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Congress Passes Multi-Year Extension of Solar Tax Credit

Washington DC— On Friday, the U.S. Congress passed a multi-year extension of the federal solar investment tax credit (ITC) as part of the omnibus appropriations bill. The policy received broad bipartisan support by California’s congressional delegation and was backed by consumers from farmers in the Central Valley to high tech in Silicon Valley. The Bakersfield Chamber of Commerce officially supported the tax credit’s extension this week.

The 30% federal tax credit for homeowners and businesses was scheduled to expire at the end of 2016. The provision in the Omnibus Appropriations Bill, passed by Congress this morning, would extend the credit through 2021 with a gradual ramp down starting in 2019. The extension also includes commenced construction language that would add two additional years to complete large-scale projects. President Obama is expected to sign the bill into law.

“The federal solar tax credit is a critical policy support making it easier for consumers across the state to go solar,” said Bernadette Del Chiaro, executive director of the California Solar Energy Industries Association (CALSEIA), which gives voice to the more than 2,000 solar companies doing business in California. “We applaud the bipartisan leadership of our California Congressional delegation in supporting passage of this multi-year extension of the ITC.”

Long-term policies like the 30% federal solar investment tax credit and the state-based policy of net energy metering have been instrumental in creating the rapidly growing California solar industry which currently employs 54,000 people statewide and brought nearly $12 billion in investments to California in 2014. These policies have also brought about significant cost reductions within the solar industry—dropping over 60% in the past seven years—enabling the growth of local solar businesses and reducing energy costs for homeowners, businesses, schools and farmers across the state.

“This has been a big week for solar,” said Del Chiaro. “Assuming Governor Brown’s CPUC adopts a strong net metering decision in January in the face of fierce opposition from the state’s big utilities, solar energy has a bright future.”

The federal investment tax credit (ITC) is a 30 percent credit for solar systems installed on residential and commercial properties. With the Senate expected to follow the House in passing the bill to extend the expiration date, on December 31, 2016, the ITC will no longer decline to 10 percent for commercial installations and will not completely expire for residential projects. The ITC has helped the solar market grow significantly since it was passed in 2006.

Net energy metering is a program that compensates solar consumers for any excess electricity they export to the grid. The program has helped fuel the explosive growth of solar across the state. The California Public Utility Commission (CPUC) will finalize its decision on the future of net energy metering in late January. Earlier this week, the CPUC proposed a decision that rejected utility proposals that advocates say would have gutted the state’s rooftop solar market.

The ITC deal in the omnibus appropriations bill will provide extensions for both section 48 (commercial) and 25D (residential). It keeps both credits at the current 30% level until the end of 2019 followed by a two-year phase out:

  • 2015 – 30% (existing law)
  • 2016 – 30% (existing law)
  • 2017 – 30%
  • 2018 – 30%
  • 2019 – 30%
  • 2020 – 26%
  • 2021 – 22%

The 10% credit for Section 48 (commercial) projects remains in place after 2021, per existing tax law.

In addition to extending the expiration date of the ITC, Congress added a provision to the tax code that provides some additional flexibility and certainty for new solar projects to be able to claim the critical 30% federal tax credit. This provision, so-called “commence construction” language, provides an effective extension of the ITC, especially for larger solar projects that require significant lead time to finance, permit, construct, and connect to the electrical grid. Solar projects are now eligible to claim the federal tax credit if they commence construction before the expiration date, rather than the previously rigid requirement that projects be fully completed and in-service by the deadline. There is precedent for this provision in the existing tax code, and now solar will receive the same tax treatment as wind and other renewable energy technologies by allowing for projects under construction to receive the tax credit.

“We simply can’t pop any corks until the future of net energy metering is finalized,” concluded Del Chiaro. “However, I think this week marks a turning point for solar energy. As the ink dries on the Paris Climate Agreement, I believe the age of the sun has finally dawned.”