The Hill, December 11, 2015
In his 1790 Report on Manufactures, Alexander Hamilton argued that America’s “infant” industries needed to be protected from competitors in Britain and France in order to achieve what we now call economies of scale. Hamilton’s report was subsequently used to justify the imposition of huge tariffs on U.S. imports, many of which lasted until 1945 well after America’s manufacturing sector had “grown up.”
The renewable energy industry is making similar arguments today, claiming that subsidies and other incentives are necessary to ensure the long-term viability of wind and solar. But market reality suggests otherwise, especially in the case of solar energy.
For a decade, investors in commercial and residential solar energy systems have received a 30 percent tax credit (ITC) that also applies to small wind-energy systems and geothermal heat pumps. Without question, the ITC has helped the industry take off, from rooftop solar systems to mega utility-scale solar farms. Over the past two years, installed solar capacity has doubled to 18,300 megawatts. Even in fossil fuel rich Texas, power generators plan to add 1,500 megawatts of solar over the next two years. Still, solar power accounts for less than two percent of America’s electrical supply.
At the end of 2016, the tax credit for solar investments is scheduled to expire for residential systems and drop to 10 percent for commercial installations. Not surprisingly, the caterwauling has already begun. Proponents of the credit argue that without it new solar investments will “fall off the cliff.” Obama administration officials claim rooftop solar installations will drop 94 percent without the ITC while utilities will completely abandon new solar projects. What’s more, argue supporters of the credit, the solar industry supports 200,000 domestic jobs that will disappear if the ITC goes away.
The reality is that the cost of solar energy has dropped dramatically over the past decade. For example, the price of solar panels per watt of generating capacity has dropped from nearly $4 in 2006 to 50 cents today. According to a recent analysis by the Institute for Local Self-Reliance, in 22 states at least one gigawatt of solar can be installed at a comparable cost to retail electricity prices even without the tax credit. In contrast to the administration’s claims, a study by Bloomberg estimates that the loss of the tax credit will cause new solar installations to only quadruple, rather than quintuple, by 2022.