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, at the end of 2019, the ITC will be gradually reduced and phased out. In 2020, it will be reduced to 26 percent, then in 2021 it will be reduced to 22 percent. After 2021, the ITC will drop to zero for residential solar systems, while the commercial and utility credit will be reduced to a permanent 10 percent.
So what does it mean for homeowners and the solar industry when the credit reduces and expires?
The looming reduction and subsequent expiration of the ITC, could mean 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 could become considerably less attractive for homeowners. We may see a surge of installations in 2019 and the following two years as homeowners and business owners race to complete their solar installations before the ITC expires.
But what about after the ITC? In the short term, we can expect that 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 considerably less than what it was in 2007, according to an NREL report, falling from over $9/watt to less than $3 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. Keep in mind that if you can’t use the entire credit the first 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 2019. In order to maximize your options and make the best decision, you should start researching highly-rated installers in your area today.
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. 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, so it looks like solar is here to stay for the foreseeable future.
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!