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

Solar photovoltaic (PV) installations in the United States have been deployed at a rapid pace in recent years, a development that is attributed in significant part to the federal Investment Tax Credit (ITC). Yet, this credit is scheduled to step-down from 30% to 10% at the beginning of 2017 for corporate investors. For a sample of five US states and different segments of the solar industry, we find that the anticipated ITC step-down in 2017 would increase the levelized cost of solar power by a significant margin, raising the specter of a ‘cliff’ for the solar industry. Our analysis identifies and evaluates an alternative phase-down scenario that would reduce the ITC gradually over time and eliminate it completely by 2024. For this alternative phase-down scenario, it is shown that solar PV would remain broadly competitive, provided the solar industry can maintain the pace of cost reductions demonstrated in past years.