Future of the ITC
Since the introduction of a solar investment tax credit (ITC) in 2006 the number of solar installations has grown by over 1,600%. Going beyond encouraging the adoption of residential and commercial solar, the ITC has stimulated significant job growth in the industry, with jobs rates at 20 times the national average. Over the course of its tenure the ITC guided the cost of installed solar from $7.60/W in 2006 to $2.93/W in 2013. Despite its apparent success, on January 1, 2017 the ITC is scheduled to step down from its current 30% to 10% for commercial customers and expire entirely for residential customers.
What does this mean for the industry here in the US? Depending on who you ask answers vary from panic to hard-nosed optimism. These unknowns have prompted think-tanks and universities alike to publish calculated suggestions for legislators to take into consideration.
One such paper out of Stanford calls for a front-loaded phased reduction of the ITC. Under this proposal the ITC would decrease to 20% for 2017-2020, drop to 10% for 2021-2024 and then expire entirely in 2025. Alternatively, the paper also suggests transitioning the ITC to a lump-sum dollar amount per watt rather than a percentage of system price. A lump-sum credit would limit the current exaggerated support that the current iteration of the ITC provides costly residential systems thus encouraging commercial and utility scale installations.
Much can be said for the Stanford plan. By front-loading incentives the industry could stand to benefit at a time that credits are most beneficial rather than continuing with an unnecessary 10% credit into perpetuity. Ultimately no modifications to the ITC are slated to occur.
Others have suggested the ITC step down might be the catalyst the industry needs to rein in soft costs and maximize efficiency and flexibility. Some utilities have already instituted online interconnection applications allowing installers to keep jobs moving and spend less time trying to track down all the required paperwork and forms. Further productivity gains can be made through increased initial project screening and active project management. Together these gains could stand to reduce the roughly 50% of system costs associate with soft costs.
Paired with falling module and BOS costs, increased project efficiency stands to minimize impacts of the scheduled ITC step-down.