Solar Tax Credit Extension Passed. What Does This Mean?

A major victory for solar companies and investors happened earlier this month when congress voted in favor of an environmental tax credit extension. The Investment Tax Credit, or ITC allows owners of solar power assets to continue receiving federal tax credits at 30% of the capex of a project. Originally set to drop down to a 10% credit by the end of 2016, the ITC has now been extended for another 5 years.   The unclear future of the ITC was already starting to impact investment given the fact that, as recently as a few weeks ago, an extension seemed unlikely. However, with this five-year extension, the ITC will lead to more than $125 billion in new, private sector investment in the U.S. economy and, according to the Solar Energy Industries Association, solar capacity in the United States is forecasted to triple by 2022 reaching 95 gigawatts.   Taking a closer look at the analysis done by the Solar Energy Industries Association, it’s clear the extension of the solar credit will have a big impact — they estimate it would “increase solar installations 54 % through 2020.”  According to the SEIA, “That’s enough to power 19 million homes and represents 3.5 percent of U.S. electricity generation, up from 0.1 percent in 2010. In addition, the extension will offset 100 million metric tons of CO2 annually, equivalent to the emissions from 26 coal  fired power plants.”   This is great news for the solar industry and income oriented investors. In recent years, the cost of solar projects has declined as much as 80%. Lower prices have increased investor returns while the ITC provides exceptional tax advantages. This extension will not only help solar energy developers, but it will also allow investors a longer period of certainty and tax advantaged income streams.   The national and global support for clean energy evidenced by the COP21 Summit combined with the extension of the ITC sets the scenes for continued growth and development in 2016. It’s an exciting time to be a developer or investor in solar energy.

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