Solar Investment Tax Credits

December 5, 2016

The Future Of Solar Investment Tax Credits

Whether we predict it or not, whether we want it or not, change happens. One critical, nation-wide element on the solar energy stage that’s scheduled to change is the phasing out of the federal investment tax credit (ITC) program. For Iowa specifically, the state accepts applications from residents, businesses, and utilities for the Solar Energy System Tax Credit (SESTC), a program slated to change with the federal tax credit effort. Thankfully, being prepared and having a plan to adapt can turn an inevitable change into a priceless advantage. With that in mind, Mark Aeilts has returned to help us make the most of these coming shifts in solar funding with his 30 years of experience in the cooperative distribution industry.

A Brief History and the Current Status

“Solar has been considered a win-win for a while now, politically speaking,” says Aeilts. “The [federal tax credits] actually started under George W. Bush.” In 2005, the Energy Policy Act initially created the ITC program, and several subsequent energy acts helped extend it in the years since. Most recently, the Omnibus Appropriations Act of 2015 included an extension for the program through 2023. As of now, the ITC schedule makes residents and businesses eligible for a 30% tax credit if construction on a qualifying solar property commences before the end of 2019. This credit will drop to 26% for projects beginning in 2020, and to 22% for projects beginning in 2021. Credits for residential projects disappear entirely after year-end of 2022, while commercial solar properties will drop to a permanent 10 percent of the project’s cost.

“The Iowa tax credits are dependent on the federal credits,” says Aeilts, “so they’ll continue on with the recent extension, too.” Currently, Iowa residents, businesses, and utilities can apply for the state’s SESTC, and as of 2016 this matches up to 50% of the federal credit.

Aeilts also reminds us that, “business and enterprise-level solar installations can also apply for accelerated depreciation tax credits and bolster their savings even further. Using all three of these opportunities, it’s not impossible to see savings in the neighborhood of seventy-five percent.”

What to Expect

While the incoming presidential administration’s attitude toward the ITC and its surrounding policies is difficult to predict, Aeilts believes that, “even the most pessimistic result will likely permit the current scheduled phase-out to proceed as planned.” He continues, saying, “Both parties like using the tax code to incentivize popular initiatives, and solar kind of has everything: energy security, independence, reliability, economic development, environmental responsibility. Both parties like to point to achievements like that in each election season.” So, it might not be a surprise to see further extensions or similar programs of some kind during the next decade.

The Utility Effect

“The competition distributors face continues to heat up as solar panel and balance-of-system costs continue to shrink,” says Aeilts. However, taking advantage of existing tax credit programs can help non-profit energy distributors looking to offset growing costs without hazardous price increases. Aeilts suggests:

A community solar array can help reduce price-per-kWh for those customers subscribing for prepaid energy. Also, utilities can seek grants on enterprise-level projects not available for smaller projects. And on top of all of that, large projects may qualify for accelerated depreciation tax credits, cutting costs even further. Since operating costs are relatively low, the cost of solar is almost entirely up front, and big savings earned now can help alleviate price pressures for years to come.

Offering customers solar energy directly from the utility provides an opportunity to build a closer relationship with them while simultaneously maintaining cost competitiveness. Aeilts calls that, “A true win-win.”

For a big-picture look at several of the changes shaping our industry, see our blog here.

Nate Aeilts

by Nate Aeilts

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