Solar Tax Breaks Boost US Coffers, Analysis Says

It’s the backbone of solar energy development in the United States – the investment tax credit, implemented under George W. Bush as part of the 2005 Energy Policy Act, then later modified and extended through 2016. But as much as we all like to see more solar power going in, such a hefty tax break – 30 percent of the cost of a system, with no maximum credit – must really end up costing the Treasury and adding to the country’s budget deficit, right?

Uh, no.

solar investment tax credit

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At least, not according to an analysis [PDF] from the the U.S. Partnership for Renewable Energy Finance, which describes itself as “a coalition of senior level financiers who invest in all sectors of the energy industry, including renewable energy.”

In its new paper, the group calculates that in the increasingly common lease and power-purchase agreement scenarios, a $10,500 residential solar credit — the ostensible, approximate cost to the Treasury of a typical 5-kilowatt home system – “can deliver a $22,882 nominal benefit to the government.” Similary, a $300,000 commercial solar credit can mean $677,627 to the federal coffers.

What kind of magic is turning a tax break — for all intents and purposes, spending — into added revenue?

It’s the magic of taxes paid by the direct participants in these solar installations – the developer, the installer and the energy user.

This is actually a pretty narrow way of viewing the impact of the ITC for solar; it doesn’t take into account other benefits to the Treasury, such as taxable revenues and wages from players along the solar supply chain — providers of modules, inverters and other system components – nor does it bring in the added business that might accrue to subcontractors, brokers, accountants and attorneys from these arrangements.

Pete Danko is a writer and editor based in Portland, Oregon. His work has appeared in Breaking Energy, National Geographic's Energy Blog, The New York Times, San Francisco Chronicle and elsewhere.