The proposed Investment Tax Credit (ITC) extension is greatly welcomed by power industry associations and developers. Cost-effectiveness is better observed in these large-scale utility projects, as they achieve break-even faster - as the generation is bartered for the long term. Hence, GlobalData expects that rejection of the extension would greaty bruise the developers involved in these projects.
Somik Das, Senior Power Analyst at GlobalData, comments: “GlobalData notes that renewables (including small hydro) formed 17% of the overall installations at the end of 2019. Benefitted by the presence of tax incentives, solar PV has enjoyed a great run in the last two decades, from no presence to more than 6% of the cumulative installed capacity by 2019. When combined with the effects of COVID-19, the future growth trajectory of the solar and wind traction could be put in jeopardy without the extension.”
Along with the ITC, an extension to the Production Tax Credit (PTC) in the current situation is likely to boost installations in the wind segment as well, which forms the majority of the renewable installed capacity in the US. The extensions are anticipated to provide a positive thrust to the wind and solar PV sectors, which together, as per GlobalData, could form around 25% of overall installations by 2025.
Das added: “The ITC has already reaped benefits as installed costs have dropped significantly since 2008. A lot of government investment comes back through tax revenues, and employment within the sector has increased multi-fold. The events around COVID-19 has set the stage to a point where an ITC extension might help provide a necessary green thrust to economic recovery.
"With the onset of the crisis, the US renewables space was forced to cut jobs. The proposals made in the Moving Forward Act has the potential to generate significant employment opportunities to revitalize the economy in the present downturn."
Notes to Editors
- Comments provided by Somik Das, Senior Power Analyst at GlobalData
- As a part of the proposed Moving Forward Act, the US’ House Democrats vouched for a US$1.5trillion bill to be voted on the 4th of July. It is aimed at improving infrastructure and boosting the nation's economy in the period following the COVID-19. The moving Forward Act, inclusive of the Growing Renewable Energy And Efficiency Now (GREEN) Act is, expected to expand the development of renewable energy. Allowing investments in enhanced efficiency and emissions model, the GREEN Act aims to reduce the nation’s carbon footprint.
- The measures in the bill propose an investment of more than US$70billion to modernize energy infrastructure, an extension of the solar ITC at a rate of 30% through till 2025, promotion of green energy and energy storage projects and widespread deployment of EV infrastructure. Along with aiding an economic recovery, the bill is expected to help in bringing about a clean energy future.
- The bill throws some sunshine on the solar sector. It proposes a 5-year extension of the solar Investment Tax Credit (ITC) at 30% through to 2025, beyond this, it would be reduced over two years. In 2026 the rate would drop to 26% then to 22% in 2027 and then drop to 10% for utility-scale and commercial solar projects. From 2028 it would be removed entirely for the residential sector. Along with this the ITC also included a direct cash payment option for recipients. Being an expected tool to aid economic recovery, the proposed extension of the ITC is greatly welcomed and cheered by industry associations and developers.
- As a part of the proposed Moving Forward Act, the US’ House Democrats vouched for a US$1.5trillion bill. It is aimed at improving infrastructure and boosting the nation's economy in the period following the COVID-19.
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