Investment tax credit may help boost ‘solar-plus-storage’

By ROB NIKOLEWSKI | The San Diego Union Tribune

Although it may have gone unnoticed by many due to the holiday season and the storming of the U.S. Capitol, a relatively small part of a mammoth $1.4 trillion omnibus bill passed and enacted a few weeks ago included an extension of the federal tax credit for solar installations.

Inside the nearly 5,600-page bill, the Investment Tax Credit for solar will remain at 26 percent for the next two years. Prior to the bill’s passage, what’s known as the ITC had been poised to drop to 22 percent this year.

An additional four percentage points may not seem like much but in uncertain economic times, solar businesses and their supporters will gladly take it — especially in California, the state with the largest concentration of installations in the country.

“The extension of the ITC in the short term is great,” said Bernadette Del Chiaro, executive director of the California Solar & Storage Association, an industry trade group. “We were speeding toward a cliff and we’ve been given another two years of roadway.”

The spending bill pushes back the previously scheduled ramp-down in the solar tax credit by two years.

Under the new schedule, the credit will remain at 26 percent for 2021 and 2022 and then drop to 22 percent at the end of 2023. In 2024, the tax credit will drop to 10 percent for large-scale projects and is completely eliminated for small solar installations such as rooftop systems for homeowners.

For Barry Cinnamon, who has been installing solar systems for residential, commercial and industrial customers in Silicon Valley for decades, the extension’s biggest impact may come from the fact that the tax credit also applies to energy storage systems — that is, batteries — that are installed at the same time as solar.

What’s called “solar-plus-storage” can be valuable for owners of rooftop systems. Customers can take the excess amount of solar their systems generate during the day when electricity prices are cheap, store it and then discharge the battery during the 4 p.m. to 9 p.m. period when electricity costs much more per kilowatt-hour.

“Let’s say a typical solar system sells for $20,000,” Cinnamon said. “So the homeowner would get a $5,200 reduction in the (federal) taxes they would have to pay for in 2021. If they wanted to get solar with a battery, let’s say in round numbers, the battery costs $10,000. So they’ll get another $2,600" with the 26 percent tax credit.

That’s still a pretty hefty check to write but solar-plus-storage can also help customers who live in areas like the San Diego’s backcountry that are susceptible to power outages. California utilities such as San Diego Gas & Electric have increasingly turned off power in segmented areas when windy and dry conditions can lead to powerlines falling to the ground, sparking wildfires.

A battery storage system can help keep the lights on when the grid is turned off.

In fact, according to data compiled from California Distributed Generation Statistics, installations of residential storage systems spiked last September and October in the service territory of Pacific Gas & Electric after parts of Central and Northern California suffered through another deadly spate of wildfires and blackouts.

“When you have the lights shut off on you while you’re home with your kids, trying to manage Zoom calls and everything else,” Del Chiaro said, “it becomes a front-burner priority” to have access to electricity.

But storage paired with solar is still a bit of an outlier, even in California. According to Del Chiaro, of the 1.3 million residential sites equipped with solar, just 30,000 have battery storage systems attached to them.

Cinnamon, CEO of Cinnamon Energy Systems, thinks the ITC extension may lead to a boost for installations among commercial and industrial customers.

“You may have a factory or a warehouse in San Diego and there’s a humongous roof on there,” Cinnamons said, “and if you’ve got room for a thousand solar panels, that 4 percent (26 percent, opposed to 22 percent) makes a difference.”

Like almost every business, the solar industry in California experienced a roller-coaster ride in 2020 as COVID-19 restrictions were put in place.

Sales of residential systems declined in the spring when the initial stay-at-home orders were instituted but then rebounded to pre-COVID levels later in the year. According to numbers compiled through the end of October, residential installations in California for all of 2020 were on pace to slightly exceed 2019, despite the pandemic.

Commercial installations through Oct. 31 were also up compared with the previous year.

If the numbers are holding steady, why then did solar need an extension of the tax credit?

“The private sector should assume the risk (and reap the rewards) of investing in new technologies” such as solar, wind, geothermal, carbon capture and nuclear, the Heritage Foundation, a conservative think tank, wrote shortly before the omnibus bill passed.

“We’re trying to change the very fabric of our energy economy, how we power our homes and our lives,” Del Chiaro said. “We’re racing against the clock and government needs to help consumers, put a little thumb on the scale on consumer decision-making to say, ‘Hey, we want to encourage you to do this because the planet needs you to.’”

A little more than five years ago, the solar ITC faced elimination but a compromise between Democrats and Republicans in December 2015 extended the tax credit for solar, as well as an investment tax credit for wind power.

Solar Investment Tax Credit
Deduction on federal taxes
2021 26%
2022 26%
2023 22%
2024 10% for large-scale installations; 0% for residential

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