Over the past two decades, homeowners have been able to receive thousands of dollars in federal tax credits to help offset the high upfront expenses of solar energy listings. Things should have lasted until 2034. But this week, the U.S. House of Representatives proposed a sudden end to incentives at the end of the year. If this idea survived the House and passed the Senate, it could overturn the economic algorithm that powers your home with the sun.
“This will make solar power impossible,” said Glen Brand, director of policy and advocacy at Solar United Neighbors. “What the House does is put the average American in a very difficult place. They basically say they are not helping people whose energy costs are rising.”
The country’s first Sun tax credit came into effect in 1978, but was allowed to expire when Ronald Regan took office in 1985. However, in 2005, another Republican – President George W. Bush – recovered them. Since then, lawmakers have extended and adjusted incentives, mainly due to the recent passage of the Inflation Act 2022 (IRA) or IRA, which sets credit at 30% of system costs until 2032 and until the two-year phase out.
Zoë Gaston, chief analyst at residential solar, energy consultant Wood Mackenzie, said the average cost of solar systems in the U.S. is only $28,000. This means the tax credit is worth about $8,500.
On Tuesday, the House Ways and Means Committee released its initial budget settlement proposal that would withdraw most of the IRA, including support for residential solar. The so-called 25D tax credit still applies to systems installed this year, and then it will disappear completely.
Without a tax credit, solar systems may still have financial implications where they get a lot of sunlight or have high electricity prices, or both, but the payback period may grow. For others, math may not work at all.
“We expect sales and installations to surge this year, followed by a contraction in the market,” Gaston said. “If homeowners are considering solar and affordable,” now is the time. ”
25D Credit is not the only relevant tax relief that is threatened. Another credit of 48E can be used to install solar energy in a resident’s business, then lease equipment or sign a power purchase agreement. This allows the company to reduce the fees for customers. According to Gaston, more than half of residential facilities now follow this third-party ownership model.
Rather than eliminating 48E, limits are adopted in the limitations of the source of materials in photovoltaic panels. Although experts are still elucidating precisely what the proposed language means, it is often intended to prohibit participation of “foreign entities of concern” (including those who make the vast majority of solar modules in China).
“This has enabled installers or developers to fulfill their entirely impossible supply chain obligations,” said Sean Gallagher, senior vice president of policy at trade group Solar Energy Industries Association. He said this could effectively enable 48E Credit to access from 2026.
Gaston said the current House language could at least temporarily push people to third-party ownership options. But when Wood Mackenzie made the analysis ahead of the House draft, the stage of points was achieved by 2028, and by the end of the decade, it still expected that installed residential capacity would drop by 30%.
“It will be devastating for companies, employees and customers,” Gallagher said. “It will kill an industry that supports hundreds of thousands of workers and tens of thousands of dollars in investment every year.”
The move to the house is not the only headwind facing the solar industry. For example, some states (for example, California) reduce the amount of electricity homeowners can sell for the grid, thus reducing solar profits. Even before Republicans took control of Congress and the White House, the company began to let employees go. With that, more layoffs came.
Some Republicans acknowledge the role of energy tax credit in the economy and its regions. Twenty-one House members of the party signed a letter to the en route, meaning chairman Jason Smith expressed concerns about “a disruptive change in the energy tax structure of our country.” Four Republican senators also wrote to Majority Leader John Thun (R-SD), urging a “targeted, pragmatic approach” to any changes.
“This will open up what the Senate has done,” Brand said of the future of solar credit. He believes the House proposal is unlikely to become law in its current form and is optimistic that the rollback will be corrected. “It’s part of what the Senate can do right.”
But the harm to the solar industry has already been done, says Jacquelyn Pless, a professor who studies energy and environmental economics at the MIT Sloan School of Management. She said the policy of constant back and forth makes it difficult for companies to plan ahead.
“Policy fluctuations are really my greater concern,” Price said. “Political uncertainty alone can start to freeze investments, boost costs and damage market confidence.”
This article originally appeared in Grist AT, a nonprofit independent media organization dedicated to telling climate solutions and formal future stories. Learn more at grist.org
