The Federal Investment Tax Credit (ITC) is set to expire at the end of 2016 If that happens, the residential solar business may face some hard times.
While larger, utility scale solar projects predicted to reach grid parity in the near future even without the ITC, it is really the small businesses and homeowners who wish to implement solar projects that will suffer if the ITC is allowed to expire. And the Impact could be devastating.
Solar was already making a strong forward push when congress passed The Energy Policy Act of 2005, which created a 30 percent investment tax credit (ITC) for commercial and residential solar energy systems. With the help of the ITC– coupled with the plummeting price of solar panels– the solar industry has had a decade of fantastic growth across the country, even in states with blatantly anti-solar policies. The ITC has done much to level the playing field and allow solar to compete against the politically powerful fossil fuels industry.
The ITC has been extended several times since 2005, and it’s positive effect on growth in the US solar industry is undeniable. However, there are a lot of critics who say that the ITC has now done its job, and solar should be able to compete in the energy market on its own without government incentives. If these critics have their way, the 30 percent solar ITC will step down to 10 percent for utility, commercial and leased solar systems, and will drop to zero for customer-owned projects on January 1st, 2017. In the case of the commercial ITC, the company that installs, develops or finances the project uses the credit. The residential ITC is used for home-sized projects, and the homeowner applies the credit to their income taxes. This credit is used when homeowners purchase solar systems outright and have them installed on their homes. Without the tax credit, electric utility customers ability to own their own solar and achieve the goal of personal energy independence will be seriously hindered.
The Solar Energy Industry Association (SEIA) and Bloomberg New Energy Finance (BNEF) have developed an analysis that explores the huge impact of a five-year extension and what happens if congress allows it expire. The takeaway message of the study is that extending the ITC amounts to an additional 69 gigawatts (GW) of solar deployment between 2016 and 2022. Without it, the US solar industry could lose 80,000 jobs in 2017 alone. According to the ITC Impact Factsheet:
What an ITC Extension Means
If the ITC is extended, by 2022 more than 95 GW of solar power will be installed in the U.S., generating nearly 144 Terawatt-hours (TWh) of electricity each year. This means that:
- The solar industry would generate enough electricity to power 19 million homes
- Solar would account for 3.5% of U.S. electricity generation – up from just 0.1% in 2010
- Every year, solar power would offset 100 million metric tons of carbon dioxide (CO2) emissions, equivalent to shuttering 26 coal-fired power plants or taking 20 million cars off the roads
The “ITC cliff” in 2017 under current policy is far steeper than the drop following the end of an extension in 2022. The 2016-17 drop represents a 71% decline in solar deployment, but under an extension scenario, due to lower prices, commence construction language and industry maturity, the drop is only 10% from 2021-22.
Rhone Resch, president and CEO of the SEIA is currently leading lobbying efforts to support an extension of the ITC. “The solar Investment Tax Credit (ITC) is paying huge dividends for America. Today, the U.S. solar industry is pumping $18 billion a year into our economy and creating tens of thousands of new jobs,” said Resch.
In May of this year, Rep. Mike Thompson (CA-5) introduced a bill to extend the Investment Tax Credit (ITC) for both residential and commercial solar installations. The “New Energy for America Act” (H.R. 2412) would extend Section 25D of the federal tax code for residential energy efficient property, as well as the Section 48 commercial ITC, for an additional 5 years. In introducing his legislation, Congressman Thompson, a senior member of the House Ways and Means Committee, said a 5-year extension of the ITC will give the solar industry time to reach “grid parity” in most U.S. electricity markets.
Original co-sponsors of the legislation include: Reps. Matt Cartwright (PA-17); Tony Cardenas (CA-29); Earl Blumenauer (OR-3); Richard Neal (MA-1); Ben Ray Lujan (NM-3); Scott Peters (CA-52); Chris Van Hollen (MD-8); Paul Tonko (NY-20); Bill Keating (MA-9); Peter Welch (VT-At-Large); Doris Matsui (CA-6); Ted Lieu (CA-33); Linda Sanchez (CA-38); Bill Pascrell, Jr. (NJ-9); Jared Huffman (CA-2); Raul Ruiz (CA-36); Keith Ellison (MN-5); Brendan Boyle (PA-13); Ann McLane Kuster (NH-2); Jim McDermott (WA-7); and Steve Cohen (TN-9).
Unfortunately, the political climate in Washington DC is much less pro-solar than it was in 2005. With Congress under Republican control and unlikely to allow any forward motion on anything supported by President Obama, and extension of the ITC does not look likely. However, the expiration of the ITC will coincide with the inauguration of a new President and a potential change in the profile of congress, so anything could happen in the wake of the election. In terms of energy investing, the Motley Fool names the ITC as one of the 3 Energy Trends to Monitor Ahead of the 2016 Election.
For more on the implications of the loss of the Investment Tax Credit, please read “What Happens if the Federal Solar Tax Credit Expires?”
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About the Author: Rich Dana serves as Director of Microenterprise Development for the Sustainable Living Department at Maharishi University of Management. He works with students to develop ideas and implement new projects. He is a serial entrepreneur, a freelance writer and partner in Plan B Consulting. He has served as an energy specialist at the National Center for Appropriate Technology and President of the Iowa Renewable Energy Association. At 53, he still likes to climb on roofs and install solar equipment.
