There is a fairly touchy conversation underway in the halls of the Nation’s Capitol about the future of the solar energy investment tax credit (ITC), because it is set to expire at the end of 2016, and President Obama has asked Congress to make the credit permanent.
The solar ITC is 30 percent, meaning the government will reimburse taxpayers for 30 percent of the cost of solar panels on their homes or businesses (assuming they pay taxes). The ITC was created in 2005 for one year in an attempt to spur the fledgling solar industry, but Congress has extended it twice.
As during both prior debates, the solar industry is again expressing dire concern about the future of renewable energy – and our planet – without the ITC. Needless to say, lobbyists on both sides are spending lots of money trying to convince Congress to extend the ITC, or not to do so. Opponents of the ITC may be winning. Paul Bledsoe, a former Senate Finance Committee staffer, explains that “There is significant momentum in Congress now for eliminating many of the 42 existing energy tax subsidies,” including those that apply to solar, wind, and fossil fuels, too. The latter might be the best approach of all.
Part of the deliberation is about whether or not the solar industry would in fact survive without the ITC (it certainly would). There is no doubt the ITC has encouraged thousands of solar installations on homes and businesses. It has also facilitated tax equity-based funding for renewable energy. Many solar projects do not earn enough to need the tax benefits, but those credits can be sold to tax equity investors, so they help anyway.
Ironically, solar industry officials telling Congress that they could not survive elimination of the ITC may create a self-fulfilling prophesy, because it may keep investors away. Many solar firms depend on the ability to sell these tax credits to financial institutions, but very few banks or insurance companies will invest in companies that may be gone in a couple years. As Thomas Jensen of City Power Development Group points out, “The investment world’s best reason to stay on the sidelines… is the solar industry’s own panicky claims that they cannot survive at all… without an ITC extension.” Yet that is exactly what the industry’s primary representatives are saying. Solar Energy Industries Association (SEIA) Executive Director Rhone Resch, in a keynote address to a solar conference last month, said “Most of us in this room have jobs because of the solar ITC.” He predicted, “We will lose 100,000 jobs if we lose the ITC — and these are conservative numbers. Ninety percent of solar companies will go out of business.”
Last week, solar advocates at MIT called for a federal subsidy to continue, but to be radically restructured, no longer focusing on rooftop solar, but on large commercial solar plants that are much more efficient and therefore better investments for taxpayers. As a prominent utility lawyer writing in the Wall Street Journal said, “Large-scale plants make sense, but panels for houses simply transfer wealth from average electric customers.”
Still others, including one solar CEO, support phasing out the subsidy altogether, as California is now doing with its state tax incentive. The State’s goal was installing 2,000 megawatts by 2016, but the goal was met sooner so the subsidy is going away – yet Camilo Patrignani, CEO of Greenwood Energy, points out that California’s solar industry is growing faster than ever. He says that’s because “regulators reduced payments at installation milestones as the industry matured, letting market forces direct incentives, rather than artificial inputs.”
In truth, the solar industry’s dependence on government subsidies may actually slow innovation. And there is no doubt that publicly funded incentives affect the market. They divert private investments from industries where such investments would otherwise be made, create a “crony capitalism” program for politically connected businesses, distort and disrupt the free market, reward failures, and impose additional costs on all energy consumers and taxpayers. Patrignani says the industry might be better off without such subsidies. Certainly American taxpayers would be – the ITC costs around $9 billion per year, according to the IRS.
Wouldn’t it be amazing if Congress decided to let the free market work, leaving people free to pursue their own happiness, and to succeed or fail based on their own hard work and creative ideas?
(A version of this column appeared in the Grand Junction Daily Sentinel May 22, 2015)
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