What is the solar investment tax credit (ITC)?
The solar investment tax credit (ITC) is a 30% federal (U.S.) tax credit for solar energy systems built on a residential or commercial property. Originally introduced in 2006, with a multi-year extension in 2008, the credit has helped make solar energy more affordable for homeowners across the U.S., especially when combined with local municipal and state incentives. According to the Solar Energy Industries Association (SEIA), “the residential and commercial solar ITC has helped annual solar installation grow by over 1,600 percent since the ITC was implemented in 2006 – a compound annual growth rate of 76 percent.” However, the ITC is now set to expire December 31st, 2016, reducing the credit to 10% on commercial installations and to zero for residential installations.
It’s unlikely that the previous pace of growth will continue without the ITC and many analysts are expecting the industry to face a bumpy ride. As a result, there has been a big push on the part of the industry and some lawmakers to extend the ITC. In February of this year, President Obama proposed an extension of the credit beyond 2016, in addition to an increased budget for clean energy. However, with considerable opposition in the House and Senate, it is not expected that the move will be supported.
So what does it mean for homeowners and the solar industry if the credit expires?
The looming expiration, and the big question mark over the possible extension of the credit, has meant a great deal of uncertainty for the solar industry. Without the ITC, some municipalities which have reached grid parity would revert to a situation where retail electricity from the utility is less expensive than solar. In other words, solar energy will become considerably less attractive for homeowners. A surge in installations is expected in 2016, as homeowners and business owners race to complete their solar installations before the ITC expires.
But what about after 2016? Should the ITC not be extended, we can expect that in the short term, the industry will take a hit, but we shouldn’t lose sight of the fact that a lot has changed since 2006 when the ITC was introduced. Today, the cost per watt for a residential system is less than 50% what it was in 2007, according to an NREL report, falling from over $9/watt to less than $4 in some places. Moreover, electricity prices continue to rise, meaning that solar energy may still be an attractive choice even without the ITC.
Act now to make the most of your solar investment
If you have been considering solar energy for your home, this is the time to get serious and take advantage of the ITC before it expires, after all 30% of an average 5 kW system is about $6000 back on any federal income tax owing (and if you can’t use the entire credit that year, you can carry the remainder forward to the next year). Since an average solar installation can take multiple months from start to finish, don’t wait until the end of 2016. In order to maximize your options and make the best decision, you should start researching highly-rated installers in your area today. We can also help you test drive solar energy for your home and see what you could be saving with Sunmetrix GO.
Solar will stand on its own two feet
The ITC has done a tremendous job in accelerating the adoption of solar, but there comes a point when the industry must be mature enough to stand on its own two feet. An extension of the ITC for another couple of years, or a gradual decline in the credit, could help make the transition smoother, but regardless of what happens at the end of 2016, solar energy is here to stay for the foreseeable future. More and more homeowners want the stability that comes with the locked in electricity prices solar has to offer, and many feel strongly about contributing to a cleaner future with renewable energy.
We’re here to help you make the transition to solar energy. Solar energy could save you money and with the ITC, your investment will be even more profitable!