Wind, Solar, and the Renewable Energy Tax Credit
Manufacturers, contractors, and customers prepare for tax credit expiration in 2016
An existing federal tax credit for residential renewable energy systems, specifically solar, wind, and geothermal, is set to expire at the end of 2016. The NEWS has covered what this means for the burgeoning geothermal market extensively, but the lesser heralded solar and wind markets will also be affected. The tax credit has undoubtedly been a boon for both the solar and wind industries, and while some have presented benefits to letting the credits expire and go away, many more are hoping they’ll be extended and renewed.
EXPANSION OF WIND AND SOLAR
According to the 2014 Wind Technologies Market Report, per Energy.gov, “the total installed wind power capacity in the U.S. grew at a rate of 8 percent in 2014 and now stands at nearly 66 gigawatts [GW], which ranks second in the world and meets 4.9 percent of end-use electricity demand in an average year. The U.S. was the global leader in total wind energy production in 2014.”
The solar industry is in the midst of similar growth, as the Solar Energy Industries Association (SEIA) reports, “the U.S. solar industry achieved another record year in 2014, growing by 34 percent over 2013 to install nearly 7,000 megawatts [MW] of solar electric capacity. Within the photovoltaic [PV] sector, more than 6,200 MW of capacity was installed, led by the residential and utility segments, which grew by 51 percent and 38 percent, respectively.”
Those numbers obviously include much more than just residential HVAC installations, but it’s clear these respective industries are experiencing rapid growth and expansion in the U.S.
“For whatever reason, wind energy appears to be singled out by Republicans because they have a strong lobby,” said Charlie McCrudden, ACCA’s senior vice president of government relations. “They’ve been effective in getting wind tax credits renewed and extended over time.”
McCrudden said the legislation surrounding the renewable tax credit is comparable to what has recently taken place with the Residential Energy Section 25C Federal Tax Credit.
“The 25D tax credit for residential renewable energy systems that expires at the end of 2016 is not yet really being looked at extensively or looming over those making the decisions in Washington,” said McCrudden. “The 25C credit expired, and then credits were extended retroactively for 2014. That makes things tough for contractors, because how do you upsell someone on a product when the benefit doesn’t exist yet? What they’re going to do this time is retroactively extend it for this year, with a decision expected in December, and then proactively extend it for 2016. Every tax credit and incentive that helps you reduce tax liability has a cost. Contractors can’t say if you install this furnace, water heater, or other piece of equipment you may be eligible for tax credits. They can’t say that right now because the credit doesn’t exist.”
WHAT HAPPENS NEXT?
Manufacturers and contractors are both well aware of the credit’s looming expiration, and, while most would like to avoid going the route of the 25C credit, there are varying opinions on what exactly will happen if and when the credit does expire.
“With the tax credit set to expire, clients are coming to us with immediacy in their desire to install solar,” said Vaughan Woodruff, owner, Insource Renewables, Pittsfield, Maine. “Long-term projections should play out, but the tax credit is a huge cloud looming over everything right now. Those of us at the contractor level have to look at making sure we really diversify our offerings enough so if the tax credit expires, we are prepared to continue on with our businesses and not be left out in the cold. One thing I could do, personally, is hire more staff and publicize my company more, but that is a tough proposition when we don’t know what will happen in 2016. Unfortunately, from what I’ve been hearing, there is just not much optimism about the tax credit being renewed with all the uncertainty in Washington.”
“The next big hurdle for solar to expand its standing in the HVAC marketplace is the federal tax credit,” said Derek Phillips, electrical engineer, Lennox Intl. Inc. “It’s set to expire after 2016, and that will send a ripple effect throughout the market and force it to change. There’s been little talk of a renewal at this point, and everyone is preparing for it to expire. One thing of note is the market’s been changing over the last two years because the price of solar panels has gone down. I think the country is geared and prepared to go toward a non-incentive-based solar platform.”
On the opposite side of the coin, others cite recent history as a reason to believe the credits will be renewed, including Josh Teekell, CEO and cofounder, Mistbox. “We’d be surprised if [the tax credit] wasn’t renewed after 2016, and there is actually great precedence for these things being renewed throughout multiple administrations.”
McCrudden also noted that, while extending the credit will be important, discussions usually start with everyone wanting to not only extend credits, but improve on them, as well.
“When all these renewable tax credits go up for renewal, the committees in charge will entertain the thoughts of improving them individually, but, then, the reality is they don’t change them because they would have to change all the other credits, too,” said McCrudden. “So what happens is they all get extended at the same time.
“There are two tax discussions that go on at any time,” continued McCrudden. “There’s the extenders and then actual tax reform. There’s an attempt to make the system less complicated, break it down, and start over. Comprehensive tax reform discussions on things like solar and wind will take place but then get mired down and struggle to move anywhere because everyone just starts getting upset. People get fearful they will lose their incentives. Wind and solar energy are currently feeling pressure because some believe these things upend or pervert the market.”
While the credit’s future lies solely in Congress’s hands, it’s nearly impossible to expect any significant decision to emerge from a highly partisan Capitol Hill — especially with a presidential election on the horizon. So, perhaps a contractor’s best route is to plan on a future without the incentives, and, if they’re renewed, consider it an added bonus.
Publication date: 8/31/2015