What Does The Expiring Solar Subsidy Mean for homes and businesses?

July 31, 2019

The USA solar Investment Tax Credit (ITC) is a federal policy that was enacted in 2006. It has supported the growth of the solar industry, creating thousands of solar jobs in the process and boosting economic growth. It was supposed to expire earlier. However, in 2015 the Congress extended it through a multi-year extension. The government subsidy for solar systems will start decreasing from this year 2019. By 2022 residential investment tax credits will end while commercial solar credits will be reduced down to 10%.

Future Changes To Solar Subsidy

There has been a lot of progress in the solar industry since the introduction of the solar ITC. The ITC allows homeowners and businesses who purchase solar systems to apply the 30% credit to their taxes. In effect, it reduces the income tax the individual or business would have paid the federal government.

In 2020 the government subsidy on solar will decrease from the current 30% to 26% in both commercial and residential properties. Then in 2021, it will decrease further to 22%. In 2022, the residential ITC will be zero while the commercial ITC will be 10%.

The Impact of the Federal Solar Subsidy

The solar subsidy has contributed to the growth of solar energy in the USA. It made it possible for solar businesses to drop the costs of solar gadgets, which has resulted in an increase in the use of clean energy. In 2017 about half of all new electricity production capacity was solar and wind installations. Population increase leads to a rise in energy usage and it is predicted that in future most of that energy will come from renewable energy sources.

Why Solar Energy Subsidies are Justified

Renewable energy subsidies have literally subsidized the costs of wind and solar energy and made it affordable. Apart from bringing down the costs of solar energy, they have social, health and environmental benefits. Climate change is a challenging issue globally and governments have a responsibility to provide solutions that will lead to a low carbon society. Solar energy is clean energy and sustainable to the planet. This is contrary to fossil fuels. The more pollution there is in the air and water, it results in global warming and an increase in animal and human health conditions which translate to premature deaths.

How the Solar ITC Works

The solar tax credit is enacted under Section 25D for residential and under Section 48 for commercial properties. It is a 30 percent tax credit. The credit benefits residential, commercial and large scale solar farms. When a solar system is installed in a property, 30% of all the project costs namely installation, permitting and equipment become a federal tax credit on your tax returns. Which means that if you spend a total of $20,000, then your taxes will be lower by $6,000 the following year, and if you spend $10,000, your taxes will be lowered by $3,000.

What does this mean?

If your taxes are $10,000 then you will owe only $4,000 to the federal government if you installed a $20,000 solar system, and they will be $7,000 if you installed a $10,000 system.

How to apply for solar subsidy to fully benefit from the federal tax credit, requires that you provide all your solar installation-related receipts. In this regard, it is easier to work with one solar installation company that will provide you with all the receipts and even help you apply for the solar tax credit. Also, to be eligible you should owe taxes. You only enjoy the subsidy if you own the solar system, and as such leased solar systems will disqualify you from getting the solar tax credit. Actually, the company that leases the solar system to you gets to claim for the credits. You also, claim the tax credit within the year of solar installations.

Implications of Expiring Solar Subsidy

Most if not all consumers in the USA are connected to utility grids. First, let’s examine the facts, the solar subsidy for home will not expire until the year 2021 December and December 2022 for commercial installations, therefore, you still have time to benefit from it.

impact on solar financing

Most organizations and individuals who install solar get financial assistance in terms of loans from financial institutions. They pay monthly installments to the financial institutions for a certain period of time, which translates to many years exceeding 5. When the federal solar subsidy expires, it will mean one of three things, either, solar energy monthly payments to solar financial institutions will be higher than regular utility bills. This will put off many USA citizens from switching to solar energy. The costs may also be the same as what most citizens pay utility companies. On the other hand, solar companies and financial institutions may find a strategic way to make the payments conveniently small by extending the payment period of the solar loans.

Whichever way we look at it, the growth of solar will be affected by the expiring federal solar subsidies and the costs will be 30% higher, which is a substantial amount.

Final Remarks

Although the expiring solar energy subsidy has cost implications it still has some three more years to go. Basically, to benefit from the system, why not choose to go solar today.

That said, the solar industry is a low-carbon grid industry that is still maturing and requires federal and state support for establishment and growth. Noteworthy, at the moment solar energy represents about 2.5% of the energy consumption in the USA which is still low.

Because solar energy is low-carbon renewable energy, the subsidies are climate policies and an alternative to fossil fuels.

Policymakers should come up with solutions because the solar subsidies were helping in making the USA green. Solar energy is affordable to install which was reduces the costs of energy to the citizens.

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