Changes to Renewable Energy Growth: The Death of the ITC and Decline in Production from COVID-19

By Brian Pattison

The largest growing source of energy generation in the world is currently renewable energy.[1] An EIA report from January, 2019 forecasts that renewable energy will continue to increase at a sharp rate as coal-fired and nuclear generation decreases each year.[2] Utility-scale solar is expected to grow by 10% in 2019 and an additional 17% in 2020.[3] Solar energy is currently the third-largest renewable energy source, surpassing biomass in 2017.[4] However, this rate of growth is in question with the significant market driver of residential renewable energy, the Investment Tax Credit, posed to drop again in 2021 before being phased out altogether. When coupled with the drop in production of solar panels due to the COVID-19 outbreak, the future of solar growth has been called into question.

In 2006, Congress, seeking to increase renewable generation on the U.S. electrical grid, passed the Solar Investment Tax Credit (ITC).[5] The ITC provided a 30% dollar-for-dollar reduction in an individual’s or company’s income tax based on the size of the individual or entity’s investment in solar property (with provisions for a “ramping down” of said tax breaks in the latter years of the program—more on that below). [6] Since the ITC’s enactment, the U.S. solar industry has grown by more than 10,000%.[7]

The growth in the solar industry has also been spurred by the rapid drop in price, decreasing by over 70% in the last decade and hitting their lowest historical levels in Q1 of 2019.[8] The ITC, while a strong driver behind renewable energy growth, was only meant to be a short-term market driver.[9] Congress passed a multi-year extension to the ITC in 2015, allowing for the 30% tax credit to continue until 2019.[10] The ITC drops to 26% in 2020, then to 22% in 2021. At the end of the program, the ITC will only provide 10% tax credit to commercial and utility-scale solar, excluding residential solar entirely.[11] Residential solar is expected to continue to grow beyond the lapse of the ITC in 2021 as market drivers continue to push for more renewable energy on the grid.[12]

With the lapse of the ITC, residential customers interested in installing or using solar energy face the largest change.[13] Commercial and utility-scale solar developers will still be able to claim a 10% ITC return on their solar projects, while residential customers will be left out in the dark.[14] Without the ITC it is likely that many residential customers who want solar will find the significant price increase, or rather the drop on their return-on-investment, will make the cost of solar unappealing to install. Residential customers are largely attracted to solar, not for the environmental benefits, but to lower their electricity bill.

With projects costing more and the possibility of solar panel production declining with the recent COVID-19 outbreak, it is likely that the predicted growth of solar past 2021 is largely speculative and based off of outdated numbers.[15] Massive solar projects planned in India for construction in 2022 have already seen their imports put on hold as china accounts for the majority of the world’s solar panel production.[16] The Solar Energy Industry Association has come out with a set of guidelines for solar producers as most states put “shelter in place” orders into effect.[17]As both production and deployment of solar systems in the U.S. has been stunted by this outbreak SEIA is predicting massive job loss and stability issues within the industry threatening the predicted $20 billion in funding expected for this year.[18] This stunt in growth calls future predictions wildly into question as the industry scrambles to find support for funding and legislative backing.[19]

Only time will tell if production of solar panels will increase to their pre-outbreak numbers and if the price of solar will still be attractive to residential customers. Revitalizing the ITC can prove to be an effective way to give the market some stability and consumer interest for years to come.

[1] See generally Jack Unwin, Renewables are fastest growing energy source: BP report, Power Technology (Feb. 15, 2019), https://www.power-technology.com/news/renewables-fastest-growing-energy-bp/.

[2] Tyler Hodge, EIA Forecasts renewables will be fastest growing source of electricity generation, EIA (Jan. 18, 2019), https://www.eia.gov/todayinenergy/detail.php?id=38053.

[3] Id.

[4] Id.

[5] Office of Energy Efficiency & Renewable Energy, Residential and Commercial ITC Factsheets, (March 2015) https://www.energy.gov/eere/solar/downloads/residential-and-commercial-itc-factsheets

[6] Id.

[7] SEIA, Solar Industry Research Data, https://www.seia.org/initiatives/solar-investment-tax-credit-itc (last visited on Sep. 30, 2019).

[8] Id.

[9] REC Solar Company Corporation, How to Calculate the 30% Federal Solar Tax Credit in 2019, REC Solar Insights, (Apr. 18, 2019) https://recsolar.com/blogs/how-to-calculate-the-30-federal-investment-tax-credit-for-solar/.

[10] SEIA, supra note 7.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] John Letzing, The Economic Toll of the Coronavirus – from iPhones to Solar Panels to Tourism, World Economic Forum, (Feb. 21, 2020) https://www.weforum.org/agenda/2020/02/economic-toll-coronavirus-manufacturing-tourism-china-asia/

[16] Id.

[17] SEIA, COVID-19: Resources for the Solar Industry, https://www.seia.org/coronavirus-information-resources (last visited Mar. 25, 2020).

[18] Id.

[19] Id.