Solar Tax Credit Extension Sought : Industry Fears That Lapse Would Mean Serious Setback

During its three years of existence, Sun Resource Energy Systems has basked in the slow but steady growth of the nation’s solar energy industry.

The Pacoima firm, which employs about 75 people in the manufacture of various solar energy products and systems, will do about $10 million in sales this year, up from about $8 million in 1984, President Michael Guglielmino said.

But if federal solar tax credits to homeowners, businesses and investors are allowed to lapse at the end of the year, Sun Resource Energy Systems will suffer a serious setback, Guglielmino said. The company’s sales volume would drop 30% to 50% and “there would be a scrambling in the industry for survival,” he said.

“The solar industry is a vital industry,” employing about 20,000 people in California, Guglielmino said. “We need the assistance that that tax credit represents.”

Other solar industry executives agree that the fledgling solar industry would be devastated by the sudden fading of federal solar tax credits, which were created in 1978, amended in 1980 and are scheduled to end Dec. 31, 1985. The Washington-based Solar Energy Industries Assn. has been lobbying for a five-year phase-out of the tax credits, Executive Vice President David Gorin said.

“We don’t want to be in the solar tax credit business,” Gorin said. “We think the phase-out is the way to do it.”

The solar association is “very happy” with legislation recently introduced in the House that would extend solar energy tax credits through 1990 but would reduce some of the credits each year, Gorin said.

Current law provides provides homeowners with a 40% tax credit on a maximum equipment expenditure of $10,000 and gives businesses a 15% tax credit for the total cost of equipment and installation. Thirty states, including California, have their own solar energy tax credits that are not directly affected by the federal legislation.

The House bill would cut the residential tax credit by 5% each year and would change the maximum expenditure to $6,000 for solar hot-water systems and $10,000 for solar space-heating and cooling systems. The 40% residential credit for photovoltaic cells used to provide electricity will remain unchanged.

The business tax credit would be extended until Dec. 31, 1990, at the present 15% rate and would be increased to 25% for high-temperature and photovoltaic systems, which are still relatively new and need additional incentives. The tax credit is available to whoever finances and owns the solar energy project, which could be the building’s owner or an individual investor.

“All we’re looking for is that additional amount of time to phase out the credits so that we can have a stable industry,” said Sanford A. Friedlander, executive vice president of Encino-based United Energy Corp., an investment firm that lines up investors for commercial solar projects, such as installing solar systems on apartment buildings and convalescent homes.

“There is plenty of money available (for commercial solar projects) as long as we have some initial up-front benefit, which is that tax credit,” Friedlander said. “Without the tax credit it would be very difficult to raise money for the solar industry.”

Congress’ Joint Committee on Taxation has determined that the five-year extension would cost the Treasury a total of $950 million, a spokesperson for the Solar Energy Industries Assn. said. In comparison, the conventional energy industry receives about $3.5 billion in tax incentives a year, she said.

Still a Young Industry

The solar energy industry, which recorded more than $1 billion in sales in 1984, is still relatively young. Few manufacturers are more than 10 years old and most entered the industry after 1980, Gorin said.

The solar industry’s growth has slowed because of relatively stable energy prices during the last two years, Friedlander said. “I think we have forgotten what it was like to stand in those gas lines in 1973,” he said.

Allowing the tax credits to lapse at the end of 1985, “is like hamstringing the infant to the point that it is unable to grow to meet the needs 5, 10, 15 years from now,” Friedlander said.