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United States: ITC and Loan Guarantees as a Key Driver of Solar Investment

flag of the United StatesThe United States’ solar investment tax credit (ITC) was revised in 2005, 2008, and 2009 to increase the credit amount from 10% to 30%, expand eligibility to investor-owned utilities, and extend the year through which it can be claimed to 2016 (Mendelsohn and Kreycik 2012). Under the U.S. ITC, there is no maximum incentive that can be claimed for solar energy projects (DSIRE 2014); however, owners receiving an ITC must maintain project ownership for five years of commercial operation or the government will reclaim a portion of the credit relative to the years of ownership. The owner can take the tax credit in the first year in which the plant is operational. The ITC is an instrumental driver of utility-scale solar projects in the United States, and the anticipated reduction in 2017 is expected to have a significant impact on the industry. (Parnell 2014).

The U.S. Department of Energy’s (DOE) 1705 renewable energy loan guarantee program, established in 2009 as a part of the American Recovery and Reinvestment Act, has successfully increased innovation and investment in utility scale PV and CSP (Philibert 2011). To limit the cost to the government, the policy required eligible project construction to begin no later than September 30, 2011. Additionally, the maximum guarantee was 80% of total project costs, and the government explicitly did not assume any risks associated with pre-construction (DOE 2009). To increase expediency of loan provision to qualified projects under the program, the DOE established the Financial Institution Partnership Program, which identified qualified private lenders eligible to participate (DOE 2009). Borrowers applied for loans directly with eligible lenders, with DOE reviewing all applications. Approximately $13 billion in loans, about 80% of all loan guarantees under the program, went to solar investments, primarily generation projects (Brown 2011). Overall, DOE’s renewable energy loan guarantee programs have resulted in substantial increased deployment and losses of only 2.3% of total commitments (Davidson 2014).