It’s not news that the solar-power industry has been shining brightly the last few years. In the second quarter of 2015, 729 megawatts (MW) of commercial and residential solar photovoltaic (PV) capacity was added to the nation’s utility grid, according to the Solar Energy Industries Association (SEIA). Thanks to the scheduled expiration of a 30 percent investment tax credit (ITC) on Dec. 31, 2016, next year promises to be even busier. However, the industry’s fate after that date is less certain.


The ITC was enacted in 2008 for an eight-year period, incentivizing commercial and residential PV installation. For commercial developers, this credit meant a big step up from an existing 10 percent ITC. It was even more significant for homeowners who previously received no tax breaks at the federal level. With the 30 percent ITC expiring at the end of 2016, tax incentives will drop to 10 percent for commercial systems and will disappear for homeowners.


As an important clarification, the term “commercial” in this case refers to the system’s owner, not the system’s size. Third-party leasing situations, such as those popularized by SolarCity, in which the installing company remains the system owner, are still classified as commercial systems for tax purposes, even though they are installed in a residential setting.


Not surprisingly, solar industry groups such as the SEIA anticipate a significant drop in solar-related business and employment beginning in January 2017. An analysis by Bloomberg New Energy Finance, sponsored by the SEIA, anticipates annual installed capacity will drop 70 percent between 2016 and 2017 if the full 30 percent tax credit isn’t continued.


“The ITC has been an essential driver for solar’s rapid growth,” said Amit Ronen, director of the GW Solar Institute, a solar research and policy organization based on the campus of the George Washington University. “Our analysis has found that, if the 30 percent ITC credit expires next year, the solar industry will lose tens of thousands of jobs and billions of dollars of investment.”


For Ronen and other solar supporters, the biggest problem with the credit’s expiration is its suddenness—from 30 percent to 10 percent for commercial installations and from 30 percent to nothing for homeowners. This drop-off (called the “cliff”) is seen as a potential shock to an industry that was one of the few construction-related employment bright spots through the recent recession.


“The main concern about the ITC is the cliff. That’s going to be a shock to the market,” Ronen said, setting up a case for a gradual reduction of the credit over several years. “There’s a pretty strong argument to keep the ITC a couple years and then reassess how best to gradually wind it down.”


While the complete elimination of the residential ITC is more drastic, the 66 percent reduction in the commercial credit could affect the solar market more significantly.


“The business tax credit is used in every sector of the market,” said David Feldman, a senior financial analyst with the National Renewable Energy Laboratory. “It’s also used to provide homeowners with financing.”


By building the market, both ITCs have helped create economies of scale in the solar industry that have brought down panel and installation costs. This benefit could be especially critical if the credit isn’t extended, because manufacturers and installers will need to be even more cost-conscious if customers’ payback calculations no longer are able to factor in a significant reduction in tax-liability.


Giving the ITC a five-year extension—with or without a ramp-down period—could help carry the industry to another big boost for all renewable resources, including solar. In 2022, the U.S. Environmental Protection Agency will begin requiring states to account for carbon-dioxide emissions reductions under the Clean Power Plan, which was finalized in August. Beginning in 2020, states will be able to “bank” solar and wind installations against those required reductions, which could aid larger scale commercial and utility solar projects.


“It really depends on how the states write their clean power plans,” Feldman said. “However they do that, you could see those plans including renewables like solar energy.”


The wild card in this issue is the U.S. Congress, which would need to approve any plan beyond Jan. 1, 2017. The GW Solar Institute has been among those working to ensure the various options for extending or modifying the credit remain on the agenda.


“We’re talking to folks on [Capitol Hill] and believe that there is definitely bipartisan support for reforming some of these tax incentives,” Ronen said.


Among the possibilities could be a more technology-neutral approach toward a broad range of developing energy technologies, rather than singling out specific industries, such as solar. However, Ronen said, just how significant that bipartisan support might be, should an extension come before lawmakers, is anyone’s guess in today’s political climate.


“The original eight-year ITC overwhelmingly passed the Senate 93 to 2,” he said. “But that was a different era on a lot of fronts.”