Solar, wind tax credits ‘a costly barrier’ — report

Source: By David Iaconangelo, E&E News reporter • Posted: Tuesday, December 3, 2019

Existing federal tax credits for solar and wind power need to be reformed and aren’t conducive to development of new clean energy technologies, according to a report yesterday from the Information Technology & Innovation Foundation.

Facing phase-downs of two key tax credits in coming years, solar and wind industry associations have launched lobbying campaigns in recent months to push for extended incentives.

The report’s authors at ITIF, a think tank that promotes innovation-friendly policies in science and technology, said an extension of credits would probably help deploy more wind and solar in coming years, but it would also favor the most widely used technologies — like crystalline silicon solar cells and horizontal axis wind turbines — over younger, more expensive alternatives that could eventually prove superior.

“As long as there’s a level playing field, most customers will opt for the technology that’s cheaper,” said David Hart, a senior fellow at ITIF and lead author of the report.

Instead, policymakers should create a tiered system, he said. Credits for mature technology would get phased down or out. Emergent technologies would go on receiving credits, giving a lift to things like floating offshore wind systems or unusually flexible solar perovskite cells.

“The main purpose of credits, as a policy tool, is to help technologies get through that difficult stage where they’re just starting to be adopted but prices are relatively high,” said Hart.

For utility-scale solar, the investment tax credit (ITC) drops from 30% this year to 10% in 2022. For residential systems, it disappears that same year. Next year, wind developers can no longer claim a production tax credit (PTC) for new projects.

Solar and wind industry representatives issued statements in response to the report suggesting the ITC and PTC would help newer technologies emerge as well.

Aaron Severn, senior director of federal affairs for the American Wind Energy Association, pointed to a 70% drop in the cost of wind power over the last decade as evidence that the PTC has driven innovation.

The U.S. offshore wind industry, he added, was “a case in point that new, innovative technology can come to market under the existing credits.”

The EV ‘sweet spot’

Both the wind and solar industries would keep on growing despite a credit phase-down or phaseout, according to ITIF.

A uniform subsidy across solar and wind types could end up hampering the global energy transition by posing “a costly barrier to innovation,” the authors wrote. They cited International Energy Agency projections that saw global emissions increasing through 2050, assuming few of today’s pilot-stage technologies emerge into widespread use.

Nor could credits act as a substitute for carbon taxes or for well-funded research and development programs, said Hart.

“The thing that really excites people about the ITC and PTC is the promise of carbon emissions reductions. Maybe this is the best we can do, but it isn’t all that good for that purpose,” he said.

The group envisioned new technologies getting help from subsidies offered to early adopters, who allow companies to scale up and work out the kinks in their product.

One existing subsidy for clean energy — the $7,500 credit to drivers who buy new electric vehicles — is “at the sweet spot right now,” said Hart.

ITIF recommended that the credit be extended for vehicle manufacturers that have racked up more than 200,000 EV sales, like Tesla Inc. and General Motors Co., and thus aren’t eligible any longer. It also said subsidies could be altered to give extra favor to U.S.-based manufacturing of EVs.

Another model subsidy, according to the group, was the long-expired policy for energy-efficient appliances, known as 45M, which paid credits to manufacturers for the most efficient versions of their products. Its standards ratcheted up over time, unlike other less successful efficiency credits.

Congress, meanwhile, should pass off responsibility to the Energy Department or other executive agencies for decisions on the “eligibility and duration” of tax credits, ITIF said.

“Such an approach would bring more expertise into decision-making, avoid arbitrary political decisions, limit the power of incumbent stakeholders, and raise the odds of incentives being phased out as technologies mature,” they wrote.