USA needs ITC, if it’s going to back PV

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The inclusion of the investment tax credit (ITC) in President Obama’s 2016 budget is of course good news but it is the beginning not the end of the debate.

The ITC has a powerful friend in the President of the United States but it may not have enough friends to win the argument.

“The solar ITC has been a tremendous boon to both the US economy and our environment. The proposal presented by President Obama would extend this proven, successful policy for years to come,” said Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA) in the wake of the publication of the president’s budget request.

“The ITC has changed America for the better. The solar industry employs nearly 175,000 Americans, pumps US$15 billion a year into our economy and offsets more than 20 million metric tons of damaging carbon emissions. In the past four years, employment in the solar industry has increased by more than 85% – and last year alone, we created one out of every 78 new jobs in America. This remarkable progress is due, in large part, to smart, effective public policies like the solar ITC,” said Resch.

But let’s remember that this is the president’s budget request. While you don’t get if you don’t ask, the continuation of the ITC is far from a done deal. For the next few months, the entire budget proposal will be scrutinised before the Republicans – who now control the House and the Senate – will offer their own version of the budget. And so the horse trading begins.

The jobs angle picked out by the SEIA could prove key. States like Arizona, Texas, Utah and the Carolinas, have burgeoning solar energy sectors and Republican representation in Washington. These states could be susceptible to being ITC-friendly.

Shayle Kann, VP of GTM Research told PV Tech he understands the optimism that some are already expressing.

“This budget is far from final but is by no means insignificant. It’s a strong indicator of where the Administration’s values lie and what they care about. It's the first set of bargaining chips,” he says.

But can the ITC win enough support across the political spectrum?

“We'll see. The ITC is one of a million things that are going to be debated in this budget proposal. It’s a mixed bag for the Republican congress. Republicans tend to like solar in general, it has a fair bit of bi-partisan support and, increasingly at the state level, even Tea Party support,” says Kann, adding that often the problem is not solar itself but the perception of the ITC subsidising solar.

SunEdison founder and clean-tech investor Jigar Shah has suggested to PV Tech that fighting for the ITC is part of the politics but the end result of budget negotiations could be to trade it for “something better”. He suggests full access to real estate investments trusts (REITs) and master limited partnerships (MLPs) to avoid double taxation in yield cos, federal net metering legislation, more grid interconnections and the ability to sell power directly to consumers could be considered.

But Kann is adamant that the most important federal-level policy for solar is the ITC.

“It’s the single largest and most important federal policy for solar. If you are lobbying at the federal level for the solar industry, you should be laser-focussed on the ITC,” he says.

The ITC is currently scheduled to fall to 10% at the end of 2016. Without explicitly detailing the 30% rate in the budget, the assumption is that that level is the starting point for negotiations.

Utility-scale solar has been predicted to fall of a cliff in 2017 if the ITC falls to 10% and as such, Kann says that sector is more exposed than its residential counterpart.

An extension of the duration for a 30% ITC, or even a more gradual wind-down, would buy the industry valuable time to lower its costs and boost their competitiveness with conventional power sources.

With solar on the brink (or better) of competiveness in many states, any concession could prove highly valuable.

Deutsche Bank told investors it was a broadly positive development, even if the numbers in the Senate and the House looks unfavourable on paper.

“Whether or not the ITC gets extended beyond 2016 still remains to be seen, but the analysts believe this proposal certainly increases the chances of some sort of a positive outcome compared to the current step down of ITC to 10% beyond the 2016 timeframe,” it said in a research note.

Getting the full 30% in perpetuity would be a great result for the industry. If Obama’s budget does nothing else but increase the chances that 10% would be a hard sell for its detractors, it surely still counts as a victory for solar.

Obama has made his budget offer but months of negotiations and lobbying lie ahead before the ITC's fate is sealed. Source: Flickr/White House
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