Extending the Sunset: Highs and Lows of the 30% Solar Tax Credit

Neal Dikeman submits : From the Solar Energy Industries Association:

"In its waning hours, the 109th Congress today passed legislation that would extend the 30% solar energy investment tax credit [ITC] for homeowners and businesses for one additional year, through the end of 2008."

Established in 2005, and previously slated to sunset in 2007, the 30% tax credit was a significant step up, but as SEIA points out, in 1 and 2 year drips and drabs, is barely worth the trouble.

The mechanism:

"Residential Solar Tax Credit: Extends a 30-percent tax credit, created in the Energy Policy Act of 2005, for the purchase of residential solar water heating, photovoltaic equipment, and fuel cell property. Expires after December 31, 2008.

Business Solar Tax Credit and Fuel Cell Tax Credit: Extends a 30-percent business credit, established in the Energy Policy Act of 2005, for the purchase of fuel cell power plants, solar energy property, and fiber-optic property used to illuminate the inside of a structure. After December 31, 2008, the credit reverts to a permanent 10-percent level."

The Good

The solar industry needed this badly. The 30% tax credit [up from 10%] provided a much needed boost - you can tell because not only has the activity on solar power plant financings picked up considerably, when you run the numbers on the projects, that extra 20% provides a lot of extra juice.

The Bad

One extra year is not much of a policy in any case. Does extending the sunset 1 year mean that Congress really doesn't want to deal with it in 2007, and will maybe just wait until 2008 to consider the 8 year extension the industry wants? Let's either do a comprehensive solar bill or drop it all together, but stop playing in drips and drabs.

The Ugly

This is only a part of the overall subsidy package. It still takes an accelerated depreciation and the state rebates to make these projects come anywhere close to penciling out - meaning when the private sector spend $1 for solar, the taxpayer spends about a $1.50. Keep on trucking, we have a long way to go.

In other news, last week the California Public Utilities Commission [PUC] issued a proposed decision to let solar system owners keep the renewable energy credits from their projects. I must admit, I haven't followed this debate closely, but I really don't understand the argument to give them to the utility.