08/06/2010 05:12 am ET Updated May 25, 2011

Perhaps New York Wants Solar Too Much

A while back I wrote a post about how permits and inspections by multiple agencies meant that installing a solar system took a year, even though the actual installation only took one day. I wouldn't have posted it if I didn't think I was done with the city, but it turned out I wasn't. My installer had to do yet another round of surveys and inspections, associated with yet another subsidy, which ran another four months. What I found is that it isn't just the permits and inspections that are uncoordinated and overlapping, but the subsidies as well. Once I added them all up, I felt less like a civic-minded environmentalist and more like someone who perhaps ought to be working for Goldman Sachs.

The subsidies work like this. On everyone's electric bill, a charge is assessed that is used to provide a cash grant to those who install solar systems, via NYSERDA. That grant previously covered about 1/3 the cost, since cut to 20 percent. That is fair, because those with solar electric systems take a huge strain off the grid by contributing power locally at the time of greatest demand, in the afternoon in the summer. But of course only those fortunate enough to own their own home or commercial building can take advantage. Since the money is fixed, moreover, and state staff is being downsized, NYSERDA was the biggest hold-up to installation and source of bureaucratic expense. If they keep cutting state staffing while keeping permitting and inspection requirements the same, I don't see that getting any better.

Then the federal government pays for 30 percent of whatever is spent, net of the NYSERDA grant, via a tax credit. That is fair because the production of solar energy reduces greenhouse gases and dependence on foreign oil, important national and international priorities. It is a credit, rather than a deduction, so it is worth the same to every household, and available to those who take the standard deduction. But only those who have the cash up front can pay to have the system installed first, and then get money back from the credit.

The State of New York also has an income tax credit, worth 25 percent of whatever is spent net of the NYSERDA subsidy, up to $5,000. Which means that for a small residential system like mine, the federal and state governments are paying 55 percent of whatever is paid out of pocket, for those affluent enough to own their own home and front the money. I suppose that is fair, because the state wants to grow its solar industry, and the state credit was required to provide the deal my solar installer promised, basically a ten-year payback on my own investment in the system. After doing my taxes this year I was satisfied with my deal, and thought I was done.

Then I found out that the city had added a property tax abatement. I figured it must be a couple of hundred dollars, a little gesture so the Mayor and Council would have something to announce on some past Earth Day. But it turns out to be equal to 35 percent of the cost that was left after the NYSERDA and the federal credit. Well that's...insane! For an unreasonably modest net cost, the federal, state and city governments have ended up paying for all our electricity for perhaps the next 30 years.

In a way this kind of makes me smile. We are facing an institutional collapse because of 20 years of public policy driven primarily by organized selfishness. But here you have a fiasco out of a more naive, idealistic age - a well intentioned screw up. So perhaps it is fixable.

Residential solar subsidies need to be coordinated by someone, to add up to a single dollar value per household, at a level that would allow the installation a modest-sized system like the one I and some of my neighbors have. The subsidy per household could gradually fall as economies of scale are achieved. The total state and local subsidy needs to be capped at a level New York can afford, with the number of households benefitting growing as the subsidy per household decreases. The available subsidy dollars need to be allocated among households by some means other than providing more subsidies to those who have the most money. And administrative costs need to be removed from the system. Here is how this could happen.

The subsidy coordination could come via the state tax code. The state credit could be adjusted to a single dollar value minus any cash subsidies (such as NYSERDA) AND the federal credit, provided that the state tax subsidy also could be no more than 25 percent of the cost. So the state income tax credit would be more for those with smaller NYSERDA and federal subsidies, and less for those with greater NYSERDA and federal income tax subsidies, always adding up to the same amount. Based on my experience that could be $20,000, today falling by three percent or so each year as the solar industry achieves economies of scale. Since the total value of would not decrease, and if the budget ever stabilized could increase, the lower the subsidy per household the larger the solar industry would grow.

To break the NYSERDA bottleneck, the agency could just return to each county and New York City the System Benefits Charge/Renewable Energy Charge collected from residents and businesses in that county. The counties and New York City would then be tasked with doing all the paperwork and inspections for renewable installations within their boundaries. NYSERDA could then focus on training and auditing the county governments and NYC, a smaller job than reviewing and approving each individual application.

New York City could scrap its property tax subsidy and replace it with a property tax-based loan. That is, the city could lend homeowners the money to install the system, putting solar power within reach of those who did not have the cash up front to invest. Half the debt could be collected in the first year, as the benefit of the federal and state tax credits was received, with the rest collected in higher property tax payments over a decade, after which the system would be owned by the borrower free and clear. A city shutoff could be added to the system for those who did not pay.

If the total state subsidy, via both NYSERDA and the state tax credit, were capped a queue would form with people waiting to qualify. Who should be given priority?

