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Published on August 29th, 2012 | by Guest Contributor

17

Solar’s ITC Tax Credit Is a Big Money-Maker for the US (Not Social Welfare), Study Finds



 
This is a great recent post from Herman Trabish of Greentech Media. As the lead-in well summarizes: “A new study ‘blows apart the notion that the ITC is somehow welfare for the solar industry.‘” Here’s the piece:

The honeymoon is over, a European regulator recently reportedly observed about renewables. A divorce? He was asked. No, he replied. It is a maturing relationship. Renewables have to show their benefit. We’re not going to do it simply because we love them.

The main U.S. federal support provided to solar is the investment tax credit (ITC). Given today’s hard economic times, it is important to know if U.S. solar is returning the “love” the federal government is providing with taxpayer dollars.

The ITC allows a tax credit equal to 30 percent of a project’s costs. After 2016, the credit will be stepped down to 10 percent.

Supported by both the Bush and Obama administrations, the ITC has enabled lease and Power Purchase Agreement (PPA) financing mechanisms which, according to GTM Research’s most recent Solar Market Insight report, accounted for more than 63 percent of California residential installations and more than 80 percent of Colorado residential installations in Q1 2012.

California, which represents 40 percent of U.S. solar, went from 42,933 total kilowatts installed in the first five months of 2011 to 77,473 kilowatts in the same period of 2012. But kilowatts installed with cash went down from 23,360 to 21,223, while kilowatts installed using third-party financing lease and PPA models nearly tripled from 19,572 to 56,250.

 

Paid in Full: An Analysis of the Return to the Federal Taxpayer for Internal Revenue Code Section 48 Solar Energy Investment Tax Credit (ITC), authored by SolarCity Structured Finance Associate Connie Chern and sponsored by financial coalition U.S. PREF, demonstrates that, over the life of solar assets installed in residential and commercial settings, lease and PPA financing structures can deliver a nominal 10 percent internal rate of return (IRR) to the federal government for its ITC investment.

It is, SolarCity Communications Director Jonathan Bass said, “a fairly narrow look” at the IRR-generating revenues. It considers only taxable wages and revenues by the direct participants in the solar projects modeled: the developer, the commercial EPC or residential installer, and the energy user.

“We’re not looking at all the external factors,” Bass said, such as those included in the comprehensive Job and Economic Development Impact (JEDI) calculator NREL uses to assess economic benefits of renewables. Including those, he said, could significantly increase the calculated ITC benefits.

The study modeled a 200-kilowatt commercial project at an estimated cost of $1 million. The 30 percent ITC would mean a taxpayer investment of $300,000. The revenue returned from developer, EPC and owner taxes was calculated at $677,627, for a benefit above investment of $377,627. That’s a 126 percent return on investment (ROI), which, over 30 years, is a roughly 10 percent per year interest on investment.

A five-kilowatt residential system, estimated at $35,000, would get a $10,500, 30-percent ITC. Total revenue would be $22,882, for a benefit of $12,382, a 118 percent ROI which, over 30 years, would also be an approximately 10 percent annual return.

Because investors in the lease and PPA mechanisms typically do so to take advantage of the accelerated depreciation mechanism allowed by the tax code to capital improvement investments as well as the ITC, Chern also modeled ROI scenarios that included both tax breaks.

“We felt it was important to show that impact,” Chern said, adding, “We didn’t feel the purpose of the paper was to look at depreciation.”

In those cases, the annual return to the taxpayer for the commercial and residential systems is approximately 1 percent. With both tax breaks, “the government is essentially recouping its investment,” Bass said, but “what’s unique to solar is the ITC.”

 

Some 90 percent of the nearly 5,000-megawatt U.S. installed solar capacity was built after the ITC was increased to 30 percent during the Bush administration, Chern’s study reported from GTM Research and SEIA data.

But incentives for solar energy, according to a University of Tennessee Howard Baker Center May 2012 report, are “less per megawatt-hour than for any other fuel source by a factor of ten,” despite the fact that “the solar industry has produced more jobs per megawatt-hour than any other energy industry,” Chern’s study also reported.

Neither Chern nor Bass could say if there are comparable studies of the benefits from incentives provided to other energies.

“The point of this paper was to analyze solar,” Chern said, “because it hasn’t been done.”

“If you were going to make a cross-comparison,” Bass added, “you would need to consider environmental impacts, job impacts, fuel costs versus the cost of project development and a lot of other factors.”

KPMG, one of the widely respected Big Four auditing firms, reviewed the study and found its income tax assumptions, incentive numbers, financial model architecture and mathematical formulas to be correct.

