Is extending the solar tax credit necessary?

Amy Gahran | Aug 31, 2015

Given the substantial reduction in the cost to install solar power in recent years, is the 30% federal solar tax credit still needed? 

Sen. Charles Schumer, D-New York, thinks so. 

Schumer recently announced that he intends to propose legislation extending this credit, which is slated to drop to just 10% at the end of 2016.

Many solar advocates would support an extension of the Solar Investment Tax Credit, citing its role in driving considerable growth of the industry, at a time when many states have struggled to meet their renewable portfolio standards. 

The Solar Energy Industries Association, the main solar trade group, has been lobbying Congress to extend the credit beyond 2016. 

The association credits the ITC with helping to grow annual U.S. solar installations by over 1,600% since it was implemented in 2006.

According to SEIA, the ITC "provides market certainty for companies to develop long-term investments that drive competition and technological innovation - which in turn, lowers costs for consumers."

"For many parts of the industry, especially utility-scale solar and companies that lease solar in the residential sector, the federal tax credit has been very helpful," said Bob Gibson, vice president of knowledge at the Solar Electric Power Association. "A lot of entities have used this credit productively, so an extension would be probably help that trend continue. We do expect the strong solar market will continue with or without the 30% credit - but we would expect to see a drop-off in new projects if the tax credit drops on schedule."

Schumer is proposing not just extending the ITC (for an as-yet unspecified period), but also changing the credit's eligibility rules so that businesses and developers that invest in solar systems can claim the tax credit when project construction begins, rather than only when the panels start generating power. This would be similar to how the production tax credit for wind energy worked, before it expired in 2013.

Ryan Edge, a research analyst with SEPA, has observed that many recent requests and proposals to build new solar projects explicitly demand that construction be completed in time to allow panels to be activated in 2016 - a requirement driven by the ITC timeline and terms.

"There's definitely a rush," said Erik Fogelberg, who deals with commercial projects at San Mateo, Calif.-based SolarCity, the largest solar installer and financier in the U.S. 

"There's probably going to be a massive fallout of companies that can't survive that change," Fogelberg told the Sacramento Bee.

SolarCity's earnings report from February shows some concern about the bubble bursting when incentives go away: "Reductions in, eliminations of, or expirations of, governmental incentives could adversely impact our results of operations and ability to compete in our industry," it says.

The ITC, however, hasn't been the only factor driving more favorable economics for solar projects; installation costs have dropped about half for residential solar and even more for utility-scale projects over the last decade. 

Economies of scale and technology advancements also have driven down the cost of solar panels and other hardware, while the software to manage solar capacity has been getting better.  

"The tax credit is one piece of puzzle, but there are other pieces," said Randy Wheeless, spokesman for Duke Energy, a utility that has been aggressively investing in solar through its regulated entity and also its unregulated subsidiary, Duke Energy Renewables. 

"In terms of overall costs, we're getting bigger projects built quicker than used to happen. The engineers, designers, installers, contractors . they do it a few times, they get better at it. Projects are much quicker and more efficient these days, especially big projects." 

This is why Duke, at least, sees a continued federal tax credit as perhaps less essential to continued growth in solar. 

For instance, Wheeless noted that Duke intends to push forward with solar expansion in several states, even if the ITC does drop on schedule - and also when a similar tax credit in North Carolina concludes at the end of this year.

"We've been active beneficiaries of those tax credits, but we know they have an end date, and we take that into account in our plans," said Wheeless. "A lot of industries like more tax credits, but we understand that these things often need to end on schedule, and we respect the legislators' judgment on that."

The nation's solar advocates see things differently, of course. 

http://www.energycentral.com/functional/news/news_detail.cfm?did=37224281