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Additional Financial Incentives

Federal Solar Investment Tax Credit (ITC)

Initially, planned to end in 2016, the Solar ITC was approved for a multi-year extension and will continue to boost solar energy in the US through 2021. In December 2015, the House and Senate voted to grant the extension. It is one of the most important federal policy mechanisms in place helping solar energy growth in the United States.

The ITC is a 30 percent federal tax credit for solar systems with credits in two different parts of the tax code. Under section 25D of the Internal Revenue Code, homeowners with systems on residential properties are allowed to deduct 30 percent off the cost of a solar system installation from their personal federal tax obligations. Commercial solar project developers are able to deduct 30 percent of the project costs from their federal taxes under section 48 of the Internal Revenue Code.

The recent extension of the commercial solar ITC agreed upon by congress requires an incremental ramp down of the ITC as follows:

  • Projects that commence construction before the end of 2019 receive the full 30% ITC

  • Projects that commence construction before the end of 2020 receive a 26% ITC

  • Projects that commence construction before the end of 2021 and are placed in service before 2023 receive a 22% ITC

  • Projects that commence construction before the end of 2021 and are placed in service after 2023 receive a 10% ITC

Projects that fall under section 25D residential ITC are on the same schedule with exception to the commerce construction clause. This means that systems on residential property must be generating electricity by 2019 to receive the 30% credit, by 2020 to receive a 26% credit, and by 2021 to receive the 22% credit. The residential credit ends after 2021.

Federal Production Tax Credit (PTC)

Although the PTC was allowed to expire in 2014, on December 18th, 2015 the PTC was extended. It can be applied to 12 renewable energy sources with wind being the most notable. The PTC has been a major catalyst for growth in the wind industry and will now do so through 2020. Congress voted on an incremental decline in value with 2016 remaining at full value and a decline each year until it expires in January 2020.

The PTC or Production-based tax credit is a federal incentive made to give financial support for renewable energy development. Companies generating electricity from sources including wind, geothermal, and “closed loop” bioenergy are eligible for a federal PTC. The federal PTC gives a 2.3-cent per kilowatt-hour (kWh) incentive for the first ten years of a renewable energy facility’s operation.