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The future looks bright for renewables in the United States

A five year tax credit extension for new renewable construction was granted as part of a bipartisan spending bill signed late in December of 2015.

 

The future looks bright for renewables in the United States

The following is a commentary from Alex Levran and Dennis McKinley, Business Development Managers for Solar and Wind, respectively, at ABB in the United States.

 

This bill included many compromises between the Democrats and Republicans, one of which will change the power generation industry in the US. In case you didn’t get to read the 2,000 page bill over the holidays, our renewable experts have summarized what’s important to the industry.

 

How is the extension structured?

The solar investment tax credit (ITC) was extended by five years. New construction projects started on or before December 31, 2019 will receive a 30% tax credit, and then the ITC will taper off according to the following schedule, based on the date construction is commenced.

2017-2019: 30%
2020: 26%
2021: 22%
2022+: 10% (non-residential and third-party owned residential), or 0% (host-owned residential)

The wind production tax credit (PTC) extension preserves the PTC at 2.3 cents/kWh through 2016, with a 20% reduction each year 2017-2019. This extension is retroactive for 2015 construction.

2016: 2.3 cents/kWh (or 30% ITC)
2017: 1.84 cents/kWh (or 24% ITC)
2018: 1.38 cents/kWh (or 18% ITC)
2019: 0.92 cents/kWh (or 12% ITC) [1]

 

Why is this extension so important to renewables?

This multiyear extension provides stability to companies in this industry. The stability is important to the industry because it allows companies to invest in new technology and drive down the cost of production. Additionally, the tax credit waves cause companies to go out of business, and this stability will allow for increased competition, also driving prices down.

The lower prices could allow the industry to become self-sufficient by the time the tax credits are eliminated. That is why this extension could be important for the renewable industry even beyond 2020.

 

How much will the extensions really increase renewable development?

A lot. According to SEIA, the ITC extension could triple the US solar capacity by 2020, bringing the US to 100 GW of solar capacity. Not to mention this will provide more than a $125 billion in new, private sector investment in the U.S. economy, create 220,000 new jobs and cut 100 million metric tons in emissions by replacing dozens of dirty power plants. [2]

Hopefully this bill will provide the stability needed to the renewable industries to allow them to thrive and become more economically viable options in the long run.

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