ENGLEWOOD, Colo.--(BUSINESS WIRE)--The following information is a summary from Ash Sharma, senior director,
solar, IHS Technology and Josefin Berg, senior analyst, solar, IHS
An extension of the solar Investment Tax Credit (ITC) – the main driver
of solar growth in the United States – was unexpectedly included in an
omnibus spending bill agreed upon in Washington, D.C. late Tuesday
night. It will be finalized and voted on later this week. The key points
for solar power are:
The ITC will be extended from Dec 31, 2016 and instead stepped down
from 30 percent to 10 percent until 2024. Projects that start
construction by 2019 will receive the current 30 percent ITC, while
projects that begin construction in 2020 and 2021 will receive 26
percent and 22 percent, respectively. All projects must be completed
by 2024 to obtain these elevated ITC rates.
For residential photovoltaic (PV) systems, a similar tax credit
phase-out applies until December 31, 2021, after which the tax credit
In the early hours of this morning, the U.S. Congress agreed on a bill
that would see the solar Investment Tax Credit (ITC) extended by an
additional five years, as part of a $1.15 trillion spending bill. The
House is expected to vote on the legislation on Thursday or Friday.
Although sudden opposition could block immediate approval of the full
bill, it looks close to certain that the ITC extension will go ahead.
In addition to an extension of the solar ITC, production tax credits for
wind installations will also be introduced, in return for a removal of a
40-year long ban on oil exports from the United States
Analysis conducted just two weeks ago by IHS, prior to the extension of
the ITC forecast that U.S. solar installations would reach nearly 17
gigawatts (GWdc) in 2016 driven by the rush from developers
to finish projects ahead of the December deadline. This would then lead
to a drop to just 6.5 GW in 2017. The impact on the global solar
industry would have been huge. IHS previously predicted global
installations would peak at 70 GW in 2016 – a 20 percent increase over
2015 and largely driven by the huge demand from the United States;
however, the cliff-edge in demand facing the country at the end of 2016
would have led to a global decline of 10 percent in 2017, with
installations falling back to 63 GW.
This projected decline was based on a bottom-up assessment of more than
70 countries globally, based on known policy conditions. The effects of
a sharp contraction in the United States was expected to be compounded
by a stagnation of demand in China and Japan – both of which, like the
U.S., had previously experience boom years.
The extension of the ITC for solar power projects – and the changed
deadline criteria from “placed in production” to “started construction”
– relieves the solar industry of the pressure to complete projects in
2016. For projects that are contracted to come into place by the end of
2016, IHS anticipates that developers will renegotiate the deadlines for
the least advanced projects. The majority of pipeline projects that are
not yet ready for construction are forecast to be completed after 2016,
with peaks in 2020 to 2023. In parallel, the extension of tax-credits
for residential PV enables steady growth of this segment through 2022.
Currently, the PV project pipeline in the United States amounts to 58
GW, of which 20 GW have power purchase agreements (PPAs) in place.
According to initial assessments from IHS, the five-year extension of
the ITC could spur developers to continue growing the pipeline at the
current rate of 15 GW per year. Given the overhauled conditions, a
high-level, initial assessment conducted by IHS now projects U.S.
installations of 12 GW to 14 GW in 2016, with 3 GW to 5 GW of
utility-scale projects to be shifted from 2016 to later years. IHS
forecasts U.S. installations to grow between 13 GW and 16 GW in 2017.
The result of the extension to the solar ITC is not just good news for
the U.S. solar market, but is a net positive for the global solar
industry as a whole. While prior to the extension of the ITC IHS
forecast a 10 percent decline in global installations, this forecast has
now been reversed. Global solar installations are now expected to reach
between 66 GW and 68 GW in 2016, growing to between 70 GW and 73 GW in
Other changes to the ITC proposed would also create a more stable
environment for the global solar industry as reductions to the credit
would be stepped down over several years rather than a hard cut-off. In
addition the cut-off date for support for projects would be assessed
based on when a project starts its construction rather than when it is
The sharp fall in solar installations which was modelled before the
extension to the ITC also had major consequences for the supply chain,
with IHS previously predicting a sharp correction in both solar hardware
prices and also overall system prices. Whilst our full analysis will
take further time, we expect a much more moderate decline in pricing
over the next two years at least and a much more stable and predictable
environment for the supply chain as a result.
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