(Update: On December 18, 2015, Congress extended the solar tax credit for homeowners through 2021. Click to learn more about the extension.)
Where did the Solar ITC Come From?
With the passage of the Energy Policy Act of 2005, during the George W. Bush administration, the Solar Investment Tax Credit (ITC) was created. It allowed people getting a solar energy system installed to recoup 30 percent of the total cost of a solar energy system, but residential systems were capped at a $2,000 return. The ITC was scheduled to expire only a few years after it was passed, but in 2008 an extension was passed as part of the Cantwell-Ensign Clean Energy Tax Stimulus Act of 2008 which was part of the Emergency Economic Stabilization Act of 2008 (sometimes called the TARP for the section that included the Troubled Assets Relief Program). At that point the $2,000 residential cap on the ITC was removed. Now the ITC is set to expire completely for residential projects at the end of 2016, for commercial projects it will shrink to covering 10 percent of the costs.
How Solar Panel Tax Credit Has Changed in the US Since the Passage of the ITC
Since the Introduction of the ITC the solar industry has changed radically. In 2014, a new solar project was installed every 2.5 minutes according to the Solar Energy Industries Association (SEIA). As of March 2015 SEIA’s statistics show that nearly 645,000 U.S. homes and businesses have now gone solar and since 2006, the cost to install solar has dropped by more than 73 percent. Not only is it become more affordable for residents but the Solar has become a health source of jobs. The Solar Foundation’s (TSF) annual jobs census for 2014 showed a 21.8% growth in employment over 2013, the industry has grown 86% as an employer since TSF started keeping track of statistics in 2010.
What Should Congress Do?
Now the ITC is set to expire at the end of 2016. Many in the solar industry feel that in order for the market to keep expanding smoothly, the ITC should be extended once again. Of course that would require an act of Congress.
EnergySage’s CEO Vikram Aggarwal says the industry needs to prepare for all possibilities, but it is a storm the field will get through.
“Extending the Investment Tax Credit (ITC) is crucial to helping the thriving solar industry grow. The solar industry has been a consistent job creator in the U.S. market, and we don’t want that to change. But, we have to prepare for the possibility that it might not be renewed. Installers should still be able to earn good net margins if the ITC expires. Electricity prices are forecasted to increase around 3 to 6 percent annually. Prices for solar PV systems will have to drop about 20 percent to offer similar financial benefits to customers. Luckily, continuing declines in equipment costs through technological improvement, innovative approaches to lowering soft costs for installers (e.g. customer-acquisition costs) as well as increasing numbers of people adopting solar energy will protect and help stabilize installer margins over time.
Informed Solar Shoppers, Low Cost Solar Installations
There will, however, be a readjustment and it won’t be easy. If the ITC is not extended, we’ll see a hiccup in the market in 2017 and 2018 because artificial demand will force installers to increase capacity beyond what the market will really support. The industry will readjust though. In the more immediate term, we need an extension of the ITC to allow the energy market to continue its transition smoothly and adapt to the changes distributed power, like solar, are creating. In the longer term, one thing that will make the ITC unnecessary is bringing the costs of solar power systems down dramatically. This can, in part, be done by reducing installers’ soft costs – all the things that aren’t the system itself, such as permits, labor and marketing. There was a study in 2013 from the Rocky Mountain Institute that said 60 percent of the cost of a system was from soft costs. One of the biggest contributors to soft costs is customer acquisition. Installers in the EnergySage network save up to 50 percent on their customer acquisition costs because EnergySage users are well-informed and have all the information they need about going solar at their fingertips. With cost-cutting approaches like this, we won’t need the ITC, but we’re not there just yet.”
Research is being conducted on what would happen to the solar industry under a variety of scenarios for extension.