Impending cut in investment tax credit likely to have less impact if the IRS treats solar PV like wind

Thu, 08/21/2014 - 11:20am

In early August 2014, the US Internal Revenue Service (IRS) issued a notice related to the production tax credit (PTC) for certain types of non-solar renewable energy facilities. In essence, this notice confirmed previous rulings that projects under construction, and meeting a minimum percentage of total project cost, could claim tax credits from the year in which the construction started, rather than the year in which the construction was completed. This means that projects that began construction in 2013 could claim that year’s tax credits, even if completed in 2015.

While not specifically relating to the solar PV industry, this ruling is important as it gives some guidelines as to how the IRS may treat solar PV projects attempting to qualify for the investment tax credit (ITC, not to be confused with the International Trade Commission, which plays a role in U.S. antidumping cases), which is set to decline from 30% to 10% on 1 January 2017. If the IRS issues a similar ruling for the ITC, this would mean projects that begin construction in late 2016 could still claim the full 30% ITC, even if the project was completed one year later.

This type of ruling would provide a small buffer for the solar PV industry, as project developers continue to push installations forward in advance of the ITC degression. In anticipation of this type of announcement, NPD Solarbuzz’s baseline demand forecasts in the North America PV Markets Quarterly report indicate annual PV demand in the US of over 10 GW in both 2016 and 2017.

However, it should be noted that the IRS has not yet specifically addressed the solar ITC issue and it is likely that a ruling will not be forthcoming until early 2015 at the earliest. Furthermore, there are efforts underway in Congress to change the ITC. Some of these changes would be to the benefit of the solar PV industry, such as an ITC extension, or a multi-year step-down degression; other changes may be to the detriment of the industry, such as an early degression or a full-scale policy cancellation.

Currently, solar industry players are focused on progressing as best as possible under the current environment. Seeking a continued cost decline path and a stable policy and regulatory system is what most in the industry are hoping for. However, only by focusing on making solar PV more competitive – both in component costs and installation costs – will the PV industry continue to grow.



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