GBA Logo horizontal Facebook LinkedIn Email Pinterest Twitter Instagram YouTube Icon Navigation Search Icon Main Search Icon Video Play Icon Audio Play Icon Headphones Icon Plus Icon Minus Icon Check Icon Print Icon Picture icon Single Arrow Icon Double Arrow Icon Hamburger Icon TV Icon Close Icon Sorted Hamburger/Search Icon
Green Building News

A Fight Ahead For Solar Equipment Tax Credits

The leader of a solar industries trade group predicts a bruising fight over the future of federal tax credits that helped his industry grow

A 30 percent federal tax credit for residential photovoltaic and solar thermal systems has been instrumental in the growth of the solar industry in the U.S. The tax credit is due to expire at the end of 2016, and a solar industry group has launched a campaign to save it.
Image Credit: M.J. Monty

The president of the Solar Energy Industries Association (SEIA) is promising to fight for the continuation of a 30 percent federal income tax credit (ITC) for solar equipment beyond its scheduled expiration at the end of 2016.

Speaking to the opening session of the Solar Power International trade show in Las Vegas on October 20, SEIA President and CEO Rhone Resch said the SEIA would lead the “Extend the ITC” campaign to keep the tax credit at its current level.

He said the campaign would gear up in 2015 when a new Congress is sworn in, and told attendees that their livelihoods depend on the outcome.

A single utility-scale wind turbine was installed in the U.S. in the first half of 2013, he said, because of a panic over the Production Tax Credit that helped build that industry. Thirty thousand jobs in the industry disappeared.

“Don’t kid yourselves,” he said in the text of his remarks. “It can happen to solar, too. This isn’t the time to roll the dice on your future. You need to get into the game.”

Generous tax credits helped the oil industry

The tax credit covers a number of renewable energy investments, including not only photovoltaics, but wind, solar hot water, ground-source heat pumps, and fuel cells. For solar-electric systems put into service after 2008, there are no maximums on the size of the systems that qualify.

The tax credit has helped the solar industry grow from $800 million a year to $15 billion a year since it first took effect in 2006, Resch said, with more solar equipment installed in the U.S. in the last two years than in the previous 38 years combined.

Resch said that the average annual subsidy for the oil and gas industry has been $4.8 billion, compared to the $370 million for all renewable technologies. “I ask again,” he said, “How is this fair?”

“Today, I’m going to make you a promise,” he continued. “As sure as World War I started in 1914, if the Koch Brothers and their allies come after solar, 2014 will be the beginning of World War III. It’s not going to be easy. And, yes, we will be fighting an uphill battle every step of the way.”

Although the tax credit has only been on the books since 2006, he said, it has helped drive down the cost of rooftop PV installations by more than half and reduce the cost of utility-scale projects by 70 percent. Annual solar installations in 2014 will be 70 times higher than they were in 2006, he said.

“The best is yet to come if we just stick together and work together to keep the ITC in place,” he said.

“No clear consensus” among lawmakers

The solar industry’s future may hinge on the success of the campaign. But, writes Thomas Jensen at Greentech Media, there is no consensus among legislators that it should be retained, while the investment community has its own qualms.

Jensen, the managing principal and director of finance and capital markets at City Power Development Group, argues that institutional investors have been slow to embrace renewable energy tax credits, in part because they don’t have the long track records of other tax credit programs.

More important, he said, big investors “don’t like orphaned asset classes, and they don’t like orphaned vendors. In other words, they’re not in the business of making one-off investments in one-off asset classes that are soon to go away with one-off, one-time vendors that may not be in business in two more years.”

The “panicky claims” by the solar industry that it won’t be able to survive without the tax credit is actually a hindrance, not a help.

“So with the solar industry caught in a Catch-22 partly of its own making,” he writes, “it appears the only solar developers likely to garner the attention of institutional investors during the final two years of the subsidy will be the ones able to make compelling arguments that they will survive the subsidy’s elimination and remain able to asset-manage these long-term investments.”

2 Comments

  1. W D | | #1

    Armagedon?
    We are going to have World War III in a year and a half because a Federal tax incentive program (ITC) expires? Two businessmen named Koch are to blame? Really?

    I have confidence in PV and the general idea that we can better manage energy we receive from the Sun. If the ITC is extended that's OK with me because I like clean energy. GBA has been full of encouraging updates about the falling prices for PV and the inevitable transformation of the Utility industry and the environmental benefits. I've seen incentives come and go. When ITC expires as it was planned to do, I think we'll survive and so will PV and technologies yet to come.

  2. User avater
    Dana Dorsett | | #2

    The right solution...
    ...would be to step down subsidies based on an installed-volume basis rather than on calendar time frames.

    Germany sort of painted themselves into a corner with generous feed-in tariffs that were linked to the calendar rather than total installed base, and when there was a rapid decline in the cost the installation rates ramped up well beyond what had been modeled in the legislation.

    While the dollar amount of a 30% tax credit automatically declines with installation costs, there is no magic to 30%. The cost of grid-tied PV has over time has declined about 22% every time the installed base has doubled, and that doubling time has shrunk to less than two years. That means that unsubsidized solar today costs less than PV installed only four years ago cost AFTER the subsidy.

    While the step-down to 10% subsidy at the end of 2016 is a large step from 30%, it's a smaller step in dollar terms than it might seem looking at last year's cost of solar, but it's still a disruption. Ratcheting it down by 5% or 10% every time the installed base doubles would be less disruptive, and we would still see an exponential growth in the installed base of PV. Using a 10% per doubling ratchet the subsidy would be zero by the year 2020. By the time the subsidy goes to zero the cost b= will be half (or less) what it is today, and a no-brainer type investment at net-metered residential retail.

    But congressional terms are on calendar boundaries, not PV installed base boundaries.

    By 2017 the cost of solar is likely to be 22% less than what it costs today, and even with "only" a 10% direct subsidy, PV will cost less than the subsidized cost today. And today it's already approaching no-brainer status in high-priced electricity markets. The industry is not going to disappear in Q1 2017, but you can bet that Q4 2016 will set (another) record for gigawatts of distributed PV installed, both residential & commercial.

Log in or create an account to post a comment.

Related

Community

Recent Questions and Replies

  • |
  • |
  • |
  • |