Phase Out Solar Subsidies, But Gradually

The general public was allowed to attend the final day of PV America West 2012 (Wednesday March 21), which resulted in a very different crowd than the usual industry insiders that dominated the show’s first two days. At our booth we saw quite a few more local installers from the Bay Area, most of whom were focused on residential solar photovoltaic (PV) installations. During the course of the day we had several interesting conversations with contractors and electricians interested in expanding their businesses into solar energy, and learning more about new PV system technologies, such as distributed electronics.

The vast majority of the estimated 100,000 Americans working in the solar industry are employed by just these kinds of small businesses. And thanks to their growing interest, the industry has been growing like gangbusters. In fact, as PV America speaker Rhone Resch, president of the Solar Energy Industries Association recently noted, the solar industry has become “the fastest growing industry in America.”

Unfortunately, the industry’s continued growth and survival depends, at least for the moment, on the outcome of several key public policy decisions. The question now before us is: which, if any, of the several federal solar incentives now in effect will be continued?

Ending energy favoritism

As a general policy, we’re in favor of weaning the solar industry — as well as wind, nuclear and various fossil fuel energy producers — away from federal subsidies so that energy investors and users can make rational, market-based choices.

But it’s clearly in the best interests of the still fledgling solar energy industry if federal and state incentives are phased out in an orderly and even-handed manner that gradually eliminates artificial subsidies for all forms of energy. That way, manufacturers, investors and consumers alike can make well-considered plans and have the confidence to proceed with projects that make long-term sense, without fear that the rug may suddenly be pulled from beneath them.

The solar industry is already grappling with the expiration of the U.S. Treasury Department’s 1603 Program, which ended last Dec. 31. Part of the government’s 2009 stimulus package, it reimbursed up to 30 percent of the cost of renewable energy installations with a check, in lieu of tax credits.

Now the debate in Congress has shifted to whether or not to continue the federal Investment Tax Credit (ITC), which reduces the tax liability of individuals or businesses by up to 30 percent of the amount invested in new solar energy generation projects. The ITC is currently set to expire at the end of 2016.

Whether or not it’s in the best interests of the country to further extend the ITC is a valid question. Maybe a better answer is changing the tax code to allow for investments in solar through other vehicles such as master limited partnerships (MLPs), or REITs for example.

Nonetheless, it’s hard to understand why the political will is so scarce to back the solar industry, whose costs have decreased by more than 75 percent over the past three years, when the enormously profitable U.S. oil and gas industry continues to receive some $30 billion in annual incentives, while the cost of gasoline to the taxpayers has more than doubled over the same period.

As a practical matter, it simply makes no sense to continuously change the rules of the game. Meantime, there’s no question that the ITC has helped to create unprecedented growth in the U.S. solar industry, and it ought to be allowed to continue, as scheduled, through 2016.

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