Let the sun shine

Industry insiders fear it will set on the subsidy that makes solar such a bright spot in a dreary economy.
By Spencer Campbell

clientuploads/Archive_Images/2013/05/SunEnergy.jpgA chance for a catnap — a 45-minute flight across the state in a private jet — has turned into a discussion of power, and the more Bill Taylor talks, the more frustrated he becomes. “We went down to Raleigh recently and met with this guy, this leader, and tell him some things. He says, ‘Wow, great, I had no idea.’ Fifteen minutes later, there’s a vote on the floor. I forget what, something affecting our industry. And he stands up and repeats exactly what we told him.” A passenger sitting across from him suggests that’s a good thing. “No! That’s disgusting. It’s all about lobbying. If you don’t have somebody up there, whispering in their ear, they have no idea you exist. We need people up there, but solar doesn’t have the money of oil or gas or these other groups yet.” The co-founder of Huntersville-based Daetwyler Clean Energy LLC takes a breath. “They want that tax revenue.”

Taylor has reason to be nervous. In 2007, the state started requiring electric utilities to include renewable sources, such as solar and wind, in their power mixes. It was the first law of its kind in the Southeast and intended to spur development of green power. It worked, especially for solar, which experienced a decrease in panel prices about the same time, making it the cheapest option. But the Renewable Energy and Energy Efficiency Portfolio Standard was only the spark. The General Assembly also expanded and extended a tax credit for investment in renewables that, when combined with other credits, meant the cost of solar farms could be written off. Suddenly, the industry had captive customers and a government willing to underwrite infrastructure. North Carolina was one of the few states that offered such lucrative policies, and development went supernova, increasing more than 3,000% between 2007 and 2012, when the state ranked fifth in the U.S. in amount of solar built.

But while the industry got fat, the state grew hungry for new revenue. A month before Taylor boarded the plane in late November, Mike Hager, a Rutherfordton Republican who chairs the House Public Utilities and Energy Committee, told a South Carolina newspaper, “I think this has set the wrong precedent. You take taxpayer dollars and prop up an industry that can’t survive on its own. Why do we do this?” Republicans, who won the governor’s race and tightened their grip on the General Assembly, are clamoring for tax reform. A few months later, a senator who has championed renewables will propose killing its subsidy. Says Steve Kalland, executive director of the nonprofit North Carolina Solar Center at N.C. State University, “Tax reform done without a mind about this could completely, unintentionally, decapitate the industry.”

The Beechcraft touches down in Beaufort County at Warren Field Airport, two runways inside a chain-link fence in Washington, where Bradley Fite waits. The director of field operations for SunEnergy1 LLC gathers up Taylor in his boss’ Mercedes before heading east on U.S. 264. Fite’s home is near SunEnergy1’s headquarters in Mooresville, but he’s living temporarily in Washington to supervise installation of a solar farm in Bath. The company rented 14 houses nearby to quarter their Mooresville-based employees and installed stadium lights at the jobsite so they can toil into the night to make deadline, looming little more than a month away.

“No, I think we’re all set on equipment,” Fite says into his cellphone, fending off a vendor, before hanging up. “Everybody’s trying to sell something,” he says, directing a lighthearted dig at Taylor, who has flown from Statesville Regional Airport to sell something to Kenny Habul, owner of SunEnergy1 and the Beechcraft. “I texted Kenny. Told him to put some clothes on, we got guests,” Fite says. But Habul is not around when they reach the farm, passing a sign that reads: “We are not accepting job applications at this time.” The installation, on 86 acres of leased cotton fields, is cluttered with the usual collection of construction accessories: tan office trailers, green porta potties, red trash dumpsters, yellow heavy equipment idling here and there. Wooden spools of black cable are stacked on top of each other. “We try to hire as many locals as possible,” says Fite, who claims half the roughly 150 workers are from Washington or nearby. “There aren’t many in town who don’t know who we are.” He has heard that a dollar spent locally — say, at a Washington barbershop — passes through the hands of seven people before leaving town.

