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President Signs Investment Tax Credit Extension!

On Friday, October 3, 2008, H.R. 1424, the Emergency Economic Stabilization Act of 2008, passed the U.S. House of Representatives with a vote of 263-171.  Soon after, President Bush signed the bill into law.  The U.S. Senate passed its own version of the bill on Oct. 1, 2008.  In the bill are a number of provisions supporting energy efficiency and renewable energy, including all of the solar incentives advocated by SEIA.

This package includes an 8-year extension of the commercial and residential solar investment tax credit, completely eliminates the monetary cap for residential solar electric installations, and allows utilities and alternative minimum tax (AMT) filers to take the credit.

The Investment Tax Credit (ITC) is effective now.  However, the lifting of the residential cap for solar electric property is effective after December 31, 2008.  Residential solar water heating systems are subject to the $2,000 cap.

See SEIA’s Press Release for more details:
http://seia.org/cs/news_detail?pressrelease.id=217

The ITC is a reduction in the overall tax liability for individuals or businesses that make investments in solar energy generation technology. Nations across the globe are competing to corner the market on solar energy technologies, and to capitalize on the job growth potential and economic gain associated with this promising industry. The ITC provides the necessary financial support and catalyzing market forces to ensure the growth of solar industry in the United States.

For two years, the solar energy industry sought an 8-year extension of the commercial ITC under Internal Revenue Code Section 48 as well as an 8-year extension of the 30 percent residential ITC under Section 25D as well as total elimination of the existing $2,000 limit. SEIA also sought to permit corporate and individual taxpayers to claim the ITC against the AMT and the elimination of the public utility exception to the ITC.
Clean energy tax incentives play a vital role in creating new high-wage American jobs, spurring economic growth, promoting consumer purchases of energy efficient products, lowering energy bills for consumers and businesses, and of course reducing global warming pollution. The incentives also help the U.S. catch up with other countries on the development and deployment of clean energy technologies.
The Crucial Nature of the long-term Extension

The 8-year extension of the ITC will provide the market  “demand-signal” that is needed for the industry to build new manufacturing capacity, expand the installer work force and construct new utility-scale solar power plants. In fact, after only two years of the ITC, the U.S. solar market grew by 45 percent.  Now with an 8-year extension of the ITC, the solar industry is projected to gain 440,000 permanent jobs and $325 billion in investment by 2016.
Similar to other emerging energy technologies the clean and carbon-free energy produced by utility-scale concentrating solar power (CSP) plants and new solar cell manufacturing infrastructure require long lead times. Development of a CSP plant can take 6 years, while new PV cell manufacturing facilities often require 4 years to be completed.

Additionally, solar energy is unique from other renewable technologies because it is installed on rooftops and requires a workforce of skilled electrical workers, plumbers, roofers and others to be trained and certified to install solar systems. The creation of an entirely new specialized workforce requires substantial time and expenditure by the industry that will now be able to occur with the long-term extension and improvement of the ITC.
Long-term regulatory and tax treatment certainty is equally important to a project’s success. Financing new solar projects is more complex than conventional power plants because of the unfamiliarity of the lending industry with the technology. On average, financing can take an additional 12 months for project development.  The long-term ITC will lead to political and market certainty that will help reduce the capital costs for projects.
History

The Energy Tax Act of 1978 established a 15 percent tax credit for solar energy. This credit continued uninterrupted for 8 years until the Tax Reform Act of 1986 provided for a phased reduction. On January 1, 1987 the credit fell to 12 percent. On January 1, 1988 the credit further reduced to 10 percent. The credit remained at this level until 2005.

The Energy Policy Act of 2005 (EPAct 05) created a new commercial and residential ITC for fuel cells and solar energy systems that applied from January 1, 2006 through December 31, 2007. The credit was extended for one additional year in December 2006 by the Tax Relief and Health Care Act of 2006.  In 2007, global investment in clean energy topped $100 billion, with solar energy as the leading clean energy technology for venture capital and private equity investment.