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Solar Growth Jeopardized By Loss Of Tax Incentives

Posted on Tuesday, September 20th, 2011 at 10:44 pm by Solar Energy USA

The US solar energy industry employs more than 100,000 people. Driven by both state and federal tax incentives, this is twice as many as it did two years ago and more than the steel industry or coal mining, the industry’s trade group has said.

The Solar Energy Industries Association (SEIA) is emphasizing solar’s job creation and growth as a means to answer some of the criticism following the recent shutdown announcement of solar manufacturing firm Solyndra.

In its regular quarterly assessment, published on Tuesday, the SEIA says, “investment in solar power should add about 1,750MW of capacity in the US in 2011, up from 900MW last year.” Employment has also continued to rise in the past 12 months.

Rhone Resch, SEIA president, warned however that to remove solar tax incentives like the federal 1603 treasury grant for renewable energy developers at the end of the year would be a severe setback to the industry.

The growth of the solar industry can be attributed to federal and state government incentives, including renewable portfolio standards stating that a proportion of power needs to come from renewable sources such as solar and wind. Tax credits allow the write-off of 30 percent of the investment cost of a project via a federal incentive. In the state of Georgia an additional tax credit offsets another 35 percent of the initial cost.

Curbs on similar incentives in Germany and Italy, two of the world’s largest markets, have slowed growth in Europe, making the US a more important part of the world market. To remove the tax incentives currently in place for businesses and homeowners in America would likely cause a similar reaction as it did abroad.

The leading state for total new solar installations in the second quarter of the year was California, which has very solar-friendly state policies. The largest non-residential market was New Jersey, which has also had strong support for solar power from the state government.

However, the analysis prepared for the SEIA by GTM Research, a consultancy, warns: “Looking ahead, nearly every major market is facing some difficulty, California, New Jersey and Pennsylvania principal among them.”

Demand for solar energy has increased in part due to decreasing prices for solar modules which have made conditions extra competitive for manufacturers and helped send Solyndra and other solar companies into bankruptcy. These same factors increase solar’s competitiveness against coal, gas and other  “traditional” fuel sources.

The report says three uncertainties face the industry: whether falling costs will stimulate much new demand, whether new projects emerge once the existing pipeline of new developments has been built, and what happens to the federal 1603 treasury grant.

The grant allows developers to take a tax credit in the form of cash payment from the federal government, an incentive worth 30 percent of investment cost once a project is complete, rather than waiting to generate enough earnings to set the cost off against tax. This grant program was extended at the last minute in 2010 and seems likely to be ended by the Republican-controlled House of Representatives when they come up for renewal at the end of the year.

Resch said much of the growth of the past two years can be attributed to the 1603 program. “We could see the solar industry turn down in 2012 if the grants are not extended.” Source: Financial Times