Solar energy start-ups that have taken root in the Washington region in recent years are maturing into bona fide businesses, buoyed in part by economic forces and government policies that have made renewable energy more attractive to consumers.
The technical costs of installing solar energy systems have come down dramatically, especially when paired with government incentives, allowing solar companies to tout savings that make their prices comparable to or cheaper than standard utilities.
But even as executives at local companies celebrate the growth they’ve enjoyed of late, many say the industry’s true test will come when federal tax incentives start to disappear and solar has to compete against other energy sources without a subsidy.
“You see the industry surging, then you have this big shock,” said James Mueller, research director at George Washington University’s Solar Institute. “This is a critical time period where it could negatively impact the industry.”
Federal tax incentives that currently reimburse 30 percent of the installation costs of solar panel systems have been critical to the industry’s growth. In many cases, those savings make solar energy financially feasible for the homeowner or financier, depending on whether the system is owned or leased.
But the federal incentive is scheduled to decrease to 10 percent at the end of 2016, leaving some in the solar energy industry to question whether other expenses — such as marketing, interest rates and technology, to name a few — will come down enough before that time to compensate for the difference.
“It will definitely have an impact,” said Scott Wiater, president at Rockville-based Standard Solar. “Ultimately, will it put us out of business? No, I don’t think it will kill the industry. But it could slow us way down.”
Standard Solar was founded in Maryland 10 years ago, and its first residential customer was the head of the Solar Energy Industries Association. It has since installed systems on nearly 1,200 more homes of individuals without existing ties to the industry.
In more recent years, it has started installing solar panels on commercial, government and academic buildings, and added a business unit that audits home energy use to suggest efficiency improvements.
“At the end of the day, most people, especially in the commercial side, are doing it for the economics,” Wiater said of switching to solar power. “We have to do that at a rate that’s less than what they’re paying the utility now.”
Local companies have been helped by policies established in Maryland and the District that require utilities to obtain a portion of energy from renewable sources. Virginia, by comparison, has been less aggressive.
All three jurisdictions have added solar industry jobs, albeit in small numbers, in the past year, according to an annual report published by the Solar Foundation, a nonprofit that aims to advance solar industry research and education. In 2013, Maryland counted 2,000 solar jobs, Virginia had 1,900 and D.C. tallied 810. The states where solar power is traditionally more popular topped the list, including California, Arizona and New Jersey.
“When we started, D.C. had aggressive solar policies. The city really wanted to make that a priority, and it helped us and several other people get off the ground,” said Zach Axelrod, chief executive of Nextility, which until late last week was called Skyline Innovations.
The District-based company changed names as the range of products it offers has expanded over the past five years. Nextility got its start selling solar-powered water heaters, then added solar-powered electricity. Now it also helps finance the systems as a brokerage firm.
The company has also grown in that time to 45 employees from seven, with plans to add another 15 before the end of the year, Axelrod said.
“There’s no question that there’s a lot of policies that were put in place that worked in terms of driving down costs and building up an industry that was small,” he said. “With scale came a lot of [cost] improvements, not just on the hardware, but all of the soft costs around getting these systems up.”
Those cost improvements will need to continue if the solar industry, particularly in the Washington region, hopes to see persistent growth.
Founded in 2008, Sol Systems, a District-based company that finances solar projects, counts 30 employees. Chief executive Yuri Horwitz said the solar industry is on its way to “graduating” from government tax incentives, but isn’t at that point quite yet. Whether it can make it there before the end of 2016 remains to be seen.
“The offerings will have to be adjusted because the overall economics will change,” Horwitz said. “It may be that developers take a thinner margin. It may be that the savings isn’t as great for homeowners.”
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