Since 2008, the federal solar investment tax credit (ITC) has been one of the most important policy drivers for solar power in the U.S. It's allowed the owners of residential, commercial and utility-scale solar projects to recapture 30 percent of the total installed cost of the system, in the form of a tax credit, after the system is installed and operating. Further, it's helped solar energy become more affordable, allowing it to better compete against other sources of new power generation. This includes the solar tax credits homeowners receive which can be applied towards annual income taxes.
While tax incentives for solar panels are still available, home and business owners alike will see significant changes within the new decade. Starting this year, the solar ITC started a three-year phase-down, as part of a plan adopted by Congress with the last extension of the law. Effective January 1, 2020, the ITC dropped to 26 percent1. For homeowners to receive this solar tax credit before another drop results in the following year, the solar power system must be “placed in service” before the end of the day on December 31, 2020. It's important to note that having a signed contract, down payment made or partial construction completed is not enough to meet requirements. Those planning to go solar can currently receive the highest incentives available in 2020 before the step-down continues its dramatic course downward.
Beginning in 2021, there will be another drop to just 22 percent. But the year 2022 is what homeowners need to be aware of because, for them, ITC drops to zero. While there may still be relief provided by various states in the form of rebates or other incentives, the former federal solar investment tax credits that homeowners once received will run out. As a result, SunPower has joined the rest of the solar industry, along with the Solar Energy Industries Association (SEIA), to encourage Congress to retain the solar ITC at the original 30 percent.
The solar investment tax credit extension was signed into law in late 2015 when the step-down was introduced. Since that time, several factors have changed, making the phase-down less relevant. Factors including the Clean Power Plan, developed by the U.S. Environmental Protection Agency to reduce carbon dioxide and other greenhouse gas emissions, have been assigned for revision under the current Administration. This decision could lead to fewer benefits for solar technology, alleviating incentives that might have helped reduce the need for ITC over time.
In addition, the solar industry was more amenable to an ITC phase-down when it was clear that solar energy system prices had declined to a level that made solar economically viable, even with a reduced tax credit. However, the introduction of multiple sets of tariffs on solar equipment leads to an increased cost of solar cells, panels and other system components, including batteries. Just one of these tariffs – under Section 201 of the Trade Act – increased the cost of imported solar panels by 30 percent starting in 2018. Although SunPower secured an exclusion from the Section 201 tariffs for its high-efficiency back-contact panels (E-, X-, and A-Series) and avoided Section 201 tariffs on its P-Series products by assembling them in its new Hillsboro, Oregon facility, the industry overall has been heavily affected with the Administration’s evolving trade policies.
Even within these current obstacles, SunPower will keep pressing for an increase and extension of the solar ITC. Because it’s a well-established, existing policy that’s been proven to work in attracting solar investment, it’s more likely to get the bipartisan support necessary to get laws amended in Congress and signed by the President. SunPower also plans to continue working with SEIA and other allies to explore alternative approaches to encourage additional investment in solar power across the U.S. There is hope that these steps will enable the transition towards a sustainable, affordable, reliable and clean energy future.
1 Tax credits subject to change. SunPower does not warrant, guarantee or otherwise advise its partners or customers about specific tax outcomes. Consult your tax advisor regarding the solar tax credit and how it applies to your specific circumstances. Please visit dsireusa.org for detailed solar policy information.
Tom Starrs is SunPower’s Vice President of Market Strategy and Policy. He leads SunPower’s analysis and advocacy of federal energy policy, including federal tax credits and other financial incentives, international trade policy including solar tariffs, federal energy regulatory policy and federal clean air and carbon policy. He can be reached at firstname.lastname@example.org.