Solar tax credit pays for itself

Economic activity generates excess revenue

Bill Opalka | Jul 23, 2012

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A federal tax credit that has helped energize the recent boom in solar construction pays for itself and even generates excess revenue for the treasury, according to a recent study.

The study was published by the US Partnership for Renewable Finance (US PREF), a program of the American Council On Renewable Energy (ACORE).

“Paid in Full” finds that the solar investment tax credit (ITC), expanded by the Energy Policy Act of 2005 by President George W. Bush and modified as a grant program under stimulus legislation championed by President Barack Obama, can deliver a 10% internal rate of return to taxpayers on the government's initial investment. The report examines the cash flows generated by tax revenues on solar leases and power purchase agreements to show that a $10,500 tax credit for a residential system can provide a $22,882 nominal benefit to the government in those scenarios over the life of the solar asset, and a $300,000 commercial solar credit can create a $677,627 nominal benefit in a similar time period.

“The fiscal return demonstrated in this model is independent of, and additive to the
numerous other benefits of solar projects, including job creation, energy independence, the preservation of natural resources and the health benefits of cleaner air,” the study says.

SolarCity, a member of US PREF, created the models for the study based on industry data, and consulted with tax and advisory firm KPMG on the application of current income tax law and evaluation methodology for federal government incentives.

"Everyone understands that solar power leads to cleaner air and greater independence from fossil fuel," said Lyndon Rive, SolarCity's CEO. "Far fewer people realize that solar incentives can pay for themselves. Solar power has become a political football in this election year, but the investment tax credit has been one of the most beneficial, bipartisan energy policies of this or any other generation."

The ITC has encouraged a significant increase job and installation growth in the U.S. solar industry. Approximately 90% of the nearly 5,000 MW of solar generation capacity in the U.S. has been installed since the ITC was expanded in 2005, according to data from GTM Research. The June 2012 GTM Research/SEIA U.S. Solar Market Insight report also indicated that U.S. solar installations in the