Now that many of the early solar tax incentives have been phased out, you may be wondering if there is still a financial benefit to going solar. The answer is a resounding YES! Improvements in technology and reduced component pricing allows prospective owners to reap even bigger benefits from their solar energy system.
Solar Electric Incentives Today
Many of yesteryear’s solar tax incentives, including the generous California solar tax credit, have faded into history. But because of improvements in solar energy technologies, combined with ever-tumbling prices for components including energy collection and storage devices, today’s prospective system builders can easily acquire modern solutions that provide far more energy at far lower costs than was possible in the heyday of even the most solar energy tax credits.
Possibly more importantly, energy incentives and solar investment tax credits that remain available until 2020 provide significant benefits that can slash system payback time frames to only three or four years, instead of as much as 20 years. Altogether, that means today’s financial environment makes now an excellent time to install solar-electric generation systems in your facility or corporate campus.
A Little History
At the dawn of the photovoltaics age – the years either side of the new millennium, when solar-electric power generation was just gaining widespread acceptance – return on investment (ROI) was hard to achieve without significant financial incentives from government and utilities. That’s because photovoltaic production technologies were young, more input intensive, and lower in volume yield, resulting in products up to three times more expensive than today’s commercial systems, and providing less electricity per panel of equal size.
These federal, state, and local solar incentives were designed to help drive early adoption of commercial-scale solar-electric systems, thereby seeding the industry and generating the technical advances and economies of scale that led to today’s affordable products. These solar power tax credits, and government rebates for installing solar panels, and similar startup incentives are hailed as a model of constructive tax policy. But now that a vibrant industry has been established, policymakers have determined that federal renewable energy tax credits and incentives are no longer needed. Nonetheless, savvy solar equipment providers can still guide customers to remaining incentives that provide significant financial advantages to those who know how to find them.
Federal Solar Tax Incentives
Among the incentives still in force, the federal Investment Tax Credit (ITC) is the most lucrative and most accessible for the most solar customers. Although not designed exclusively as a “Federal solar tax credit,” Section 48 of the ITC currently provides a 30 percent dollar-for-dollar income tax credit is available to corporations and utilities who install solar generation systems, The result is significant tax breaks for solar panels, storage systems, and related equipment.
Established in 2005 and originally intended to expire by 2007, the ITC has been extended several times. Although this federal tax credit has no expiration, the benefit does step down in coming years. The most recent extension, enacted in 2017, continues the 30 percent credit only for solar electric systems that are placed in service by the end of 2019. After that, the credit is scheduled to decrease to 26 percent in 2020, 22 percent in 2021, and a permanent floor of 10 percent in 2023.
The ITC is designed to encourage prompt development of solar-electric systems. Nonetheless, companies beginning construction by 2021 may still be eligible for credits up to 20 percent on systems placed in service by the end of 2023. Precise savings under this condition will be subject to rules presently under development by the Internal Revenue Service and the Treasury Department. Because these determinations are still uncertain, companies that start construction soon are likely to realize the greatest ITC benefits.
Accelerated Depreciation Hastens ROI
Additional aspects of tax laws can also function as a solar renewable energy tax credit. As one example, the federal tax code treats solar systems including photovoltaic collectors and energy storage solutions as an advantaged class of capital equipment. Under the Modified Accelerated Cost Recovery Systems (MACRS) provisions of the US tax code, investments in most solar-electric components can be recovered through depreciation deductions over only five years. One hundred percent of system costs may be deducted if the equipment was not claimed as the basis of an investment tax credit. Otherwise, 85 percent of system costs can be recovered through depreciation deductions.
Separately, the federal Economic Stimulus Act of 2008 authorized first-year bonus depreciation for eligible renewable-energy systems acquired and placed in service in 2008. This law has since been extended to provide bonus depreciation beyond the original law’s timeframe. Although the 50 percent bonus depreciation provision expired at the end of 2017, equipment placed in service during 2018 can qualify for a 40 percent bonus depreciation. Equipment placed in service in 2019 will qualify for a 30 percent bonus.
