The ITC is here to stay for 10 years, after Senate passes extension
The Latest – 8/7/22:
The huge new energy and climate change legislative package, officially known as the Inflation Reduction Act of 2022, has passed the Senate. This means that the Federal Solar Investment Tax Credit (ITC) will be extended for 10 years and boosted in value from 26% to 30%. The ITC was originally scheduled to step down in value at the end of this year before expiring altogether after 2023.
The bill will still need to be approved by the House of Representatives before it goes to President Biden’s desk, but this is expected to be a smooth process compared to the lengthy wrangling which occurred before a deal was struck in the Senate.
The extension of the solar ITC is a welcome move that will keep the benefits of solar within reach for more homeowners. We’ll have additional coverage of the ITC extension’s ramifications and other clean energy-related provisions as analysts sift through the bill over the coming weeks. For now, we’re celebrating a big win for homeowners who want more energy independence for less money.
Update 8/3/22: There’s been no action in the Senate on the new climate and energy deal as of this morning, but political betting markets are currently bullish about the legislation’s passage.
As analysts have had time to comb through the 725-page bill, new details have become available. For homeowners, the most interesting provision is still raising the solar ITC to 30% from 26% and extending it for ten more years. Homeowners who have already gone solar in 2022 or plan to would be able to claim 30% instead of 26%. Standalone battery systems (batteries not installed as part of a solar system) would also become eligible for the credit.
Although there’s reason for optimism about the deal’s passage, solar advocates are also cautioning that it could increase the risk of solar net metering policies being undermined, especially in states like California where net metering is already under threat.
Update 7/28/22: On Wednesday Senators announced a new package of clean energy and climate change legislation. Among other provisions to promote adoption and domestic manufacturing of renewable energy sources, the package would extend the solar ITC for ten more years – and bump its value back up to 30% from the current 26%,
The legislation is expected to go to the Senate floor next week. Its prospects for passage remain uncertain. Needless to say, we’ll be following new developments closely.
Update 7/21/22: More than 400 solar and energy storage companies sent a letter to Congress earlier this month urging the passage of a budget reconciliation bill that includes extension of the ITC and other clean energy provisions. Industry observers predict that a long-term renewal of the credit could drive a sixfold increase in U.S. solar capacity over the next decade. However, no legislation containing an extension of the ITC has been introduced at this time.
President Biden has begun announcing a series of clean energy and climate-change related executive orders. Among the measures reportedly being considered by the administration is declaring a climate emergency, which would allow more funding to be redirected to renewable energy production.
However, extension of the ITC falls outside the scope of the president’s executive authority, meaning saving the valuable credit still requires action from Congress, where prospects of a deal on energy and climate currently appear slim.
The federal solar investment tax credit (ITC) is the single most important money-saving incentive currently available to homeowners considering going solar. When homeowners go solar in 2022, they can claim 26% of the value of the new system as a tax credit – essentially lowering the price tag on solar by more than a fourth. However, the credit is currently scheduled to step down in value to 22% in 2023 and then expire altogether in 2024.
We’ve talked about the ITC and what a great deal it is here on our blog before. With the stepdown and expiration of the incentive looming again, though, we want to take time to specifically cover the status of the ITC today, possibilities for extension, and the urgency for homeowners to take advantage while they can.
The story so far
The solar ITC has actually existed since 2005, when a tax credit for renewable energy sources was put in place as part of legislation designed to reduce energy prices and U.S. dependence on foreign energy sources. At the time, provisions related to things like ethanol in natural gas made headlines – but the ITC has quietly become a key part of an explosion in the adoption of solar power. Combined with steady decline in costs for solar components, the ITC has helped the U.S. solar industry grow by 10,000% since it first went into effect.
Originally, the renewable energy tax credit was supposed to last just two years and expire in 2007, but it was repeatedly extended for the next decade and beyond. Fast forward to 2020. The solar ITC was still in place at a value of 26% of the total cost of a residential solar system, but was set to step down to 22% in 2021, and then disappear completely. At the end of 2020, however, the ITC received a new lease on life when Congress slightly pushed back the phase-out: currently, 2022 is the last year for the 26% credit, with the drop to 22% coming in 2023 and the ITC expiring entirely for residential projects in 2024.
While this extension was welcome news for homeowners interested in solar, the clock is already ticking once again. The time to act is now for homeowners who want to claim the ITC at its full value.
Where things stand
Here’s what we can tell you for sure: In order to lock in the 26% tax credit, you need to have panels installed on your roof prior to December 31, 2022. Even if you begin your project in 2022, if the panels aren’t installed before the end of the year, you will need to wait to claim the tax credit in 2023, at its downgraded 22% value. With this in mind, given the timeline of residential solar installations, it’s best to start the process as soon as possible to guarantee eligibility for the 26% credit.
Barring some sort of political action to extend the ITC, the same situation will play out again next year, with even higher stakes – homeowners who wait until mid-to-late 2023 to go solar could find themselves ineligible for any tax credit if their panels are not installed before the end of the year.
That’s why we’ve been making it a point to stress the urgency of the situation to all of the homeowners we talk to. It’s against our values to use any type of “hard sell” approach, and we never want homeowners to feel pressured into making a decision they don’t feel totally confident about. However, we feel it’s critical that homeowners understand this situation, since it could drastically alter the financial calculus of residential solar. The difference between going solar while the ITC is in effect and after it expires is potentially thousands of dollars in upfront cost, with a corresponding increase in the length of the “payoff period” for your solar system and therefore reduced return on investment.
Going solar will still be valuable to many homeowners without the ITC, especially in markets with high utility costs, but with a deal like this on the table, it simply makes sense to act with urgency.
What the future holds
What are the chances of the solar ITC getting another new lease on life?
In fall 2021, during the debate over the “Build Back Better” legislative framework, some members of Congress proposed not only extending the ITC for another full decade, but modifying its structure so that it could potentially cover as much as 30% of the cost of a solar project. This proposal stalled along with the rest of the Build Back Better package. Still, it’s encouraging that members of Congress haven’t simply forgotten about the ITC and its importance since the last extension almost two years ago.
Another reason for optimism is that the Biden administration has clearly made maintaining the momentum of solar growth a priority. We saw clear evidence of this in the administration’s recent decision to temporarily suspend a set of tariffs on imported solar components that many in the solar industry feared would have a chilling effect on solar adoption.
Political prognostication isn’t in our wheelhouse, though, and we don’t want to run the risk of misleading anyone through speculation. If and when there are new developments on ITC extension, we’ll update this post. Our continuing goal is to be the best resource for solar industry news that’s relevant to solar-empowered homeowners and those considering going solar. For now, all we can do is try to raise awareness of the situation so that if the ITC does sunset for good, homeowners aren’t left looking back with regret at missing an opportunity to save money. If you want to find out more about how to take advantage of the ITC and how affordable it is to go solar, just schedule a convenient remote consultation with one of our energy experts.
In short – while an extension is certainly possible, we’d never recommend counting on it. The best course of action is to seriously evaluate whether solar makes sense for you, and if it does, act now to ensure you lock in the ITC at its highest value.