Energy Incentive Parity…No matter a kilowatt hour’s source

The solar industry has seen significant growth in the past few years as the industry has matured in various ways.  Capital, material, and soft costs have all come down significantly as this maturing industry has figured out more efficient and effective ways of conducting its business and reaching out to its customers. 

There is no question that some of this growth has also been attributable to the tax incentives that exist for the product.  As we approach the graduation of these incentives in their current form to the next tier, specifically around the elimination of the Investment Tax Credit (ITC) for residential installs and its reduction for commercial, I have read numerous articles on whether or not it should be renewed.  Will the solar industry survive if the ITC is graduated?  Absolutely.  Will it thrive?  That is not quite as solid of an answer.

I would argue for another approach; an even playing field on the incentives that exist for the oil and gas industry. 

 

Incentive Parity

The subsidies for the oil and gas industry are both lucrative and numerous.  Just as one example, fracking operations have the ability to fully depreciate all hard and soft costs in the year in which the drill was completed.  The solar industry could potentially forego the ITC altogether and instead utilize this one, of many, incentives the oil and gas industry has access to.

Currently, the ITC is acting as a vehicle that accounts for the potential incentive disparity between renewables and oil and gas incentives.

 

So What Is Political Reality?

We need to properly account for the context of the current election cycle we are in.  No matter where someone’s political views stand, it is readily apparent that attempting to renew the ITC is going to be an uphill battle. 

With the executive and legislative branches once again failing to come to an agreement on the federal budget, it is hard for me to imagine them reaching an agreement on a piece of legislation that is polarizing in some political camps. 

 

What Are Our Options?

Section 179 of the tax code.  When the depreciable limit for the first year was raised to $500,000, small businesses won across the board.  Whether it was solar, a new loader for a farming operation, or a fleet of new trucks, Section 179 impacted the entire operational chain of a business.

This will directly align both sides of the political aisle in something that they have consistently agreed upon; small businesses drive the growth of this country.  Neither side will ostensibly put forward an argument against such a proposal, especially in an election cycle.

Some may say that we just had this higher limit in 2014, but the point is that it was retroactively put into place in December 2014.  Business owners were looking at project economics that did not have as much of a benefit when they were making the purchasing decision in 2014.   

What the industry needs is stability in the incentives, which will result in fully informed purchasing decisions on the part of small business owners. 

 

Conclusion

The argument that solar will thrive without its current incentive is potentially correct, but that’s missing the point.  What we need is incentive parity across each kWh produced, no matter its source.  This either means incentive parity, or the elimination of such programs altogether no matter the industry.

Nicholas Mahalec,
CEO and Cofounder