The ITC Extension — A Look Back, and Ahead

By May 9, 2016 June 28th, 2019 No Comments

At the Intersolar North America tradeshow in San Francisco last summer, the Investment Tax Credit (ITC) for renewable energy was by far the most popular exhibit without a booth.

The topic of whether or not the powerful incentive would be, or should be, allowed to expire cropped up everywhere from keynotes to bars, and it was perhaps the biggest name at the ball.

The reason Intersolar attendees were so consumed with the ITC? Well to almost each and every one of the 18,000 people in attendance at the Moscone convention center, their industry, their jobs, and their climate would probably be affected by whether or not it would still be around in any form after its scheduled expiration date of December 31, 2016.

One thing no one was anticipating however, was that all would know the outcome even before the end of 2015. In a surprising move, both in timing and in decision, the ITC was indeed extended by Congress, deep within a year-end bill to fund the federal government.

So we don’t need to concern ourselves with this anymore, now that the ITC has been extended. Or do we? With the extension, the tax credit will only be available through 2019, then begins a stepping down process through 2021, and ends for residential after that date. And then, we’re right back where we started and most probably all this begins anew.

A Success Story

The ITC is a federal program first created by theEnergy Policy Act of 2005 and has been supported by both Bush and Obama administrations. Administered by the IRS, it was originally extended in 2008 for eight years by the Emergency Economic Stabilization Act. At its core, the program offers a 30% of expenditures tax credit for either residential or commercial photovoltaic system installation (and credits for other renewable energy systems).

So to the person or company who purchases (vs. leases) a solar system, this means they can qualify for a 30% tax credit of the purchase price come tax time and subtract that savings against their overall cost for the system. It is a huge selling point for solar, and a major economic benefit to solar purchasers.

“The ITC is America’s most important solar policy. It has spurred 1600% annual growth since being implemented and has turned solar into an economic engine”

– Camilo Patrignani, CEO Greenwood Energy

The credit, along with decreasing system costs, has been a significant factor in the overall growth of solar installations in the U.S., to-wit: Solar accounted for almost 1/3 of all new generating capacity in 2014, second only to natural gas; solar added about 6 gigawatts of utility-scale capacity in 2015 alone, equal to adding 3 new Hoover Dams; and added around 36,000new jobs in 2015 (1 out of every 78 new jobs) to its current workforce of 174,000 Americans, with 150,000 of those jobs created since the ITC was implemented.

This blast-off in solar and economic activity is in-step to reach the federal goals of getting 14% of our power from solar by 2030 (it’s around 1% now) and 27% by 2050, or to certain state targets which are even more aggressive (California is targeting 50% renewable energy power by 2030).

To Extend, or Not?

During Intersolar, that 30% tax credit was scheduled to decrease on January 1, 2017, to a scant 10% for new commercial solar systems, and to a cold 0% for new residential systems. And with that, according to many, this churning new economic and environmental engine with all the job growth, clean power adaptation, and potential U.S. global leadership in new energy, could have grinded to a halt. To them, as goes the ITC, so goes the industry.

“It’s very likely that running up to the end of 2016 we would see a boom followed by a bust with all the costs that come with such a cycle.”

– Stefan Reichelstein, Prof. of Accounting, Stanford

The hand-wringing involved the question of how well, if at all, the industry could’ve handled the ITC step-down. And indeed, it was a large question, promptinga study from Stanford University which forecasted the latter. Professor Stefan Reichelstein co-authored the study and concluded “…it doesn’t matter which state you take or which segment you look at; solar would be pretty much uncompetitive by early 2017 in virtually all of the applications (residential, commercial, utility-scale).”

That concern was loud and clear at Intersolar. During her West Coast Policy update, Bernadette Del Chiaro, Executive Director of the California Solar Energy Industries Assoc. (CALSEIA), was bullish on the odds for the extension (it’s “ours to lose”) but as well as for the need. Citing the Congress-friendly facts of solar’s impact on job growth, and its ability to save money for their constituents while lessening our dependency on foreign oil, she made a great argument for having the credit.

Surprisingly though not all felt this way. Ram Akella, Managing Director of PV manufacturer CentroSolar America in Arizona, expressed a common opinion in his talk where he said that the industry shouldn’t rely on the subsidy and if it instead focused on achieving greater efficiencies and reducing costs, these in turn would help mitigate the effects on solar growth of a disintegrating ITC.

It will be very interesting to see how these viewpoints tilt, if at all, as 2021 gets closer. One might think by then solar won’t want, or need federal help. On the other hand…

In Search of a Level Playing Field

President Obama’s proposed 2016 budget already included a permanent extension of the ITC, but Republicans in control of Congress were against it, even though the ice under that stance was becoming noticeably weaker. For one, there was that pesky campaign issue of new job creation that solar was being so good at, plus a majority of Americansnow favored renewable energy.

But lurking powerfully below was the very hard-to-get-around fact that in the name of fair competition, a quite mature fossil fuel industry had been subsidized by taxpayers every year since 1913, and which continues to this day. In 2015 alone fossils received an estimated $12B-$40B in direct incentives, which don’t include indirect incentives such as the unpaid social/health/climate costs of burning fossil fuels that are imposed on governments. Those costs could equal as much as $10 trillion in subsidies per year worldwide according to the International Monetary Fund.

“Incentives for solar energy are less per megawatt-hour than for any other fuel source by a factor of ten”

– Howard H. Baker Center report, Univ. of Tennessee

One still prominently hears as a main argument against renewable subsidies the failed government investment in Solyndra — the U.S. solar manufacturer that went bankrupt in 2011, taking the $536M federal investment with it — while hearing very little about the huge tax write-offs the oil industry still receives for drilling costs, even when they result in dry holes. That may now change.

Many solar advocates believe as long as fossil fuels receive subsidies, then renewable energy should as well, even more so considering its development stage and importance to the new goals our country and the world are setting. All of which sets the stage for a very interesting debate in the days ahead leading up to 2021.

To Lead, or Not to Lead

So hopefully the political question might now evolve into “why would we stop investing in this new industry?” Especially given our long history in supporting other energy industries, and given the growth of renewables and their overall positive impacts.

“The good news to keep in mind is that irrespective of what happens here, the rest of world will continue to expand rapidly with solar deployments,” Reichelstein goes on to say. “The question is where that would leave the U.S. solar industry.”

Where indeed. Most believe at the very least it would leave the U.S. losing out to China, and others no doubt, in leading the world into the new global energy transformation.

So while the solar industry may be somewhat mixed as to whether the ITC is needed at this point, or might continue to be in the future, most countries, large andespecially small, would be furious to see America squash any momentum renewable energy finally obtained within the world’s #2 polluter. On the other hand China, and other major economies no doubt, surely would be quite pleased, if America stopped investing in itself.

Thad Wharton founded and runs Broken Arrow Marketing, a specialized practice that promotes non-profits and businesses through artist endorsement relationships, with a focus on clean energy endeavors. A graduate of the University of Oklahoma’s Energy Land Management program, he began his energy career acquiring landowner rights to drill oil and gas wells, but left the oil patch and has been an ardent renewable energy supporter ever since. Wharton can be found on his free time running a record label for international singer-songwriters. Follow on twitter: @BrokenArrowMkt

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