This piece examines SolarCity’s new manufacturing plant in Buffalo, New York, as part of a booming demand for solar power and questions its sustainability. The author references research by Professor Stefan Reichelstein on how expected changes to the investment tax credit, in particular, will affect solar economics.

The rail cars that once carried iron ore around Republic Steel’s sprawling plant at the edge of downtown Buffalo, New York, were plowed under when the steel company abandoned the location in 1984. They were recently discovered when excavation began for the so-called gigafactory to be operated by SolarCity, the country’s leading supplier of solar panels. Now the rusted cars and a scattering of other relics from the days of Republic Steel greet visitors to the construction site, a reminder of the city’s past manufacturing might and a testament to the dream that North America’s largest solar-panel manufacturing facility can help revive it.

Buffalo is attempting an economic comeback fueled by the state’s Buffalo Billion initiative, a multi-year redevelopment plan spearheaded by Governor Andrew Cuomo. Included in the funding is support for a new genomic research center and an information technology center, but at the heart of the city’s ambitions is the solar factory, which New York is spending $750 million to build and equip. SolarCity, based in Silicon Valley, will lease it, essentially for free, and has committed to spending $5 billion on its Buffalo operations over the next decade. For Buffalo, it’s an attempt to reimagine its future around solar manufacturing. For SolarCity, it will solidify its position as one of the country’s most aggressive and fastest-growing solar companies.

The plan to build the massive manufacturing facility comes at a time when demand for solar power is booming in the United States. In 2008, the nation had about 1.1 gigawatts of photovoltaic power, the dominant type of solar energy; by the end of 2014 it had 18.3 gigawatts. Last year, homeowners, businesses, and energy companies added about 6.2 gigawatts, and they are expected to install another eight gigawatts this year. Much of that is in California, but solar power is taking hold in other states, boosted by a mix of federal tax credits and state and local incentives. Roughly a third of the electricity generation capacity added last year in the United States was solar, second only to natural-gas plants. (Even so, solar power still provides less than 1 percent of the country’s electricity.)

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Stefan Reichelstein, a professor at Stanford University’s business school and director of the Steyer-Taylor Center for Energy Policy and Finance, and his colleagues have looked at how changing the tax credit in particular will affect solar economics. They found that even without the tax credit, large solar farms could be competitive with natural-gas plants by 2025 in states like California. But the story is very different for residential power. With a 30 percent credit, a residential solar installation produces power at less than the price of retail electricity in California (the state’s electricity rates are far higher than the national average). The same is true in other sunny states like Colorado and North Carolina, though not in a state like New Jersey. But drop the credit to 10 percent and no state is at grid parity. Take away the tax credit completely and—even assuming a continuing decrease in the cost of solar cells and installation—residential solar power remains far above grid parity in all states for many years to come.

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