What are the long-term effects of solar subsidies?

KNOXVILLE, TENNESSEE - Nearly $7 million could be spent on solar power projects in the Knoxville area within the next 18 months — or maybe not.

With the Tennessee Solar Institute, the University of Tennessee-housed program that dispenses federal stimulus dollars for solar installation grants, exhausting $9 million in grant money within three months, some worry that many of those projects may not be built, better candidates could have emerged for the dollars, and that the process falls short of creating a sustainable solar industry.

The influx of one-time dollars expanded an existing state grant program by increasing the size of eligible solar projects, and solar installers jumped to apply for the grants on behalf of potential clients.

“At this point last year we probably had 100 kilowatts of solar projects installed. At the end of this year, we're going to pass 300 kilowatts,” says Annette Gomberg, director of community development for Sustainable Future in Knoxville. “We're almost doing a job a week now.”

Not everyone sees the sudden increase as a good thing.

“We're heading for disaster,” says Gil Hough, manager of renewable energy systems for Restoration Services Inc. in Oak Ridge and president of the Tennessee Solar Industries Association.

Because the state awarded the grants so fast, Hough worries that a lagging economy and the relatively high price for the technology portends a boom and bust before the boom takes hold.

“Generation Partners TVA's power purchase program might keep total disaster from happening, because that's going until 2012,” he says. “What the solar industry has been saying is we want long-term, sustained, orderly development. We wanted the state to offer fewer, less grants. We would have much preferred half the money this year and half the money next year. This isn't a way to do it.”

Stacey Patterson, UT director of research partnerships, says the grants are intended not only to encourage the development of solar power across the state, another important goal of the dollars — made possible by the American Recovery and Reinvestment Act — was to “get the money out to the grantees quickly to help stimulate the economy.

“Once these projects are complete, we will assess the program and work with the state, private industry, the federal government and other stakeholders to find ways to sustain this momentum and help continue to grow this industry in Tennessee,” Patterson adds.

Solar installers took a risk preparing lengthy, technical grant applications, sometimes without a guarantee that customers would follow through with the projects.

ESG Construction has been doing primarily design work for solar projects over the past two years. The firm chose not to apply for the grants, says Mike Asbury, an electrical engineer and part owner in the company, because of the work required to prepare the applications and because by the time the company had sorted out issues on another potential project, the grant dollars were gone.

“You could probably put $3,000 or $4,000 or more into an application for these things and get naught out of it,” Asbury says. “What if you didn't get it in on time or they ran out of the $9 million just before you got there or you didn't dot your 'i's and cross your 't's. ... It would be a real heartbreaker.”

In some cases, businesses themselves have received approval for the grants but haven't yet decided whether or not to invest in the technology.

“We're looking into doing some solar panels maybe at a couple of our restaurants, maybe at our commissary,” says Bart Fricks, chief operations officer at restaurant owner Copper Cellar Corp. “It is a pretty expensive capital project to lay out in the beginning, but it pays for itself in five to seven years.”

The company is still deliberating whether to move forward.

“Just to do one store is somewhere in the neighborhood of... $50,000,” Fricks says. “For a small company like us that's a lot of cash to lay out at one time.... We haven't made a final decision. We're also in the middle of opening a restaurant, so those priorities change.”

Patterson says the Solar Institute will hold on to applications in case initial recipients don't use the funds. Recipients have six months following notification of their award to complete projects. Two of the 108 recipients have declined their awards so far, she says.

The grants, combined with TVA incentives for solar power generation, a 30 percent federal tax credit in grant form, accelerated depreciation and, in some cases, a U.S. Department of Agriculture grant that can pay for up to 25 percent of the project, significantly reduce a company's initial investment.

Grant recipients are diverse and include farms, marinas and veterinary offices, as well as manufacturers and office complexes.

“We haven't done solar before, but we wanted to get in there and see how it worked and see how we could contribute,” said Dan Barnett, founder and principal of Blue Ridge Development.

Blue Ridge is investing in three sets of solar panels that will power four electric vehicle charging units. The units will be installed by Outpost Solar, a Pulaski, Tenn.-based firm, at two West Knoxville office complexes with interstate proximity — Lakeside Centre and Jewelry Television's headquarters.

Barnett sees the solar-powered vehicle chargers as a means to make its office buildings to stand out in the crowd. “It will be a marketing advantage for us,” he says.

As more electric vehicles hit the road, the company will likely add charging stations and could serve a larger pool of motorists, as well.

“For us, it's a fairly, percentage-wise, small amount of money,” Barnett says. “But it's a lot of fun to work on. This will influence the way we live for a long, long time.”

Pioneer Heating and Air Conditioning will have between $10,000 and $20,000 in out-of-pocket costs for a $145,000 solar system — producing enough electricity to power two to three homes — that will be installed at its Halls office.

The company qualified for a U.S. Department of Agriculture grant because of its location in a designated rural area, and company president Gordy Noe says with the grant and other incentives he expects the system to pay for itself in about two years.

“In the end, we're going to have roughly about 90, 92 percent paid for by grants,” Noe says. “We initially thought we would not get the USDA grant, and I was willing to do it... but as it turned out we got the grant.”

The solar system positions Pioneer as a green company as it markets energy-efficient products and services to customers.

“We've always tried to stay a year or two ahead of what's coming down the road and make sure we do it before everybody else is doing it,” he said, adding that the company is planning to build a net-zero energy facility.

For Oakes Daylilies and Farm in Corryton, two photovoltaic installations will offer a revenue stream when they're paid off in four to five years, says owner Ken Oakes.

“It'll provide more power than we need,” says Oakes of the systems, which will be installed atop the nursery and a pavilion used for hosting visitors to the farm's corn maze, haunted barn and other outdoor activities. “We're looking at it hopefully to generate revenue for us down the road.”

While electric rates fluctuate, once his investment in the project is recouped, Oakes could earn about $10,000 a year from TVA's Generation Partners program, which credits customers with a premium price to send green power back to the grid. The power generated is utilized in TVA's Green Switch program.

“It's modest,” Oakes says, “but every little bit helps.”