In the U.S. in 2011, solar farming demand is estimated to reach 1750MW driven by the utility scale installations. Given the 15% yoy decline in panel prices per watt, unsubsidized system install costs will drop to $5-$6/watt for residential scale and $3.75-$4 for utility scale, which should help drive the U.S. market demand up 119% yoy in 2011 versus 800mw in 2010. Based on recent developments in energy policy legislation, Commercial Solar Design suggests greater probability of an extension of treasury cash grant-in-lieu of 30% ITC (investment tax credit), which could add significantly to the upside of our forecast and boost solar farm investment dramatically.
Non-residential installations will gain an increased share of the U.S. PV market with 76% of the market in 2011, up from 69% in 2010 (136% yoy). In terms of the regulatory landscape, while the key broad energy reform bill has been taken off the table, the “domestic manufacturing and energy jobs” bill presented in the House in late July did include an extension of the cash grant-in-lieu of thirty percent ITC (investment tax credit) . Commercial Solar Design is suggesting that there is a greater likelihood of passage of this bill in congress when the Congress assembles after the August recess. This bill is then expected to be merged with the pending energy bill in the the House or could be attached to the tax extender’s bill later this year. Overall, passage of renewable energy tax credits is high on the agenda of tax committees in the Congress.
The discussion draft of “Domestic Manufacturing and Energy Jobs Act of 2010” released in the last week of July finds that the extension of the cash grant program for 2 years is the key solar topic included in the bill. The draft excludes the much anticipated climate change bill including “cap and trade” and a national RPS (Renewable Portfolio Standard). This watered down version of the “energy” bill is expected to be passed in the House when Congress resumes after the August recess the week of Sept 13th. However solar farm investment can proceed with acceptable IRR (internal rate of return) with or without a 1603 extension
The Treasury cash grant-in-lieu of the 30% ITC (investment tax credit) program was created in August 2009 to provide an upfront cash grant equal to 30% of the applicable project cost to the renewable energy contractors and developers and including commercial and utility scale projects. A large majority of the contractors and developers did not have taxable income to make use of the 30% ITC, and therefore, the cash grant program was a big incentive for the solar contractors/developers. Because there was a lack of clarity around the taxability of the cash grant until late April the incentive was underutilized.
The Treasury cash grant program was a major success and extension of the program will provide significant upside to solar farm investment and demand estimates in 2011.