Tax policies have played a crucial role in the advancement of renewable energy in the United States. The Investment Tax Credit (ITC), which is a 30% federal tax credit available for solar PV and solar water heating systems, has been hailed as the “cornerstone of continued growth of solar energy” by the Solar Energy Industries Association (SEIA).
History of Federal Tax Credit
The ITC was first implemented from January 1, 2006 through December 31, 2007 as part of the Energy Policy Act of 2005. With unprecedented growth including the amount of solar capacity installed in 2007 being double the capacity installed in 2006, the commercial and residential solar ITC was extended through the end of 2016.
The federal tax subsidy is recognized for stabilizing the solar industry and providing an incentive that has enabled annual solar installation to expand by more than 1,600 percent since the ITC was first applied in 2006.
Current Status of Federal Tax Credit
The solar industry had been preparing for the federal tax credit to expire in 2016, but the 30% credit has been extended until 2019. The credit will then reduce to 26% in 2020, 22% in 2021, and 10% in 2022.
According to GTM Research, the ITC extension will result in $40 billion in incremental solar investment between 2016 and 2020. “The ITC extension currently written into the omnibus spending bill will result in a 20-gigawatt annual solar market in the U.S. by 2020,” said Shayle Kann, senior VP of GTM Research. “At that rate, more solar will be installed each year than was added to the grid cumulatively through 2014.”
State of Hawaii Tax Credit
In addition to the federal tax credit, Hawaii residents and business owners can take advantage of the state’s renewable energy tax credit, which has existed since 1976.
Hawaii’s tax credit was intended to provide a credit for each solar system installed, but the word “system” acquired new meaning when micro-inverters were successfully introduced into the market in 2008. Due to the structure of the micro-inverter system and unclear wording that could interpret a system according to the number of inverters or connections to the electricity system, homeowners claimed each micro-inverter as a separate system and even installed systems with multiple connections to the electrical grid for no apparent electrical purpose, in order to apply for more than one state tax credit.
To avoid this confusion and stop the abuse of renewable energy credits while still encouraging solar adoption, a law was passed in 2013 that redefines a solar energy system according to its total output capacity, or the amount of kilowatts generated.
The Hawaii state tax credit for PV system installations is currently set at 35%, up to $5,000 per system, on a single family residential property. Solar water heater installations on single family homes also qualify for a 35% tax credit, up to $2,250.
With a sunny climate year-round coupled with among the highest electric rates in the nation, the savings associated with solar energy are attractive enough to justify a solar installation investment, but add the 30% federal and 35% state tax credits in and it’s a no-brainer. Contact Haleakala Solar today to find out about the best solar solution for you.