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What Happens if the Federal Solar Tax Credit Expires?

The solar industry is booming. But can it sustain its current growth in the absence of the 30% federal tax credit?


image: the diysolar.com

image: the diysolar.com

The U.S. Government’s Investment Tax Credit (ITC) allows for any U.S. tax payer who purchases a solar system (or other renewable energy system) to receive the tax credit equal to 30% of the system cost. A tax credit, unlike a deduction, can be used to pay taxes owed, so it functions much more like a rebate than a deduction, making it extremely attractive to those with a larger tax burden.

However, the ITC is set to expire in 2016, and the fate of the tax credit is of serious concern to nearly everyone in the solar industry. If congress fails to renew the ITC, it could have a chilling effect both on individuals who want to install residential solar systems, as well as the large companies who are installing the larger, utility scale solar projects.

One example of how the discontinuation of tax credits can chill fledgeling renewable energy industries is the 2012 sunsetting of the Wind Production Tax Credits. Since then, congress has battled over short-term extensions to the PTC, which has left wind project developers unable to plan for development beyond the current year.

“Wind has more than tripled since 2008, it can double from where it is today to 10 percent by 2020, then double again to 20 percent by 2030, and become the leading source of electricity in the U.S. by 2050,” said The American Wind Energy Association‘s Tom Kiernan. “However, to get there Congress must provide wind with the same policy certainty it provides to other energy sources by rapidly extending the Production Tax Credit for as long as possible.”

Could the U.S. solar market be looking at the same uncertainty as wind? According to Tony Clifford, CEO of Standard Solar, “If an extension happens it will be in late-2016, early-2017, but it won’t happen any sooner than that. This will still throw brakes on the industry for about six to nine months, which means layoffs will begin mid-2016. We have to start working the halls of congress now. Companies should join SEIA’s ITC coalition — get involved and start contacting your local political leaders. Show them the importance of solar.”

“Since 2006, 150,000 jobs have been created, 19.5 GW have been installed, and yearly installations have increased by a factor of 60,” said Rhone Resch, the Solar Energy Industries Association (SEIA) Executive Director. “Most of us in this room have jobs because of the solar ITC.” Resch laid out a frightening scenario at the recent keynote session at PV America 2015 in Boston, Massachusetts. “The reality is that we will lose 100,000 jobs if we lose the ITC — and these are conservative numbers. Ninety percent of solar companies will go out of business.”

Not everyone in the solar industry agrees with Resch. Jigar Shah, the founder of the nation’s largest solar services provider, SunEdison, has often expressed his opinion that subsidies are actually holding the solar industry back. In an editorial for Cleantechnica, Shah writes: The reasoning behind my strong stance is that, based on the cost of solar that I am personally investing in, solar is now cost-effective without subsidies for ideal customers in 300 utilities in 30 US states. Those 300 utilities account for about 20% of all of the electricity sold in the United States (using Energy Information Administration Form 861 data). Based on my experience, my thesis is that phasing out these subsidies will lead to 1) greater system cost reductions, 2) lower cost of money, and 3) greater standardization in the industry – all leading to a greater acceleration of solar PV deployment in the United States.”

Shah is not the only person in the industry who believes that the expiration of the Investment Tax Credit will lead to more solar installations. In this 30-minute audio interview at Renewable Energy World, Chris Lord, who has extensive experience financing solar projects with CapIron Inc, explains that the impact of the possible ITC expiration will depend on the local market. In markets that have flexible programs, namely Solar Renewable Energy Certificates (SREC) markets, it could actually increase the adoption of solar PV by increasing the value of SRECs and opening up an entire markets for both properties and investors that could not use the ITC before. However, only six states, Delaware, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania and Washington, D.C. have SREC markets. Lord admits that in markets with more rigid structures, like feed-in-tariffs, cash rebates, or tax credits, it might have a more long term negative impact. 

With installed costs plummeting recently at 13% annually, solar may survive the phasing out of the ITC. However, with utility lobbyists across the country looking for ways to discourage residential solar installations, it may once again be “the little guy” that suffers, while larger and larger, centralized, corporate owned solar generation facilities become more and more the model for solar development.

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