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New Federal Renewable Energy Tax Credits Threw Solar Power Into a Tailspin

Temporary Chaos in the Solar Sector as Homeowners and Installers Adjust to Changes

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solar panels on robinson house by namaste solar electric
Photo: Courtesy of Namaste Solar Electric

By Brian Clark Howard

When President Bush signed into law the $700 billion Emergency Economic Stabilization Act of 2008 on October 3, it also extended and enhanced critical tax credits and financing relating to renewable energy and energy efficiency.

The Energy Improvement and Extension Act of 2008, which was attached to H.R. 1424, provides a one-year extension of the production tax credit (PTC) for wind energy, keeping the credit in effect through 2009. The bill also provides a two-year PTC extension, through 2010, for electricity produced from geothermal, biomass, and solar power facilities, as well as trash-to-energy facilities, small hydropower projects and capacity additions to existing hydropower plants. In addition, the bill creates a new PTC for electricity produced by marine and hydrokinetic renewable energy systems.

In particular, the Department of Energy points out that the biggest winner in this development is likely to be the residential and commercial solar power market, which gained an 8-year extension (through 2016) of the 30% tax credit for residential and commercial solar installations. In addition, the $2,000 tax credit cap for residential solar electric installations has been eliminated, and there is an expanded opportunity for people to save if they tax Alternative Minimum Tax.

As a result, the Solar Energy Industries Association (SEIA) expects the creation of more than 440,000 jobs and the generation of at least $325 billion in private investment due to those changes, which should yield more than 28 gigawatts of solar power.

"When the tax credits were passed, there was an initial wave of elation. It's what we in the solar industry have been wanting for so long, and it ended up passing as pork in the bailout bill," explains Blake Jones of Colorado's innovative Namaste Solar Electric Company -- which leads the state in solar installations. "But then the next week people were reading the fine print, and found that there was one detail that was different: the effective date was December 31, 2008," Jones told TDG over the phone.

What this meant for residential customers was that they would only be able to take advantage of the sizable tax credit if their systems were completed after December 31. But what about all the systems currently under construction, which also provide critical work and capital for the growing solar industry in a tough economic climate? "It created an emergency," explained Jones, with homeowners and solar companies worried about how they would make it to the new year, and about what the best ethical course of action would be.

Over the past few weeks, a sort of consensus has formed in the industry, according to Jones, in which installers and customers have agreed to continue work on existing contracts, but just not completely finish (and turn them on) until early 2009. This transitional period is not unlike what happens in the building trades in other parts of the world. In Cairo, Egypt, for example, one sees an expanse of inhabited buildings with metal rebar poking out of the top levels toward the sky. That’s because developers don't have to pay certain taxes until a building is completed -- so some apparently get away with leaving "unfinished" final floors for long periods of time.

Jones says it's also significant that the commercial solar tax credit was extended, since that was going to expire. Before October 3, he says installers were working triple time to try and finish existing projects before the end of the year. Now, that pressure is off, and the market will have more time to develop and mature.

The other thing that has been destabilizing the solar energy sector in the short term is anxiety about how states will respond to the federal tax credits. It's clear that in recent years, the industry has been spurred on most in states that also include tax incentives in their borders. After October 3, there was concern that states would begin to scale back those incentives in response to the federal stimulus. But no one knew by how much or when that would happen.

In the case of Colorado, Jones says the state has moved quickly to decrease their state incentives, in his opinion too much. In fact, he says the change was made with only 24 hours notice. Still, the solar market remains strong in the Rockies.

It's clear that the federal renewable energy tax credits are a welcome carrot in the march to build a new green economy. There is still a lot of education of the public that needs to happen, and simplification across state lines. Not all states even have net metering yet, in which utilities must buy any excess power from panels or turbines. We need even more support of renewable energy going forward. Namaste Solar and others are helping lead the way.


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