Incentives will be key to helping renewable energy stay strong

The federal government helped jump-start the nation’s rapid growth in renewable energy by taking smart action during the last recession. It can do so again, and do more. 

solar panels
Linus Lu

Policy Associate

Renewable energy is on the rise. Or at least it was, before the massive disruption caused by coronavirus.

America now has 40 times more solar power than it did in 2009, and triple the wind power. But the pandemic has suddenly put the future of renewable energy in jeopardy. The renewable energy industry has been badly hurt in the economic slowdown, losing over 100,000 jobs in March. Solar permits issued have declined by over 40 percent in some states. 

Until a little over a month ago, the growth of renewable energy was on track to help significantly bend the curve on global warming, but the havoc of the pandemic now threatens to halt the progress that we’ve made. We know that America must transition to 100 percent renewable energy by the middle of this century to prevent the worst effects of climate change, so we cannot afford a prolonged slowdown in the growth of solar or wind energy. Strong action by the federal government is needed to ensure that renewable energy continues to move our society to a sustainable, fossil-free future.

Incentive programs in place at the federal and state levels have helped to spur the growth of renewable energy over the last decade by encouraging renewable energy research, development and installation. However, several of these programs are expiring and have not yet been extended. And none were designed to meet the specific challenges raised by the coronavirus pandemic.

One of the most notable and successful incentive programs has been the Investment Tax Credit (ITC). First established by the Energy Policy Act of 2005, the ITC has been revised and extended several times over the past decade and a half, and has helped solar power achieve  an average annual growth rate of 52 percent since its implementation. Currently, the ITC provides for a 26 percent tax credit on residential and commercial solar-electric installations, as well as for solar water heating, fuel cells, small wind-energy and geothermal heat pumps. The credit has already been phased down from 30 percent in previous years, and is scheduled to  continue to decline, providing only a 10 percent credit for commercial solar energy systems and nothing for residential systems from 2022 onwards. Another federal program already expired last year: the Renewable Electricity Production Tax Credit (PTC), which offered tax credits for renewable energy developers for each kWh of energy they generated. 

When Congress wrote the legislation that phased down or phased out tax incentives for renewables, policymakers couldn’t have imagined a global pandemic that would bring the world economy to a halt and threaten the viability of many small businesses. It only makes sense to extend the tax credits in order to benefit those delayed installations and ensure that renewable energy deployments can return to the trajectory of growth we will need to meet our climate and public health goals. 

In fact, there is precedent for the federal government stepping in and supporting renewables during times of crisis. During the 2008-09 recession, Congress passed the American Recovery and Reinvestment Act of 2009, which included cash grants for clean energy projects. Over the program’s life cycle, over $26 billion was disbursed to over 100,000 projects, producing enough clean energy to power over 8.5 million homes. Cash grants were particularly effective during the recession in helping nonprofits and government agencies make the transition to clean, renewable energy. Today, with concerns about the continued availability of tax equity financing for renewable energy projects, a return to cash grants could be even more timely and important.

The federal government helped jump-start the nation’s rapid growth in renewable energy by taking smart action during the last recession. It can do so again, and do more. Government incentives through tax credits and direct cash grants will support both the renewables industry itself, as well as enable businesses and households around the country to benefit from clean energy – helping to ensure that even as the nation recovers from COVID-19, our progress toward building a nation powered by 100 percent renewable energy won’t stop.

Image via 272447 from Pixabay (Pixabay license)


Linus Lu

Policy Associate

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