Dear Congress: Please extend the Investment Tax Credit

With the credit crunch exploding into full-on crisis mode, it has been a busy (and expensive) week for Congress. Most of the attention has fallen on the Fed’s plan to have the federal government buy up distressed mortgage-backed securities in the hope of avoiding broader failures in the financial system. Amid the ensuing hullabaloo, lawmakers’ efforts to extend tax credits for renewable energy were, by and large, relegated to the background. Various drafts of the legislation have languished for months between the House and Senate, making 2008 an anxious year for the renewable energy sector.

Of greatest interest to solar enthusiasts is the federal Investment Tax Credit (ITC), which grants a 30 percent tax credit to individuals who install a renewable energy system, up to $2,000. The same 30 percent credit is available to businesses, but there is no absolute monetary cap. As you’ll see below, the ITC has been prone to fits and starts. In 2007, Congress was only able to muster a one-year extension for 2008. If the relevant bill fails to pass before the last session of 2008, the ITC will revert to 10 percent - an outcome that would make it more expensive for individuals and businesses to purchase solar energy technologies.

Extending the credit has support both within the renewable energy sector and among the public at large. In the face of rising energy costs and environemntal considerations, only 8 percent of Americans believe the credit should NOT be extended, according to a survey conducted by Kelton Research. Furthermore, industry estimates emphasize that the ITC has been key in supporting demand and stimulating investment in solar technologies. As relayed by the Solar Energy Industries Association (SEIA), for instance, a new study by Navigant Consulting finds that the ITC has considerable positive knock-on effects in the broader economy. Specifically, the group predicts that extending the ITC by eight years, through 2016, would create 1.2 million job opportunities, including 440,000 permanent positions, and stimulate $232 billion in investment in the U.S. Obviously, both SEIA and Navigent have a pro-solar agenda, and thus probably paint a fairly rosy picture of what’s possible for the future. Existing figures do suggest, however, don’t lie: the first two year of the credit coincided with a 45-percent expansion in the U.S. solar market (PDF).

For solar enthusiasts, the ideal outcome would include the extension of the ITC through 2016 and the elimination of the $2,000 cap for individuals. On Tuesday (Sept 23), the Senate passed the renewable energy amendment to HR 6049 (PDF), with a vote of 93-2. On Friday (Sept 26), the House passed HR 7060 (PDF), The Renewable Energy and Job Creation Tax Act of 2008, by a vote of 257-166. The problem? The House version differs from the Senate version, raising questions about the prospects of a finalized bill. The biggest differences relate to (surprise, surprise) how to fund the extension. Let’s hope that Congress can get it’s act together and, once and for all, provide some longer-term support for renewable energy.

Background:

The Energy Tax Act of 1978 established a 15 percent tax credit for solar energy. Eight years later, in 1986, the Tax Reform Act reduced the credit to 12 percent, and then to 10 percent in 1988. It remained at this level until 2005.

The Energy Policy Act of 2005 set up a new commercial and residential investment tax credit (ITC) for solar-energy systems (and a few other technologies). The original credits were valid for 2006 and 2007, and were subsequently extended for an additional year by the Tax Relief and Health Care Act of 2007. As noted above, if the ITC is not renewed by Congress, the credit amount will revert back to the pre-2005 level of ten percent.

For a bit more background on the ITC, see Eric’s September post and Eric’s August post. For more information on how businesses can apply the 30 percent credit to solar energy systems, be sure to see our commercial solar section.