Combining the Investment Tax Credit and the MACRS depreciation rules with electrical cost savings results in a greatly shortened time to return on a corporation’s solar-electric investment, providing a definitive answer to those who ask, ”is solar energy worth it to my business?” Many companies recover their costs in as little as four to six years. After that period, they effectively eliminate energy expenses and enjoy free electricity.
Some Smaller Rewards Still Available
Although many big-ticket incentives including the California solar tax credit have reached sunset, other states, utilities, and even localities still offer enticements to prospective solar-electric system installers. One prominent example is the state of Hawaii, where sunshine is abundant and commercial electrical rates far exceed the national average. Corporations can claim a Hawaii solar tax credit equal to 35% of the cost of a solar photovoltaic system, up to a maximum of $500,000. Costs greater than the maximum allowable for the energy tax credit can be applied to the Capital Goods Excise tax credit.
Other programs exist in other states. In Massachusetts, the Solar Massachusetts Renewable Target (SMART) program is developing policies related to incentives for solar-electric generating installations. Similarly, the Georgia Power Renewable Energy Development Initiative (REDI) is a utility-sponsored program provides incentives for commercial- and industrial-scale customers investing in solar energy. Other incentives may be available to additional customers depending on their location, their local utility, and county and municipal initiatives. An experienced solar equipment provider can identify these for each customer.
Although in most cases these benefits do not match the incentives available in years gone by, changes in federal taxation policy can greatly increase their values. This is because greater business profits are worth more today than they have been in recent memory. The 2018 federal tax reform law reduced the maximum tax rate on corporations from 35 percent to 21 percent. Thus, every reduction in business costs contributes a greater share of retained profits. Because of that, cost reductions such as savings on electricity result in greater equity accruing to shareholders and proprietors – but only for as long as these lower tax rates remain in force. The resulting savings today may well be more valuable than savings achieved in the out years.
Solar’s Soft Incentives
Today’s wisest solar-electric adopters look beyond rewards from government to recognize even greater benefits of renewable energy production. First and most apparent is control of their own energy costs. A well designed, well maintained solar generation system provides reliable energy and predictable costs independent of commercial rate hikes, regulatory changes, rolling brownouts, and other utility challenges.
Additionally, solar-electric power production is immune from geopolitical disruptions such as manipulations in petroleum availability, natural gas production and distribution, and coal policies. Solar users enjoy the many benefits of immunity from unpredictable and increasingly volatile energy market machinations.
And from a branding perspective, solar energy signals corporate responsibility to customers, partners, and neighbors. Today’s changing climate has increased awareness on the ethics of energy production and makes attractive suppliers and partners of enterprises that replace fossil-fuel based energy with renewable sources of electricity such as solar and wind power. Just as importantly, state and municipal governments, as well as civic and community groups, look with favor on nearby enterprises who take steps to mitigate their environmental footprint and improve the local environment.
REC Solar Has the Answers
The success of any corporate- or industrial-scale solar-electric generating system greatly depends on the consulting partner that you select. REC Solar has more than 20 years of experience developing over 300 megawatts of solar solutions. We help customers maximize the impact of onsite solar as part of their broader energy strategy, providing significant cost reductions that clients can reinvest into differentiating and growing their core business, whether that is in the commercial sector, education, or federal, state, or local government. Our experience makes REC Solar your definitive source for information, solutions, and support.
As a division of Duke Energy, one of the largest electric power holding companies in the United States, we make going solar simple by offering all the services needed under one roof. We provide engineering, procurement, and construction (EPC) services, solar storage, solutions, solar operation and maintenance services, and financing. We can help maximize your corporation’s return on investment by applying investment tax credits, accelerated depreciation, and any additional incentives available in your specific location. For more information, to schedule a consultation, or to begin developing your unique solar-electric solution, contact your REC Solar representative.