Renewable energy

'Temporary' Solar Tax Credits Have Persisted For Decades. Now Senate Dems Can't Let Them Go.

There's nothing more permanent than a temporary solar investment tax credit.

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Senate Democrats appear hellbent on proving correct Milton Friedman's old quip that there's nothing more permanent than a temporary government program with their demand that the federal government's investment tax credit for solar installations be extended yet again.

"Solar energy alone has averaged 50 percent annual growth for a decade thanks in large part to this tax credit," tweeted Sen. Dianne Feinstein (D–Calif.) on Monday. "That's why we're calling on the Senate to extend it."

Feinstein's tweet came less than a week after 20 Senate Democrats sent a letter to Senate leadership as well as the heads of Senate Finance Committee asking that the feds' tax incentive for solar investments not be allowed to taper off as currently scheduled.

The absence of climate change initiatives from the Trump administration, they argue, requires that the tax credit be kept in place.

Currently, the federal government allows homeowners and investors to write off 30 percent of the costs of installing solar panels, either on homes, commercial buildings, or whole solar farms.

Beginning next year, that 30 percent credit is supposed to start tapering off. The tax incentive for residential installations is set to zero out by 2023. The credit for commercial solar installations will drop to 10 percent in the same year, where it is supposed to remain permanently.

Senate Democrats are asking that the 30 percent tax credit for both residential and commercial solar projects be maintained until a new technology-neutral incentive program for reducing carbon emissions from electricity generation can be developed.

The Solar Energy Industry Association (SEIA)—a trade group—has echoed this demand.

"Until we have comprehensive legislation addressing climate change, the ITC [investment tax credit] is the strongest policy there is to incent clean energy development," said Abigail Ross Hopper, president and CEO of the SEIA in a press release last week. "We already know that the ITC has generated hundreds of thousands of jobs and injected more than $140 billion in private investment into the economy."

Should Senate Democrats and the solar industry's demands be met, it will mark yet another extension of a decade-old tax credit that was initially supposed to be a temporary program.

According to the Congressional Research Service (CRS), federal tax credits for solar energy investments date back to 1978—when Congress created a 10 percent credit for all non-oil or natural gas energy investments.

The 1978 credit was supposed to sunset in 1982. This initial end date was later extended to 1985, and then 1988. A number of short-term extensions followed, keeping the 10 percent tax credit alive until 1992 when it was made a permanent program.

The current 30 percent solar tax credit was passed with overwhelming bipartisan support in 2005 and was supposed to drop back down to 10 percent in 2007. This planned reduction also never happened, however, instead being extended to 2008. The bank bailout legislation of that year later extended the 30 percent tax credit out to 2016.

In 2015, with Republicans in control of both chambers of Congress, there appeared a real chance that the more generous 30 percent tax credit might be allowed to expire.

Even some in the solar industry seemed ready to let the higher tax credit go.

"We do not believe an extension of this credit is necessary for the continued health of the solar industry," wrote John Berger, CEO of solar company Sunnova, in a 2015 letter to Congress' budget committees. "The industry made a deal with Congress in 2008 that it needed the ITC's support until 2016 and then it would be able to operate and, indeed, flourish without it. We, collectively as an industry, should honor that deal."

Other market analysts at the time seemed to agree with Berger, with one telling The New York Times that the solar market wasn't going to disappear in the absence of the 30 percent tax credit, but would just experience slower growth.

Eventually, however solar boosters got their way, cutting a deal to extend the tax credit until the end of 2019—after which a phase-down would begin—in exchange for them lending support for lifting a longtime ban on oil exports.

"The message was abundantly clear. This was going to be it, and here's the plan. Be ready," says Katie Tubb, a policy analyst with The Heritage Foundation. "Yet here we are having this conversation again. Which to the cynics out there is no surprise because we've been having this conversation over and over."

Tubb says tax credits for solar investment cause two problems. The first is that they make it more difficult for more solar companies to compete with less efficient rivals who depend on government support.

"It makes it very hard for viable companies with a good product and a good business model to stand out from a crowd of companies that may or not have that," she tells Reason.

The repeat-play of Congress almost letting solar tax credits expire before renewing them for another couple years also creates boom and bust cycles in the industry that have little to do with underlying demand, adds Tubb.

The stock of SolarCity—Elon Musk's solar venture—rose some 40 percent after a deal was reached to renew the solar investment tax credits in 2015, reported The New York Times.

