Oregon’s Surprising Solar Industry

Oregon, ranked 27^th by population, is ranked 9^th in US solar energy according to the Solar Energy Industry Association.  At the close of 2008, Oregonians had installed 4.8 MW, a 330% increase over 1.1 MW in 2007. Oregon is 7^th overall in cumulative US installations with 7.5 megawatts.

This is due in large part to an innovative and well run slate of state incentives and subsidies.

The largest single installation is the state is the 858 kW system on the roof of the Portland Portland Habilitation Center (PHC).   The installation uses 4,766 Day 4 modules, was installed by Dynalectric, and Commercial Solar Ventures of Portland brought US Bank and others to form a structured partnership to fund the $7.5 million installation.  It may be the first significant example of 3^rd party finance in Oregon.

Other notable commercial installations include Pepsi Cola (2), Kettle Foods, Lewis & Clark College, and the Oregon Department of Transportation.  In May of this year, Oregon’s Energy Trust reported funding approx 300 PV projects in 2008 and over 1,000 systems since 2003.  In addition, they have funded 2.5 MW of larger, custom projects.

There is very little activity in Oregon’s 3^rd party finance market.  In several states, solar developers own and operate solar power systems and sell electricity to a “host” customer through a power purchase agreement (PPA).  PPAs were approved 2007, but collapse of US financial markets may have delayed expansion of PPAs into Oregon.  Also, most Oregon banks rejected the type of 3^rdparty investment that has fueled meteoric growth of PPAs in other states.  However, SunEdison (leading US PPA company) and SolarCity (residential leasing) have recently entered the Oregon market.

Oregon may have one of the best state incentive programs in the nation.  In combination with federal cash grants and tax subsidies, Oregon’s cash buy-down program and state tax credits can re-pay 90% of the initial construction cost of a solar installation.  The simple payback period is about three years for commercial projects.

Energy Trust of Oregon is a ratepayer funded non-profit tasked with investing in effective energy conservation and offsetting the “above-market” costs of renewable energy.  Along with energy efficiency programs, Energy Trust offers a solar “buy-down” program that pays up to $640,000 of a project’s cost.  Cash payments from the buy-down program range from $0.90 to $1.75 per installed watt depending system size and utility service area.

The Oregon Department of Energy (ODOE) administers what may be the most innovative solar incentive in the nation.  The Oregon tax code grants a 50% state tax credit for business that install solar power systems (Business Energy Tax Credit or BETC).  For those who do not need the tax credit, the ODOE administers a “pass-through” program wherein individuals exchange their tax credit for a discounted cash payment equal to 33.5% of the initial cost of the system.

Many US states are in the process of developing a serious solar incentive program to meet climate and energy challenges.  Oregon’s Energy Trust and ODOE’s BETC (Betsy) programs could be a model for emerging incentive programs across the US.

Solar energy in Oregon still faces several challenges.  Oregon also has a surprisingly small percentage of commercial projects.  In conversations with building and facilities managers we found significant resistance to the initial cash outlay.  We also learned that commercial lease structures were an obstacle. 

Commercial installations grew from 29 in 2003 to 109 in 2007. Though official statistics are not yet available, we estimate the number of commercial installations may have dropped to between 50 and 75 in 2008 due to the recession.  Equally surprising, there are currently only about 15 commercial, 6 school, and 5 government installations in the greater Portland Area.   We believe that the limited financing for power purchase agreements is a major factor.

There are other clouds on the Oregon horizon.  The state legislature is planning to cut or eliminate the Business Energy Tax Credit citing budget shortfalls.  Governor Ted Kulongoski vetoed a similar bill (HB2472) earlier this year.  This is a serious challenge to Oregon’s solar future.  Many in the industry believe that killing the BETC will severely limit commercial, and perhaps, any future utility-scale solar in Oregon.