Federal 30% Solar Tax Credit Extended

Community Solar Garden (CSG) developers in Minnesota spent much of 2015 in a state of foreboding tension. They were being sandwiched between Xcel’s slow pace in approving project applications and anticipation that the 30% federal solar tax break would expire in 2016. This combination led many developers to dread that their CSG project proposals might never be built. This worry that Xcel’s delays would cause CSG developers to miss their financial window of opportunity motivated Community Power to hold our Slow Walk event. 

Fortunately, 2016 is looking to be a lot brighter on both fronts. Xcel have been picking up the pace in approving CSG project proposals lately. But more importantly, the Federal budget passed by Congress and signed by President Obama extends the 30 percent solar tax credit through the end of 2019 then gradually decreasing it to 10 percent at the start of 2022. If congress had done nothing, the 30% federal tax credit would have been abruptly dropped to 10% at the beginning of 2017.  

Not only is the 2016 “drop dead date” gone for CSG developers. It also means they will have a lot easier time finding financing for future projects.

The recent extension of the renewable energy tax breaks was a political horse trade for the expiration of the oil export ban that Republicans in congress and running for president had been calling for. 

It is interesting to note that the previous 2016 expiration date of the solar ITC just happened to be the result of another political trade-off. The solar ITC received an 8-year extension in 2008 as a deal sweetener for the TARP bailout bill. This solar tax credit has since proved instrumental in lowering the cost of solar power.

The extending of the solar ITC may have brought a moment of relief. But by no means should it be taken as an end-all final victory of which we can rest on our laurels. There are even better, more creative ways to incentivize a clean energy future than the ITC that we should pursue.

First of all, a cash payment would be a better policy for institutions like cities, counties, schools and non-profits which can’t use the solar ITC because they lack the tax liability that residents and businesses have. As a result, solar middlemen end up absorbing much of the value from the ITC. Also, the ITC incentive should be adjustable according to where it is needed the most rather than one size fits all. There are some places in the nation where solar will still take several years to reach grid parity while in other areas it is basically at grid parity. 

While there are ways solar tax credits could become more efficient and nuanced, letting the ITC expire altogether would have been bad policy. The clean energy tax credits provide at least some of the much-needed counterweight to the market failure caused by corrupt fossil fuel favoritism. Congress has repeatedly refused to yank away much bigger tax breaks and subsidies going to fossil fuel industries that are allowed to socialize their enormous pollution costs onto the public.

It is unfair to give them a free pass while road-blocking a solar industry from providing an alternative to increasingly expensive electricity from monopoly providers. 

There is consensus within the wind and solar industries that further tax-credit extensions are unlikely after the current ones are phased out. (Forbes)