Overview: New Solar Incentives for Washington!

In the early morning hours of July 1, 2017, the Washington State Legislature finally passed a bill that makes changes to the solar incentive program. There is good news here both for existing solar system owners and owners-to-be! But it’s not all good news, unfortunately.

The bill that passed creates a new incentive program that started, July 1, 2017. It declares that the existing program ended June 30, but anyone who has recently installed a solar system can still apply for the existing program through September 30th.

The New Program

The goal of the new program was to provide a method by which the solar industry in Washington could be weaned off of incentives, and survive on its own. It does this by offering less incentives over time, although there’s still a rather large drop at the end of the program, which is now June 30, 2021.

Incentive Rates

First, the new program creates a distinction between two different types of systems: residential and commercial. A commercial system is one that is capable of generating more than 12 kW. Only 25% of the program’s funds, per utility, are allowed to go to these commercial-scale system, and they have much lower incentive rates. I personally argued about this arbitrary limit, as I have a 12 kW system at my residence and it does not meet all of my needs, despite being clearly residential in nature. I know someone else who has a 17 kW system on his house.

My 12 kW Solar Array.

The bill also contains text about community-solar systems and utility-owned shared-commercial-scale systems, but I won’t cover them here other than to say that community solar systems use the same rate as residential-scale systems.

The incentive rates are listed by the state’s fiscal year; FY 2018 starts July 1, 2017, and ends June 30, 2018. The rate you get depends on the year you install & certify your system. The rate won’t go down; you would get paid that rate for 8 years unless the individual limit is met, described below.

Fiscal Year Base Rate
(Residential)
Base Rate
(Commercial)
WA Bonus
2018 $0.16 $0.06 $0.05
2019 $0.14 $0.04 $0.04
2020 $0.12 $0.02 $0.03
2021 $0.10 $0.02 $0.02

As you can see, rates decrease gradually over time. There’s a pretty stiff punishment for having a system 12 kW or larger. The incentive for having in-state-made panels is quite small. Previously if an array was made in Washington, it got a 260% bonus, and now it would be 31% bonus. This is at odds with this bill’s stated purpose of promoting Washington jobs. An 8 kW system installed in FY 2018 will get an additional $3,200 over its lifetime for using made-in-Washington panels. I don’t know for certain, but I suspect this will be a tough sell, and we may see a lot of imported panels being installed instead.

Individual Limits

The program still includes a $5,000 annual payment limit for residential systems, but a $25,000 limit for commercial-scale systems. The $5,000 limit for residential-scale is a bit odd because with the given rates, there’s no way a residential-scale system can get anywhere near that amount. It’s just a leftover from earlier versions of the bill which had higher rates.

Annual Incentives by System Size (FY 2018 Certification). Very rough approximation of annual production at 1 MWh / kW capacity.

Incentive payments are fixed at either 8 years or until 50% of the total cost of the system has been paid, whichever happens first. This is different from the old program which ended on a specific date, June 30, 2020, regardless of when it was installed or what its cost was. I can see why it makes sense to only cover a portion of the cost, but 50% may be too low of a bar. Since electricity is so cheap in Washington, it takes a lot for the rest of the cost to get paid for, depending on federal incentives.

Utility Limits

Each utility can now pay out up to 1.5% of their 2014 power sales in incentives. This is a change from 0.5% and fixes it to 2014 rather than the most recent year. This limit applies to both the old and new programs combined. The legislature has an option in 2019 to increase this to 2% based on data from Washington State University, who will be administering the program.

To examine whether this limit is reasonable, we can examine Puget Sound Energy, who has provided historical information on their incentives. Their 2014 power sales were $2.08 billion, which makes their 1.5% limit $31.2 million.

In the following figure, I estimated the growth for 2017 and beyond. Because the new incentive rates are much lower, the growth in incentive payouts is much less, even though the number of systems being installed might be about the same.

PSE Actual & Estimated Incentive Payouts per Year. Assumes 80% year-over-year growth in installations.

As you can see, the annual limit is most likely not in danger of being reached by PSE.

