According to the Solar Energy Industries Association, solar power has seen an average growth of 52% since the inception of the investment tax credit in 2006. The industry has grown in leaps and bounds, thus creating hundreds of thousands of jobs. Currently, the solar energy sector has approximately 242,000 employees in the United States.
Texas has the highest solar potential in the USA, according to National Renewable Energy Laboratory. Though the state is yet to tap the approximated 22,700 TWh/yr potential considerably, federal government investment tax credit has attracted more homes and commercial properties to go solar.
Solar ITC was set to expire in 2016, but Congress intervention rolled out a new scrapping strategy. The House proposed retention of the 30% solar tax investment until 2019. In 2020, the ITC rate reduced to 26%, and it will decline further to 22% in 2021. At the end of the year, the federal government will scrap off tax incentives for residential solar energy installation. However, commercial properties will retain a permanent 10% solar investment tax credit in 2022.
Effects of Reduced Solar Investment Tax Credit in 2022
1. Increased Solar Installation Cost
It is no brainer that if the plan to scrap and reduce investment tax credit for residential and commercial properties will affect the cost. The current 26% solar ITC lowers the cost of solar installation by several thousand. The amount is significant for large community projects whose worth can be tens of thousands.
The federal government gives a dollar-for-dollar tax deduction, which means you can get thousands of dollars in tax credit. Therefore, it is time for homeowners and businesses to take advantage of the current offer to go solar. For example, for a 5 kW solar panel system at the cost of $15,000, households receive ITC of almost $4,000. The amount can significantly affect purchase decisions.
Another factor that will impact purchase decisions due to cost is the payback period. Reduce investment tax credit means that it will take more years to save an amount equal to the total cost. The payback period is one of the motivating factors to go solar. However, it is essential to note that solar energy costs will still be lower than conventional electricity. Apart from that, the prices of solar panels and other accessories are always lowering while electricity costs keep rising.
2. Reduced Solar Installations
According to the World Economic Forum projections in 2018, the solar panels installed every hour is approximately 70,000. For the first time in more than 15 years, the USA might experience an increase in solar installation costs.
Solar power has been growing more rapidly than any other source of energy. The drastic solar installation increase is attributable to the steady decline in the price of solar panels, accessories, and installation. More solar companies are also springing up because homeowners and businesses understand renewable energy’s economic viability.
Over the last 10 years, solar energy has grown from 0.1% to over 2% of American electricity consumption. The sector is predicted to increase to 3.5% in the next two years. However, this growth rate might not be sustainable after the scrapping of residential solar ITC. Commercial properties will retain a permanent 10% investment tax credit, which is considerably lower than the current rate.
3. A decline in Job Creation
The solar energy industry has approximately 240,000 employees, according to EESI. Bloomberg had predicted that if ITC was scrapped off as planned in 2016, it would have led to the loss of over 100,000 jobs. Apart from that, this would have led to a loss of over 140 billion of economic activities.
The case will not be any different in 2022 when residential ITC steps down to zero. Although residential solar installation will retain a permanent 10% ITC, the effect of the decrease will not be easy. Out of 78 jobs created every year in the USA, one is in the solar energy industry.
4. High Number of Solar Installations in 2020 & 2021
The last-minute rush is familiar in America and the world over. Globe News Wire reports that Q1 of 2020 reported the highest PV installation in history. Utility and residential solar installations between January and March 2020 summed up to 3.6 GW. The installations will keep rising because people are wary of the ITC scrap off.
Despite the stay-at-home directives in the second quarter of 2020, there was 3.5 GW worth of solar installations. According to Wood Mackenzie, the industry will grow by up to 37%. Although this is below the previous predictions, it is understandable because very few industries are experiencing growth, thanks to COVID-19. Texas, Utah, Florida are some of the states predicted to have a surge in solar installation. Currently, California remains the biggest producer of solar energy in the USA, with approximately 20%.
5. Extension of the ITC
Since its inception in 2005 through the Energy Policy Act, the solar investment tax credit has seen the industry grow from less than 0.5% of energy sources to more than 2%. The ITC was set to expire in 2007, but the government extended the period to 2016. The Congress further pushed the ITC expiration to 2022.
The solar industry stakeholders are pushing for an extension of the federal government incentives beyond 2022. Because of its benefits to the economy and environment, the national government may extend the ITC. Most proponents of the move propose 2025, but who knows, solar energy may never see the setting of the incentives.
A lot is at stake because of the expected residential ITC termination. Solar energy continues to help conserve the environment and help reduce the impacts of global warming. The industry also creates new jobs for engineers, installers, assemblers, salespeople, among other professionals.
Although there is a possibility of an investment tax credit extension, you should take advantage of the current 26% incentive. You can contact us today if you want to go solar and eliminate utility bills. Apart from that, you will conserve the environment for future generations. We have highly experienced solar installers who will take you through the journey of solar installation. Whether it is applying for licenses or incentives, we’ve got your back.
