U.S. Solar Power Surges Ahead in New Report, But Tax Credit Battle Looms

Thanks to a record year in 2013, the solar industry installed more photovoltaic power over a period of 18 months than it did in the preceding 30 years. It’s a startling fact, and it captures the flavor of a report published on Wednesday by the Solar Energy Industries Association (SEIA) and GTM Research that details the industry’s recent revved-up performance.

Last year the industry saw a 41 percent increase over 2012 in solar photovoltaic (PV) installations, a surge that brought total U.S. PV capacity to 12.1 gigawatts, drawn from some 445,000 individual systems. In all, solar accounted for 29 percent of new U.S. electrical generation capacity in 2013, ranking second behind natural gas.

In a conference call, industry leaders said the pace of new installations in 2013 demonstrated that solar power has gone from being “an expensive science project,” as Recurrent Energy Chief Executive and SEIA Board Chairman Arno Harris put it, to a formidable, mainstream player in the U.S. energy economy.

That’s undeniably the case in California, which accounted for a whopping 55 percent of the nation’s total new solar in 2013, as well as in the other top tier states like perennial power Arizona (9 percent), fast-rising North Carolina (7 percent), and the new East Coast entry on the leaderboard, Massachusetts (5 percent).

But despite the glowing growth, it’s not all sunny skies for solar. First, solar needs to continue to grow at a very fast clip in order to be a significant electricity contributor. In 2012, solar accounted for an estimated 12,775 gigawatt-hours of electrical generation in the United States —enough to power nearly 1.2 million average American homes, but still a mere 0.3 percent of the nation’s total power generation, according to the National Renewable Energy Laboratory [PDF]. The strong growth in 2013 will bump up that figure, but only to around one-half of one percent of total generation. The SEIA/GTM Research report said another 6 gigawatts of new capacity was on its way this year, and with that, solar might finally crack 1 percent of U.S. electrical generation.

Meanwhile, even as solar costs continue to fall—and average residential system price slid nearly 9 percent from 2012 to 2013—policy support is still needed to drive growth, and two key incentives are on shaky ground.

Last year, utilities were largely unsuccessful in their efforts to roll back net metering policies that reward solar system owners generously when they produce more power than they use, but the solar industry knows that will be a perennial fight.

Farther down the timeline but perhaps more ominous is the scheduled expiration of the federal investment tax credit (ITC) that solar enjoys. Implemented in 2006, the ITC can be worth as much as 30 percent of the cost of a project, large or small, and it’s due to expire at the end of 2016. The Obama administration’s 2015 fiscal year budget would replace the investment tax credit with a production tax credit at the end of 2016, meaning that a solar project would benefit only after it is built and producing power.  The production tax credit  “simply can’t address the upfront costs of fuel-free solar projects,” said the SEIA in a statement, “and we believe the Administration’s sudden, 180-degree shift in tax policy could have devastating consequences on the future development of solar energy in America.”

While still pushing for an extension, the SEIA is hoping at least to get a change in the law that would make systems under construction by the end of 2016 eligible for the tax credit. That would effectively extend the deadline for a year or two for big, long-term projects, and, the industry hopes, help replenish a pipeline of projects that began to shrink in the fourth quarter.