US Congress Extends Solar Tax Credit for another year
Industry has one more year of breaks, hopes the next Congress will extend the credit for a longer period.
By Jennifer Kho, December 11, 2006
Source: Red Herring
http://www.redherring.com/Article.aspx?a=20181
The solar industry Monday rejoiced over the 30 percent tax credit that the 109th U.S. Congress extended as one of its last acts before closing early Saturday morning. The one year extension of the solar tax credit, part of the Tax Relief and Health Care Act of 2006, was part of a larger 79-to-9 vote to extend a number of tax breaks. “It’s a big victory for the solar lobby,” said Jesse Pichel, a vice president and senior research analyst for Piper Jaffray. “It would have created more uncertainty [if the credit hadn’t been extended.] This paves the way for continued big projects in solar.”
Because solar isn’t yet competitive with electricity in most places, tax credits help customers break even more quickly, he said. With significant capital costs, funding is an important factor. “If you’re going to put in a multimillion-dollar solar project, you might hold off on a decision if the tax credits were in question,” Mr. Pichel said.
The extension came as a surprise, as the Congress wasn’t expected to be able to get to the solar credit before the session ended, said Michael Schmela, editor-in-chief of solar trade magazine Photon International. “It shows solar is a priority,” he said. Still, while the extension is a good thing, the industry needs a longer one to help grow the market, said Joel Makower, a principal at Clean Edge. “Every year-long extension helps, but we need a 10-year extension to create years-long certainty that the market is going to grow,” he said.
The Solar Energy Industries Association (SEIA) is also pushing for a longer extension to give industry more stability. The group says an eight-year extension will remain the industry’s top legislative priority next year. “While this bill does not constitute a long-term solar growth policy, it does provide some breathing room for solar projects in the 12- to 18-month pipeline,” said Rhone Resch, SEIA president. “This bill is a patch, and emphasizes the importance for Congress to enact long-term, comprehensive clean energy legislation when they return in January.”
He added that while the year-long extension ensures the industry will grow next year, a longer one will be needed to allow companies to make significant, long-term investments that will drive down costs through economies of scale. He said such a provision would also stimulate the development of large projects in concentrating solar, a technology that uses mirrors or lenses to “concentrate” sunlight onto smaller solar cells, potentially reducing costs dramatically.
However, longer-term credits could prove more difficult to push through. In an interview last month, William Reilly, former administrator of the U.S. Environmental Protection Agency, indicated that shorter-term credits for wind-energy production, for example, could benefit politicians. “Senator [John] McCain said in a program last week that it’s clear what we’re doing: Every two years, the lobbyists come back in and then we renew it,” he said. “But it makes a big difference to investors. If there’s only a two-year horizon, even though they’ve never failed to renew it, there’s less confidence.”
Still, Mr. Schmela said the fact this particular extension is short could be positive for the industry, because it will be revisited next year by a Democrat-majority Congress. Even then, he thinks an eight- or nine-year extension is probably too much to hope for. But Mr. Makower said the new Congress certainly increases the chances. “If we can’t get something that simple to pass in the new Congress, there is really no hope,” he said.
Before closing, the Congress also extended several other energy incentives that had been slated to expire next year, including a production tax credit for such technologies as wind, biomass, and geothermal, and another for energy-efficient commercial buildings.