Mooning the Solar Tax Credit

Since the summer solstice is now upon us, in this month’s Relocalize, Post Carbon Institute thought to take a quick look at the solar landscape.  Where do things stand with new technologies?  What resources exist to help defray costs?  Does solar work for everyone?  Where can people get started?

Now, just two weeks ago, I might have struck a more optimistic chord.  But then I was reminded that, in Washington, D.C., political grandstanding continues to take on more urgency than concerns over energy security, climate change or the economy.

On June 10th, opponents successfully blocked a vote on HR 6049 (The Renewable Energy and Job Creation Act of 2008), which would have extended the solar tax credit, due to expire at the end of the year, until 2014.  (I won’t even bother to mention the other incentives included in the bill, including those for wind, geothermal, biomass and other promising renewable technologies.)

What’s the big deal?

The ITC (investment tax credit) for solar not only serves as a major incentive for households to buy solar panels (up to $2,000 credit per residence), it plays a key role in business and government investment in photovoltaic systems (30% tax-break for businesses purchasing solar).  It’s estimated that 75% of non-residential solar installations are commercial power purchase agreements that rely on the federal tax credit.

Solar providers are warning of dire consequences to their business with the loss of this subsidy:

  • “Arizona Public Service Co., for instance, has proposed what would be one of the largest solar-power plants in the world, capable of serving 70,000 homes or more. But utility executives have made it clear that they will kill the plans for the Solana Generating Station if the tax credit isn’t extended past its Dec. 31 expiration date.” Source
  • The CEO of SunPower, one of the largest solar providers in the U.S., threatened to leave the U.S. market should the tax credit not be extended. “If the ITC doesn’t happen, we can move our business elsewhere and make up for that. Is that a preferred solution? No. Does America lose jobs with that? Yes. But can we as a company hit ‘08 and ‘09 without the ITC? Yes.” Source
  • In California, Pacific, Gas & Electric’s planned 550 megawatt solar thermal plant in the Mojave Desert will likely be shelved without the tax credit: “With no ITC there will be no project,” said Avi Brenmiller, CEO of Solel, the company tasked with building the plant. Source

And it’s not just commercial solar projects that will be affected.  While $2,000 may not seem like a lot when a typical residential system can cost tens of thousands, for many households like my own-with low usage or little capital-the solar tax credit can mean all the difference in the world.  (Visit here to read about my own experience and to find related resources.

How? The ITC has been critical to the expansion of a number of creative financing programs that seek to attract the vast majority of residential home owners who can’t afford to purchase a new photovoltaic system outright:

  • SolarCity recently announced a program that would cut the average consumer’s upfront cost from $25,000 to $2,000.
  • SunRun effectively leases (with some upfront costs) their panels through power purchase agreements that provide consumers with a fixed rate (13.5 cents/kWh) for 20 years.

These are just a couple of examples of what’s been a rapidly evolving industry.

While a number of local municipalities are providing their own, tax-based incentives to spur adoption of solar (in my neck of the woods, for example, the City of Berkeley is financing the cost of solar panels for homeowners who agree to pay back for the system over 20 years through their property taxes), it’s not merely government programs that would be hard hit by the loss of the solar tax credit.  The examples cited above are for-profit enterprises.

Now, a common argument made by opponents of HR 6049 and other attempts to extend the ITC is that the government shouldn’t be raising taxes to pay for the credits.  This argument, frankly, is a canard.  Previous attempts would have paid for the credits by rescinding tax breaks given to oil companies (which together made $36 billion in profit in just three months this year, twice as much as the entire credit package) back in 2005.

HR 6049 would offset the credits by closing tax loopholes for those, like hedge fund managers, who work for certain offshore corporations and delays providing a tax benefit to multinational corporations operating overseas.

So this is not about a tax increase, it’s about how we and to whom we choose to extend tax breaks.  And what do most Americans think?  A recent poll found that:

nearly three-quarters of Republicans (72 percent), Democrats (72 percent) and Independents (74 percent) favor an extension of the federal investment tax credits (ITC) as a way to encourage development of solar power and fund continued development of the technology. In contrast, only 8 percent of Americans believe the ITC should not be extended.

Another argument is that the government should allow the market to drive itself, conveniently forgetting the role that federal subsidies and research & development have long played in the development of the fossil fuel industry.  Even in 2007, more than twice as much money was spent by the federal government on R & D for coal than solar.

I won’t bother to mention other tax expenditures, but if you want to put federal investment in solar development into some context, take a gander here (warning for those with a sticky mouse, carpal tunnel syndrome or a queasy stomach).

Word has it that Senate leaders plan to reintroduce the bill this week on the floor.  Who knows, perhaps by the time you read this, the sun will be shining again on the solar tax credit.  In the meantime, if you want to share your thoughts about the Investment Tax Credit you can:

  • Contact your elected official(s).  You can find and contact your Representative here and Senator here.
  • Write a letter to the editor.  The Vote Solar Initiative helps you find your nearest newspaper and even provides some talking points for those who wish to support the solar tax credit.
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