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The US Investment Tax Credit for Solar Energy: Alternatives to the Anticipated 2017 Step-Down

The US Investment Tax Credit for Solar Energy: Alternatives to the Anticipated 2017 Step-Down

By Stefan J. Reichelstein, Stephen D. Comello
August 7,2015Working Paper No. 3280

The federal Investment Tax Credit (ITC) for solar installations is scheduled to step-down from 30% to 10% at the beginning of 2017 for corporate investors. This raises the question whether solar PV will be cost competitive post 2016 in the U.S. We examine the economics of solar PV for a sample of US states and industry segments. Our model calculations indicate that for almost all of these settings the anticipated ITC step-down would render solar PV uncompetitive by early 2017, raising the specter of a ‘cliff’ for the solar industry. We identify and evaluate an alternative phase-down scenario that would reduce the ITC gradually and eliminate it completely by 2024. Provided the solar industry can maintain the pace of cost reductions demonstrated in past years, our projections indicated that solar PV would remain broadly competitive, even as federal tax support would be gradually diminished, and ultimately eliminated, under the alternative phase-down-scenario.