Surprise U.S. Tax Credit Extension Ensures Renewable Energy Future

Over the past decade, two tax incentives, the Investment Tax Credit (ITC) and the Production Tax Credit (PTC), have, in part, led to more than 400 billion dollars of investment in the U.S. renewable energy marketplace. However, within this decade of growth, consumers, renewable installation companies and utility providers have had to weather consistent uncertainties, putting them at financial risk, as the ITC and PTC have temporarily lapsed and were expected to expire before 2016. Then, in a surprise move, the U.S. Congress extended those tax credits within an omnibus budget package quickly signed by President Barack Obama. This legislative action finally gives the renewable energy marketplace, especially the solar energy and wind energy sectors, the stability it needs to eventually dominate the U.S. energy market in 2020, when it will likely represent the cheapest, most reliable and most environmentally responsible energy-production option.

Specifically, the omnibus legislation extends the 30-percent Investment Tax Credit for solar photoelectric until the end of 2018, when it will step down, incrementally, to 10 percent in 2022. The other clear winner in this legislation, wind energy, will receive a 2.3-cent-per-kilowatt-hour PTC extension through 2016, when it will decline at a rate of 20 percent per year until 2020. Other renewable sectors, such as geothermal, landfill gas, marine energy and incremental hydroelectric production, will also qualify for the 30-percent ITC and a one-year PTC extension, but failed to receive the long-term support that makes this legislation so significant to the solar and wind markets.

For the two clear winners, wind and solar, Bloomberg New Energy Finance reports that the extension of the ITC and PTC will allow 8 million additional households to run on renewable energy by 2020, funded by approximately $73 billion dollars of new investment. From the production side, Bloomberg anticipates the adoption of 37 gigawatts of new wind and solar capacity, or a 56-percent, five-year growth for the industry. Because of this direct investment and growth, the renewable energy sector’s infrastructure, workforce and supply chain can continue to mature until 2020, at which point renewable energy should out-compete fossil-fuel-based energy production.

Like many compromises, the inclusion of the ITC and PTC extension in the omnibus bill was not without controversy, as Congress tied the expiration of the 40-year-old Oil Export Ban, a longstanding target of crude oil producers and Republicans in Congress, to the deal. On this point, environmentalists particularly worry that the allowance of exports will increase global carbon emissions and domestic oil drilling. This is likely unfounded, according to multiple sources, including Abdalla El-Badri, the secretary-general Organization of Petroleum Exporting Countries (OPEC), primarily because the U.S. is a net oil importer, and because the global oil market is so large. One unintended effect of the Oil Export Ban has been the preference of cheaper, imported crude oils from nondomestic sources, such as Canada’s infamous tar sands, by U.S.-based refineries, which stand to benefit from trade imbalances.