If you’ve contemplated installing a solar energy system at you home, you’ve probably heard of the solar Investment Tax Credit, or ITC for short. The credit is a reduction in income tax equal to 30 percent of the cost of installing the system at a home or business.
Investors and developers both decided to get on board when the credit received its first extension in 2008. One of the major advantages of the ITC has been its contribution to major economic and job growth. But despite all the positive effects of the credit, it is set to expire in 2016, leaving the bright future of affordable solar energy in question.
What will happen at the end of 2016?
The expiration of the ITC will have consequences that both residential and business taxpayers need to be aware of. Residential taxpayers will see the credit disappear entirely. Business owners will fare only slightly better, with a 10 percent credit remaining. For the benefit of better access to solar power, it is important for Congress to extend the credit for another five years. The country will miss out on a lot of beneficial innovation otherwise, and it will affect potential solar customers!
Bloomberg New Energy Finance, also known as BNEF, and the Solar Energy Industries Association (SEIA) jointly studied the positive impact of a five-year ITC extension. The effects of an extension would benefit the country in a positive way, generating an additional 69 gigawatts of power over a six-year period. During 2017, as many as 80,000 jobs stand to be lost in the U.S. unless the credit is extended.
How did the ITC come about?
Under the Energy Policy Act that Congress passed in 2005, the credit was intended to last from 2006 to the end of 2007. However, because ITC proved so beneficial for those who took advantage of it, Congress extended the credit for another year. Global investment in the renewable energy industry hit the $100 billion mark in 2007.
When the Emergency Economic Stabilization Act passed in 2008, the solar energy sector saw a huge boost. Under this act, Alternative Minimum Tax-paying companies could apply for the benefit, the monetary cap for residential installations was eliminated, and the credit saw an eight-year extension. Further improvements in 2009 targeted toward solar-powered water heaters also improved things.
Since the credit’s original extension, solar energy installation has grown at a steady rate of 76 percent per year. Knowing that the credit was in effect provided the incentive that many investors needed to invest in the technology, knowing that they would receive a good return on their investment. Many of these investors will take a serious loss if this credit doesn’t receive a further extension.
Residential, commercial and utility-scale properties are all eligible for this credit. When a company is involved with the installation in a commercial setting, they are the ones that use the credit. Homeowners take advantage of the credit after the purchase and installation of the solar panels.
Why the credit needs to be extended
If the government extends the ITC it will provide substantial economic growth. The solar power industry has a job growth rate 20 times higher than the overall rate in other industries.
If the credit continues for at least another five years, installations will continually increase and the prices will continue to fall in accordance with the higher demand. The amount of power generated due to an extension would power 19 million homes across the country. The amount of electricity that solar power provides would increase from 0.1 percent to 3.5 percent. Lastly, the environmental impact would be equal to getting 20 million cars off the road or closing down 26 coal-fired plants.
Although interest has spiked in some areas as investors struggle to take advantage of the credit before it is gone or decreased, a sharp decline in development is expected. Companies that want to gain their maximum profits before they lose access to the full credit will need to keep up with their installations through the end of the year. They also will have to adapt to changing conditions brought on because of a market that will be much tighter, possibly affecting installer availability. Homeowners, who stand the most to lose, will gain the most from having the credit extended.
RGS Energy has been helping home and business owners take advantage of the ITC since it was created. With almost 40 years of experience in installing solar energy systems throughout the country, RGS is a leader in the solar industry. To find out how solar energy could power your home or business, visit www.rgsenergy.com.