Lawmakers Seek End to Solar Industry Tax Breaks; Industry Fears Collapse

Lawmakers Seek End to Solar Industry Tax Breaks; Industry Fears Collapse
March 26, 2014

A pair of bills in the U.S. House would end tax credits responsible for creating and propping up the American solar energy industry.

House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, proposes to end the federal giveaways. Fellow GOP Congressman Mike Pompeo of Kansas has introduced a similar bill.

“For years we had worked on building consensus among our caucus against tax credits for energy companies — oil, gas, wind, solar — because profitable corporations shouldn’t rely on taxpayer support. They should rely on customers,” Pompeo said in a written statement.

SEC Filing Predicts Doom

California-based SolarCity, one of the nation’s largest solar system contractors, has admitted in Securities and Exchange Commission filings that any curtailment of tax dollars would spell doom for the company. Nearly a third of the cost of its equipment has been paid for by taxpayers.

The company, which has received more than $422 million tax dollars, is $166 million in the red and has never turned a profit, according to its latest financial report.

The $30.2 billion given away by the government for green energy had its start in September 2008 in the midst of the subprime mortgage bank bailout mess. Solar Investment Tax Credits had bipartisan support that included such GOP stalwarts as U.S. Sens. Chuck Grassley of Iowa and Mitch McConnell of Kentucky.

The law allowed a solar utility firm purchasing $1 million in solar energy-related equipment to claim a $300,000 tax credit deducted directly from taxes owed. The massive tax rebate made it possible for some solar businesses to operate tax-free.

Free Lunch Through ‘Front Loading’

A year later, the U.S. Treasury Department made it even easier for solar businesses issuing checks to companies that didn’t want to use the tax credit. Dan Kish, senior vice president of policy at the Institute for Energy Research, said front-loading cash grants rather than back-loaded credits allowed unprofitable companies to get a free lunch.

“The tax credit took new life in ‘09 with the economic stimulus,” Kish said. “Initially, it was a 30 percent credit, but what happened is people said that in order to have a credit that’s worth something you have to make a profit, and we’re not making a profit. So what about a grant program instead. And that’s what they ultimately went forward with.”

Despite intense lobbying by the solar industry, the incentives ended in 2012 when Congress didn’t vote to renew the incentives.

“The [cash grant] money is gone now, because that provision is expired from the books largely because of some of the big stories we’re all familiar with, like Solyndra,” Kish said.

Camp has tucked his cost-cutting into the Tax Reform Act of 2014. While he isn’t going to touch the systems that are up and running through the end of this year, the act repeals tax breaks starting in 2015.

Like Camp’s legislation, Pompeo’s ends future tax credits in a stand-alone bill.

Precedent Set in 1962

The recent solar subsidies like SolarCity’s trace their origins back to the Investment Tax Credit the U.S. government began providing to targeted industries in 1962. These federal tax credits, which offer businesses a direct dollar-for-dollar reduction in income taxes owed to the government, provide powerful incentive for business investment.

Over the years, investment tax credits have been used for everything from low-income housing to employer-provided child care. Congress first extended ITCs to solar initiatives by way of the Energy Tax Act of 1978.

The Energy Tax Incentives Act of 2005, a Bush-era initiative, first delivered a 30 percent tax credit for individuals who purchased solar installations. The subsidy, though generous, was capped at of $2,000 and wasn’t available to utility companies.

Dollars Flow from 2008 Crisis

It was the Emergency Economic Stabilization Act of 2008 that opened the floodgates by removing the $2,000 cap and tying the 30 percent tax rebate to purchase and installation costs. The new Solar Investment Tax Credit was a dollar-for-dollar reduction in taxes owed, not a mere reduction in taxable income.

Some solar companies have still found ways to make good on the solar investment tax credit by partnering with investors — primarily top U.S. banks — that have large tax liabilities. The solar tax credit gets passed on to the investors by way of the “tax equity market.”

However, this source of funding for the solar industry could collapse as well if Congress fails to renew the solar ITC in 2016. Without it, the future of the U.S. solar energy is in grave doubt.

Tori Richards (tori@watchdog.org) reports for Watchdog.org, where this article first appeared.