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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