“It’s a very sophisticated analysis,” DBL Investors managing partner Nancy Pfund said recently. “It blows apart the notion that the ITC is somehow welfare for the solar industry at the taxpayer’s expense. Quite the opposite; it’s a revenue generator.”

With the solar trade war still a thorn in the industry’s side and the House of Representatives increasingly hostile to renewables, this research could turn a few important heads.

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About the Author

is many, many people all at once. In other words, we publish a number of guest posts from experts in a large variety of fields. This is our contributor account for those special people. :D



  • Pingback: Are Subsidies Holding Back U.S. Solar Deployment? (CleanTechnica Exclusive from Jigar Shah) - CleanTechnica

  • Tom G.

    So then; “a cranky old fart when the mood strikes”

    Do you have a job description I can study. Sounds like something I might enjoy doing.

    • Bob_Wallace

      Naw. It’s a talent that you are either born with or not.

      Of course, it takes a bit of practice to perfect. I’m still developing my chops….

  • Tom G.

    A clarification to a couple of the moderators comments.

    “My job is not to “make nice” to people.”. “My job is to smite spam.” Yes it is.

    “The Nissan Leaf entered dealer showrooms in December, 2010. That is less than two years ago. That things like plug compatibility haven’t been sorted out is to be expected. “.

    I don’t even know where you are going with this? Who cares about a specific vehicle model like the Leaf? Oh sure I might If I was buying one but even then a simple adapter plug would do the trick. This is certainly not the bigger issue in my mind.

    That bigger issue to me is WHERE we put the charging plug and the plug-less charging plates. Like me, architects care since they need to specify where garage power outlets go. Electricians need to know since they need to run the electrical conduit in the concrete slab during construction. We have standards in this country for a purpose and PART of that purpose is to reduce the cost of manufacturing. Both you and I want these vehicles to be mass produced. However, in addition I want the production costs of these vehicles to be as cost effective as possible for the American consumer. What we have NOW is a Leaf with the cord plugged into the front.. The Volt plugs in near the drivers door and I am not sure where the plug is on the Prius but I have seen pictures of the plug location on the rear bumper. Do you get my point?

    “Those women who “don’t want to break a fingernail” will put on gloves or they will install plug-less charging. A lot of lazy men will install plug-less charging.”

    Oh my goodness of course women can wear gloves if necessary. But why on earth do you feel it is necessary to make a negative statement like “A lot of lazy men will …”. What’s with the negative tone.

    “If hydraulic hybrid could save 40% to 60% fuel do you not think we would see them on the roads? Fleets would demand them and car companies would build them. Car companies are struggling to get even 5% better mileage.”.

    We threw billions of dollars at the automotive industry and told them to go develop electric vehicles. We spent almost nothing to research other alternatives like hydraulic hybrids even thou hydraulic technology has been with us for generations.

    According to the EPA, the cost premium for a hydraulic hybrid vehicle in mass production is about $3000. The cost premium for EV batteries is I am guess somewhere around $10,000. Since both you and I seem to want the same thing, which is more fuel efficient vehicles to reduce oil consumption; then maybe we should have AT LEAST considered using hydraulic hybrids. Maybe instead of our existing $7500 incentives for battery vehicles we might have ended up covering the ENTIRE cost of the hybrid power train with only a $3000 incentive.

    If you have not followed the development of these types of vehicles here are few bits of information for review.

    In 2004 the EPA published this. http://www.epa.gov/oms/technology/420f04024.pdf

    In about 2007 this was published. “ Ford is working with the EPA on developing a hydraulic hybrid Expedition prototype. It could get 32 mpg in city driving and 22 mpg on the highway. The conventional gas Expedition gets only 13 mpg in the city and 20 mpg on the highway. The EPA is working on other pilot projects with the U.S. Army, and Eaton Corporation, a waste management company. Eaton will test a fleet of 20 hydraulic hybrid garbage trucks in the last half of 2006.”

    And this video was published in 2011 http://www.youtube.com/watch?v=sRkvGEN7ySE

    Have a great day.

    • Bob_Wallace

      OK, I’ll to write slow so you can follow.

      EVs are a very new technology.

      (I’m ignoring the electric cars of 100 years ago.)

      Things such as plugs, plug placement, and wireless charging will evolve over the next few years.

      There will probably be a few false starts along the way while we feel out the best solutions.

      Get that?

      “Lazy men” was an attempt to get you to understand your crappy attitude toward women.

      If hybrid hydraulics had worked as well as you think they would have then we would see them on the street right now. A small cost to implement and a very large fuel savings clearly would mean that whomever perfected that technology would have run to market with it in order to gain larger market shares.

