What are the main policies driving solar growth?

Policy Driver

While there are many different solar related policies on the federal, state, and local levels, the three most important and impactful solar policy drivers are the federal 30-percent Investment Tax Credit (ITC), state renewable portfolio standards, and state net energy metering (NEM) laws.

  • The establishment of the 30% ITC in the Energy Policy Act of 2005 for both commercial and residential buyers is closely correlated with increased domestic solar energy use. Solar was really able to take off when at the end of 2008 Congress legislated an eight year ITC extension, providing the market certainty necessary for the private sector to make major investments in solar research, manufacturing, and installation business models. As of 2014, the ITC has helped annual solar installations to increase over 1,600% since the ITC was extended in 2006. There are also a range of state based solar incentives that use a variety of mechanisms to try and stimulate additional solar investment.  
  • 29 states and the District of Columbia have Renewable Portfolio Standards (RPS), which require a certain percentage of electricity generation to come from renewable sources using a market-based compliance system. While there are some inefficiencies associated with a patchwork of differing state renewable portfolio standards, RPS polices have provided critical market certainty to the nascent solar industry, particularly in the 23 states and the District of Columbia that have set specific solar targets within their overall RPS. Many states have also established solar renewable energy credit (SRECs) markets to manage compliance obligations, and solar systems owners can sell their accumulated SRECs to recover the installation costs faster.
  • 43 states have NEM policies that allow solar system owners to interconnect with their local electricity grid and sell any excess electricity generated from their solar panels (or other source) back onto the grid. A standard two-way electricity meter keeps track of the power flowing out of and into the grid, ensuring customers always have power when they need it. While NEM policies vary considerably among different states, including how much utilities need to pay solar generators for their electricity, the ability to keep track of net electricity flows and have access to the grid for excess electricity generated is critical for residential and commercial solar projects to be economically viable.

Licensed Photo by Department of Energy Solar Decathlon