Program Limit

Yet another limit applied to this program, however, is that the total payout from all utilities cannot exceed $110 million for the life of the new program. In my estimation used above, the total payout from PSE alone of this new program would be $93.3 million. Since PSE represents only a portion of the solar installations under the program, it appears to be highly likely that this total payout limit will be reached before the end of the program. According to the new law, WSU must stop accepting new applications to the program when they predict that adding a new system will result in this happening.

I don’t have all the data right now that I would need to estimate when this might happen. I would need to know numbers from more utilities, or at least what portion of the solar installs in the program are with PSE. If you have a source for that information, please let me know and I can update this post with my prediction. My gut feeling is that some time in late 2019, they will have to stop accepting new applications to the program, thus defeating the ramping-down plan.

The Old Program

Participants under the old program will continue to get incentive payments for production through June 30, 2020. The rate that will be paid will be the same rate that was paid for the year ending June 30, 2016, rather than the original expected rate. For customers of Puget Sound Energy, like myself, this means a reduction of just 6.66% from the originally published incentive rates. Other utilities had reduced incentives more, so their payouts will be less, and some had not yet reduced incentives at all.

The 1.5%-of-utility’s-power-sales limit includes incentives paid from this program, but there is no option to reduce incentives more — the only option is to stop accepting new applicants to the new program. In addition, the $110 million total limit applies only to the new program, not the old program. As a result, it’s basically guaranteed that participants in the old program will get at least most of what they expected when they installed their systems.

EDIT (7/5/2017): Note that participants in the old program will need to send an application to the WSU energy extension program by April 30, 2018, to continue to get payments. This is just because WSU is taking over management of the program. I assume the utilities will communicate with their participants once this application is available.

Mixing Programs

The bill does include provisions regarding mixing the two programs. If you have an existing system under the existing program, you can install a second system and put it under the new program. But you cannot change your existing system from the old program to the new program.

The Verdict

I’m not super satisfied with this solution. It’s better than doing nothing, but there are definitely some changes. I would have changed the 12 kW cutoff to maybe 20 kW. I don’t think this would substantially change the cost of the program, if at all. I would have ramped down the base rate more quickly so that it was closer to zero at the end of the program, making for a cleaner transition off the program in 2021. Additionally, of course, I would have either lowered the rates or increased the overall limit to make it less likely that the program would hit its limit half way through.

What do you think? Feel free to leave a comment below!

22 thoughts on “Overview: New Solar Incentives for Washington!

  1. Thanks for the explanation of what’s going on.

    You state that the small additional payment for Washington built systems “…is at odds with this bill’s stated purpose of promoting Washington jobs.” Most of the solar jobs are in installation, not manufacturing, so I think the bill as writen accomplishes this goal.

    1. Thanks for your response Andy. It is true that most of the jobs are in installation across the state, but there are at least 100 people employed at Itek as well. Itek is in Senator Ericksen’s district. There are probably only a couple dozen installer employees in his district. Since he is the sponsor of the bill, if he was actually interested in keeping more jobs in his district, he would have made the in-state incentive more substantial. That’s just my opinion.

  2. I sell solar for a Washington state company. And I feel that we are so blessed to have a new bill in this political climate. The 12 kilowatt limit for commercial systems which then steps down the incentive very far is not logical or intelligent, but it’s what we got to work with at this point and I’ll be selling a lot of 11.99 kilowatt systems. With the price of Solar coming down by half in the last 4 years I can now sell 20 kilowatt systems for a reasonable price. So when this program is over the size of residential systems will surely explode when solar is a dollar a watt, but for now quiet comically I guess I’ll just sell a lot of 11.99 kilowatt systems. Let’s all thank our legislatures for this gift, they were so close to not doing anything at all.

    1. Thanks Stu. I am hoping to be at SolarFest but have a company picnic that day as well, so I’m trying to figure out how to juggle that.

    1. Yeah; sorry, I forgot to mention that. The sales tax exemption for solar systems will now expire on September 30, 2017.

  3. In the second to last graph, in this footer, Very rough approximation of annual production at 1 MW / kWh capacity, did you intend to say, 1 MWH/kw capacity?

