Impact on Your Solar Returns of the Investment Tax Credit Decrease

 

This is the last year for the full 30% Federal Investment Tax Credit (ITC). Starting in 2020, the ITC will drop to 26%, and then to 22% and finally to 10% for 2022 where it will remain permanently for corporations to claim.

Here's the full solar Investment Tax Credit step down schedule:

Blog chart tax credit.png

REV’s analysis below highlights the impact on a solar project rate of return in California, when the Federal Investment Tax credit drops from 30% to 26% to 22% in 2021. As shown in Table 1, reductions in returns average .8% each year, a smaller impact than one may expect given the reduction of 4% annually in the credit.

Table 1: Impact on IRR of the Reduction in Federal ITC

Table 1: Impact on IRR of the Reduction in Federal ITC

This analysis assumes that component and module costs remain the same, as does panel efficiency. However, module costs may in fact decrease as new cell technologies come to market and panel efficiency gains increase above 20%.

Inverter prices are not expected to fall much because the component prices are essentially stagnant. Inverter prices will rise and fall based on supply and demand as the main factor. Racking prices vary by steel costs and demand. Currently, steel demand is low, so the steel manufacturers are arbitrarily stopping production at some of their plants to artificially raise costs.

With module cost decreasing and panel efficiency increasing, returns may be higher than those shown above as the tax credit decreases.