      The fact that we don’t see any in our showrooms today is a pretty clear indication that somehow they were not found to be ready for prime time.
      It’s also pretty clear from your post that multiple parties gave hybrid hydraulics the good old college try. If Ford, the US military and the Eaton Corporation couldn’t crack that nut then we should be safe in assuming that the idea was about as successful as putting using flywheels as a vehicle propulsion technology.

      My job is to smite spam. My hobby is being a cranky old fart when the mood strikes.

      They are not incompatible….

  • Tom G.

    “If by “Drill, baby drill” you mean opening new oil fields and pumping our way to self-reliance – ain’t going to make a difference for many, many years.”

    Yup my estimate is about 5-8 years. Most readers on this site understand that oil production has increased every year under the current administration. That increase in production however is coming from some of the actions taken by the previous administration.

    “What we can do to help ourselves quickly is to figure out how to get far more EVs and PHEVs on the road and as many gas hogs off as possible.”

    For that to occur, several social conditions will need to change. Probably first will be the public’s perception of EV’s. Most people according to studies done by UCLA can not even relate kWh’s to MPG. Oh sure for us that is a piece of cake but for most of my relatives and kids they don’t have a clue. Maybe your relatives are smarter than mine, LOL. In addition there is a lack of standardization of near field charging devices/systems for automated charging. This should have been part of the initial planning that went into EV pre-production. Also if you think most wives will go grab an electrical cable and plug it in your understanding of acrylic nails may not very good, LOL.

    “What’s your estimate on the number of US drivers who couldn’t do their driving with either a 100 mile range EV or a 30 mile electric/unlimited gas mile…”

    This is not about you and I. It is about the other 300 million Americans who don’t have a clue. It’s about college students or families just starting out who can only afford one vehicle. Its about the younger generation who for many see driving as something old people do. Its about 40% of the American people who don’t have somewhere to plug-in at night. Its about companies who are not providing charging stations since that would ever so slightly reduce/affect quarterly corporate profits.

    On a personal note, me and mine could do just fine with a small two passenger vehicle something like the MIT City Car. We live in a small town in Arizona and can travel from end to end in 12 miles. I could care less how long it takes to charge since we are retired. I don’t even have to worry about ‘where’ to plug in since I have a garage. And if I forget to plug it in its no big deal I can use one of my other vehicles. My conditions however are far different that someone living in an apartment who travels 30 miles to work on a freeway and then goes to the market after work and then to soccer practice. There is a very wide variability in our country. From -40 F temps in Minnesota to 110 F in Arizona. Oh did I forget to mention I have a diesel truck to pull my 5 th wheel with.

    “Be aware that we’re going to see full sized PHEV pickups and SUVs on the market within the next 12 months”.

    Yes follow these types of vehicles closely. But in my opinion this is not really the best strategy. We should also be offering hydraulic hybrids that only cost $3000 more instead of the $10,000 battery pack. We need alternatives and variety to match buyers needs.

    “Drill, Baby, Drill – that’s not the route to success. But we do have a way…”.

    Yup you are right – DBD is not and never has been proposed as a complete solution.

    That’s it for my blogging today. The grand-kids are coming over to jump in the pool. It’s 105 F outside.

    • Bob_Wallace

      You certainly have a low opinion of your fellow citizens. You think that women don’t know how to plug in a vacuum cleaner and that won’t transfer to cars? Have no idea of the number of American women who are engineers and scientists?

      You don’t think your fellow Americans were smart enough to figure out computers but stayed with typewriters? That they couldn’t make the transition from film to digital?

      That having a plug standardization problem with a few first generation cars is important?

      Oh, and be sure to apologize to your grand-kids for the world your oil-burning generation are leaving them. After all, there’s will be a world of a lot more intensely hot days. And droughts, and floods, and rising seas.

      Perhaps on your tombstone you can have them engrave “Grandpa drilled this crappy climate for us”.

      • Tom G.

        Wow, I never expected this type of response from a site moderator. Some minor clarifications and then I will be gone.

        “You certainly have a low opinion of your fellow citizens.”.

        No what I believe I have is a fairly good understand of how busy many people are and how little some others seem to care. I wished every American was as well informed as you are and then we would most likely not even need this discussion. We would have already found way to have 95% of our vehicles running on electricity.

        “Have no idea of the number of American women who are engineers and scientists?”.

