The solar industry has been of particular interest to consumers, businesses, and technology developers over the course of the past decade or so. Solar technology has grown to be more efficient both in terms of how much energy it can produce and in terms of how much it costs to set up and install. In addition, the federal government has offered a ton of economic incentives and rewards for businesses and consumers who have adopted the technology, in a massive effort to drive more renewable energy usage and further development in the industry.
However, the nature of the solar industry and the state of these benefits are due for significant changes over the next couple of years. Should these tax credits be allowed to expire, it could radically slow—or temporarily hyperinflate—the industry.
The Solar Investment Tax Credit (ITC)
Originally introduced in 2006, the federal solar ITC was implemented for a multi-year extension in 2008. Essentially, this establishment offers a 30 percent tax credit for any solar system built and installed on a residential or business property. So far, the credit has made a significant impact on the development of solar projects—installations have gradually increased almost every year since the program’s inception.
However, the scope of the ITC is about to change. The entire program is set to expire at the end of 2016, with the tax credit for business developments dropping from 30 percent to 10 percent and the tax credit for residential developments dropping to nothing.
How the Expiration Could Drive Short-Term Development
So far, the ITC has made a huge impact on solar developments. More businesses have been interested in installing solar energy systems, and because more businesses have demanded the technology, more engineers have worked harder to make bigger and better systems.
Now that the deadline for the tax credit is creeping up, there will likely be a surge in business demand as companies try to squeeze in their installations before the deadline. Due to the complexities involved in planning and financing these large-scale projects, most installations will need to be initiated by the middle of 2016 in order to earn the tax benefits. This means between now and the middle of next year, thousands of new businesses will rush to get solar panel systems installed on their properties and solar companies will frantically try to accommodate the increased demand.
The Lasting Impact on Engineering and Installation
After the end of 2016, there will invariably be a sharp drop in new businesses and residential consumers looking to install solar energy solutions. The extra incentives will completely disappear, and most people who had considered installing a system between 2016 and 2020 will have taken extra efforts to get set up before the end of 2016. However, after that sharp decline, it’s uncertain how solar investments will develop. The optimistic view is that the short-term tax credit will have driven enough initial momentum to keep solar technology developing to be more efficient, and eventually these systems will be universally affordable even without the tax credit. However, given the significant impact of the credit, it’s hard to imagine anything other than decreased numbers for the first several years after 2016.
Of course, the government could elect to re-up the solar ITC for another few years before its set to expire. Should that happen, the pattern of increased solar installations will almost undoubtedly continue. In any case, 2015 and 2016 will be interesting years for solar investments that could dictate the future of how businesses and residential consumers invest in solar energy.