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2013 was a great year for solar energy installations in the U.S. and globally. According to an article published on the CleanTechnica website, on a global basis it was the first time that solar installations surpassed wind installations. As of July, Forbes reported that the U.S. had joined the ranks of Italy, Germany and China with 10,000 MW of solar capacity installed. With 930 MW installed in the 3rd Quarter of 2013 alone, the U.S. was expected by some commentators to surpass long-time leader Germany. As noted by the Forbes article, one of the main reasons for the increase in solar photovoltaic installations is the large drop in production cost. In 2008, the cost of a solar panel was around $3.65. Today it’s 50 cents per panel and that’s expected to drop to 36 cents by 2017.

What’s more, solar isn’t going away any time soon; stock market analysts are expecting an equally, if not bigger, year for U.S. solar companies in 2014.

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A Mixed Bag So Far

By Jeffrey D. Moss, Guest Blogger

CBO’s March 2012 Report

The Congressional Budget Office (“CBO”) has recently issued a report entitled “Federal Financial Support for the Development and Production of Fuels and Energy Technologies” which analyzes the impact of the Federal programs implemented to support the development and production of fuels and energy technology. The CBO report, issued March 6, 2012 concludes that the recent emphasis upon tax preferences and incentive programs for renewable fuels, and alternative energy sources such as solar and wind technologies have had mixed results. Although the most prominent story in the media relating to renewable energy is the failure and subsequent bankruptcy of Solyndra, a company which intended to bring a new form of solar panels to market and which received a $535 Million Federal loan guarantee as part of its financing, several incentives have made an impact. The failure of Solyndra is not the whole story.

Fossil Fuel Credits Just Keep on Going

Prior to 2005, almost the entire array of energy related tax preferences were aimed at the domestic production of fossil fuels such as oil and natural gas. The amount of preferences provided to all energy, including alternative energy, began increasing in 2006 and spiked for the periods 2009 through 2011, with renewable energy and energy efficiency receiving a 78% share of the incentives provided in 2011. Nevertheless, many significant renewable energy tax incentives expired at the end of 2011 and are currently not part of the 2012 budget.

Renewable Tax Credits Allowed To Expire

The credits for energy efficiency improvements to existing homes and the Section 1603 grants in lieu of production tax credits have expired, along with the excise tax credits for alcohol, fuels and excise tax credits for biodiesel. Together these four expiring tax credits combined for over 60% of the amount of credits provided in 2011. Therefore, in 2012, unless additional legislation is passed, the Federal Government will dedicate less than half of the incentives it provided in 2011 to energy. It would be difficult to conclude with finality that these incentives are not working when they have only been in place for three years.

Tax Credits Result in R&D Advances

The Congressional Budget Office did conclude that there has been significant research and development advances occurring during the past few years as a result of the tax incentives and preferences, however, it is difficult or impossible to quantify the future benefit that these R&D advances will make ultimately on the production of alternative energy. For more see the Congressional Budget Office report linked above.

Jeffrey D. Moss is a Member of Dawda, Mann, Mulcahy & Sadler, PLC. He concentrates his practice in the areas of business transactions, tax law, estate planning and tax exempt nonprofit matters.

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