Study: Solar Tax Credits Generate Tax Revenue

Newly installed rooftop PV | Photo: Yosef Meller/Flickr/Creative Commons License

Federal financial support of renewable energy has taken a whole lot of heat in the months since Solyndra went bankrupt. Opponents of federal policy have claimed that solar grants and subsidies increase the federal deficit while doing little to promote new sources of energy. But a study published yesterday by the U.S. Partnership for Renewable Finance (US PREF) indicates that tax credits issued to property owners who install solar panels actually turn out to be sound investments for the government, returning tax revenues well in excess of the value of the credits.

US PREF, a program of the American Council On Renewable Energy, says its study shows that the return for the government on its investment in solar tax credits is equivalent to about 10% interest.

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The study, "Paid in Full: an analysis of the Return to the Federal Taxpayer for internal Revenue Code Section 48 Solar Energy investment Tax Credit (ITC)," says that tax revenues from solar lease arrangements and Power Purchase Agreements (PPAs) that result from productive solar panels hooked up to the grid can more than repay the cost of the tax credit received for installing the panels. According to US PREF's analysis, over the life of a residential installation that received a $10,000 tax credit, the total return to the IRS can top $22,000.

That figure includes only taxes levied on revenue directly generated by the panels. It doesn't include federal benefits from so-called "multiplier effects," such as income tax on workers who get jobs installing the panels, deferred payments for new, centralized power plants that go unbuilt because people generate power on their roofs, or savings in subsidized health care costs due to better air quality downwind of existing power plants.

Under the the Solar Investment Tax Credit program, created by the Bush administration in 2005, small- to medium-scale solar installations on residential or commercial property can receive a tax credit equal to 30% of their installation costs. This subsidy has, understandably, been a huge boon to solar installations. According to US PREF, 90% of the U.S.'s solar generating capacity, which now stands at about 5,000 megawatts, has been installed since the Bush administration created the credit. The Solar Energy Industries Association (SEIA), the solar industry's main trade group, calls the Solar Investment Tax Credit "the cornerstone of continued growth of solar energy in the United States."

The tax credit expires in 2016, and given recent political posturing on the topic of subsidies to renewable energy the prospects for its extension would seem somewhat limited. It's ironic that one of the Bush administration's most successful initiatives should run the risk of ending because of opposition to his successor in office.

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