        Early in my career I did in fact work for a woman who was our engineering group supervisor. She was an outstanding engineer and excellent leader. Throughout my careen and into retirement [and consulting] I worked side by side with probably a 70/30 split between men and women. Most were really excellent but ALL OF THEM added value to the projects we were working on. The one thing I did learn from working with women is this. Some women, but not all; will pick up a power cord and plug it into an EV. A few others; a much smaller percent; will not risk breaking a fingernail to do the same thing. That in my opinion; is not a criticism of women but rather a realist view of life.

        “That having a plug standardization problem with a few first generation cars is important?”.

        Yes that is important because it tells me we do not have a well thought out plan. We the tax payers approved a pot of money to jump start renewable energy and I certainly promoted that effort. HOWEVER, what we didn’t do is develop a strategic plan which contained a series of goals and objectives and some of that money ended up wasted. There is an old saying that goes “Prior Planning Prevents Poor Performance” and we have certainly failed the Planning part in my opinion. I believe that more money should have been spent on battery research before we started building battery manufacturing plants. China is now offering to buy our financially distressed advanced battery manufacturing plant A123 in Michigan for pennies on the dollar. Those dollars by the way were yours and mine. I believe we should have FIRST concentrated on the implementation of hydraulic hybrids for around town vehicles. This hydraulic hybrid technology would have added about $3000 to the cost of each vehicle we manufactured. By now; as you have suggested; then provided incentives to make them the same cost as a standard vehicles. By now we could have had millions of these hydraulic hybrids on the road getting 40-60 mpg cutting oil consumption by millions of barrels per day. In the end most likely everything will be driven by electric power. However there are logical steps we need to take to get to that point.

        “Oh, and be sure to apologize to your grand-kids [and] have them engrave “Grandpa drilled this crappy climate for us”.

        I feel like your above comment is less than professional and I have lost considerable respect for your position as site moderator.

        Respectfully
        Tom Garven

        • Bob_Wallace

          My job is not to “make nice” to people. My job is to smite spam.

          BTW, for some reason your comment got trapped by the spam filter. I liberated it.

          The Nissan Leaf entered dealer showrooms in December, 2010. That is less than two years ago. That things like plug compatibility haven’t been sorted out is to be expected. These are the early development days. If necessary early models can go in and have a plug transplant once everyone shakes hands. If that’s the problem you see with EVs, well, ….

          People will learn. People learned that cars were superior to horses and they learned to drive. Even women.

          Those women who “don’t want to break a fingernail” will put on gloves or they will install plug-less charging. A lot of lazy men will install plug-less charging.

          EVs are still too expensive and a bit too limited for widespread adoption. That will change. The early Model Ts couldn’t drive up a steep hill. They had no fuel pump and had to go up in reverse to keep the fuel tank higher than the engine.

          If hydraulic hybrid could save 40% to 60% fuel do you not think we would see them on the roads? Fleets would demand them and car companies would build them. Car companies are struggling to get even 5% better mileage.
          A123, it’s not the company that car companies have gone to for their batteries.

          Honda is using Toshiba’s SCiB lithium-ions. Nissan has just contracted with Hitachi for their 2013 batteries because they are going to be significantly cheaper. GM has gone into agreements with Envia because they apparently feel that’s the best route for them to produce longer range, affordable batteries.

          Not every battery company will make it. Just like not every computer company made it. There were over 150 established computer manufactures who died along the way. Names that you should find very familiar.

          Not every car company made it. You’re old enough to remember Hudson, Nash, Rambler, Desoto, Checker, Studebaker, and several more.

          Spending tax dollars on emerging technology is one of the things that has made this country successful. There is very little you can identify that does not owe its early success to government assistance. Just look at what has emerged out of the military and space exploration. Go back to
          the transcontinental railroad and our harbor and canal systems before that.
          Private money will not take the big risks. When the government quits taking risks it’s all over for us. And with risks come both success and failure. Concentrate on the few failures and you’ll eliminate the successes.

          And to think about what you are doing to your grandchildren and their children when you advocate for burning more fossil fuel and wrecking our climate.

  • Tom G.

    Bob is always good for a chuckle. I really enjoyed this one. “Republicans cooperating with anyone?”

    As someone who leans a little more to the right than the left, I have to agree with Bob on many counts. As I see it, there needs to be both short term and long term goals. However, almost everyone knows politicians aren’t really very good when it comes to planning past the next election.

    In the near term we certainly need more drill-baby-drill oil production to reduce the flow of dollars out of our country. Last year we sent enough dollars out of our country to have paid 12.5 million workers $40,000 each. That is almost the total number of people looking for work. We need a long term strategy to reduce consumption.

    Even T. Boon Pickens can’t seem to get Congress to act even when his plan seems to fit both the Republican and Democrats models. While we are certainly on friendly terms with Mexico and Canada, that does nothing to reduce our consumption. By the same token, if we produced nothing but hybrid and electric vehicles starting tomorrow; which we can’t; it would still take us 30-40 years to eliminate the legacy effect and significantly reduce oil consumption.

