Solar energy conveys positive environmental impacts, contributes to our energy requirements, and provides more jobs as compared to the coal or oil & gas sectors in the United States. The change to renewable energy is a vital part of the global effort to minimize emissions of carbon dioxide and other earth-warming gases and lower down climate change by reducing our dependency on fossil fuels. But critics argue that this growth is only possible with the financial support and aid of the government. Now, the question arises, how much tax breaks and subsidies does renewable actually need? To boost the continuous expansion of solar energy systems, governments and other organizations offer solar tax benefits and financial incentives to make solar energy easily accessible for homeowners.
As a result of this support, homeowners can nowadays lower down the net cost of solar panel system installment ranging anywhere between 26 to 50 percent. This solar investment cost reduction has done wonders to get America’s solar industry off the ground. This makes investing in renewable energy as the first and the foremost crucial reason for lowering down earth-depleting emissions.
The adoption of government policies has helped kick-start renewable power battle among the energy industry and environmental groups. The battle comprises of state and federal policies; tax credits, low-carbon fuel standards, depreciation allowances, energy efficiency credits, and so on.
What is Federal Solar Tax Credit?
The federal residential solar energy credit is a type of tax credit that can be claimed by an individual or business on federal income taxes for a percentage of the cost involved in the installment of any solar Photovoltaic (PV) system. There is no such minimum or maximum amount limit that can be claimed. Here, the question arises, when is a residential or commercial owner eligible to claim the federal solar tax credit? The answer is you can be eligible for tax credit if you meet below mentioned criteria:
- In order to claim tax credit, the installed solar system must be placed in service during the tax year and generate electricity for a home located in the United States.
- A solar PV system has to be installed before December 31, 2019 in order to claim a 30% credit. The credit limit will decrease to 26% for systems installed in 2020 and to 22% for systems installed in 2021. Further, the tax credit expires starting in 2022 unless Congress renews it.
- For tax claim, the solar PV system has to be installed between January 1, 2006, and December 31, 2021.
- The solar PV system need to be located at your primary or secondary residence in the United States, or for an off-site community solar project, if the electricity generated is credited against, and does not exceeds your home’s electricity consumption.
- You are the owner of the installed solar PV system, which means you have bought it with cash or through financing.
- The solar system that has been installed is either new or being used for the first time. The tax credit can only be claimed basis the “original installation” criteria of the solar system.
What are the expenses included in the claim?
Below are the expenses that are included in the claim:
- Solar PV panel system or PV cells which are used to power an attic fan
- Contractor labor costing for assembly, onsite preparation, or overall installation, including permitting fees, inspection costs, and total developer fees
- Balance-of-system equipment including – wiring, inverters, and mounting equipment costing
Through several studies there is little doubt left that the solar investment tax credit benefits has done wonders to get America’s solar industry off the ground. But few experts argue that this subsidy is not the most effective way to curb greenhouse gas emissions and fight climatic change; arguably the vital reason for investing in renewable energy in the first go!
What are subsidies?
Since the Revenue Act of 1916, the United States has used tax incentives and other such policies to speed up domestic fossil fuel production. Till mid-2000s, oil and natural gas producers had benefited to the maximum. This changed when the government finally realized and decided to start minimizing greenhouse gas emissions. Since that time, a much larger share of aid has gone to improvising energy efficiency and encouraging renewable energy.
Verily depending on how you describe them, the list of subsidies can be quite long. For example, a list of renewable energy support programs available for California residents and businesses inculcates 212 items, which includes federal and state-run programs with policies varying from state to state.
For fossil fuels, subsidies designed include tax exemptions and deductions, depletion allowances and increased depreciation allowances on equipment for energy supply or system. The government also offers admittance to resources. The Department of Energy funds both research and development and the loan programs.
Reasons for the declined requirement of renewable industry subsidies
There are multiple reported studies of renewable power that has resulted in the decreasing cost of solar generation and concluded that these resources are nowadays cost-competitive with conventional electricity sources. One such study and research is done by the International Renewable Energy Agency (IRENA), an inter-governmental organization that performs research and analysis to facilitate the growth of renewable power. In today’s era renewable sources are the lowest-cost source of power generation. As the costing for solar technologies continues to be falling, the requirement for renewable industry subsidies will lower down further in more countries.
Renewable Subsidies Crosses over $100 billion Mark
Solar energy, which is one of the most utilized renewable energy resources, has been receiving various subsidies through the tax code since 1979; most of which have been established and in usage from the last decade. Since 2018, these subsidies have risen to more than $100 billion. This subsidy amount is far in excess as compared to the federal assistance received by other electricity sources such as the Department of Energy, the Department of the Interior, and the Environmental Protection Agency.