GWSI Analysis and Commentary Featured in Yale Clean Energy Finance Forum

Yale Center for Business and the environment
June 24, 2015

On June 17, 2015, commentary from Director of Research James Mueller was featured in a Clean Energy Finance Forum article by the Yale Center on Business and the Environment on the prospects and merits of various options for averting the upcoming solar investment tax credit (ITC) cliff, currently set to occur at the end of 2016 without Congressional action. The article highlights GWSI's recent recommendation to extend the ITC for two years, along with allowing projects to qualify if they "commence construction" by the deadline instead of needing to be "placed in service," and phase out the current solar ITC over the long term either explicitly or through a new permanent technology-neutral ITC that automatically phases out for a technology when it reaches full market maturity.

A long-term plan could also help to break through the current Congressional logjam on a short-term extension. “We think the technology-neutral ITC is promising for a number of reasons,” Mueller said. In addition attracting a broader base of political support, the technology-neutral ITC would provide long-term certainty to industry and continue to drive innovation in the energy sector.

Without Congressional action, the 30-percent ITC for solar and other clean energy technologies will expire at the end of 2016. It will revert to the permanent 10 percent level for commercial systems and go to zero for residential systems. The federal ITC has been an important driver for the remarkable growth of solar. According to the National Solar Jobs Census 2014, almost three-fourths of solar businesses and 94 percent of solar installers stated that the 30-percent ITC has “significantly improved” their business.

A 2012 study by the US Partnership for Renewable Energy Finance (US PREF) found that the 30-percent ITC more than pays for itself in federal tax receipts, generating a 10 percent internal rate of return (IRR) to the federal government for its investment. With the long term certainty provided by the 8-year extension of the 30-percent ITC beginning in 2008, the solar industry responded and became much more efficient, squeezing the average installation cost per watt of large-scale solar photovoltaic (PV) systems down to roughly $2 per watt today from over $7 per watt in 2009. As solar installation costs dropped, federal tax outlays also fell precipitously per watt of installed solar capacity. With a smoother phase out of federal and state support, solar is on track to be broadly competitive across the nation within a decade or less. It is already competitive subsidy free in a few unique markets where solar resources and electricity rates are the highest.