Tax Reform, a Looming Threat to a Booming Solar Industry
WASHINGTON DC -- Today, the GW Solar Institute launched a new research series, Fitting Clean Energy into a Reformed Tax Code. With the looming expiration of clean energy tax incentives and the likelihood of comprehensive tax reform, this initiative seeks to formulate innovative and politically attuned tax policy solutions for the clean energy sector and inform policymakers on the full range of impacts of these potential solutions.
The Institute’s launch includes the release of its first policy brief of the series entitled: Tax Reform, a Looming Threat to a Booming Solar Industry. This analysis focuses on how the three recent Congressional tax reform proposals would impact real-world solar installation costs, finding that each would increase solar prices compared to current policy by as much as 58 percent. Even the Baucus tax reform proposal, which includes a 20 percent Investment Tax Credit (ITC) for solar, would increase costs by 34 percent over current policy due to its drastic changes to current depreciation schedules and the minimal impact from a lower corporate rate. The policy brief concludes that no matter which broader tax system Congress adopts in tax reform, additional energy sector policies will still be necessary to maintain solar’s economic competitiveness relative to current law.
There is broad agreement that well-designed and politically feasible clean energy tax incentives need to be predictable over the long term, scalable to drive investment without setting up a boom and bust cycle, and accessible to diverse user types such as distributed generators, public power, and new market entrants. Accounting for these principles, future GW Solar Institute policy briefs in this series will systematically develop and analyze potential tax policy solutions in the following areas:
Financing for Emerging Energy Technologies — Analyze the relative effectiveness and role of new, technology-neutral demand-pull policies in unlocking clean energy innovation and economic growth. Alternatives will include an Investment Tax Credit (ITC) based on market maturity, a production tax credit (PTC) based on regional energy diversity, and state energy credit block grants.
Leveling the Cost of Capital — Bringing parity to energy financing by lowering clean energy capital costs. Alternatives will include loan funds to lower the cost of debt and Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs) to lower the cost of equity.
Investing in Critical Sectors — Finding ways to increase the level and predictability of private-sector investments in critical national priorities. Alternatives will include research, development, and demonstration (RD&D) incentives and full expensing for priority sectors like energy and infrastructure that face chronic underinvestment.
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The GW Solar Institute at George Washington University identifies and creates pragmatic solutions to public policy barriers preventing the adoption of solar energy. The Institute is currently focused on the potential for solar energy to address energy affordability and generate wealth within low-income communities, analyzing how higher solar penetration levels impact electricity grids, and providing educational opportunities and training to GW’s diverse student body.