    However, someday we will probably all be driving lighter, smaller, and more aerodynamic hybrid and/or electric vehicles. BUT, I don’t think the Republican party is going to help us get there, Maybe the label “homophobic” does apply? Na I don’t think so, LOL

    • Bob_Wallace

      If by “Drill, baby drill” you mean opening new oil fields and pumping our way to self-reliance – ain’t going to make a difference for many, many years. It takes a long time to get a new field (if we had any) up and going and it takes a long time to build new rigs. I understand that ours are busy at the moment, we’re drilling at a very high rate. Domestic US oil production is currently very high.

      DBD will not help us in the near term. That’s just some raw meat thrown to people who want simple answers and don’t ask for facts.

      What we can do to help ourselves quickly is to figure out how to get far more EVs and PHEVs on the road and as many gas hogs off as possible.

      What’s your estimate on the number of US drivers who couldn’t do their driving with either a 100 mile range EV or a 30 mile electric/unlimited gas mile range PHEV? Mine is pretty close to zero.

      (Be aware that we’re going to see full sized PHEV pickups and SUVs on the market within the next 12 months.)

      The average lifespan of a US car is 12 years. Roughly 50% of all American driving is done with cars five years old or newer.

      What if we put some money into making EVs and PHEVs a lot more affordable for a couple of years? Car manufactures state that the high costs are due to low manufacturing volume. Use some tax dollars to crank production up to the point at which market forces take over.

      The critical level needed to create price drops is somewhere between 500k and 1 million per year. What if we subsidized 3 million EVs/PHEVs a year at the tune of $15k per. That would be $45 billion. One and a half months of what we spend for imported oil.

      Invest $45 billion for 2 -3 years, even 5 years. At some point EVs and PHEVs become as cheap or cheaper to buy than ICEVs.

      You go into the dealer to buy a new Camry and have a choice between a gas version, a 100 mile EV version, and a PHEV version. All for the same price. What would you buy? When we hit that point I can’t see anyone (outside of Freedom Incandescent fans) buying the gas version.

      In five years we would be doing 50% of our driving with EVs/PHEVs. And we’d be using less than 25% as much oil, 75+% of the driving with electricity.

      We can’t get new oil fields on line that quickly.

      If we invested $225 billion, $45 per year over 5 years, we could pull back our military presence in the Middle East and save way more than that, probably in one year.

      Those many billions not being spent for imported oil would start washing around in our own economy and help us in all sorts of ways, including the national debt and balance of trade.

      In five more years we would probably be able to produce 100% of all the oil we need from domestic supplies.

      Drill, Baby, Drill – that’s not the route to success. But we do have a way….

  • Tom G.

    I am probably the biggest solar supporter in my community. I recently helped the city contract for solar car ports for most of the city offices.

    But, like our utilities which have reduced incentives over the years from $3/watt to $2/watt to less than $1/watt, I believe we need to gradually phase out all incentives over some period of time. Why; for a couple of reasons.

    First a gradual reduction in credits or incentives would provide a realistic road map for business and industry. Trying to push everything out the door before the incentives are eliminated is not a very good long term business strategy.

    Second, this has been a big dividing issue between our political parties. The Democrats need to show some flexibility and the Republicans need to work with them to reduce the deficit in a business like manner.

    I support a gradual and well thought out reduction of our existing incentives. If in the future we decide that some type of incentive is needed, then let’s front load that incentive and build in a gradual reduction over time. There are many ways to do this but the concept is not being practiced.

    Incentives should never become a way of life.

    • Bob_Wallace

      Federal subsidies are self-reducing. 30% of $2/watt is less than 30% of $3/watt.

      (Republicans cooperating with anyone? You really think that’s possible? I doubt it will happen until the party finally crashes due to not finding enough white supremacist/homophobic votes and restructures itself more toward the center. )

    • http://twitter.com/vetxcl T. Lester

      Go tell that to big oil and natural gas lobbyists.

  • Jigar Shah

    Ethanol did these as well. The beauty is that we can live without the ITC by 2016, time to start phasing it out.

    • http://cleantechnica.com/ Zachary Shahan

      2016 is going to be a diff world — looking forward to it (as far as solar goes, that is).

      but any need to ditch the ITC?

    • Bob_Wallace

      Seems like there are two issues to consider. It could well be that the solar industry could stand on its own by 2016, but there’s the issue of getting renewables on line at maximum speed in order to minimize climate change.

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