In addition, there's the cost to the treasury, which lost out on $2.5 billion thanks to the solar tax credits last year, according to the CRS—up from less than $50 million a year a decade ago.

In part, this growth in the costs of tax credits is a sign that more and more solar panels are being installed on the roofs of homes and businesses across the country. Indeed, in making the case for extending tax credits, both the SEIA and their allies in Congress stress the phenomenal growth of the solar industry in recent years.

Yet, the more successful solar proves in the marketplace, the less convincing the case of tax credits becomes. Why should taxpayers be subsidizing the growth of an already-profitable industry?

Tubb argues that the federal government should ditch contradictory policies that aim to both help and hurt the solar industry. In addition to tax credits, the Trump administration has also levied tariffs on imported solar panels.

"It'd be nice if we could get cohesive pro-market, pro-solar policy out there," says Tubb. "I think that looks like getting rid of the tax credits and getting rid of the tariffs."

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  1. Rays the Bar, Inc.
    Sol Good Company
    FlareTap
    Photovolt-or-Die Enterprises
    Helios Hate Me

    Those are the names I would come up with for my solar panel company. Whichever one I pick, the motto would be “Ass, Grass or Gaseous Ball, No One Powers for Free”

    1. Rays the Bar is good. I’d go with that one.

    2. Sun-Off-A-Beach would be my choice.

    3. Sunderkind
      Work-do Soliel
      Better Call Sol
      Beam Team
      Total Eclipse of the Roof

    4. jingle courtesy of son volt

  2. You’d have to be pretty wealthy to afford to go solar on your home, so this tax credit is aimed at the wealthy. Does Sen. Feinstein not have a problem with this?

    1. You’d have to be pretty wealthy to afford to go solar on your home

      Not really.

    2. Not really. In most places where it’s worthwhile, you can get loans/payment plans where your payment is roughly around what your electrical bill would be.

      1. Only because they are heavily subsidized

        1. If the cost over the payment plan period goes up to slightly over your bill, but still fits in your budget, it can still make sense since the panels will still be chugging for years and years after the payments are done… AND your electrical bill would have been going up at least with inflation the whole time.

          In sunny places, even without subsidies, they can make plenty of sense. In NON sunny places, they don’t make sense without subsidies though.

  3. Time to end the ethanol subsidy too.

  4. Well, I was planning on doing solar sometime this year anyway.

    That said, I thought libertarians (broadly speaking) were in favor of any and all tax breaks, cuts, credits and so-on because “taxation is theft” so it’s always right to keep more of your own money?

    1. “That said, I thought libertarians (broadly speaking) were in favor of any and all tax breaks, cuts, credits and so-on because “taxation is theft” so it’s always right to keep more of your own money?”

      You misspelled “crony capitalism”.

      1. I have a better premise for an article.

        “Senate democrats have persisted for decades. Time to let them go.”

  5. What about the deficit? Won’t anyone think of the deficit?

    1. The only time folks think of, or care about, the deficit (or debt) is when they think they can use it to score points.

      So you’re more likely to see Republicans support killing the solar-tax credit as a way to affirm their support for coal then you are to see them to support it as a way to fight the deficit.

  6. I say extend it. Just a little less money the govt. has of mine to waste on section 8, welfare and other freeloading type programs I disagree with.

  7. Can we get rid of the crony-capitalist bird choppers too?

  8. “I say extend it. Just a little less money the govt. has of mine to waste on section 8, welfare and other freeloading type programs I disagree with.”

    The problem with that logic is assuming it matters how much money they take in affects how much they will spend…

    https://usdebtclock.org/

  9. Does the US have a surfeit of solar electricity? Have we eliminated
    greenhouse has emissions yet? I don’t think so. We are still headed
    for global disaster.

    I suggest the US government establish incentives for electric power
    storage, and equivalents such as use of electricty to make hydrogen
    to be burned instead of fossil fuels. When we are safe, then we
    can cut these incentives.

    Eliminating the many subsidies for various fossil fuel uses and
    facilities would also be a good step.

  10. […] tax credits for solar investment have existed since the 1970s. These credits have often been envisioned as temporary programs, but Congress has a history of […]

  11. […] tax credits for solar investment have existed since the 1970s. These credits have often been envisioned as temporary programs, but Congress has a history of […]

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