On Monday evening this week Congress passed a bill that extends the solar ITC at 26% out for another 2 years. This is a huge relief for the solar industry that has been scrambling to get solar projects signed and Safe Harbored before 2020 wraps up.
The ITCs would have dropped to 22% and subsequently 10% (for commercial and above only) the following year had this bill not been passed this week. This is a better outcome than most people in the solar industry had initially expected hence the frantic rush many tax equity investors had to locking up equipment that fell under the “Safe Harbor” standard that qualifies projects that use that equipment in a project that may be energized years later.
Why does this matter?
- Given the pandemics impact on the solar industry this gives installers and EPCs and opportunity to truly rebound and continue to grow its installed base
- The ITCs were one of the key drivers to solar sales and driving the payback period on solar down to a respectable level
- At 26% many smaller scale projects still make financial sense given the improvements in panel cost, construction efficiencies and O&M
- Had this bill not passed traditional tax equity investors would have moved out of the solar industry by the end of next year as the only ones that would stay – would be financing the utility scale projects
- This buys time for new financing entities to enter into the market and make a push to introduce new purchasing mechanisms for solar
- We will likely see new incentives popping up for battery storage that currently gets coupled with solar projects in order to qualify for the solar ITC
- This extension will likely reduce the exponential growth rate for solar projects in the market that we saw this year – one of the main selling points was the significant reduction in the solar ITC at the end of the year
- Incentives will likely change from solar focused over to infrastructure related – with a focus on phasing out natural gas peaker plants and electrifying more of our grid infrastructure
Had the pandemic not occurred we likely wouldn’t have seen this bill passed as quick as it did. While it bodes well for the solar industry as a whole for the next 2 years it isn’t enough time for lenders and EPCs to sit back and figure out how to adapt their business once the ITCs do in fact run out.
About The Author
Swarnav S Pujari
CEO @ TouchLight | Founder of The Impact
Swarnav is the CEO of TouchLight, a utility backed energy company that develops software for nanogrids that accelerates solar payback periods by 1 – 3 years. He currently leads partnerships and product efforts within the company.
Concurrently, Swarnav founded The Impact to help provide open source tools, research and analysis to people passionate about tackling climate change. He also volunteers time with ClimateLink hosting regional meetups and was appointed the Chairman for the Town of Yorktown’s CSC Task Force, where he helps with legislation and sustainability efforts within the town.
Swarnav has a background in building physical products and has been working in the energy space for about 8 years. He also holds 2 patents and is active in the tech, energy and real estate industries.