Extend The Residential Solar Investment Tax Credit
Published by SEIA: http://www.seia.org/research-resources/extend-residential-solar-investment-tax-credit
- The Section 25D residential solar investment tax credit provides energy freedom, enabling homeowners and other consumers to choose how and where to get their energy.
- The Section 25D residential solar investment tax credit helps thousands of small businesses across the country that install, contract, or work on residential systems.
- Solar installers are expected to increasingly offer loan products for direct ownership of solar systems, making the Section 25D residential solar investment tax credit extremely important for years to come.
- Maintaining the residential ITC will provide market certainty for the solar industry to continue making long-term investments in solar energy projects, U.S. manufacturing facilities and supply chain expansion.
The Section 25D ITC is a 30 percent federal tax credit for solar systems on residential properties that, under current law, remains in effect through December 31, 2016. Under the Section 25D residential ITC, the homeowner applies the credit to his/her income taxes. This credit is used when homeowners purchase solar systems outright and have them installed on their homes.
The Energy Policy Act of 2005 (P.L. 109-58) created a new 30 percent Investment Tax Credit (ITC) for residential solar energy systems that applied from Jan. 1, 2006 through Dec. 31, 2007. The Tax Relief and Health Care Act of 2006 (P.L. 109-432) extended this tax credit for one additional year in December 2006. In 2008, Congress passed legislation on a bipartisan basis that provided an eight-year extension of the commercial and residential solar ITC. Unlike the Section 48 Commercial ITC, the Section 25D Residential ITC expires completely at the end of 2016.
The Residential ITC Fuels Dramatic Growth in Solar Installations
More than half a million American homes are now powered by solar. 2014 saw 1,200 MW of residential solar installed, equating to a new solar project installed every three minutes in the first half of the year.
While 60-80% of the residential market in recent years has been served through leases and power purchase agreements (PPAs) that rely on the Section 48 credit, direct ownership makes up the remainder of the market. That remainder represents hundreds of megawatts of PV and a substantial majority of solar water heating systems, which benefit from the section 25D residential ITC. Directly owned systems are often sold by small installer businesses. In addition to providing energy freedom for consumers, this means that the 25D residential ITC indirectly supports thousands of small business employers and their employees.
The Residential ITC Has Helped Drive Down the Cost of Solar for Consumers
The average price of a solar panel has declined by more than 60 percent since the beginning of 2011. Significant cost reductions occurred in just the last few years with the scaling up of demand and manufacturing capacity. In 2010, the average residential installed system cost was approximately $6.50 per watt. In Q2 2015, the average price of a residential PV installation was $3.50/watt–54% lower than in 2010.
The existence of the residential ITC through 2016 provides market certainty for companies to develop long-term investments in manufacturing capacity that drive competition and technological innovation, which, in turn, lowers costs for consumers interested in direct ownership.
The Residential ITC Creates Jobs
There are now 174,000 Americans working in the solar industry. Solar installers comprise the majority of those jobs with 97,000 workers. Many of these workers are employed by small and medium-sized businesses whose customers benefit from the Section 25D residential ITC. These jobs are local jobs that are often filled by former plumbers, electricians and contractors. Without an extension of the residential ITC, many of these jobs will be lost and small businesses across the country could be forced out of business.