Solar Investment Tax Credit Moves Forward

A five year extension of the important solar tax credit was included in the spending bill proposed by congressional leaders this week.

The extension of the Solar Investment Tax Credit (ITC) was included in the omnibus spending bill that the House of Representatives and the Senate are slated to vote on soon. The importance of this extension to the U.S. solar industry cannot be overstated– it is an essential factor in leveling the playing field for solar in a market that is heavily government regulated and subsidized to the benefit of the fossil fuel industry.

GTM Research has just released preliminary updated forecasts based on the current omnibus language. By their estimates, the ITC extension will create $40 billion in incremental investment in solar between 2016 and 2020. GTM predicts that the utility solar sector would see the biggest benefits from the ITC extension, with a 73% increase in deployments through 2020, with PPAs being signed at levels of under 4 cents per kilowatt-hour on a regular basis. According to the report, U.S. commercial solar installations would expect to see only an incremental 51% increase over the the same period of time with no ITC extension.

source: GTM research

source: GTM research

Without an extension of the ITC, the solar incentive would drop from its current 30% to 10% for commercial projects and to 0% for privately-owned residential systems at the end of next year. If the proposed extension in the omnibus bill is passed, the ITC would step down according to this schedule:

  • 2017-2019: 30%
  • 2020: 26%
  • 2021: 22%
  • 2022 and beyond: 10% for commercial, 0% privately-owned residential.

Rhone Resch, president and CEO of the Solar Energy Industries Association, said in a statement Wednesday that: “Bipartisan members in both Houses have reestablished America as the global leader in clean energy, which will boost our economy and create thousands of jobs across America.”

Of course, there are those who object to the extension of the ITC for a number of reasons. John Berger, CEO of Sunnova Energy Corporation, wrote in a November letter to the Senate Committee on Finance and the House Committee on Ways and Means that; “We do not believe an extension of this credit is necessary for the continued health of the solar industry. In fact, quite the opposite is true. If the credit is allowed to step down as planned, the industry will remain more robust in both the long- and short-term…”

Berger and other critics of the ITC extension point out the “boom and bust” scenario which has Wind Production Tax Credit (PTC) has created in the wind industry. However, the solar industry works very differently than does large scale wind, and the ITC tax credits function much differently. Even in a no-ITC tax credit scenario, growth in solar installations is still expected. However, jobs and local economic development potential are certainly at stake it the ITC is pulled now. Clearly, a longer ramp down will create tremendous potential growth while giving solar the chance to compete with fossil fuels.

In addition to being good news for U.S. solar developers, solar stocks surged on the news of the potential ITC extension. SolarCity (SCTY), jumped 28% after the announcement, with SunEdison (SUNE), First Solar (FSLR), Canadian Solar (CSIQ), and JA Solar (JASO) also up on the news from Washington D.C.

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