The employment outlook of the US renewable energy industry has become much brighter as the US Congress has resolved to maintain the Investment Tax Credit (ITC) for solar energy at its current level for two more years and spend US$35 billion to subsidize the R&D of clean energies. The solar ITC was originally going to drop to 22% at the start of 2021, but it is now set to stay at 26% to the end of 2022. This extension will sustain the strong growth that the industry is currently experiencing and spur the decline in the cost of PV generation.
The extensions of the solar and wind tax credits, together with the R&D funding, were part of a massive legislative package that combined a US$900 billion COVID-19 relief bill and a US$1.4 trillion federal spending and tax bill for 2021. The opposing Republican and Democrat parties have been debating on the content of a second COVID-19 relief bill for many months. A consensus was finally reached on December 20.
The US$35 billion initiative can be considered as the first major energy-related legislation that has been enacted in a decade. It will finance projects and programs for the research, development, demonstration, and commercialization of renewable energy technologies. Even though the legislative package does not include elements that regulate or reduce greenhouse gas emissions, the billions of dollars that will be disbursed over the next five years will certainly contribute to technological advances in many energy sectors (e.g., solar PV, wind energy, and battery energy storage). Moreover, a portion of this funding will be used to upgrade regional grids, improve energy efficiency, and set up carbon capture and storage schemes.
Out of the US$35 billion budget for energy R&D, US$1.5 billion will be allocated to the solar PV sector for the following purposes: (1) raising the conversion efficiency of PV systems, (2) reducing the cost of PV generation, (3) expanding the domestic manufacturing of PV cells, (4) integrating solar PV into the grid, and (5) accelerating the development of the recycling processes for PV modules.
The wind energy sector will receive US$625 million for improving the designs and structural materials of wind turbines. This money will also subsidize R&D efforts that benefit the manufacturing and installation of wind turbines. Besides subsidizing the development of many renewable energy sectors (including geothermal energy, marine energy, etc.), the legislative package also has provisions that focus on modernizing the transmission infrastructure as well. As more wind farms and PV power plants are being built, solutions for the integration of renewable energies into the grid and services such as on-demand dispatch will become increasingly important.
Regarding the extension of the solar ITC, the rate stays at 26% for projects that will begin construction in the 2021-2022 period. For projects that will begin construction in 2023, the rate is stepped down to 22%. The rate is further reduced to 10% and 0%, respectively, for large-scale commercial projects and small-scale projects that will begin construction in 2024.
The tax credits for wind farms have been extended as well. Before the passing of this legislative package, the Production Tax Credit (PTC) for onshore wind farms was to be lowered from 60% to 40% in 2021. However, the 60% rate will still be applicable for onshore wind farms that will begin construction by the end of 2021. Additionally, the ITC for offshore wind will be kept at its current level to the end of 2025. Hence, all onshore wind farms that will be built between 2017 and 2025 will benefit from a federal tax credit of 30%. The development of offshore wind farms along the US coasts has significantly picked up in the recent years, so the latest ITC extension will definitely provide fresh momentum.
(Photo credit: Gerry Machen via Flickr CC BY 2.0.)