Heavy rainfall has made the site a mess. “Everyone out here spends about two hours pulling themselves outta mud,” Fite laments as he hops into a four-wheel-drive vehicle to take Taylor on a tour. The solar array faces south, toward the highway, in 58 rows. It’s a ground-mounted installation, meaning its panels sit on racks stabbed into the earth. Each of the 53,802 solar panels create electricity through a photovoltaic reaction, their silicon cells turning the sun’s rays into direct current, which is unpalatable to homes and businesses. So copper wiring carries it to 25 inverters that switch it to alternating current. (When finished, the 15-megawatt installation will power about 1,425 homes.) Bosch Solar Energy, a division of Germany-based Bosch Group, made the panels. It moved its headquarters from San Mateo, Calif., to Charlotte in 2011. Orlando, Fla.-based City Electric Supply Co. supplied the copper wiring. It has a branch in Concord. Daetwyler provided the racks. “Three years ago, we sold one rack. That was our first order,” says Taylor, whose company’s revenue has doubled each year since its founding in 2009. “When we sold two, I thought we were in the big time. For Kenny’s Washington project, we shipped more than 1,600. Between 1,600 and 1,700.”

Habul, 40, wearing a white polo shirt with the SunEnergy1 logo, shows up about 90 minutes after Taylor. Though his face betrays a Balkan bloodline, his accent, like him, comes from Australia’s Gold Coast. His father emigrated there from Bosnia, becoming a self-made billionaire by building high-rises on the beach. Habul attended law school in Australia at his father’s urging, but he has spent more time on racetracks than in courtrooms. He started racing go-karts at 4 and drove for Ferrari in Italy before competing on circuits in Canada and Australia. At the same time, he and his brothers started building luxury, eco-friendly homes, which made him a millionaire by 23, he says. He moved to Mooresville in 2007, intent on spreading high-end, green homebuilding — all the rage in Australia — to the U.S. But banks balked at lending him money in the aftershock of the housing crisis. Piqued by the possibilities of commercial installations after attending a solar trade show in Germany, he set residential aside to focus on large-scale arrays, which he knew would generate revenue from utilities needing to up their renewable stakes.

Habul’s route to solar, Kalland says, is not unique. “I was down at Solar Power International, which is a big industry trade show. They had it in Florida this year. I probably had 50 to 100 companies wander through our booth throughout the show asking how to get involved in the North Carolina market.” They ranged from real-estate developers seeking a lifeline to the subsidiaries of large, multinational utilities. If Habul belongs in the former, his client falls into the latter — he’s building the Bath installation for Duke Energy Renewables, a commercial, unregulated arm of the nation’s largest power company.

Charlotte-based Duke Energy Corp. only started seriously considering solar in 2007, when the General Assembly passed the portfolio standard, which requires utilities to ramp up their use of renewables, plateauing at 12.5% of retail sales by 2021. They can reach that figure by making or buying it, so the regulated part of Duke invested $50 million to build about 10 megawatts’ worth of rooftop solar arrays and bought more from private farms. Duke Renewables’ motivation, however, is purely financial. The state’s tax credit, equal to 35% of what is spent, has been around since 1999, but lawmakers, led in part by Sen. Daniel Clodfelter, a Charlotte Democrat, extended its sunset by four years — to Dec. 31, 2015 — in 2009. That same year, Duke Renewables started building arrays. It makes money by locking other utilities — usually small municipal and rural cooperatives — into contracts that typically last 20 to 25 years.

And while it reaps revenue, its parent picks up a healthy tax break. “I want to say Duke is the largest developer in the state because, one, they pay so many state taxes and, two, they pay so many federal taxes,” says Stefan Linder, an analyst with New York-based Bloomberg New Energy Finance. On top of the Tar Heel incentive, the U.S. government began offering a 30% investment credit in 2006. Combined with depreciation, companies with large state and federal tax bills, such as Duke, can write off their investment in an installation. That means a large farm such as the one in Bath can theoretically provide its owner with free revenue. “A North Carolina solar project actually has tax benefits that can equal 100% of a project’s cost. The entire project.”

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Habul leans forward so he can reach the radar detector attached to the windshield. “Anyone know what the speed limit is? The last thing I need is another ticket.” No one knows, and it wouldn’t matter if they did. He enjoys speed — still driving occasionally in NASCAR-sanctioned races — so his caution stands little chance of surviving the 30-plus-mile trip from Bath to Plymouth, where SunEnergy1 is installing a solar farm for itself. He’s soon chasing down slower motorists, riding their bumpers as he waits for an opening to emerge. When one does, he guns his Mercedes S65 AMG into the oncoming lane of N.C. 32, the engine’s 12 cylinders growing louder as the speedometer leaps toward triple digits. The surrounding fields become a greenish blur occasionally disrupted by a decrepit tobacco barn flying past the side window. After one sprint — during which the car crested 130 mph — he elbows a pallid passenger. “Gotta have a bit of fun, mate.”

