulation figure comes from the esteemed Northwest Power and Conservation Council (NWPCC). NWPCC assessed Washington’s rooftop PV technical potential to be 13,599 GWh, produced from 13 GW in nameplate capacity. NWPCC conducts the most robust models found in this round of research. However, the particular figure above relies upon a 2012 NREL estimate. National forecasts for solar are known to be overly conservative, and the data are nearly three years old already. NWPCC has created extremely insightful, in-depth models for solar in Boise, Idaho and Portland, Oregon.
As presented, it would be risky to directly extrapolate from the NWPCC studies for a Washington context. This is due to higher solar radiation at those locations, different consumer preferences, state-specific regulations, and a myriad of other factors that influence solar’s adoption and usage. Even with their flaws, these three estimates can be reference points for future analysis in Washington.
Why is it important that the state begin tracking and regularly publishing solar installations and capacity data? Regulatory bodies, utilities, sector advisors, policymakers, and industry and business leaders require updated and accurate solar information in order to evaluate policies, forecast energy supply, assign accurate prices, investment in business growth, and so much more. Data on location of installation as well as capacity vs. actual production would be particularly valuable.
Increasing participation in the state production incentive programs, as well as a push to receive the expiring federal tax credit, will very likely continue the surge of PV demand in 2015 and 2016. In an effort to match demand with supply, Itek Energy is expanding manufacturing capacity by 20% in October 2015. It follows that the larger supply chain of local solar firms will expand and increase employment over the next year+ as well.
Additional data is critical for this industry to continue to realize its full value. Washington’s solar businesses need reliable data on their industry in order to make business growth decisions and engage the workforce. Consumers deserve to know more about the return on their tax dollars, as well as how far into the future net metering policies will last. Last but not least, utilities deserve to know detailed PV capacity as it will give them opportunities to help inform solar installations. Installed solar capacity data and reliable growth forecasts are vital to keeping the entire power grid running and affordable.
This is part of a blog series with five sections.