Economic Stimulus Bill: Solar Power Implications

The new stimulus bill is going to help a lot of solar customers get the financing and tax benefits they need to move forward with installations this year. Items of greatest note in the article are 1) the option to collect cash immediately after system completion instead of waiting for the 30% Investment Tax Credit, and 2) an increase of first year depreciation by 50%. There are several important implications of the stimulus bill.

American Recovery and Reinvestment Act

On February 17, 2009, President Barrack Obama signed the economic stimulus bill into Law. There were several provisions in the bill for renewable energy, some of which will impact solar power. Both the marketplace, and solar financing will be effected in some positive ways with the new government support in place.

Below: The economic stimulus package will create incentives for both residential and commercial solar power purchases in the form of grants and tax cuts. The image below features a commercial solar power array.

How the Bill Impacts Photovoltaics

The new stimulus package has provisions that will implement the following programs, and benefits which are all associated to Solar Power:
1- The bill Eliminates present ITC penalties for subsidized energy financing : Solar Power buyers may receive a cash grant instead of a 30% ITC (Investment Tax Credit, payable 60 days after install)
2-A new Department of Energy loan guarantee program
3-Tax incentives for manufacturers: 50% bonus first year depreciation allowance for new equipment (accelerated depreciation)
4-Another tax incentive for manufacturers: 30% refundable tax credit for purchasing manufacturing equipment in any way associated with solar power
5-New federal loans will now be available for manufacturers purchasing solar equipment

These provisions will increase consumer demand by making solar power more immediately affordable due to cash grants, and new DOE loans. Manufacturers also will receive incentives which will help cut costs and improve production (tax and depreciation benefits). The cash grant has a few stipulations; the applicable projects must start in 2009-2010 and must be completed by 2016. Another stipulation is that tax exempt entities, such as government and non profit are not eligible.

The depreciation benefit adjustment allows for an adjustment to the schedule, which still totals 100% (it does not change to 150% depreciation!) The change simply allows the equipment to be depreciated sooner in conjunction with MACRS and the basis is 85% of the installed system cost, less 50% of the ITC or cash grant.

Year 1—60%; Yr 2--16%; Yr 3—9.6%; Yr 4—5.76%; Yr 5—5.76%; Yr 6—2.88%.

More Provisions on Solar

There are a few more requirements given by the bill, to assure that the grants and tax cuts end up in the right hands. These include paying workers that work on solar projects the ‘prevailing wage’ at a minimum, a quarterly filing on grant subsidized projects, and for any public projects, they must ‘buy american’. The provision to ‘buy american’ however, will not effect private projects (just public ones).


The new solar power incentives provided by the USA government are not necessarily unique. Governments worldwide have begun to provide more incentives for photovoltaics. Below: A worker installs solar power in Mali, Africa.

How the Bill Will Impact the Industry

Pre-Economic stimulus bill, manufacturers relied heavily, and solely on consumer tax credits from the government for sales. With the recent economic downturn, tax credits alone have not been sustaining sales very well—since many people and businesses are taking losses. In other words, a tax credit has been a poor incentive for many people during the downturn. The provision which offers a government grant instead of a tax credit was created to address this very issue. An immediate cash grant will provide a greater incentive for most consumers—than a future tax credit. As a side note, the AMT (alternative minimum tax) may make the accelerated depreciation provision of the bill obsolete.

Most likely, many more business will choose to get solar power, since they can finance their solar power, and get an immediate cash grant from the government, which will create additional cash flow in the short run.

Below: Solar wafer processing equipment and personal at work. The economic stimulus bill will create incentives for manufacturers to help reduce their solar power production costs as well as improve available financing.

Conclusion

The Economic stimulus bill has many provisions which will accelerate the growth of the solar industry and spur increased business and consumer demand. The cash grant from the government will help both consumers and businesses finance solar power systems. The time constraints – meaning that these benefits are only available during 2009 to 2010, will also encourage many businesses and consumers to make an immediate decision to capitalize on the offer while it lasts. Contractors should consider re-approaching both retail and commercial customers that never installed solar because of financing issues, since many of these prospects may now be able to afford solar power (due to the cash grants now available).

Fossil Fuel Demand is Growing Faster than the Supply

With the skyrocketing 2009 fossil fuel prices (and the gouging which consumers experienced at the gas stations), the whole nation has become acutely aware of our country's problematic dependence on fossil fuels. As many nations, such as China grow economically, it seems the demand growth for fossil fuels has started to truly outpace the supply growth. This 'shortage' has resulting in the skyrocketing prices per barrel of oil which we saw in 2009. I recognize to a large extent, that the supply is not growing due to factors such as OPEC. However, regardless of 'why', the fact remains that demand is outpacing supply for fossil fuels. As the world economy continues to grow, I would venture to say, we are only starting to see the problems our dependence on fossil fuels will create. Unless our nation takes steps immediately to increase our own energy sources, including fossil fuels, solar, etc, we will most likely see even more severe problems in the future.

Below: Fossil fuel combustion byproducts, such as that created by the power plant displayed below release heavy metals and other pollutants into our atmosphere. Aside from adding to the global warming effecting and destroying nearby land and water for other uses, this burnoff has other negative effects such as acid rain.

The US Government Takes Steps Towards Energy Independence

It's great to see that our President and Congress are taking at least small immediate actions to spur the growth of clean, non fossil fuel energy sources, such as solar power. Although solar power does pay for itself eventually, most businesses and consumers cannot afford it. Hopefully, bills such as this Economic Stimulus one, will help the solar industry continue to grow, and become more affordable for both residential and commercial customers. As mentioned in another article on this forum, if every home and business added solar electric power systems, 75% off all USA electrical needs could be supplied (in geographic areas where it's economically feasible). This would reduce coal burn-off, and CO2 emissions from natural gas and other fossil fuels which currently keep most USA power plants running. As worldwide demand for fossil fuels grow, reducing our own demand may be a shrewd decision considering the worldwide shortages that will likely be forthcoming.

One More Thing...

Although I do care about wildlife, and the beautiful protected areas of places such as Alaska, I do hope our country either replaces fossil fuels with a new energy source, or we find our own way to produce more fossil fuels. Perhaps we can find a way to drill more of our own oil without destroying our environment. Or perhaps, a sacrifice of some kind will be necessary. Nothing great or worthwhile ever comes without some kind of sacrifice. The sovereignty of our nation is at stake here, and allowing our country to depend heavily on external sources of fossil fuels could put our nation at great risk of future disasters. Sooner or later a shortage will come, whether its in 5 years or 100 years, I hope we are ready.

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