2019 is the last year that you can claim the full 30% Federal Tax Credit for residential and commercial solar power systems. In 2020, the Solar Investment Tax Credit (ITC) — which has driven 59% compounded annual growth in the solar industry since it was enacted in 2005 — will begin its sunset process and fall to 26%. The tax credit will continue to decrease until 2022, at which point it will disappear for residential solar projects and drop to 10% permanently for commercial systems.
In order to beat the end of year rush and to ensure you get the full 30% tax credit, we encourage you to get a free solar assessment today so you can reserve your spot in our installation queue.
Upfront Tax Disclaimer: This is a post about a tax credit and we talk about taxes a lot (surprise!). However, we are not tax professionals and this post does not constitute professional tax advice or guidance. If you end up going on your solar journey with us, we’ll connect you with Randy Lucas, a CPA specializing in energy related tax issues, that we keep on retainer as a service to our customers
The Solar ITC is a tax credit (a dollar-for-dollar reduction of your federal tax liability) that you can claim for installing a solar system on your property. For example: If you buy a $20,000 solar system and at the end of the year you owe $7,000 in federal income taxes, you can claim the 30% Solar ITC for $6,000 ($20,000 x 30% = $6,000) and then you will only owe $1,000 in taxes. The awesome part is there is no cap on the amount that can be claimed via the tax credit for solar photovoltaic (PV) installations.
For a more comprehensive list of what is and isn’t eligible for the tax credit check out this post: “Solar Federal Tax Credit: What Is and Isn’t Eligible”. We wrote that guide because sadly there are a bunch of unpatriotic scalliwag companies out there trying to throw every type of add-on imaginable under the umbrella of the solar tax credit, subverting a beautiful American public policy for their personal gain and putting their customer in a grey tax area in the process. #yesWeMad.
Closer to home, the federal tax credit, along with strong pro-solar and renewables policies from our legislature, have made North Carolina #2 nationally in installed solar capacity. It’s helped created more than 34,000 full-time jobs in the clean energy sector in our home state (including ~80 here at Southern Energy Management!).
Before we dive into how the fading away of the tax credit will affect you and us, we should take a moment to reflect on and honor the greatest of American clean energy policies.
So the tax credit will decrease in percentage value next year — but how will that impact the net price of solar? Over the last 6 months, our average home solar system has been around 8 kilowatts in size and cost roughly $24,500 fully installed, before any incentives. After accounting for the 30% Solar ITC in 2019, the cost for the system owner would drop by $7,350 to $17,150. For the same system in 2020, the Solar ITC will reduce the cost by $6,370 to $18,130 — a net increase in price of almost $1,000.
Because there is no cap on the amount you can claim via the Solar ITC, the dollar value lost between 2019 and 2020 only gets larger as a solar system’s price increases. For a 100 kilowatt commercial solar system priced at $220,000, the value of the credit is $66,000 in 2019 vs $57,200 in 2020 — a negative swing of close to $9,000.
Another factor to consider for the net price of solar over the next year is the expected rise in solar panel prices in the latter half of 2019. While solar panel prices globally have dropped drastically over the last 3 decades, and steadily (if at slower pace) over the past 5 years, we expect that trend to break in 2019. While the cost to manufacture panels will continue to drop, the reduction in the Solar ITC is expected increase demand for panels in the US to a point that far outstrips the supply — leading to an inevitable increase in panel prices.
The shortage of solar panels will be further exacerbated by a 2018 IRS guidance (Notice 2018-59) that allows solar project developers to “safe harbor” or lock-in the full 30% Tax Credit by incurring 5 percent of the cost of the project in 2019. A common and straightforward way for developers to satisfy the 5 percent safe harbor threshold will be to begin stockpiling solar panels. When the supply the of 72-cell panels that are traditionally used by commercial and utility scale projects have all been gobbled up, developers will start raiding 60-cell residential panel supplies, thereby driving up the net cost of solar for smaller scale residential and commercial projects.
The the 5 percent safe harbor rule will turn utility scale developers into hoarding dragons as 2019 progresses. Smaller-scale solar companies (we’re hobbits in this metaphor!) will have to deal with the panel shortages and price increases this will create.
It’s barely March, the first daffodils are just spreading their arms to the morning sun, and the pollen clouds of spring are still too far off to make your nose itch — so what’s the rush? In addition to rising panel prices, which are expected to really kick into gear around mid-summer, we know there will be an installation capacity shortage for residential and commercial projects as people try to slide Indiana Jones style under the tax credit deadline at the end of the year. We know this will happen because we’ve been riding the solar industry rollercoaster (#solarcoaster) for more than 15 years and we’ve just been through 2 recent incentive deadlines: the NC state tax credit in 2015 and the Duke Energy Rebate in 2018.
If this was an undergraduate economics exercise, we would just increase the labor variable in our business model and the problem would be solved. However, our business relies on the trust and culture created by providing stable, fully benefited jobs for our team members and from the technical design, installation, and service excellence made possible by having a 100% in-house team. We know other companies will ramp up (and then ramp down) their capacity with subcontractors — and maybe they will make more money in the short-term. But we refuse to grow unsustainably for short-term gain and then transactionally prune our team, both because of the injury it will cause to our team and the negative impacts it will have on the quality of
our your solar system.
So we know it’s only March. We know December 31st seems like a hell of a long ways away. But if you’re interested in exploring solar AND you want to go on that journey with a company that cares about its team, cares about you, and that will be around in 15 years when your system needs servicing: start the process now by reaching out for a solar assessment. We’ll answer your questions and help you decide if solar is right or wrong for you, so you can make sure you capture the full solar tax credit in 2019 before it starts fading into history.
Request a free virtual solar evaluation today!