Solar energy has seen growth in the United States, with over 155 gigawatts (GW) of solar capacity installed nationwide. This provides enough power supply to 27 million homes. As the solar market continues its expansion, federal and state incentives make going solar an attractive option. This allows businesses to reduce operating expenses and carbon emissions.
Investing in solar panels can represent a significant financial commitment for businesses. With the right solar energy incentives and tax credits, solar can save your company significant amounts of money in the long run. This blog post explores the financial advantages that businesses can harness when adopting solar power.
The Significance of the Solar Investment Tax Credit
The Solar Investment Tax Credit (ITC) has been one of the most important federal policies supporting solar energy growth. Enacted in 2006, the ITC offers a 30% tax credit for solar systems installed on residential and commercial properties. This incentive has been pivotal to solar energy’s expansion, with the industry growing by over 200 times since the ITC was introduced.
The Economic Impact of the ITC
Thanks to the Solar ITC, the U.S. solar industry has invested over $280 billion in the national economy. This investment has created hundreds of thousands of well-paying American jobs. Over 263,000 people are now employed in the solar sector across more than 10,000 companies as of 2022. In that year alone, the industry contributed $35 billion in private solar investments.
One way for landowners to participate in the solar boom is by leasing their property. They can significantly offset the initial investment costs, making it a cost-effective choice. Additionally, for businesses with unused rooftops, the option to lease land to solar farm can be particularly lucrative. With new solar facilities needed to meet clean energy goals, land lease opportunities will likely expand in the coming years.
Key Features of the ITC
The Solar ITC offers both residential and commercial consumers a 30% tax credit off the total cost of installing a solar energy system. This credit applies to both individual homeowners and businesses investing in solar panels or other solar equipment installation costs.
For residential consumers, there is no limit on the size of systems eligible for the credit. Meanwhile, commercial entities can claim the ITC on systems up to 1 megawatt in capacity.
The Extension and Evolution of the ITC
The Solar Energy Industries Association (SEIA) has advocated for the extension of the ITC over the years. Most recently, the Inflation Reduction Act passed in August 2022 introduced tax measures beneficial for solar businesses. One key provision was a 10-year extension of the existing 30% Solar ITC for residential and commercial sectors.
The Act also introduced bonus credits for solar manufacturers, an important move to boost domestic solar manufacturing and enhance the United States’ clean energy supply chain.
The Future of Solar Energy in the U.S.
While solar power has experienced substantial growth, it still accounts for only a small portion of the electricity used in America, approximately 3%. But experts think it can get much bigger, and they expect it to become three times as big in the next five years. With the right incentives, solar is poised to become a major pillar of America’s clean energy economy.
Achieving a 100% clean electricity system will also hinge on a major buildout of solar energy infrastructure. The U.S. needs to install a lot more solar power. Right now, it’s like adding 20 big power plants each year. But we have to increase it to 140 power plants a year by the end of this decade. To achieve this, the solar industry must leverage financial incentives and innovative technologies.
The Broader Economic Benefits of the ITC
Besides incentivizing renewable energy adoption, the Solar ITC has also been instrumental in driving down costs and making solar power more affordable and accessible. Between 2010 and 2021, the average price of residential solar panels fell by over 40%. As prices continue to decrease, solar energy becomes viable for more American individuals and businesses.
How Businesses Can Leverage the ITC
For companies looking to capitalize on the ITC’s benefits, the key is understanding the construction standard. To qualify for the Section 48 commercial ITC, businesses must prove to the IRS that physical work of a significant nature has begun on their solar facility.
These determined by meeting one of two tests:
- Starting actual physical work of a significant nature, such as installing racking or other on-site equipment.
- Paying or incurring at least 5% of the total cost of the facility, excluding land and certain preliminary planning activities.
Meeting either standard establishes construction has commenced, making the project eligible for the 30% tax credit.
To qualify for tax credits, organizations must have a clear understanding of the IRS rules pertaining to project timelines. Eligibility hinges on the construction standard. After starting physical work or paying at least 5% of project costs, businesses can qualify for the ITC in effect that year. The completed project only needs to be operational by the 2026 tax year.
Solar Adoption Statistics
- Solar contributed 45% of all new US electric capacity in 2023
- Its share of total generation has risen from 0.1% in 2010 to over 5% today
- By 2027, 30% of behind-the-meter solar systems will pair storage with solar
- In 2022, the residential market grew 40% with 6 GW installed
- Corporate solar capacity reached 19 GW across 50,000 facilities by mid-2022
The Road Ahead
- Annual solar installations must increase from 22 GW in 2022 to 140 GW by 2030 to meet 100% clean electricity targets
- 90 GW of utility-scale projects are now contracted through the pipeline
- The IRA provides tax incentives and stability to triple solar deployment by 2028
Conclusion
The Solar ITC has already catalyzed immense solar energy growth across America. With smart long-term policy frameworks like the Inflation Reduction Act, the next decade looks even brighter for solar companies and the US economy.
By leveraging the full range of available tax credits and incentives, your business can maximize savings and become part of America’s clean energy future. Reach out to discuss your company’s solar potential today.
FAQs
How has the ITC affected the growth of the solar industry in the U.S.?
The ITC has catalyzed exponential growth in the U.S. solar industry, with total capacity expanding by over 200 times since the credit was enacted in 2006. It has played a pivotal role in solar energy adoption.
What are the financial benefits for businesses investing in solar energy?
Businesses installing solar power systems can benefit from a 30% federal Investment Tax Credit. This can lead to savings and a faster payback on your company’s investment.
How does the construction standard affect businesses?
Meeting the IRS construction requirements is crucial to qualify for the 30% Solar ITC. Companies must start physical work or pay at least 5% of project costs.
