While Goldman Sachs and others in private enterprise pour billions into solar projects, a patchwork quilt of state incentives and tax breaks across the U.S. still hold tremendous sway over investment in solar energy and installations of rooftop panels.

It’s a reality Rio Davidson knows well. Davidson is the owner of Cascade Coast Solar, a small-scale solar installation firm in Newport, Ore. Leading up to 2017, business was going well, as homeowners were taking advantage of the state’s Residential Energy Tax Credit (RETC) program, which offered rebates that cut the installation cost of a rooftop system by as much as $6,000. Critically, the RETC incentives meant a new solar system would begin paying for itself typically within eight years — any longer and buyers get turned off, Davidson said.

Then the Oregon state legislature allowed the RETC to expire at the end of 2017, and new projects fell off. By the end of 2018, Oregon’s solar ranking had slipped five places to 19th in the nation, and solar industry jobs dropped 8%, to 3,654, according to the Solar Energy Industries Association.

“Once that credit ran out, it made a lot of systems just not pencil out for the regular homeowner,” Davidson told Karma. “Most companies here had to lay people off. It was widespread. Almost 95% of our work was residential, and it nosedived after the incentive went away.” Cascade Coast now focuses on resiliency installations—solar-powered battery back-up storage systems.

A new bill that restores a maximum $5,000 rebate passed the Senate this summer and awaits the governor’s signature, but is funded only by a limited trust of $2 million.

Success of the Sunshine State

Just south of the Oregon state line is a different world. Last week, California Governor Gavin Newsom signed into law AB 1208, which extends the state’s ban on cities and counties taxing the energy created by rooftop solar panels out to 2027. This exemption to the utility users tax, or UUT, has been in place since 2013 and is one of the incentives that help place California as the nation’s leader in solar power adoption.

Private equity and venture capital firms have spent more than $4 billion on solar ventures since 2018, and half of that went to projects in California, according to PitchBook data aggregated by Karma. Oregon, by contrast, received only $160 million in the same period, as its solar tax incentive expired in 2017.

Still, growth in the sector is impossible to ignore: Total solar capacity by commercial properties alone jumped 180% from the end of 2017 to 2018, to 7,000 megawatts (MW) nationwide, according to the Solar Energy Industries Association.    

Given this momentum, Goldman Sachs has revived the yieldco, an investment model that purchases clean-energy projects and generates dividends for investors via electricity sales. The yieldco was a prominent tool for solar in the first half of the decade; SunEdison used two (TerraForm Power and TerraForm Global) to finance its rapid expansion and billions in acquisitions. But when the California-based company imploded in April 2016 and filed for Chapter 11 bankruptcy protection, investors soured on the yieldco model.

Now, Goldman has raised roughly $4 billion of equity and debt for its pending yieldco, and collected 1 gigawatt of solar arrays, or enough to power 725,000 homes, according to Bloomberg.

Not All Markets Equal Under the Sun

The national playing field for these investments is far from even. Texas is a prime example. The sun-drenched state (El Paso is the sixth-sunniest city in the nation) lags California, Arizona and New Mexico in solar capacity. Solar provides 0.5% of Texas’ total electricity, with residential solar supplying a miniscule 0.1% of generation, according to data from the federal Energy Information Association.  

As the Federal Reserve Bank of Dallas pointed out in a recent note, Texas is one of only two states that do not require net metering, a provision where utility companies must purchase excess energy from residential solar panels. This allows homeowners to pay only for the net energy they consume or receive a credit if they generate a surplus. Combine this with Texas’s cheap cost of electricity—20% less than the national average—and solar is simply a non-starter, the Dallas Fed wrote.

Still, homeowners nationally want solar, and embrace the idea of producing their own energy, said Dave Rosenfeld, executive director of Solar Rights Alliance, a statewide association of one million California solar users.

“It’s safe to say that if this exemption [UUT] was not in place — if local governments were allowed to unreasonably tax people, then you probably would see less people choosing solar,” Rosenfeld told Karma. “Our members talk to their neighbors, and they say one of the single reasons people choose not to go solar is because they hear that down the road, the government or local utility may hit them with fees or charges on their solar that would impact their investment.”

With contributions from Karma’s Scarlett Kuang