This time last year, the U.S. solar industry was staring down the barrel of a ramp down in investment tax credits (ITCs), slated to begin in 2017. At the time, we predicted in one of our ITC Handbook that the dramatic spike in projects closing in 2016, followed by an abrupt decline in 2017, showed that the market did not expect an ITC extension. However, to the surprise of many, the U.S. Congress was able to pass an ITC extension at the eleventh hour. While this is undoubtedly good news for the industry, the latest release of Mercatus’ Global Advanced Insights Report takes a closer look at the impending impact of the extension.

Currently, the market outlook remains heavily influenced by the former expectation of a ITC ramp down. Most notably, there is a large drop in project volume by Commercial Online Date (COD) after 2016. Our Insights Report predicts that, absent the time crunch, many COD 2016 projects will now be pushed back to 2017, and we will see a general evening out of the spikes caused by the once-looming ramp down.

Our findings list the ITC extension as one of two key 2015 events for advanced energy; the second being the Clean Power Plan (CPP). The two, in tandem, represent a short and long term plan for ensuring clean energy development. Under the current timeline, the ITC ramp down will occur in 2020, much closer to the 2022 CPP compliance date. This extension should prove to be a useful tool in bridging the gap between now and the implementation of the CPP.

GTM Research agrees that the extension will smooth out the post 2016 hiccup, and is expected to foster an additional $40 billion in investment between 2016 and 2020. In a roundtable of GTM researchers, the participants also discussed the benefits of the ramp down scare. Many solar developers invested in cost saving innovations, such as 1,500 volt systems, to stay competitive in a post-ITC world. Now, the extension was granted and these innovations are still ready for deployment, giving solar the possibility to be hyper competitive in the marketplace.

The advantages of the ITC extension are clear: anticipation of the ramp down had created an abrupt disturbance to the market. In 2022, CPP enforcement would have required an abrupt disturbance in the opposite direction, and the market may not have been prepared. As our findings suggest, the ITC extension will smooth out this issue. While it may seem frustrating that the decision was not reached until the last minute, we must remember that necessity is the mother of invention. In the period leading up to the decision, we saw a lot of new innovation come from the solar industry.

There are, indeed, a lot of moving pieces to the ITC extension. It is another reminder of how information dense the advanced energy industry is, and why accurate information and strong data management are absolute necessities for all of its players.

 

To get a more in depth view into the ITC extension and other policies, download the Mercatus Global Advanced Insights Report Vol. IV.