George Washington University’s Solar Institute finds it’ll take more than one fix.
The
coming reduction of the 30 percent federal Investment Tax Credit (ITC)
for solar creates a steep cliff no matter which way you crunch the
numbers, according to a new policy paper from George Washington University. But there are ways to soften the blow. With
the phase-down of the tax credit, the U.S. Energy Information
Administration projects a 94 percent decrease in distributed solar PV
installations from 2016 to 2017, with 2025 levels still below 2016
levels. (EIA estimates are often notoriously low, however.)
“The
ITC cliff not only decreases deployment sharply, but it also delays
cost reductions associated with increased deployment that could mitigate
the impact of the ITC expiration,” James Mueller and Amit Ronen of
George Washington University’s Solar Institute explain in the white
paper.
The
picture for utility-scale solar PV is not much better, with an
approximately 80 percent decrease in installations from 2016 to 2017.
The GW Solar Institute’s figures are less dire, but still significant: a
42 percent drop in utility installations and 15 percent fewer
distributed solar PV installations.
Overall, the levelized cost of
energy from solar power will increase by at least 10 percent from 2016
to 2017, the researchers found. “While such an increase may seem
insignificant relative to the recent reductions in solar installation
costs, the price spike coincides with saturating renewable energy
markets in the leading solar states and minimal new incentives in
lagging states,” they explain in the paper.
The researchers outlined four alternatives that could soften the landing, but not erode the solar tax cliff altogether.
Two-year extension.
A straightforward extension, along with a modification to include
projects that have begun construction, rather than those that have gone
into service, could “greatly help” during a critical period of
extension, but would not provide the market certainty of the 2008
extension.
Forget the ITC. Another alternative
for Congress to consider is to allow clean energy projects to use
financing structures such as master limited partnerships (MLPs) and real
estate investment trusts (REITs) with the five-year modified
accelerated cost recovery system still in place. No matter what happens
with the ITC, the researchers urge Congress to maintain accelerated
depreciation, which they found more than pays for itself in revenues
from induced economic growth in the long term. Besides REITs and MLPs,
others have suggested that solar could also be included in mortgages.
Gradual ramp-down.
Instead of dropping the ITC, Congress could gradually reduce it by 5
percent each year until it reaches zero in 2022. In this scenario, the
permanent 10 percent ITC for commercial projects would be eliminated.
Technology-neutral ITC. Looking beyond just solar, GW researchers see a role for the ITC to be expanded to other energy technologies.
A
technology-neural ITC could be automatically phased out based on market
maturity, instead of Congress having to determine what maturity looks
like. There would also be a cap on the ITC for any technology at 30
percent. For solar, market maturity and scale would be defined by the
U.S. Department of Energy’s SunShot goals.
The
policy paper ultimately recommends a combination of the four
approaches, with a short-term extension and gradual phase-out as the
most important. "Given the extreme sensitivity to the ITC level
in 2017, practical lag times for businesses to adapt to new policies,
and uncertain cost reductions, extending the 30-percent level for a
couple of years would be the most prudent path in the short term to
protect taxpayer dollars already invested in commercializing solar and
bringing it to full scale,” the researchers conclude. “The cost of this
increased support in the near term could be recovered over the long term
by ending the permanent 10 percent ITC level in later years.”
http://theenergycollective.com/katherinetweed/2222881/4-ways-blunt-solar-tax-cliff
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