When we last left the U.S. solar-power industry, it was staring at a fiscal cliff. In “Clouds Ahead for Solar” (ELECTRICAL CONTRACTOR, December 2015), we reported on the possible expiration of two important tax credits at the end of 2016 and how this could mean the loss of thousands of solar-related jobs and billions of dollars of related investment. Then, just as in an old-fashioned serial, our hero was pulled from the brink.


With December’s omnibus spending and tax bills, the U.S. Congress played the rescuer here. In return for lifting a 40-year-old ban on U.S. oil exports, legislators extended 30-percent investment tax credits for commercial and residential solar projects that were set to expire at the end of 2016. 


According to the terms of the separate residential and commercial extensions, tax credits will remain at the 30 percent level through 2019, declining to 26 percent in 2020 and 22 percent in 2021. The residential credit disappears entirely in 2022, while a permanent 10 percent credit will remain in place for commercial projects.


With the previously planned expiration of the credits on Jan. 1, 2017, renewable-energy advocates had feared an abrupt drop-off in new development. Instead, the solar industry will continue a growth trajectory that could lead to a 20-gigawatt (GW) annual solar market by 2020.


Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA), issued a statement predicting the five-year extension plan will add up to 220,000 new jobs, along with $133 billion in new investments by 2020. In addition, the SEIA anticipates total solar capacity will reach 100 GW, which is 3.5 percent of total U.S. electricity generation, by 2020.


M.J. Shiao, director of solar research at GTM Research, said the tax-credit extension takes some of the immediacy off of the rush that would have occurred this year if the credit not been renewed. The tax credit’s previous iteration required projects to be completed and grid-
connected before the end of 2016. As a result, developers were anticipating possible supply bottlenecks and difficulties with utilities not able to meet aggressive grid-connection timelines.


“Suddenly, you don’t have all these systems rushing to get done,” Shiao said.


The potential deadline led to the creation of several short-term projects, but now, with the urgency eased, the focus can shift to the long term, as well.


“This year will still be huge because there are a whole lot of projects under construction,” Shiao said. “I think there has been a huge sigh of relief, at least in the near-term.”


Shiao said the new versions of the tax credits offer developers some longer-term benefits. First, the structure of the credits reduces the potential for cliffhanger stress this time around. The scheduled step-downs over a two-year period should help the market experience a softer landing in 2022 when the credit disappears. In addition, the extension legislation now allows projects to qualify for credit in the year construction commences. Previously, credit could be claimed only after construction was completed and the asset had been put into service.


These two provisions could smooth the transition when the extended credits reach expiration. As a result, Shiao doesn’t anticipate a repeat of last year’s drama at the end of this five-year plan.


“A number of things come into place [by 2022], the biggest being the Clean Power Plan, which should do a number of things to spur solar and other renewables,” he said, referring to the Environmental Protection Agency’s effort to reduce energy-related carbon emissions at the state level. The plan’s mandated emissions reductions begin taking effect in 2022, which could result in new state-level incentives for nonemissions-related technologies, such 
as solar power.


Shiao said current cost-reduction trends could well eliminate, or at least reduce, the need for future incentives.


“We’re expecting anywhere between 25 percent to 35 percent system-cost reductions in the next five years,” he said. “It’s going to come from all points of the value chain.”


Shiao sees untapped opportunities in reducing solar-power systems’ “soft costs,” which can include everything from marketing and other customer-acquisition expenses to financing and contractors’ salaries. However, location will remain a key determinant in whether the financials for any given project make sense, with or without tax credits. With electricity rates and generation portfolios differing greatly from state to state, the United States is essentially 50 individual markets, rather than a monolithic whole.


Are there places that could compete without the 30 percent tax credit? 


“Possibly,” Shiao said. “That’s the thing with the U.S.—it’s kind of a spectrum of states where solar makes sense.”


He cited Hawaii, where rates can top $0.35 per kilowatt-hour.