The Investment Tax Credit has been one of the major factors of growth for the solar energy industry since its establishment in 2006. The ITC is a 30% tax credit for solar systems on residential and commercial properties. Following its success, it has helped annual solar installation grow by over 1,600% since 2006. The ITC was given an eight year extension in 2008 until December 31st 2016, when it will drop to 10%. Many professionals are now wondering what will become of an industry that has been driven so much by incentives when these will be gone.
This tax credit was originally put into effect to boost the solar industry in the U.S and help promote this technology to the public. The ITC became extremely successful, increasing distribution, lowering the costs of solar energy, increasing the U.S solar manufacturing capacity and dropping the cost of solar for consumers.
Such a success proves that incentives can drive industry growth and sustainability, but no incentives are meant to last forever and any industry should be able to develop itself while reaching maturity, a phase that the U.S solar industry is getting closer to.
The question everyone is asking is how the market will bounce back in 2017 when the ITC will only represent 10%? A few years ago, GTM research revealed findings based on assumptions using the Levelized Cost of Energy (LCOE), a metric used to measure the cost of generating electricity at the point of connection to a load or electricity grid. This model, based on the residential market in 20 states, showed an expected price convergence in nearly half of the states studied for 2016, while in 2017, post-ITC, only 3 states will have solar generation cost below grid prices. Such a study demonstrates the necessity to maintain the ITC or at least introduce a progressive reduction. If things stay the way they are, many utility-scale solar projects currently under construction or in planning might not benefit from the tax credit as the current requirement asks for a project to be “placed in service” by December 31st 2016 to have access to a 30% ITC.
The Californian Example
Though we have the right to be concerned over a future with no or very few solar incentives, California has been an example of how the solar industry can keep functioning without key incentives. This state became the largest solar energy market in the country thanks, in part, to its incentives on solar PV installations on both commercial and residential roofs. It is now again leading the way, but this time in installing projects that rely the least on governmental incentives. What is California’s remedy in this matter? As of 2013, the California Solar Initiative (CSI) for residential projects in PG&E territory have been removed, however, the market does not show any sign of abating in the near future. This is due to the multiplication of solar projects, schools, hospitals, and homes. People see solar PV all around them and acknowledge the fact that solar energy works. Californian people have now adopted solar as a norm and realized it was cheaper to make their own power than to buy it from a utility power company.
It is certain that by lowering solar prices, incentives have helped to maximize solar sales and thus create a solar network in the country. Lowering the ITC down to 10% or worse, removing it will not only slow down or paralyze sales, especially in non-solar states, but also give the impression that renewable energies are not one of our government’s priorities anymore.