It is a historic moment in the USA renewable energy sector as the renewable 30% federal tax credit nears expiration. The solar tax credit will first drop by 4% in the next two years before finally taking a final plop. By 2022 residential ITC solar will be nil while commercial solar installations will continue to enjoy a permanent 10% federal ITC. As such, USA’s solar panel system manufacturers are stockpiling solar panels to take advantage of the 30% subsidy on solar energy devices manufacturing before the 30% ITC solar expiration on December 31, 2019.
Reuters reports that a number of solar panel manufacturers across the USA are maximizing the benefit of the ITC for solar by stockpiling solar panels as they wait for the ITC solar expiration date. The manufacturers include 8 Minute Solar Energy, Duke Energy, and Shell. Some of the companies have stockpiled solar panels worth as much as 2 gigawatts.
Trina Solar, a Chinese company estimates that as much as 20% of current solar panel orders to their company are spurred by the need to lock in the full 30% ITC solar tax credit.
The History of Federal ITC Solar Extension
The federal solar tax credit also known as investment tax credit (ITC) was established by Congress in the Energy Policy Act of 2005. It was to be short lived, and it was to expire at the end of 2007. Because of the role of government solar subsidies in developing an emerging industry, its critical role in helping the USA transition to renewable energy has been recognized. As such, it has been extended multiple times since 2007 to date.
Who is Eligible for the ITC Solar Tax Credit?
Any home or commercial enterprise that installs solar is eligible for the 30% subsidy. Even if your annual taxes are not enough to credit the whole amount of solar panel subsidy, the credits can be rolled over to future taxes. Worth noting, you only claim for the solar ITC if you own the solar system on your premises. If your solar system is leased the leasing company will claim for the subsidies instead.
The History of Energy Incentives
Federal energy tax policies date back to 1916. By then, alternative energy was not an established industry and the focus was to establish the fossil fuel industry. The solar industry is new in comparison to the fossil fuel industry. Historically, fossil fuels were the main source of energy. The technology of harnessing solar power was not invented. Actually, the first solar cell was developed after the first energy tax policies by Bell laboratories and was announced in 1954.
In this regard, the focus was to encourage the production of natural gas and oil. When the energy incentives were started, the aim was to help the companies get established and make a profit from the initial start-up period. The companies were, therefore, allowed to write off their start-up costs by making a credit claim on their taxes. There was also a 27.5% depletion allowance given to mining companies.
Indeed the subsidies spurred the growth of the fossil fuels industry from a mere 16% in 1920 to a booming industry with over 70% control in 1970. Renewable energy came into the limelight during the 1973 oil embargo and that is when renewable energy tax credits were introduced. As for solar, it has its history dating back to June 28, 2005, when the first solar ITC was passed.
Future Changes to Solar tax credit
ITC rates for solar will change in the course of the next 3 years. The ITC solar phase-out will be achieved in a period of two years beginning January 1, 2020. As discussed above, the federal solar subsidies date to 2005 when they were first enacted. They were supposed to last for a period of 2 years only. However, Congress has been extending the tax credits over the years.
Although they were to expire in late 2015, there was a federal ITC solar extension for 5 years to 2019 December. The federal subsidy for solar panels will drop by a percentage of 4% for the next two years. Which means that it will drop to 26% for both commercial solar and residential solar panel installations for 2020. In 2021, there will be another 4% cut to reduce the solar panel subsidy to 22% for both home and commercial solar installations. Then finally in 2022, only commercial solar energy projects will get a 10% permanent solar ITC subsidy. Residential solar ITC will expire from 2022 onward. The tax-deductible subsidies are claimed when doing your annual federal tax returns.
Risks Associated with Stock Piling Solar Panels
There are two main risks associated with stockpiling panels. First, the solar industry is a technology-driven industry and researchers across the globe are working round the clock to come up with more efficient solar panels systems. It is likely that in the future, there will be better solar designs including more aesthetically appealing designs than what is in the market right now. There is also a possibility of solar panels with energy storage devices. The future possibilities of solar energy device advancements are huge. Besides, technological advances or other forces can push solar prices down, which is a risk if you have stockpiled solar panels. They may not sell or they may sell at a loss.
Implications of the Expiry of the Government solar tax credit
The solar industry has relied on the federal solar tax credit ITC to expand to what it is today. The industry has been competitive in terms of price, thanks to the government solar subsidy, which has helped in making solar energy affordable to both commercial and residential properties.
The solar industry in the USA employs more workers than the fossil fuel industry. If the industry gets affected and plops, then many jobs are at stake. We can only wait and see.
Solar energy is a renewable energy contrary to fossil fuel energy which is not eco-friendly. When organizations and homes convert to solar energy, it helps in efforts of combating global warming and air and water pollution which are a hazard to the health of animals and human beings and a major cause of climate change. Noteworthy, given the critical role that solar energy plays in environmental conservation, should the industry fail to survive without subsidies, chances are very high that the Congress will review their decision and may extend it- we cannot guarantee this.
Can Solar Survive Without subsidies?
If we use competitive pricing predictions, whether solar energy will survive or not solely depends on the forces of supply and demand and the cost of solar energy. If the cost surpass the cost of fossil fuel energy, then the industry will have a run for their money. However, if solar energy costs will continue to be competitive and provide homeowners and commercial enterprises a way to save on energy costs, then the industry will survive.