30% Federal Solar Tax Credit Extended – The Good, the Bad, the Ugly.

From the Solar Energy Industries Association:

“In its waning hours, the 109th Congress today passed legislation that would extend the 30% solar energy investment tax credit (ITC) for homeowners and businesses for one additional year, through the end of 2008.”

Established in 2005, and previously slated to sunset in 2007, the 30% tax credit was a significant step up, but as SEIA points out, in 1 and 2 year drips and drabs, is barely worth the trouble.

The mechanism:

“Residential Solar Tax Credit: Extends a 30-percent tax credit, created in the Energy Policy Act of 2005, for the purchase of residential solar water heating, photovoltaic equipment, and fuel cell property. Expires after December 31, 2008.

Business Solar Tax Credit and Fuel Cell Tax Credit: Extends a 30-percent business credit, established in the Energy Policy Act of 2005, for the purchase of fuel cell power plants, solar energy property, and fiber-optic property used to illuminate the inside of a structure. After December 31, 2008, the credit reverts to a permanent 10-percent level.”

The Good

The solar industry needed this badly. the 30% tax credit (up from 10%) provided a much needed boost – you can tell because not only has the activity on solar power plant financings picked up considerably, when you run the numbers on the projects, that extra 20% provides a lot of extra juice.

The Bad

One extra year is not much of a policy in any case. Does extending the sunset 1 year mean that Congress really doesn’t want to deal with it in 2007, and will maybe just wait until 2008 to consider the 8 year extension the industry wants? Let’s either do a comprehensive solar bill or drop it all together, but stop playing in drips and drabs.

The Ugly

This is only a part of the overall subsidy package. It still takes an accelerated depreciation and the state rebates to make these projects come anywhere close to penciling out – meaning when the private sector spend $1 for solar, the taxpayer spends about a $1.50. Keep on trucking, we have a long way to go.

In other news, the California PUC last week issued a proposed decision to let solar system owners keep the renewable energy credits from their projects. I must admit, I haven’t followed this debate closely, but I really don’t understand the argument to give them to the utility.

Author Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is the founding contributor of Cleantech Blog, and a Contributing Editor to AltEnergyStocks.com.

9 replies
  1. Anonymous
    Anonymous says:

    First off I will admit I have personal feelings that will color this explanation but as I understand it the argument for giving the utilities is as follows:If utilities are given the Renewable Energy Credits (RECs) then they will be able to apply those RECs to their own required quotas for the Renewable Portfolio Standards(ie 20% by '17). Since the utilties are having trouble meeting this standard they would argue that owning the RECs would give them an incentive for promoting solar. According to this line of reasoning utilities would stop fighting net-metering and would create programs on their own promote solar.The whole things is sort of suspect to me. Feels like appeasement and I sincerely doubt whether you can trust utilties to do anything without twisting their arms a bit.

  2. Sarah
    Sarah says:

    The presence and absence of solar incentives has made it difficult for the solar industry to be firmly established. Either the industry is booming as it was in the late 1970's and early 1980's or the industry is really hurting as it was in the late 1980's.State incentives however have been extremely helpful where these exist. New Jersey and California for example have expanding solar markets largely because of these incentives. http://www.dsireusa.org has an up to date database of incentives. Currently photovoltaic (pv) systems are not usually a good economic investment without incentives, although this varies depending on the price of electricity in the area. Solar thermal (hot water and space heating systems) on the other hand has a much lower cost relative to the value of the output. If the price of natural gas continues to increase as it has in the last decade, these systems may be a good investment without incentives.

  3. Anonymous
    Anonymous says:

    Does anyone have information or insight at this point regarding legislators or proposed legislation for extending the tax credit beyond 2008? I assume that ASES is working with someone on this, but if we want to get this really fixed, we need to mobilize a lot broader constituency than the energy policy folks (nothing wrong with them; they are needed to contribute to drafting legislation, etc.) but I think we have a better chance of getting a multi-year credit through if there is a broad popular effort pushing for it.

  4. Anonymous
    Anonymous says:

    Can't we guess that there might actually be an advantage in waiting until '07 or '08 to debate any substantial clean energy bills in congress? I suspect the new congress may be noticeably more receptive than the old.

  5. Anonymous
    Anonymous says:

    Give it to the ulitities means only their clients may get it. What about those live totally "off-grid" on solar, wind ? They are the ones deserve credits most.

  6. Air Conditioning
    Air Conditioning says:

    We experienced outstanding results at the end of 2010. The only way people will move on these credits is if they go away every third year creating a buying dilemma for the public. We are simply not proactive enough about our credits and incentives to promote alternative methods of energy. The politics trump the technology for now and we are just wasting time.

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