Over the year 2015, there had been some uncertainty in the solar industry, due to the undefined status of the Investment Tax Credit for the year 2016.
The ITC has been one of the main drivers of growth for residential and commercial solar power, since it allows 30 percent of the cost of a photovoltaic system to be deducted from taxes.
This greatly increases the financial attractiveness of solar power: the combination of the ITC and cheaper solar modules helped boost the installed solar PV capacity in the USA by 1000 percent over the time period from 2010 to 2015.
The ITC: The Past and the Future
The ITC was set to expire on 2016, and it would drop to a more modest value of 10 percent from January onwards. Solar power developers had been rushing to commission as much projects as possible over the year 2015, in order to benefit from the 30 percent ITC while it lasted.
However, on Friday December 18, 2015, the US Congress granted extensions to the investment tax credit (ITC) for solar power and the production tax credit (PTC) for wind power, which ensures the current pace of development of renewable technologies will continue over the next years.
In the specific case of the ITC, it is now set to remain at 30 percent until the year 2019. At that point, it will start to experience gradual reductions year by year, until it settles at 10 percent in 2022.
The impact of the extension
The Solar Energy Industries Association (SEIA) estimates that this extension will allow the installed solar power capacity in the USA to exceed 100 gigawatts by the year 2020, representing more than 3.5% of the total power grid! By 2020, solar power investment is expected to reach 30 billion dollars per year, and a total of 420,000 jobs will have been created by the solar industry alone.
This tax extension will also contribute to meeting the goals of the Clean Power Plan set forth by President Obama, which aims to cut down carbon emissions by 32 percent by the year 2030, compared to 2005 levels.
Other renewables also benefit from this recent decision by the Congress. Wind power will keep its PTC of 2.3 cents per kilowatt-hour throughout the year 2016, and then it will be gradually reduced until it expires in 2020. On the other hand, geothermal, marine and small hydroelectric power will have a one-year extension of the 30 percent ITC.
Even the oil sector is receiving benefits: in order to compensate for the reduction in demand that US-based oil companies might experience due to renewables, Congress has lifted the export ban for crude which had been in place since the 70s. Oil companies will now have the flexibility of selling to both the national and the international market. This was a smart move, since it reduces local rivalry between the fossil fuel and renewable energy sectors!
All of these are excellent news if you are planning to install a solar panel system for your home or business in 2016, since you are guaranteed to receive the 30 percent tax credit.
Talk to our solar power experts today to learn more about PV technology and how you can benefit from it.