Congress appears poised to approve a big spending and tax bill that would, among many other things, extend the investment tax credit, or ITC, for solar and wind projects. The tax credits for both wind and solar projects would be extended for five years, under the compromise legislation announced by congressional leaders the night of Dec. 15.
House and Senate leaders and the White House reached agreement on a package that includes a $1.1 trillion spending bill, a $600 billion tax bill, and several additional legislative initiatives relating to cybersecurity, dams, and oil exports. Lawmakers agreed to lift a 40-year-old ban on exports of crude oil and, in exchange, also agreed to extend the tax breaks for wind and solar power.
The bill extends three renewable energy tax credits, including a 1.5 cent per kilowatt-hour wind energy production tax credit, or PTC; a 30 percent solar property ITC; and a 30 percent residential energy efficient property credit that can apply to solar electric property. Specifically, the bill:
– Extends the wind energy PTC— which expired on Jan. 1, 2015 — through Dec. 31, 2016. Also extended is the ability to elect to receive the ITC in lieu of the PTC. In either case, the credit is phased down from 2017 through 2019.
– Extends the 30 percent solar ITC beyond 2016 (when it is set to expire) through 2019. The credit will be equal to 26 percent in 2020, and 22 percent in 2021. A Joint Explanatory Statement of the provision says, “after 2021, the solar ITC would expire.” However, it would appear that after the enhanced solar ITC expires, the current-law 10 percent ITC for solar property would remain in effect. Also, the deadline for qualifying for the credit has been changed from “placed in service” to “construction has begun.” Any project begun prior to 2022, but not placed in service before 2024, would receive a 10 percent tax credit.
– Extends the 30 percent residential energy efficient property tax credit (set to expire after 2016) for solar electric property through 2019. A reduced credit of 26 percent is available for property placed in service in 2020, and of 22 percent for property placed in service in 2021.
While public power utilities do not currently qualify to claim any of these credits, they can indirectly benefit through reduced prices negotiated in power purchase agreements with entities which can benefit; and the American Public Power Association has begun work with its members and other stakeholders to consider how a public power utility could more directly benefit from these tax credits.
Bill would cause 54% increase in solar over 5 years, firm projects
If the omnibus bill is passed and signed into law, it will result in 25 gigawatts of additional solar capacity over the next five years — a 54 percent increase compared to a no-extension scenario, GTM Research projected on Dec. 16. Such an extension of the investment tax credit would “foster $40 billion in incremental investment in solar between 2016 and 2020,” the firm said.
“The ITC extension currently written into the omnibus spending bill will result in a 20-gigawatt annual solar market in the U.S. by 2020,” said Shayle Kann, senior vice president at GTM Research. “At that rate, more solar will be installed each year than was added to the grid cumulatively through 2014.”
The firm said the impact would be “most pronounced in the utility-scale sector, where ITC extension will increase deployments 73 percent through 2020.”
“Given price trends in the utility solar sector, the five-year ITC extension will likely result in utility-scale solar contracts being signed for less than 4 cents per kilowatt-hour regularly over the next two years,” said Cory Honeyman, senior analyst at GTM Research.
In the absence of this legislation, the ITC would drop from its current 30 percent to 10 percent (for non-residential and third-party owned residential systems) and to 0 percent (for host-owned residential systems) on Jan. 1, 2017.
Wind industry sees ‘break from boom-bust cycles’
“This agreement will enable wind energy to create more affordable, reliable and clean energy for America by providing multi-year predictability as we have called for,” said Tom Kiernan, CEO of the American Wind Energy Association.
“If this passes, our industry will get a break from the repeated boom-bust cycles that we’ve had to weather for two decades of uncertain tax policies,” he said. “AWEA has sought greater stability in the credit, with an extension for as long as possible. This plan will drive more development, and near-term prospects look strong – especially as utilities, major end-use customers, and municipalities seek more low cost emissions-free renewable energy.”
AWEA noted that Iowa, South Dakota, and Kansas all now rely on wind for more than 20 percent of their electricity, while nine other states rely on wind for more than 10 percent of their power.
The House hopes to complete its debate of the omnibus bill on Dec. 18 and Senate leaders reached an agreement for taking up the bill later the same day.