Habul could use a bit of cheering up. He ate breakfast at Pam’s Diner in Washington with Fite, who mentioned that SunEnergy1 had been featured in a recent newspaper article. While still at the table, Habul found the story on his smartphone. “‘Strata is the clear leader of the surging N.C. solar industry,’” he read aloud, incredulous that anyone would rank the Chapel Hill-based solar-panel installer above his. “How can they say Strata is the clear leader in solar?” He claimed the article didn’t bother him — “I don’t care, I don’t pay attention” — but his irritation is evident when the writer calls during the drive. Such statements could hurt his business, Habul tells him — after all, he’s pitched SunEnergy1 as the most productive installer in the state. (It’s difficult to gauge who is bigger, but both rank near the top.) The reporter’s reply seems to mollify him, though. When he reaches the project site, he does a few doughnuts, spinning the Mercedes in fresh, slick mud.

By April, competition within the industry doesn’t matter nearly as much as the threat emanating from the Legislative Building in Raleigh. That’s where Hager is co-sponsoring a bill to amend the portfolio standard, slashing the requirement by half, though industry leaders say that would be inconsequential. “That is useless. It set such a low target that Duke met it seven or eight years early,” Habul says. “Hager wanting to remove it is just a slap in the face, an attempt to humiliate the renewable-energy industry in this state. Does he want to stick the knife in and twist? What’s the economic effect?” Kalland agrees that the law is becoming obsolete. “In recent months, the renewable-portfolio standard has become a less and less important piece of the puzzle because prices have dropped so dramatically and also because the renewable portfolio standard requirements have largely been met by the electric utilities.” Of more concern is a bill introduced by Clodfelter.

After advocating for the extension and expansion of the tax credit, he was named the North Carolina Sustainable Energy Association’s Legislator of the Year in 2010. His current bill — as part of a larger stab at tax reform — would allow the subsidy to expire two years early. (Neither Hager, Clodfelter, House Speaker Thom Tillis nor Sen. Bob Rucho, the most vocal advocate of tax reform, responded to interview requests for this story.) Unlike the elimination of the portfolio standard, taking away the tax credit would be a debilitating blow. “If it goes away overnight, people like us, who are looking at projects all over the country, we have to prioritize our resources,” Duke Renewables President Greg Wolf says. “And while we very much enjoy investing in the state where we have our corporate headquarters and a lot of employees, we have to go where the best opportunities are. We may shift our emphasis to other parts of the country.”

Advocates say the subsidy is working. The renewable industry has helped provide more than 20,000 jobs between 2007 and 2012, according to the Raleigh-based Sustainable Energy Association, most of them in low-income, high-unemployment counties such as Beaufort. The cost of solar is falling and may soon be closer in line with traditional energy. “In 2008, a solar panel cost about $4 a watt,” Linder says. “Today, you can buy one for about 79 cents a watt.” Critics counter that those jobs are temporary and low-paid; once a farm is built, it needs very little labor, unlike a power plant fueled by coal or natural gas. They claim that the drop in cost is an illusion caused by Chinese manufacturers dumping panels on the U.S. market.

Kenny Habul knows he has nothing to complain about. After SunEnergy1 raked in nearly $100 million in 2012, he’s projecting revenue of $150 million this year. He’s in the process of buying a 90,000-square-foot former T-shirt factory in Scotland Neck in Halifax County, where 13.5% of the labor force is out of work. That will be his eastern North Carolina headquarters, and it will be across the street from a $60 million, 25-megawatt installation he plans to build. If the tax incentive is rescinded, Habul would probably move SunEnergy1 to a solar-friendly state, such as Ohio or New Jersey. South Carolina and Georgia are talking about creating subsidies for renewables. He’s already rich. What does he care? But if given the chance, which is tough because he says the lawmaker won’t return his phone calls, he would ask Mike Hager a question: If the solar industry disappears, “what have you got to replace it?”