My view is those who practice conservation sufficiently to cover all their electric power needs, net, from the system to be installed (with some adjustment for the number of people in the household and appliances, such as hot water and clothes dryers, that could be gas or electric). After all, the whole public value of one person's system is the excess power that it would throw into the grid at peak demand. Why should the rest of the community subsidize a solar system whose function is to allow the subsidy recipient to use more electricity overall? Should an electric bill surcharge assessed on the power use of moderate income apartments be used to subsidize the solar system of a homeowner that keeps on using as much grid power as before, but uses the solar addition to power a solar Jacuzzi and heated pool?

Since as proposed the state income tax credit would structured to bring the total federal/state subsidy to a fixed dollar amount, the larger the solar system a household required to meet its total electricity demand, the lower the subsidy level as a percent of total cost. Those who used less power would both jump the top of the queue and receive a higher subsidy as a percent of total system cost. This would provide an incentive for families to pursue energy conservation before seeking a solar system, in order to show that their energy use was no higher than what the solar system would provide.

In my own case, shading by a street tree on the front half of the room limited the size of the solar system we could purchase. According to our installer, the system was only expected to provide 70 percent of the electricity we had been using, and that was disappointing. However, by studying our electric use closely, replacing the refrigerator, purchasing a spin drying to cut our electric clothes dryer use by half or more, and replacing some light bulbs, we were able to cut our power use to the point where we will be generation more than 100 percent of our power over the course of a year, in effect donating some electricity to Con Edison. The goal should be subsidy policies that encourage others to do the same.

What about the permits and inspections?

I finally learned what the fire department issue is. The firefighters want a corridor to move over the roof from the front to the back to get into the rear yard, and different areas of the roof to cut holes in to suck the smoke and fire up rather than have it spread sideways through a building. With some roofs becoming covered with antennas, the fire code was just updated to required a wide corridor across the entire roof - too wide to allow a solar system on a narrow building, something that wasn't considered at the time the rule was drafted. The fire and building departments are currently making exceptions on a case by case basis, but what is really required is a technical amendment to the rule requiring a more achievable width corridor on narrow buildings - say three feet - for solar electric and hot water installations. And a modification of a conflicting rule requiring clearance on both sides of the property line, so a row of houses could each have a solar system shifted to one side of the building leaving a corridor on the other.

Similarly, the zoning resolution needs to be amended to allow solar installations to qualify as permitted obstructions of the height and setback regulations, subject to some reasonable controls. That is because much of the city has been rezoned with "contextual" zones that provide a flat height limit intended to match the height of existing buildings, but on flat roofs solar energy collectors need to slope to point toward the primary direction of the sun (south). Thus, the zoning resolution also makes solar panels illegal on flat roofed rowhouses, and that is also now being handled by interpretation. For once, this should just be fixed.

And to cut the bureaucratic burden, I continue to believe that the solar industry (and other energy efficiency retrofit contractors) need one point of contact in charge of all permits, inspections and subsidy a approvals. It could be a new agency, or perhaps a subgroup within the Department of Buildings with some financial analysts added in, one that would be designated to handle the approvals that now go through NYSERDA, look for asbestos an other problems, and file subsidy paperwork.

The goal? On one day a single cross-trained city official would meet a solar contractor at the site of a possible solar installation. The official would have a printer in the vehicle and a CAD equipped laptop, and would figure out where the system would go and how it would be attached with the contractor. A computer sketch would be made on site, and the paperwork would be printed and signed.

On one other day, just one city official would show up to see that the system was installed as agreed, and test the system. It if was done as agreed and the tests were passed, approvals would be uploaded to every agency with an interest in the project. Done. This alone would probably knock a few thousand off the cost of a solar system.

And what about the Wall Street shark-like level of subsidy I received? This certainly is a strange year-plus for us to not pay any property taxes, that's for sure. But don't worry, we aren't going to change our lifestyle to blow the money, so the excess subsidy will be passed on sooner or later, probably to someone worse off that whoever would have benefitted from the taxes if we had paid them. The city or state probably would have just used any additional money for more pension incentives anyway. In any event the NYSERDA rebate has been cut, but that just means the federal and state income tax (the latter subject to that $5,000 cap) and the city property tax subsidy will rise.

Of course, since we have yet to receive the benefit of the property tax subsidy, the city could always change its mind. (I did get my state income tax refund, although many have not). Although the last thing we need is for every level of government to cut off its own solar subsidy at once, expecting some other government to take the burden, thus eliminating all subsidies and causing the solar industry to collapse. That would be typical of an abiding principle of public policy. The principle of oscillating stupidity. Policies that involve the self-interest of powerful interest groups never change no matter how bad they are, while other policies can swing from one idiotic extreme to the other.

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