“Every four minutes, another American home or business goes solar” – so said President Obama during last night’s State of the Union address. This incredible fact testifies to just how mainstream solar power has become. The President went on to call for smarter tax policies that encourage investment in the energy technologies of the future. Unfortunately, he stopped short of offering any specifics.
When it comes to solar, however, Congress could make one small change to the tax code that would have a major impact on U.S. deployment in the near term: replacing the solar investment tax credit’s “placed in service” requirement with a “commence construction” standard.
The federal solar Investment Tax Credit (ITC) plays a critical role in the economics of any solar project. Its current 30% rate doesn’t expire until 2017, which at first glance seems to provide the industry with plenty of runway. But for utility scale solar developers like Recurrent Energy, the future is now.
Utility scale projects require years to site, permit, design, and build. Under current law a project must be placed into service before the end of 2016 in order to receive the full 30% credit. Given the long lead-time for large solar instillations and the uncertainties inherent to their execution, this deadline is already beginning to reduce the number of projects being placed into the development pipeline.
Fortunately there’s a proven solution to this problem. When the wind industry began to suffer from similar uncertainty related to the expiration of its production tax credit, Congress changed the credit’s placed-in-service deadline to a requirement that construction simply begin on a project prior to the tax credit’s expiration. This new “commence construction” standard did not provide a windfall. Projects still need to be placed into service in order to receive any tax benefits. But the uncertainty that had been impeding the wind development pipeline was removed. Adding commence construction language to the solar ITC would have a similar positive effect. Hopefully Congress will consider making this change as part of a larger package of tax extenders and technical fixes expected this year.
The President also highlighted actions his Administration is independently taking to reduce carbon emissions. The Environmental Protection Agency released its proposed rule to limit emissions from new power plants earlier this month, and it is expected to propose rules to regulate emissions from existing plants in June. Together these rules will represent the most substantive action ever taken in the U.S. to fight climate change.
Unfortunately the prospects for similarly significant legislative action are bleak, so executive action provides the only plausible path forward. In light of this situation, Colorado State University’s Center for the New Energy Economy published a report last week outlining two hundred actions the President can on his own to further the advancement of clean energy.
I applaud President Obama for his leadership on the climate front and his continued efforts to fight for a cleaner energy future. Unilateral executive action may not be the most efficient way to take on climate change. But the deadlock on Capitol Hill and the price of inaction has left the President with no choice.