The Three Federal Incentives Behind the Solar Industry's Success

3p is proud to partner with the Presidio Graduate School’s Macroeconomics course on a blogging series about “the economics of sustainability.” This post is part of that series. To follow along, please click here. By Sonia Weiss

Despite the publicity of the failed actions of Solyndra, the solar industry is booming.  How can this be?  There are a number of federal policies that have been enacted over the past decade that the solar industry as a whole has used successfully.

Solyndra was given a loan guarantee of $535 million from the US government, yet this did not keep them afloat.  In truth, Solyndra was just a fraction of the solar market. Instead of producing common crystalline silicon solar modules, which account for 72% of market share, Solyndra produced CIGS (copper indium gallium selenide) type modules.  These  are more costly to produce and could not compete in the current market. The counterpoint to Solyndra is First Solar, which has continued to thrive despite the current economy.

Quarterly market reports from the Solar Energy Industries Association outline why the US solar market is still strong, and in fact, growing.  This is in spite of the fact that solar module prices have continued to fall over the past three years due to oversupply, coupled with lack of demand in Europe. The two of these in combination have actually sparked an explosion of companies manufacturing and installing solar modules throughout the US.  It is true that China still is leading the way in manufacturing physical modules, due to the fact that they can generally manufacture them more cheaply, but they can be manufactured more efficiently here in the US. An example of this is Solaria, a company that uses an innovative technology for their panels, so that they use less silicon and cost less than the Chinese panels.

So, why is there still optimism for the US solar industry?  The main reason is the strong federal policy incentives for the solar energy generation industry. There are three main incentives that help support this industry.

1. The first federal policy started in 2005 as part of an energy policy act (P.L. 109-58). This policy created a 30% tax investment credit for commercial and residential solar energy systems.  It started out for one year, was extended three more times, and now is in effect through the end of 2016. As can be seen in the graph below, this investment tax credit has created a boom in solar electrical capacity in the US.

2. The second federal policy is the 1603 Treasury Program, which is basically a jobs creation program. The reason for this is that companies receive a 30% grant (cash in hand) vs. the tax credit that the first policy created. This program has awarded over 3,000 grants to the solar industry, helping to start over 6,000 projects.

3. The last federal policy is direct manufacturing incentives, such as the Advanced Energy Manufacturing Tax Credit (Section 48C), that provides additional funding and credit to solar energy companies to keep manufacturing here in the US.

Despite Solyndra’s failure, the federal policy incentives described above will help the solar industry continue to thrive. The first policy encourages residential, commercial and utility developments to switch to solar energy generation.  The solar manufacturing industry expands due to the other two policies and the increased demand created from the first policy.  As can be seen in the graph, this increased demand creates increased supply, which in turn leads to a healthy industry. Solaria and other solar companies like it are the future of this industry.

Sonia Weiss (MPH, CIH) is an MBA candidate at Presidio Graduate School.  She is interested in learning more about clean technology and learning how sustainability fits into this business model.  She can be reached at sonia.weiss@presidiomba.org.

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