The solar ITC provides a 30% federal tax credit for eligible solar energy systems installed in or after 2009. Under the current law, most components of the program will continue through December 31, 2016. Commercial credits will drop to 10% after this date without an additional extension from Congress.
Where Did it Come From?
The Business Energy ITC is a federal corporate tax credit co-administered by the U.S. Internal Revenue Service and the U.S. Department of Energy (DOE) that is applicable to the commercial, industrial, utility, and agricultural sectors. It was created through the passage of the Energy Policy Act of 2005, which provided a 30% ITC through December of 2007. These credits have been extended through the Tax Relief and Health Care Act of 2006, and the Emergency Economic Stabilization Act of 2008.
How it Works
Eligible solar energy property includes equipment that uses solar energy to generate electricity to heat or cool a structure, provide hot water to a structure, or provide solar process heat. Hybrid solar lighting systems that distribute sunlight through fiber-optics to illuminate a structure are also eligible. Under Section 48 commercial ITC is used for utility-scale commercial projects. The credit for these projects is used by the company that installs, develops or finances the project.
What the Burn up Means for Project Pipeline
Tax incentives like the ITC have fueled the growth of renewable energy, and have played a vital role in creating American jobs and economic growth, as well as lowering long term energy costs for businesses. The ITC has helped push the solar energy market by encouraging private sector investment and solar power construction. Extending the ITC is crucial for the continued successful growth of the solar power industry.
The industry needs to prepare for the possibility that the ITC will not be renewed. This will be devastating for the industry. As energy prices are predicted to increase at estimated rates between 3% and 6% annually, the cost to install a solar system will need to drop approximately 20% to offer customers similar financial benefits. Technology improvements have enabled lower significantly lower equipment production costs, professionals in the industry have developed innovative approaches to lowering their soft costs associated with installation.
According to the Forbes review of the recently released white paper “Best Practices in Managing the Investment Tax Credit Expiration”, by Mercatus, a rapid ramp up of projects in anticipation of the decline in tax credit is predicted, followed by an abrupt decline. Mercatus expects the project pipeline and finance activity will not extend to the end of 2016 but end mid-year due to financial bottlenecks and banks inundated with projects. Mercatus anticipates a great deal of pressure and strain on resources to get projects up and running by December 31, 2016.
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