Investment Tax Credit (ITC) Fuels Distributed Solar Market

Over the last two years, a record number of new solar photovoltaic (PV) systems have been installed in homes and businesses across the U.S.  Sliding prices for solar modules and an accelerated pace of the acceptance of solar panels for electric generation have generated demand, especially for distributed solar systems.

panels on rooftop

The price per watt for solar panels has fallen about 70 percent since 2010, according to the Solar Energy Industries Association (SEIA). This price declined has been a key factor in the efforts to achieved price parity with traditional fuel sources, which has been reached in some markets.

Distributed Solar System Cost

System prices are expected to continue to drop through 2016—even if module prices flatten, PV systems should offer better value.  As solar PV becomes more affordable, millions of homeowners and business owners will have the financial motivation to install distribute solar systems to generate their own electricity.

In the first quarter 2013, the national average price for home PV systems was $4.93/W compared to $6.95/W Q1 2010. The Department of Energy believes that soft costs, which account for 64 percent of total price of residential energy systems, has plenty of wiggle room to facilitate a further drop in price per watt.

Investment Tax Credit Importance to Solar

Renewable energy regulations and laws have a key role in the American economy. One of the most important policies concerns the solar Investment Tax Credit (ITC). The ITC reduces tax obligations for individual and businesses that install qualifying solar technologies.  The tax credit, first implemented in 2006, promotes the investment of private capital in solar manufacturing and project construction.

Property owners can receive a 30 percent tax credit for solar systems—from the date placed in service, through December 16, 2016. The policy provides the solar industry- investors and companies– long-term market certainty. It was instrumental in fueling competition, technological advances, and lowering system costs.

Solar installations have grown by more than 1,600 percent since its inception. 

Future of ITC

Companies throughout the solar supply chain continue to work on optimizing their businesses models and driving down costs and bringing solar electricity generation in line with other fuels. They understand that the solar industry must move from the “emerging” stage and test their ability to compete with other sources.

Many in the solar industry have expressed concern about what will happen to projects under construction when the 30 percent incentive for ITC expires and it is stepped down to 10 percent in 2017.  For photovoltaic and concentrated solar systems under construction by the tax credit expiration date, U.S. Senators Michael Bennet (D-Colo.) and Dean Heller (R-Nev.) have introduced a bill that will allow for the full ITC solar incentive.

Some experts even with the if the new incentive scheduled to decline, combined with “continued decline in module and balance of system costs,” the industry will continue to grow, said Upsolar’s Chief Technology Officer, Stephane Dufrenne.

Other players also believe that the industry has the necessary foundation to thrive in a post-ITC global environment. It is simply a matter of adjusting interest rates a point or two, which will help projects pay their debt obligations, and lowering performance degradation (output of aging PV systems) by one-quarter of a percent.

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