IRS Gifts US Solar Developers A 30% Tax Break — No Taksies Backsies!

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If you blinked, you missed it. Last Friday the US Internal Revenue Service clarified its position on an existing federal investment tax credit for solar developers. That may sound a little ho-hum but it’s huge news for solar fans. What the IRS really means is that it has retroactively extended a key tax break, aka the ITC, for five years. What that means is that developers in the US will get a 30% break on any job they start before the end of 2019.

The clarified ITC timeline is even longer if developers are willing to settle for a slightly lower tax credit beginning in 2020. The same formula applies to qualified fuel cells, microturbines, and small wind as well as geothermal heat pumps and combined heat and power systems.

Does The Tax Credit Extension Fix The Solar Tariff?

Hmmm…sounds like 30% is the magic number, right? The PV industry took a body blow last year when President* Trump mulled the possibility of imposing a 30% tariff on imported photovoltaic panels. The industry lost almost 10,000 jobs in 2017, reversing a seven-year stretch of uninterrupted and rapid growth.

However, a wait-and-see environment was not the only cause of the PV job slackoff last year, and now it looks like the tariff was more of a rabbit punch than a KO — painful, but not powerful enough to knock the industry off its feet.

By the time the President** reached a decision in January 2018, the US solar industry had enough time to stockpile pre-tariff supplies and make other preparations to ease the impact on consumers.

The tariff went into effect on February 7th, and now it seems that the US solar industry is on track to recover to the record breaking year of 2016, and possibly come out a little bit ahead.

Early word on the ITC clarification from Bloomberg is about as close to ecstasy as you can get from the analysts at Credit Suisse, who provided this rundown:

The guidance on the investment tax credit was better than the renewable energy industry had expected, according to analysts at Credit Suisse Group AG. For projects that begin construction after Jan. 1, 2020, the credit drops to 26 percent…

“The news is positive for utility scale solar developers who can now avoid solar tariffs imposed on imports through 2021, procure majority of their solar panels in later years, and still qualify for the higher tax credits, analysts led by Michael Weinstein, said in the note.

The tariff is stipulated to fade down to zero in less than four years, so it’s possible that the pace of solar installations might not pick up significantly for another year or so. That’s because developers could game the tariff timeline against the new extension to get the best deals on PV panels and the tax credit too.

Nevertheless, all else being equal we’ll take Credit Suisse’s word for it.

All Else Is Not Equal!

Another factor that could come into play is the emerging global trade war touched off by President*** Trump. The US solar tariff was just the opening salvo in what looks to be a long and dirty fight, but the latest news looks good for solar developers.

The tariff was aimed mainly at China, and earlier this month China slapped back by “dramatically” cutting its domestic subsidies for solar power.

That’s power, not PV panels! They are still making PV panels over there. China billed the move as an attempt to ease a growing disconnect between solar installations and the ability of the grid to absorb more solar power. Here’s the explainer from Bloomberg:

While China’s feed-in tariff has helped it develop more solar capacity than any other country it has also faced challenges integrating that capacity into the grid because of congestion. The government said June 1 it would stop approving some new plants this year and curb financial support for projects as it tries to reduce curtailment and lower aid payments.

Okay, so there’s that. But considering that the US tariff just went into effect a few months ago, isn’t it kind of funny that China would provide lift for US solar developers just when they need it most? Our friends over at Inside Climate News certainly think so:

…Energy analysts say the Chinese government’s decision to dramatically cut its solar power subsidies will create a glut of solar panels and send their prices tumbling worldwide.

It comes at a crucial time for American solar installers. Falling prices could take the sting out of President Trump’s solar panel tariffs, which have raised costs in the United States and led to billions of dollars in cancelled and frozen U.S. investments.

Also in the all else not being equal category is the fact that the new solar tariff allows for exemption requests. Solar Power World toted up 50 such requests as of April. As of this writing no decision has been issued, so stay tuned for word on that.

On top of that, state-level regulations and incentives (or disincentives) can still make or break solar industry growth on a case by case basis, regardless of the national average.

What About Made-in-the-USA Solar Panels?

All of this is great news for the solar consumer, but when you turn attention to the domestic PV manufacturing sector things are not looking quite as bright.

Between the ITC extension and the China-fueled global solar panel glut, the landscape has returned to the pre-tariff status quo, and the prospects for growing the US manufacturing sector may be even worse than before.

On top of all the challenges previously faced by PV manufacturers, President*** Trump has upped the global trade war ante.

New and threatened tariffs on raw materials and other products are already credited with bringing grief to soybean farmers in the heartland (just ask the folks over in Licking County, Ohio), providing cover for the iconic US manufacturer Harley-Davidson to continue offshoring factories, and sparking layoffs at the biggest nail factory in the US.

The White House doesn’t appear to have an end game for all this (shocker!), but for now it’s a safe bet that the safe money is not on investing in a new PV manufacturing facility in the US any time soon.

Speaking of that, if anybody has heard anything from China-based Jinko lately, drop us a note in the comment thread. Thin film and concentrating solar could also be impacted, depending on where the tariff hammer strikes next.

CleanTechnica is reaching out to the US Solar Energy Industries Association for an insidery look behind the ITC and tariff, so check back for an update soon.

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*As of this writing.

**4th Estate issues.

***Small business issues.

Image: via Wikimedia Commons.

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Tina Casey

Tina specializes in advanced energy technology, military sustainability, emerging materials, biofuels, ESG and related policy and political matters. Views expressed are her own. Follow her on LinkedIn, Threads, or Bluesky.

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