According to a study conducted by the American Solar Energy Industry Association (SEIA), the United States belongs to a limited number of countries where federal tax deductions are the main form of RES development support. Production tax credit is applied to wind energy (wind power plants) and investment tax credit (ITC) is applied to solar energy.
This RES incentive mechanism was introduced in 2006. It was extended till 2008 and 2015, with a corresponding schedule of tax reductions to be applied until 2022. According to SEIA, ITC has been a major contributor to attracting more than USD 140 billions of investment and creating hundreds of thousands of jobs. Currently, SEIA has prepared a collective appeal on the part of about 1,000 companies and found support from about 20 representatives of Congress to extend ITC for another 5 years without changing the 30% preferential interest rate for all categories of solar energy systems (SES). According to SEIA estimates (referring to data from the US Department of Energy), retaining tax incentives will create conditions for an increase in the SES share in total electricity generation by 16% for the period up to 2030, while repealing tax incentives will reduce this figure to 12%.
As of 2018, the United States ranks second in the world in terms of solar generation – 62 GWt (report “A snapshot of global PV” by IEA PVPS). At the same time, in 2018, customs tariffs were introduced for the import of solar modules and cells in order to stimulate domestic production (today they are made only by two companies – Gigafabric Tesla licensed by Panasonic and SolarWorld) for a period of 4 years and a duty-free limit of only 2.5 GWt in year. Accordingly, the cancellation of ITC will be a negative signal for the expansion of domestic production due to the expected fall in demand for solar panels, as it remains the only form of SES federal support.
At the same time, some energy companies, such as NextEra Energy, argue that the cancellation of tax deductions will not have a major negative impact due to further reduction of the cost of technology and materials for SES facilities.
This position is supported by analysts at BloombergNEF, who consider tax deductions even detrimental to competition in this market segment. According to experts, the only reason for their preservation may be the threat of the next global financial crisis, as ITC has helped to successfully overcome similar periods to SES investors in previous years. BloombergNEF predicts a strengthening of US climate policy after the next presidential election with a corresponding new RES support program, where such federal forms of assistance can only damage.
The Heritage Foundation, an influential think tank, also advocates for cancellation of tax deductions, predicting further reductions in SES costs due to technology improvements after 2022, and referring to progress in EU member states in the result of cancellation of RES state support.
Our assessments of the US experience with tax incentives as a form of RES support are ambiguous. The use of such a tool to stimulate the development of renewable energy is considered appropriate at the initial stage of the introduction of auctions for renewable energy and may help to maintain a significant amount of foreign direct investment in such a sector of economy. At the same time, tax incentives for renewable energy can be an attractive argument for RES investors after giving up green tariffs. In addition, temporary tax deductions can facilitate the implementation of RES projects in areas with unused interconnection capacities, in particular, thereby facilitating a more even distribution of generation.
