ITC to End According to the US Department of Energy (DoE) and be replaced by PTC production tax credit. The ITC will be terminated at the end of 2016 and replaced with a production tax credit, PTC, which is based on electricity generated after the system is built. This change will send shock waves through the solar industry.
With the elimination of the ITC there will be even greater hurtles for homeowners to overcome in covering the still large upfront cost of solar. Though panels prices have dropped 80% in the last 5 years the base cost for a solar electric system is still well out of reach of the average homeowner. This change may prove to be a big boost to solar financing entities. Though the loss of the tax credit will negatively effect all financing models for solar, the PTC may represent an advantage to the PPA and lease model and companies,such as SolarCity and SunRun who function as an alternative to the personal financing of solar electric systems. With 30% increase in costs, the purchase of solar will now be more out of reach for the average homeowner and therefore their options will be reduced to leasing or purchasing solar power via a PPA agreement.
A number of states offer a production based compensation model for solar in the form of SRECs. The PPA and leasing models have thrived in these states because of the great hurtle the upfront cost of solar represent. Projections show that greater cost reductions in solar installation will not alleviate the upfront cost enough to overcome the loss of the tax credits. Solar construction will most likely slow in the US. Before it does however, there will be a mad rush to complete projects before the deadline. The next two years will show a tremendous amount of solar installed before the ITC is replaced at the end of 2016 with a refundable Production Tax Credit (PTC) that is based on the electricity produced by a system once it is already built.
From the budget: “FY 2015 funding supports the SunShot Initiative goal to achieve a cost of solar power of $.06/kWh to make solar power cost-competitive without subsidies by 2020. This includes solar photovoltaic R&D; activities that enable a 50% reduction in non-hardware “soft costs”; and development and demonstration of innovative solar energy manufacturing technologies to increase U.S. competitiveness, in support of DOE’s Clean Energy Manufacturing Initiative. FY 2015 funding also supports development of advanced thermal storage and supercritical CO2 power cycles so that concentrated solar power can achieve base-load grid parity.”
The ITC offered a 30% tax credit on installed solar systems. US industry body the Solar Energy Industries Association (SEIA), not happy with this decision is quoted as saying
“The PTC simply can’t address the upfront costs of fuel-free solar projects, and we believe the Administration’s sudden, 180-degree shift in tax policy could have devastating consequences on the future development of solar energy in America,” said Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA).
“While we appreciate the White House’s strong support of solar in the past, the ITC should be preserved as catalyst for future economic growth. “The ITC has helped to make solar energy a true American success story. Replacing it with the PTC is the wrong move at the wrong time. Since the solar ITC became law in 2006, installed solar capacity nationwide has grown from 680MW to nearly 13GW,” added Resch.