3 - Incentives
In addition to solar-friendly utility tariffs, adoption of solar has been incentivized through different types of federal and state credits.
Federal Tax Credit
Federal incentives for solar PV are provided for in the form of a tax credit, referred to as the Solar Investment Tax Credit (ITC). The ITC was originally set up to provide a 30% tax credit through 2016 on the value of the solar PV investment. On December 2015, the U.S. House and Senate passed a spending package that included an extension of the ITC at 30% through 2019. In addition to the full three-year extension, the ITC will ramp down to 26% in 2020, 22% in 2021, then finally 10% in 2022. The bill will also offer a commence-construction clause that extends the credit to any project in development before 2024. To qualify for the ITC, projects must be fully installed and functional.
In addition to the ITC, the IRS allows for accelerated depreciation of solar assets through the Modified Accelerated Cost-Recovery System (MACRS). MACRS allows for a class life of 5 years for solar PV system, meaning the solar PV asset may be fully depreciated in 5 years. With ITC and accelerated depreciation, Federal Incentives can offset up to 45% of the system cost.
California Solar Incentive (CSI)
California state incentives for solar PV are provided by the California Solar Initiative (CSI) program for customers of the three investor owned utilities (PG&E, SCE and SDG&E). Similar incentive programs are provided by some of the smaller utilities throughout the state. The CSI program, with a budget of $2.1 billion, is a staged program with decreasing incentives levels as more solar projects are implemented. Currently, SCE, PG&E and SDG&E have all exhausted their CSI program funds. The status of the program may be tracked at: www.csi-trigger.com
Renewable Energy Credits (RECs)
The environmental attributes associated with the production of electricity from a renewable resource are quantified and commodified in the form of Renewable Energy Credits (RECs). One REC is equivalent to 1 MWh of electricity. A REC can be sold either "bundled" with the underlying energy or "unbundled" as a separate commodity from the energy itself, into a REC trading market. Once unbundled, the energy associated with the unbundled REC may no longer be claimed as renewable or “green” energy.
Carbon credits originate from greenhouse gas (GHG) emission reduction projects that deliver measurable reductions in emissions by either:
- Replacing the use of dirty fossil fuels with renewable energy;
- Reducing the use of fossil fuels through energy efficiency;
- Diverting greenhouse gas emissions to other uses; or
- Capturing and storing already released carbon in trees and other plants.
California has initiated the first US based cap-and-trade carbon program in response to AB 32 climate change legislation. The California Air Resources Control Board (CARB) operates this market. The program involves capping the allowable level of carbon emissions from specific sectors within the California economy and allowing trading of allocated carbon credits within those sectors. The overall cap will be gradually lowered, reducing the number of credits available and incentivizing reductions in emissions.
The program started on January 1, 2012, with an enforceable compliance obligation beginning with 2013 GHG emissions. The 2013 compliance is targeting major GHG emitters. In 2015, the program expanded to include smaller emitters and is expected to include 85% of California emission sources.
Carbon Offset Credits
In addition to trading of a limited number of carbon credits allocated to the various industries, “Offset Credits” may be sold into the market from a small number of specific projects. Offset credits are greenhouse gas (GHG) emission reductions or sequestered carbon that may be used by a regulated entity to meet up to eight percent of its compliance obligation under the cap-and-trade program.
Each offset credit is equal to 1 metric ton of carbon dioxide equivalent (MTCO2e) GHG emissions and can only be quantified using a CARB approved compliance offset protocol. There are currently four protocols:
- US Forest Projects
- Livestock Projects
- Ozone Depleting Substance Projects
- Urban Forest Projects
Additional compliance offset protocols will be considered as part of future rulemaking activities. Future demand is estimated at 208 million offset credits by 2020. (Reuters, 2012)