The U.S. Congress passed on Dec. 22 a $90 billion COVID-19 stimulus package alongside an omnibus spending bill for 2021 that includes a two-year extension on the investment tax credit (ITC) for solar. The package will also provide funding for research and development.
Details on the existing ITC and the revised version of ITC:
The legislation will extend the solar ITC two years at 26% for projects that begin construction in 2021 and 2022. The ITC will reduce to 22% in 2023 and then to 10% in 2024 for commercial projects. Residential projects will no longer be eligible for the ITC. The projects must commission before the end of 2025 to secure ITC.
PV InfoLink Opinion
US demand looks bright as ITC extends
The solar ITC is one major driver behind the solar growth in the U.S. market. Eligibility for the ITC is based on a “commence construction” standard; projects that fail to commission within the certain timeframe cannot claim for the credit. This mechanism has supported the growth of solar energy in the U.S. over the past years.
The ITC, which was scheduled to reduce to 22% in 2021, will be extended for two more years at 26% under the legislation. The ITC will drop to 22% in 2023 for all sectors, and then slide to 10% for commercial projects in 2024. While the extended ITC will step down each year, the installation of projects will extend from the end of 2023 to the end of 2025. The generous ITC is expected to attract developers to invest in the U.S. market, sustaining the solar growth for the long term.
The U.S. market was forecast to enter a transition period in 2024 after the end of the 2023 commissioning deadline under the old scheme. With ITC being extended for two more years, PV infoLink expects demand to rise in 2024 and 2025, meaning that the US market will be growing from 2021 to 2025. In addition, with each state working toward to reach carbon neutrality, module demand in the U.S. may exceed 30 GW in 2024 and peak in 2025.
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