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
What’s next?
- 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
Thoughts
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 has over 10 years of experience in the energy & climate tech space, holds 2 patents and is active in the tech, climate and media industries. He specializes in Product/Product Innovation as well as Go-To-Market and Growth Strategy.
By training he’s a Materials Engineer with a background in research from his time at Georgia Tech and University of Illinois (UIUC).
He founded TouchLight a utility backed energy company focused on developing IP for utilities and startups pushing electrification forward. He also serves as the appointed Chairman for the Town of Yorktown’s Climate Smart Communities Task Force, where he helps with drafting legislation and enabling sustainability efforts within the town.
Concurrently, Swarnav founded The Impact to help investors, emerging founders and driven climate enthusiasts discover and identify new climate-tech startups, technologies and opportunities before they hit the traditional media sources.