The solar investment tax credit, or ITC, is one of the most important federal policies impacting the solar energy industry. The ITC offers a 30 percent income tax credit to owners or long-term lessees of a solar energy system that meets performance and quality standards. The credit is calculated based on the total cost of the system, including equipment and labor. Components that are eligible for the credit include panels, mounts, equipment, and wiring. Since it was implemented in 2006, the ITC has helped solar installation grow by over 1,600 percent.
The residential and commercial income tax credit was established under the Energy Policy Act of 2005 and applied to projects installed between 2006 and 2007. In 2008, the ITC was extended for eight years under the Emergency Economic Stabilization Act. In addition to the eight-year extension, the legislation removed the monetary cap for residential installations and allowed utilities and companies paying the alternative minimum tax to receive the credit.
Most recently the 2016 Omnibus Appropriations Act included a five-year extension of the ITC for solar energy projects. The bill extends the 30 percent credit for residential and commercial properties through 2019, and then drops the credit to 26 percent in 2020 and 22 percent in 2021. Beginning in 2022, the ITC will fall permanently to ten percent for commercial and zero percent for residential projects. Additionally, the bill contains a “commence construction” provision which allows systems to come online by the end of 2023 and still qualify for larger credits.
Under the previous legislation, the ITC would have expired for residential systems and fallen to 10 percent for commercial projects in 2017. According to an independent analysis conducted by Bloomberg New Energy Finance, solar capacity in the United States would have decreased by about eight gigawatts from 2016 to 2017 without the most recent extension. A JEDI analysis performed by the Solar Energy Industries Association (SEIA) showed that the U.S. also stood to lose nearly 100,000 American jobs as well as $39 billion in economic investment from solar if the ITC was not extended.
The recent ITC extension is expected to almost quadruple solar installation by the end of 2020 while doubling solar employment and spurring more than $130 billion in economic activity. Below are a few key findings from an SEIA analysis of data compiled by GTM Research:
- The ITC extension will lead to more than 72 GW of solar photovoltaic installations from 2016 through 2020. The 72 GW over 5 years represents an increase of over 25 GW (or 54%) over baseline expectations without the extension.
- By 2020, the U.S. will be installing 20 GW of solar capacity annually.
- 220,000 solar jobs will be added over the next 5 years.
- The ITC extension will spur an estimated $132 billion in additional investment in the U.S. economy between 2016 and 2020.
- By 2021, U.S. solar generation will offset more than 100 MMT of CO2 annually, with roughly 25 MMT, or 25%, due to the ITC extension.
The ITC plays a vital role in the continued growth of solar energy in the United States. Its recent extension provides market certainty for companies to make investments that spur innovation and competition, leading to lower costs for consumers. The success of the ITC shows that long-term federal tax incentives for renewable energy can catalyze economic growth, reduce prices, and create jobs. To learn more about the solar ITC, visit www.seia.org.