Is this any way to drive an industry? The answer is a resounding no. The US has virtually no federal renewable energy policy, and almost by accident has become a major solar market in the world despite itself. Many naysayers like to frame the argument in terms of subsidies and handouts, but virtually all forms of energy get some form of governmental support, which for those industries is called policy—somehow people call it subsidies when referring to support for the solar industry and other renewable energy.
Need to diversify our energy portfolio
What makes the solar energy industry special is the extent to which it has had to depend on a patchwork of state and local incentive structures that are as fragile as the state and local budgets to which they are beholden. As local budgets tighten, the windows close leaving many homeowners out of luck and out of patience. Only those who have been able to maneuver their way to the front of the line get the reward.
If we say that it is responsible policy to diversify our energy sources, then why leave solar in the dark. Solar now makes up less than one quarter of one percent of our energy sources in the U.S. Enough is enough already and the time is ripe for a national solar energy policy.
Investment tax credit is only important federal incentive
The US has a series of objectives and laws that can apply to renewable energy such as the Public Utility Regulatory Policies Act (PURPA, 1978), the Energy Policy Act (EPACT, 2005) and the American Recovery and Reinvestment Act (ARRA, 2009). The EPACT gave renewable energies a larger share of government funding, and created an Investment Tax Credit (ITC) for homeowners and businesses, for which they receive a tax credit worth 30% of their solar installation cost.
For the commoner like you and me, the only thing that has made a difference is this tax credit, which has been the centerpiece of incentives at the federal level. This incentive has opened up the possibility of cohesive support for the solar industry, but nothing else has been done since its enactment, and as we describe in our learning article on policy options for the solar energy industry, there are alternative approaches. What we argue is that there are major alternatives, and almost any policy is better than no policy or a fragmented, unreliable policy.
The reason that the ITC has been important is that it is the only long-term commitment to renewal energy. In 2008, the Energy Improvement and Extension Act extended the ITC through the end of 2016, and in 2009, ARRA removed the $2,000 dollar cap on solar installations. The 1603 Grant, also part of ARRA, allows businesses to either take the ITC or receive a grant worth 30% of the basis of the property for solar energy instead. This has proven to be a significant stimulus for businesses to install solar energy. It is set to expire at the end of 2011, but there is a proposal to extend it one more year. PURPA was also a crucial legislation because it required public utility companies to buy energy from small-scale electricity producers, such as homeowners with solar panels installed on their property.
State-by-state incentives are not sustainable
Any additional incentives are provided on a state-by-state basis, and include Renewable Portfolio Standards (RPS), Feed-in-Tariffs (FITs) and Property Assessed Clean Energy (PACE). States and local governments (and even some utilities) filled the vacuum on federal policy. The positive effect of these programs is that they incubated various approaches, and now we have much more information about programs that work and those that do not work as well.
The negative effect of these multifarious programs is that there is a patchwork quilt of solar incentives throughout the U.S. If the federal government chooses to implement a federal policy now, problems related to coexistence of state and federal policies need to be worked out, but a federal policy is important for the future of the solar industry.
We understand that there are policy challenges if the federal government were to enact a policy to support the growth of the solar energy industry. Policy coexistence can be problematic if federal and state policies overlap but are not equally stringent, which can result in leakage. Leakage is the idea that an increase in solar energy installations in the more stringent state will be offset by the decrease in installations in the rest of the country. But there are policy approaches to avoid linkage and the goal is to create a uniform structure to obviate the boom bust cycle that we have seen in various parts of the country.
Huge benefits to national renewable energy strategy
There are huge benefits to a federal renewable energy strategy: it allows for minimization of leakage, for the removal of the patchwork quilt of regional policy actions that confuse companies and make their movement throughout the country more difficult, and for renewable energy growth because of increased investment due to stability.
For financial and political reasons, it makes more sense for the federal government to handle incentive structures. The lack of a coherent solar energy policy undermines this fledgling industry. The one constant in successful growing industries is a stable and predictable legislative regime to allow the private sector to formulate long-term strategies dependent on this legal landscape. As states cut back on their budgets, solar support has become precarious. Underfunded and handled on a state-by-state basis, failed incentives are leaving homeowners who want to put solar panels on their homes out in the cold and the market unstable and unpredictable. There is a clear need for a stable, long-term federal incentive structure and Congress and the Administration should see that it is in the interest of the country to forge this policy sooner than later.