Charlotte Forecast 2013: Renewable Development

NC regulators approve 20-megawatt solar project – Charlotte Business Journal

Fast-growing Chapel Hill company cashes in on the sun

Premium content from Triangle Business Journal by Chris Bagley, Staff Writer

Date: Friday, November 30, 2012, 6:00am EST

CHAPEL HILL – The explosive growth in North Carolina's solar-power industry owes a lot to government policies, but the fastest-growing company of all says it's pioneering a business model that will remain if and when those policies go.

The company, Strata Solar, is responsible for 119 megawatts of solar generating capacity registered to go online in North Carolina in 2012, more than half of the 225 total megawatts statewide. Another 800 megawatts of capacity are in the development pipeline, Strata founder and CEO Markus Wilhelm says.

Moreover, Strata accounts for most of the new projects larger than 5 megawatts, a category that barely existed a couple of years ago. Two are now under way in Warren County and Columbus County. Strata expects to break ground on one near Fuquay-Varina by the end of 2012. On Nov. 26, Strata won regulatory approval for a 20-megawatt project, the state's largest ever to be conceived, developed, built and owned by the same company. A rule of thumb in the industry is that a 5-megawatt solar farm generates enough electricity to power about 750 homes.

Larger scale makes each project more profitable because certain costs vary little with the size of a project. A larger project involves lower cost per kilowatt of generating capacity, and thus lower cost per dollar of expected annual revenue. In most cases, a project larger than 1 megawatt is built in a large, open field and sells electricity to the local utility under a long-term agreement.

“The economics play favorites with economies of scale,” says Steve Kalland, executive director of the North Carolina Solar Center.

Strata has been concentrating its projects in several areas of the state, including around Warrenton, and between Whiteville and Rockingham. Such clusters allow the company to hire workers on a more permanent basis and allow them to build up expertise as they complete a project over the course of several months and move on to another one within commuting distance of their homes, Wilhelm says. Four years after its founding, the company employs about 450 people, including about 50 at its headquarters at the southern fringe of Chapel Hill.

Wilhelm says Strata also keeps costs down by standardizing and repeating, a la Henry Ford's Model T.

While many residents are still putting solar arrays of less than 10 kilowatts on their rooftops, Kalland says developers are turning their attention away from projects in the range of 100 kilowatts to 1 megawatt. Progress Energy suspended a program of incentives for solar panels on commercial rooftops in June after meeting its target for 2012. It hasn't decided whether to reintroduce the program in 2013, or with what level of incentives, Progress spokesman Jeff Brooks says.

Larger projects' efficiency is particularly important because the projects now make use of state and federal tax credits, including some that are expected to disappear eventually. Investors in utility-scale solar projects receive federal tax credits for 35 percent of the amount of their investment, for example. Insurers and other financial companies are frequently investors, but in theory almost any company with federal income-tax liability can do so.

“The scale is a requirement for costs to come down,” Wilhelm says. “If you don't get the costs to come down, you won't become independent of subsidies.”

Solar developers have also benefited from North Carolina's Renewable Energy Portfolio Standards, minimum amounts of electricity that must come from solar and other alternative sources. Few observers expect those to be eliminated, however.

Scale is also key when dealing with investors, accountants and attorneys, says Steven Levitas, an attorney with Kilpatrick Townsend in Raleigh.

For one thing, investors are also generally more eager to fund projects of around 5 megawatts, which frequently cost from $15 million to $25 million, people in the industry say. In one typical financing arrangement, Strata covers about one quarter of a project's cost with its own funds, about a quarter with bank loans, and half with funds from a company that intends to take a tax credit, Wilhelm says.

Attorney Deborah Ross of Styers, Kemerait & Mitchell in Raleigh notes that relatively small solar farms and other small power producers tend to be exempt from certain regulations that apply to larger producers, in part to help get the industry off the ground.