Goodbye boom-bust? Congress agrees to extend renewable ITC
December 17, 2015 | By Barbara Vergetis Lundin
Congress has proposed an agreement to extend the Investment Tax Credit (ITC) for wind and solar in the U.S.
The ITC was set to expire at the end of 2016.
As part of a larger budget deal, Congress voted on legislation for a five-year extension of the ITC that gives a 30 percent federal tax credit for commercial installations of solar PV systems and an extension with a progressive phase down of the tax credit for small wind systems.
A five-year extension to the solar investment tax credit (ITC), which is currently included in the omnibus spending bill under consideration in Congress, would result in 25 gigawatts (GW) of additional solar capacity over the next five years -- a 54 percent increase over a no-extension scenario -- and will foster $40 billion in incremental investment in solar between 2016 and 2020, according to GTM Research.
"The ITC extension currently written into the omnibus spending bill will result in a 20 gigawatt annual solar market in the U.S. by 2020," said Shayle Kann, senior vice president at GTM Research. "At that rate, more solar will be installed each year than was added to the grid cumulatively through 2014."
The impact will be most pronounced in the utility-scale sector, where an ITC extension will increase deployments 73 percent through 2020.
"Given price trends in the utility solar sector, the five-year ITC extension will likely result in utility-scale solar contracts being signed for less than 4 cents per kilowatt-hour regularly over the next two years," said Cory Honeyman, senior analyst at GTM Research.
In the distributed solar market, residential installations will see a 35 percent impact versus no extension, while commercial solar will increase by 51 percent, GTM says.
In the absence of this legislation, the ITC would drop from its current 30 percent to 10 percent (for non-residential and third-party owned residential systems) and to 0 percent (for host-owned residential systems) on January 1, 2017. Instead, if the omnibus spending bill is passed in its current form, the ITC would step down 30 percent from 2017 to 2019, 26 percent in 2020, 22 percent in 2021, and 10 percent (non-residential and third-party owned residential), or 0% (host-owned residential) beginning in 2020.
The bill also includes a "commence construction" provision, allowing projects to come on-line by the end of 2023 and still qualify for larger credits.
While solar has gotten much of the attention, wind also plays into a comprehensive and diverse solution for the U.S. economy to exhibit lower carbon use and increase job growth. Experts say the tax credit extension will stimulate more than $125 billion in new investments for the U.S. economy and encourage private investment in wind.
"This agreement will enable wind energy to create more affordable, reliable and clean energy for America by providing multi-year predictability as we have called for. If this passes, our industry will get a break from the repeated boom-bust cycles that we've had to weather for two decades of uncertain tax policies," said Tom Kiernan, CEO of the American Wind Energy Association (AWEA). "This plan will drive more development, and near-term prospects look strong -- especially as utilities, major end-use customers, and municipalities seek more low cost emissions-free renewable energy."
According to the agreement, the Production Tax Credit and alternate Investment Tax Credit would be extended for 2015 and 2016, and continue at 80 percent of present value in 2017, 60 percent in 2018, and 40 percent in 2019. As before, the rules will allow wind projects to qualify as long as they start construction before the end of the period.
The credit is currently worth 2.3 cents a kilowatt-hour of electricity generated for the power grid. Combined with continued growth in demand for low-carbon fuel sources, that is intended to keep wind energy attractive for the investors who finance new wind farms.
The performance-based PTC has helped more than quadruple wind power in the U.S. since 2008 -- up from 16,702 megawatts (MW) installed at the start of 2008 to 69,470 MW by the third quarter of 2015 and enough to power more than 18 million American homes, according to AWEA.
Further, the PTC has encouraged research and development, construction of factories in the U.S. and maximum productivity, helping reduce the cost of American wind power by 66 percent in six years. Iowa, South Dakota, and Kansas all rely on wind for more than 20 percent of their electricity; nine other states are over 10 percent.
"The U.S. is home to some of the most productive wind turbines in the world because of this successful policy," said Kiernan. "That's due in large part to wind power champions in Congress, and leadership across both Republican and Democratic administrations."
America as a whole is on track to get 20 percent of its electricity from wind by 2030, according to the U.S. Department of Energy's "Wind Vision" report.
"Congress has done the right thing by extending the Production Tax Credit for wind and the Investment Tax Credit for solar. This extension gives these renewable energy industries the certainty they need to plan for the future and mitigates the boom-bust cycles that are so very detrimental," Wind on the Wires Executive Director Beth Soholt said. "Since we have terrific wind resources in this part of the country, the Midwest will most certainly be a big beneficiary of the PTC. The ITC will help the emerging solar market in the Midwest complete projects in the pipeline and plan for the future. Our wind and solar developers are poised to take advantage of this policy certainty and are ready to help states meet their Clean Power Plan goals."