Congress Extends Federal Solar Tax Credit

The US Congress has extended an important tax credit for solar energy, a move that’s good news for future US investments in this type of alternative energy and for many stakeholders in the solar industry.

The Energy Policy Act of 2005 provides a one-time 30% investment tax credit (ITC) for commercial and residential solar energy systems once they’ve been put into service.

The original ITC was meant to expire in 2008 but Congress passed an eight-year extension, which would have expired at the end of this year if no action was taken. That would’ve eliminated the 30% ITC for residential solar deployments and reduced the 30% ITC for businesses to 10%.

But those scenarios won’t happen, thanks to a provision buried in the omnibus spending bill that recently passed the US Congress and the Senate, which extends the ITC until 2020.

Congress has extended the investment tax credit (ITC) for solar energy that was set to expire at the end of the year until 2020
(Source: Wikipedia)

“The extension has obviously been much anticipated by the solar energy industry,” IDC Community analyst Kevin Prouty wrote in a blog post. “While failure to pass would not have doomed the industry, it would have most likely curtailed any capital investments by those companies.”

Indeed, Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA) -- the premier organization driving the adoption of solar energy in the United States -- applauded the move, saying it brings the solar industry to the “forefront of the conversation about American energy.” SEIA had been heavily lobbying Congress for the extension.

“The ITC extension makes America and its solar industry the world’s preeminent producer of clean and affordable energy,” he said in a statement. “We commend members of Congress in both parties for taking this bold step and we look forward to delivering on the promise that this policy now offers all Americans.”

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Resch said the extension of the ITC will mean 220,000 new solar-energy jobs by 2020, with a reduction in emissions by 100 million metric tons as solar replaces power plants that produce this type of pollution. It also will lead to more than $133 billion in private-sector investment in solar in the US economy over the next five years, he said.

Even though the news is good for many, some parts of the energy industry may find it difficult to adjust as solar takes new prominence in the US, Prouty said.

Utility companies, for instance, may lose customers as they turn to non-traditionally generated power, i.e., solar, for their energy needs, which is being made easier not only by the drop in prices of solar equipment but also in new power-storage technology that’s being made available to them, he said.

Even if people continue to use the grid for their power, utility companies still face changes as solar becomes more widely adopted, Prouty said.

“Metering, billing, and demand management become that much more complicated as solar continues to gain ground,” he said. “On top of that, traditional utilities will face even more pressure to use solar energy to comply with new federal carbon emission standards. And again, it adds a complication to managing power generation, distribution, and regulatory issues.”

Companies providing technology to the utility industry also will experience transitional pains as the industry shifts to solar, as many of them are not ready for a shift in asset investment by their electric utility-plant customers, nor new legislation around the type of investments made, Prouty said.

Indeed, he added that while the extension of the ITC is “a big step forward for solar energy,” legislation isn’t the key driver of solar expansion in the United States. “Macroeconomic, environmental, state regulations and plain old energy-grid economics will play a role in the velocity of solar energy’s invasion of the grid,” Prouty said.

Elizabeth Montalbano is a freelance writer who has written about technology and culture for more than 15 years. She has lived and worked as a professional journalist in Phoenix, San Francisco, and New York City. In her free time she enjoys surfing, traveling, music, yoga, and cooking. She currently resides in a village on the southwest coast of Portugal.