  4. So, if you disable a few panels of your current system, you will fall under the 12 kW boundary and you will triple your incentive payment. That sound about right?

    1. Since my system was installed prior to July 1, 2017, it doesn’t qualify for the new program, and the 12 kW boundary doesn’t apply in the old program. My system is 12.125 kW, so if I had to certify it under the new program I would have installed it with one less panel, which would, as you said, greatly increase the incentive payment. As one installer told me yesterday, he expects to be installing a lot of 11.99 kW systems now.

  5. Hi Tyrel-
    Thanks for this great summary! One thing I would love to see added is SB 5939’s Sec 3 (11): All participants of the “old program” certified by September 30, 2017 must get re-certified through WSU by April 30, 2018 to be eligible for 2018-2020 payments.

    There could be lots of confusion around all the different types of applications in the transition year (“old program” new certifications through 9/30, existing participants 16-17 annual payment applications, new program certifications and old program re-certifications)!

    1. Thanks for the comment, Leslie. I think “lots of confusion” is an understatement! Yes, participants in the “old” program do need to apply to WSU by April 30, 2018, in order to continue to get payments in the future. I can add that to my article; and I presume utilities will do their best to ensure current customer-generators are informed of this. 😉

  6. The incentive for WA-made panels is a nice jobs creation package. For a system installed in 2018, that’s an incentive of $0.40/W cumulative over the 8 years for the incentive. Considering you can buy a pallet of good quality modules for around $1/W, this is a really significant deal. Of course, starting a high volume solar module factory sets you back somewhere around $12M-$16M. But if you can instantly ramp up to 10 MW of modules/year sold in-state, you can pay off perhaps 70%-90% of your CapEx in those 4 years directly from the incentive. Not bad, though it would require quality people, processes, product, and the right relationships in place, as well as a large, sustained market for solar in our state. And hopefully the pace of technological change isn’t so fast that your equipment needs to be completely replaced after four years (new stringers, different gear for perovskite cells, etc.) It’s still a hard business, but the state solar incentive is a clever program to create quality manufacturing jobs locally.

  7. There will be a small application fee (under $200) when you certify in the future. This is to cover the costs of WSU’s administration of the program which will include reporting all the numbers.

    1. That’s right, Pam, new applicants will pay a fee of exactly $125, according to the legislation.

    2. Please double check the idea that there will be a fee. And do you mean a fee for existing solar customers or a fee for future solar customers? That might not be accurate

    3. There’s definitely a fee for new applicants. I don’t think it applies to existing solar customers under the old program, even though they have to re-apply.

      Section 6(27):

      “The Washington State University extension energy program must collect a one-time fee for applications submitted under subsection (1) of this section of one hundred twenty-five dollars per applicant.”

  8. It seems to me that the 12 KW limit can be somewhat ameliorated by having up to 16 KW of panels, but using inverters only capable of 12 KW. I do a similar thing with my present 10 KW install using a 7 KW inverter. It only loses me around $100/year relative to using a bigger inverter. This way you can be generating 12 KW more of the time. Really our practice of claiming to have an install that generates the number of watts our panels are is misleading. Most of us will never come close. If you don’t believe it, play with the SMA design tool. https://www.sunnydesignweb.com/

    Regards,

    1. Thanks for the comment, Rob. The new law refers several times to “direct current nameplate generating capacity”. Although in the definitions of residential- and commercial- scale, it just says “combined nameplate capacity”, I think it would be assumed that “direct current” applies in any case. Thus we should be using the total DC nameplate rating of the panels, not the output rating of the inverter. It may take a lawyer or judge to find out what is really meant here, though.

  9. Hi Tyrel,
    You may be right about the lawyer and judge. The pertinent part does not specify “direct current.” It just says:

    (12) “Residential-scale system” means a renewable energy system
    or systems located at a single situs with combined nameplate capacity
    of twelve kilowatts or less that meets the applicable system
    eligibility requirements established in section 6 of this act.

    This could be interpreted to mean the nameplates of the inverters, or of the panels.

    It is a pretty important thing though, because 12 KW of panels is nowhere near an useful as 12 KW of inverters with 16 KW or more of panels, which is much closer to making a home energy neutral.

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