The Importance of the ITC

Solar Politics

The Investment Tax Credit is the major US Federal incentive for Solar Energy in the US. The most basic description of it would be that it’s a 30% tax credit on the installation of a Solar Power system. The credit is worth up to $2000 for individuals, and with no cap for businesses provided they have sufficient tax liability. It’s currently valid through to the end of 2008, and is up for renewal right now.

But, it’s completely bogged down in partisan politics and it’s starting to look like it’s not going to go through (article dated Sunday, July 20, 2008). Basically, the Republicans want to kill it more than the Democrats want to save it. While at Intersolar 2008, almost every speaker raised the importance of the ITC to the US Solar Energy Industry. The general consensus was that without it, solar would grow in the US but slower, and with European and other non-American Solar Energy companies pulling further ahead of their American competitors.

Here are some articles and analysis that summarize different view points rather well:

• No Tax Credit, No Solar Power – A the title is alarmist, the article is specifically about two Abengoa projects that could be halted without the ITC. Good analysis though and worth reading.
• More Solar Energy Coming to California, Some Contingent on ITC
• Extension of US solar investment tax credit emerges as key issue at Intersolar/Semicon West – Summary of Intersolar panelist’s comments on the ITC.

Finally, a quote from Dr. Fred Morse, senior adviser of U.S. operations for Abengoa Solar, from this Greentech Media Q&A.

Q: Many companies expect a one-year extension to pass before the renewable-energy tax credit expires at the end of the year. Will that be enough to keep CSP moving forward?
A: A one-year extension is of zero value. It takes about four to six years to get a CSP plant sited, permitted, built and up and running. The [investment tax credit] only applies when the plant comes online. And, if you want to finance the plant today, the banks … won’t finance the project unless the [credit] will be there when it’s needed.

So what does all of this mean for the solar energy industry in general? Well, it looks bad, but the reality is that it’s “less good”. Basically, even without the ITC, analysts predict a record year for Solar in California and the rest of the US, if it passes with the 8 year extention that Democrats want, then it will be a banner year. Or put another way, it weeds out the mediocre projects and the mediocre companies. Solar investment will still be in the Billions this year and more solar farms will be built this year than last year.

Signs of a booming industry example:

• Q1 2008 Solar Investment is already 30% over Q1 2007 – Source Cleantech.com
• States are moving in to fill the funding gap, especially California and parts of New England
• Electricity is expected to double in price in the next five years while Solar energy prices continue to drop.

Not to say that the Solar Tax Credit isn’t essential for many US companies and many solar projects, but the industry in general is doing great.

More details available from the Solar Energy Industry Association (SEIA Solar Tax Credit pdf file) and if you’re trying to do research and want as thorough a description as possible, check the Database of State Incentives for Renewables & Efficiency’s (DSIRE) Federal Incentives Page.