Fate of Expiring Federal Solar Tax Credit Remains Unknown

A tax credit that has inspired significant growth and business gains in solar energy in the US over the past decade is set to expire at the end of next year unless Congress passes an extension, leaving the fate of the burgeoning solar industry unknown.

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 supposed to expire in 2008 but Congress passed an eight-year extension, which expires at the end of 2016. At that time, if no action is taken, the 30% ITC for businesses will be reduced to 10%, and the 30% ITC for residential solar deployments will be eliminated.

"No one wins if it's not extended," Ken Johnson, vice president of communications for the Solar Energy Industries Association (SEIA), which unsurprisingly is lobbying Congress to pass another extension, told Design News. "The simple fact of the matter is, the ITC has been hugely successful since it was enacted at the end of 2006."

Indeed, since it went into effect the ITC has had an enormous impact on the use of solar power in the US and has created a lucrative new business for this type of renewable. "It's helped to create more than 150, 000 solar jobs in the United States and nearly $70 billion has been invested in new solar projects," Johnson said.

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"Since the extension of the ITC in 2008, the photovoltaic industry has grown a little more than 20 times in annual installations, from 298 megawatts in 2008 to 6,201 megawatts in 2014," David Feldman, a financial analyst with the Department of Energy's National Renewable Energy Labs (NREL), which conducts cutting-edge research in solar and other types of renewables, told us. "Cumulative installations have also grown by a little more than 20 times from 0.8GW of cumulative installations in 2008 to 18.3GW in 2014," he said.

Moreover, from 2005 to 2014 annual U.S. photovoltaic installations had a compound average growth rate (CAGR) of approximately 62 percent, while the residential photovoltaic market has a CAGR of 53 percent, Feldman added.

SEIA's Johnson said solar's established competitors in the energy industry -- oil and gas, coal, and nuclear energy -- have had the benefit of years of federal subsidies to create the powerful industries they are today. Though it's done remarkably well in the roughly 10 years since Congress passed the solar subsidy, the industry still needs the help of the ITC to get solidly to its feet in the market.

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"We're close -- very close -- to being competitive, but because of the disadvantages in the tax code and because of the fact that fuel interests have had a huge head start, we're a little bit behind the eight ball," Johnson said. "We need a little bit more time in order to bring our industry into the future."

Not every solar stakeholder is bullish on the ITC and wants to see it extended, however. Some believe its elimination would level the playing field for solar more than the subsidy itself does.

"With the ITC eliminated, we will have competitive visibility to the solar industry as a whole," John Berger, CEO of Sunnova, one of the United States' largest residential solar companies, said in an interview. "People will see this as a real energy business, eliciting expansion."