Solar Tax Credit Due To Expire Despite Being Twice As Effective As Previously Thought


With half of the world population already getting more energy from renewables, as mentioned in Quartz, solar energy starts to get more attention. Solar energy has rapidly become the most cost-effective source of renewable energy out there, leading to massive investments in capacity. In the US, the average cost of solar panels has gone from $76.67/watt in 1977 to just $0.613/watt today[1], and the curve shows no signs of stagnation yet. This has led to 6.2GW of solar PV installed in 2014 alone, up 30 per cent over 2013[2].

How has this explosive development in the US been made possible? The incentives are numerous ( provides a complete list[3]), but the most effective is by far the federal investment tax credit (ITC) that cuts the cost of installing solar panels on the roof of either your business or home by 30 per cent. The problem is that the ITC is set to expire by the end of 2015, which is projected to significantly slow the progress of solar as an important player in the national, and indeed global, energy mix.

Here’s the interesting part: the reason for not extending the ITC is that it is argued to be too expensive to uphold, measured in installed capacity per dollar. It’s quite shocking then that the official EIA numbers on installed solar capacity, upon which this decision has been based, suggest this target is significantly off the mark. Read the fine print in EIA´s report and you’ll see a footnote informing you that “Capacity from facilities with a total generator nameplate capacity less than 1 MW are excluded from this report. This exclusion may represent a significant portion of capacity for some technologies such as solar photovoltaic generation.”

And indeed it does: EIA estimates installed capacity to be 9 GW[4] while in reality, 18,1G W were installed as of May this year. The reason? The capacities of residential solar PV systems are typically less than 1MW and so not captured in the EIA estimate. While ignoring the contribution from solar panels on private homes may have been acceptable at some point, it clearly is not anymore. Residential solar panels are becoming very attractive due to rapidly evolving technologies yielding increased productivity and lowered costs, in tandem with effective incentive systems such as the SREC market where you can earn credit for producing excess electricity and sell it back to the grid. And of course the ITC, listed by many as the single most important reason for the explosive growth in installed solar capacity in the US.

Still, solar PV only makes up 0.8% of the total installed capacity in the US, and while all renewables in total receive subsidies accumulating to $12bn in the US, the fossil fuel industries receive a staggering $72bn[5]. To help further increase the proportion of renewable energy relative to fossil fuels and meet international emissions targets, incentives like the ITC need to be long-term and predictable to attract investors. The gap between estimated installed capacity and actual installed capacity then makes a strong case for extending the ITC, as the effect per dollar is nearly double of what the EIA will tell you.

What are your thoughts?






About the Author Carl Frederik Kontny

Carl Frederik Kontny holds a BSc. in environmental science, policy, and management from the University of Bergen and a BSc. in economics from the University of Oslo. While originally from Oslo, he has lived both in Minnesota and in London before returning closer to home to attend a MSc. in energy economics at NMBU, just outside of his hometown. Carl Frederik has a special interest in energy policy and ways to effectively integrate the value of natural, social, and human capital when measuring economic growth and prosperity.

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