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Extended tax credits could help solar power hit its 'sweet spot' by 2019

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Extended tax credits could help solar power hit its 'sweet spot' by 2019

Thefive-year extension of the production tax credit for wind power projects andthe five-year extension of the investment tax credit for solar projects, passedby Congress in 2015, should continue to drive the development of renewableprojects in the U.S. with solar projects looking to become more attractive thanwind projects in three or four years, according to a panel of experts.

"Thenuance [with the tax credit extensions] is that for the PTC, the tax creditsteps down in each of the next several years, 20% each year, so over the nextfive years we'll see a cross over, an inflection point, where solar becomesmore attractive than wind in different parts of the country," CraigGordon, vice president of sales and marketing at Invenergy LLC, said April 27at the North American Energy Markets Association in Orlando.

"Insome parts of the country, it will happen much quicker than in other parts, butat the end of the day, wind is going to be under a lot of pressure three orfour years out to remain economic relative to solar," he said. "We'reseeing a push now by utilities throughout the U.S. to get as much wind intotheir portfolio right now so they can take 100% of the PTC value."

Accordingto John Larkey, vice president for power marketing at Recurrent Energy, 2019marks "the sweet spot for solar" since the wind tax credit will dropsooner and faster than the solar ITC.

TheITC for solar projects provides a 30% tax credit for projects that commenceconstruction through 2019, then steps down to 26% in 2020 and 22% in 2021.After 2023, the ITC for solar will drop to a permanent 10%. Commercial andutility projects that have commenced construction before the end of 2021 maystill qualify for the 30%, 26% or 22% ITC if they are placed in service beforethe end of 2023.

Bycontrast, the wind production tax credits will begin declining in value by 20%each year, beginning in 2017. Wind projects that commence construction in 2015and 2016 receive a full value PTC. However, projects that commence constructionin 2017 will see the credit drop to 80% of full value before declining to 60%in 2018 and 40% in 2019.

TheSolar Energy Industries Association expects solar energy installations in theU.S. will grow from about 27 GW at the end of 2015 to nearly 100 GW by the endof 2020.

"Solarwill have its time in the sun," but in the meantime, wind projects willcontinue to push forward, especially in 2016, as the PTC remains at 100%,Michael Grundmeyer, director of origination for the Americas at EnduranceGlobal Weather, said.

"Certainlya utility-scale [solar project], even in a low-cost, low-gas, low-power priceenvironment, with the 30% ITC, we're winning and competing with other fuelsources today," Larkey said. "But obviously with higher power priceswe'd be able to compete better in more places."