PCCA Journal|2
nd
Quarter 2015
21
T
he prospects for the widespread adoption of
solar power are sunnier than ever. Thanks to
incentives and plummeting costs, the solar
photovoltaic industry is experiencing dramatic
growth, accounting for almost a third of new
generating capacity in the U.S. in 2014, second only to natu-
ral gas.
The U.S. Energy Information Administration projects an in-
crease of 6 gigawatts of utility-scale solar capacity by the end
of 2016 (for comparison, the Hoover Dam has a maximum
output of 2 GW of capacity). Apple recently announced plans
to invest $850 million in a utility-scale facility in California
while Google dropped $300 million into a SolarCity fund to
finance residential solar installations. The U.S. Department of
Energy wants solar to provide 14 percent of the power in this
country by 2030 and 27 percent by 2050, up from less than
1 percent today. It’s a steep road, but momentum is clearly
building.
The problem is, unless there is a change to current legisla-
tion, the solar power industry in this country is headed for a
cliff.
A federal tax incentive for solar projects called the Invest-
ment Tax Credit is set to expire at the end of next year. That
will be a substantial blow to the industry as it’s learning to
stand on its own, says Stanford professor Stefan Reichelstein.
His new study, coauthored with research associate Stephen
Comello, examines why this tax incentive is so important and
offers up an alternative that would steer us away from the
cliff.
The Solar Credit Success Story
Designed to support the widespread deployment of solar
energy, the Investment Tax Credit was created as part of the
Energy Policy Act of 2005 and extended for eight years in the
Emergency Economic Stabilization Act of 2008. Specifically,
the ITC allows companies that install, develop, or finance so-
lar systems to claim a tax credit in the amount of 30 percent
of the investment cost of the project.
The ITC helped to spur demand for solar installations,
which in turn drove down costs. “The magnitude of the tax
credit is very substantial and has given a boost to the solar
industry in the U.S.,” Reichelstein said. “Also, the solar
industry is cooking not only here in the U.S. but also in many
other countries that have their own incentive systems. In
terms of worldwide deployments, solar power is on a steep
growth curve and there is no sign of it letting up.”
However, the 30 percent credit that has been so instru-
mental in jump-starting the industry in the U.S. is in effect
only until December 31, 2016, at which point the credit for
commercial developers, who pay corporate income taxes,
will drop to 10 percent. Individual homeowners who wish
to self-finance would not receive any federal credits on their
personal income taxes beyond 2016.
Clouds on the Horizon
That drop would be a sharp setback to solar’s progress
in becoming cost-competitive with other energy sources,
Reichelstein shows in his study, “The U.S. Investment Tax
Credit for Solar Energy: Alternatives to the Anticipated 2017
Step-Down.”
To assess the cost competitiveness of solar photovoltaics,
the researchers analyzed the “levelized cost of electricity,” or
LCOE, a metric used to compare the lifetime costs of different
electricity generation sources.
The researchers started by examining the economics of
solar photovoltaics in five states that account for more than
80 percent of the solar installations in the U.S.—California,
Colorado, New Jersey, North Carolina, and Texas—and across
three market segments: residential, commercial, and utility-
scale. Considering only the federal ITC, their results revealed
a varied landscape of cost competitiveness relative to the
rates charged by energy service providers. In California, for
instance, residential and commercial solar installations are
easily competitive with retail and commercial rates respec-
tively. In Colorado, North Carolina, and Texas, solar instal-
lations are close to breaking even with those retail rates. On
the other hand, utility-scale solar installations, which have to
compete with lower wholesale electricity prices, are not yet
competitive in any of the segments.
While under these circumstances solar hasn’t reached “grid
Avoiding the Solar Cliff:
New Stanford Research Offers
Alternative to ITC Phase-Out
Continued on page 22