In a positive turn of events for the American renewable energy sector, the U.S. House of Representatives is proposing to extend tax credits for both wind and solar energy for commercial and residential customers. Commercial credits were slated to be reduced and residential credits were to be eliminated at the end of next year. The extension is the result of weeks of negotiation and a late-night deal in which a 40-year-old ban on exports of crude oil would be lifted as quid-pro-quo. These elements are part of a $1.15 trillion omnibus appropriations bill, which could be voted on by the House and Senate as early as this week. Both chambers are expected to pass the bill, and the President is the expected to sign. The combination of the potential extension of tax incentives with impending greenhouse gas regulations through the Clean Power Plan and the Paris Climate Accord, and the continued reduction in hard and soft costs, is expected to be a boon for wind and solar energy industries.
The Production Tax Credit (PTC), which expired in 2014, credited wind energy generation owners $2.3 cents for every kilowatt-hour of energy produced over a 10-year period. The PTC was a key factor in the rapid growth of wind energy in the U.S. over the past decade. The proposed appropriations bill would extend the PTC for five additional years, starting retroactively in 2015, and providing credits to wind projects that start construction by the end of 2019. The inflation-adjusted PTC levels would ratchet down over time—starting at $2.3 cents per kilowatt-hour in 2015, dropping by 20% for projects that begin construction in 2017, 40% for projects beginning construction in 2018, and 60% for those that begin construction in 2019.
The Investment Tax Credit (ITC) is a dollar-for-dollar reduction in income taxes due. Absent Congressional action, this credit, currently representing 30% of eligible solar energy property value, would drop to 10% for commercial entities and 0% for residential customers at the end of 2016. The proposed measures in the appropriations bill would extend the ITC for five years. The tax credit would be 30% of eligible energy property for any solar project beginning construction before 2020, 26% for projects that start construction in 2020, and 22% for those starting in 2021.
With hardware costs for solar and wind technologies dropping rapidly and soft costs also declining, the added value from these tax incentives will make the business case for solar and wind projects even more attractive. Policy drivers for clean energy—in the form of the Clean Power Plan and related greenhouse gas regulations as well as state-level renewable portfolio standards—could further accelerate deployment of wind and solar throughout the U.S., hastening the transition that many of our electric utility clients are currently experiencing. The financial markets seem to agree with this thesis. SolarCity and SunEdison’s stock prices were up roughly 30% day-over-day today.
There are many issues in the 2000-plus page appropriations bill that will have to be weighed by members of Congress prior to their vote, and neither party is unified at this point. But legislators from both parties remain optimistic that the omnibus appropriations bill, including the tax extensions, will pass both the House and the Senate either Friday or early next week. If it does, it would be a welcome and, for many, unexpected Christmas present for the renewable energy sector.