Extend solar tax credits, but end costly Carter-era subsidies

Federal solar power tax credits have been a huge American success story, creating hundreds of thousands of jobs and tens of billions of dollars a year in clean energy investment, while avoiding hundreds of millions of tons of greenhouse gas emissions. But despite its remarkable growth, solar energy still only provides about 1.5 percent of U.S. electricity. Solar must grow far larger to help the U.S. reduce carbon dioxide emissions, an action urgently needed for climate protection.

Under current law, the 30 percent solar investment tax credit begins to phase down next year, then disappears altogether for residential consumers in 2022 and phases down permanently to a 10 percent credit for commercial operations.

House Ways and Means Committee Chair Richard Neal (D-Mass.) is putting together tax legislation in the coming weeks intended to spur larger investments in clean energy and to create more powerful incentives to cut greenhouse gas emissions. This legislation should extend the existing 30 percent investment tax credits for both home and commercial solar well into the future if the U.S. to unleash massive new investments, especially in utility-scale solar.

In addition, the Committee should develop far more robust tax incentives for solar electricity storage than those in current law and provide clearer statutory guidance to achieve maximum energy and climate policy benefits. Right now, home storage systems must get all of their power from on-site solar to qualify for the ITC, an unreasonable burden that prevents progress. In addition, storage systems owned by businesses are eligible for the ITC only if at least 75 percent of the charging of the storage unit is provided through solar generation. Current rules also prohibit most of the grid services a solar-plus-storage-system can provide to grid operators to help with resiliency, and sacrifices the potential economic gains of energy storage and the increased rate of returns.

While continuing these effective solar tax incentives makes energy and climate policy sense, it is long past time to do away with more expensive and restrictive Carter-era subsidies for solar that are making consumers in many states pay rates far above market prices today. 

Rules under the 1978 Public Utility Regulatory Policies Act (PURPA) end up requiring many states to engage in long-term contracts with solar developers at prices far above current rates, locking in expensive power and including a “must take” provision requiring electricity from these sources to be dispatched in perpetuity.

The excess consumer costs of this anachronistic provision are considerable. Customers in North Carolina alone will pay more than $1 billion over market costs in the next decade, according the utility Duke Energy. Western utility PacifiCorp finds that mandated contracts under PURPA in the next 10 years are adding $1.2 billion in above market rate consumer costs. A new analysis by Concentric Energy Advisors found that for solar contracts between 2013 and 2019 alone above market costs for PURPA mandated contracts totaled up to $1.87 billion. All of these costs are simply passed to consumers, who are paying far above market rate for solar from these projects, instead of the very low solar prices (89 percent lower from utility scale PV solar than 10 years ago according to Lazard) now available in most of country.

In response to this consumer problem, the Federal Energy Regulatory Commissions (FERC) this fall has issued a notice of proposed rulemaking to give states more flexibility in setting energy rates from qualified facilities’ power sales contracts. Proponents say the goal of the change is to help consumers reduce cost by benefiting from the large reductions in solar prices in recent years, rather than require states to engage and be locked into long-term contracts at well over current lower market prices.

Both FERC Chair Neil Chatterjee and Republican-appointed Commissioner Bernard McNamee support the change. FERC Commissioner Richard Glick, a Democrat, concurred in part, and dissented in part, but did not dissent specifically over allowing states more flexibility in setting contract rates for qualified solar developers; he instead said he believed Congress should address such issues — but that prospect seems dim.

The risk for solar advocates in opposing consumer reform provisions in the proposed FERC rulemaking is obvious — they are seeming to side with a handful of solar developers, who make large profits through above market rate contracts, over ordinary solar customers, who are in the process paying greater than market rates. For a solar industry that is advocating the extension of the far more important solar ITC provisions, this seems short-sighted, to say the least. And of course, the PURPA projects provide nothing remotely like the economic or climate benefits of the solar ITC, but they can undermine the reputation of solar for many consumers.

In addition, states like New York and Illinois are now reasonably allowing nuclear power and other zero emissions sources to qualify for clean energy standard requirements, so that excess renewable energy capacity does not end up crowding out other low carbon sources and increasing consumer costs by idling necessary back up baseload power sources.

Overall U.S. solar prices in have fallen more than 70 percent in the last decade alone, a huge benefit to American consumers, jobs, and to climate protection. Americans should be proud of these advances and should encourage Congress to extend robust solar investment tax incentives to ensure greater amounts of clean solar power. 

But getting rid of antiquated solar subsidies that cost consumers in many states billions more than current prices and hurt the reputation of solar is necessary, too. That way consumers can know the government has their best interests at heart when it comes to providing low cost, zero-emissions solar power.

Paul Bledsoe is strategic advisor at the Progressive Policy Institute, and a lecturer at American University’s Center for Environmental Policy.  He served on the White House Climate Change Task Force under President Clinton.