Federal Policies
FEDERAL TAX INCENTIVES
In October 2008, Congress passed the Emergency Economic Stabilization Act of 2008. This bill extended the 30% solar energy investment tax credit for both commercial (IRC Section 48) and residential (IRC Section 25D) solar system installations for eight years, until December 31, 2016. At the same time, the Bill lifted the previous $2,000 cap on the tax credit for residential installations. A $2,000 cap on the tax credit for residential solar hot water systems remains in place. The bill also allows utilities to own solar systems (both rooftop and utility-scale) and take the credit (previously prohibited) and allows Alternative Minimum Tax (AMT) tax filers to also fully utilize the tax credit. In addition, businesses can continue to depreciate solar investments over five years
This long-term extension of the ITC provides the signal of market confidence needed to expand solar manufacturing capacity, build a network of dealers and installers, develop a skilled workforce and continue to lower the installed cost of solar systems.
The American Recovery and Reinvestment Act of 2009 (ARRA) provides a further federal incentive for solar system installations by allowing solar investments to receive a 30% cash grant instead of a tax credit. This was in response to the lack of taxable income anticipated in 2009-10 which limits the usefulness of a tax credit. The cash grant in lieu of tax credit is available for projects placed in service in 2009 and 2010. However, the Treasury Department has not released the rules and procedures for applying for these cash grants.
ARRA also provides for:
- $2.3 billion authorized to provide 30% investment tax credits for investments in building or expanding advanced energy manufacturing facilities (including plants manufacturing solar pv modules).
- $6 billion in Federal loan guarantees for renewable energy installations and related manufacturing facilities which must be committed by December 31, 2011.
- $1.6 billion in additional authorization for Clean Renewable Energy Bonds (CREBs). CREBs allow entities that are not eligible for Production Tax Credits (i.e., units of state and local government, public power and electric cooperatives) to issue interest-free bonds for the construction of qualified renewable energy facilities (including solar electric systems); purchasers of these bonds will receive federal tax credits in lieu of interest payments from the issuer.
The Solar Energy Industries Association (SEIA) tracks recent developments in federal solar tax policy. Please see their website at http://www.seia.org/cs/solar_tax_policy.
See also, Shaking Up the Residential PV Market: Implications of Recent Changes to the ITC (PDF). This report from the Berkeley National Lab and CESA analyzes and discusses these implications of changes to the residential solar ITC. November 2008.