The Business Investment Tax Credit (ITC) is one of the most lucrative ways to reduce the investment costs of your solar PV installation, but in order to maximize this incentive, it’s important to plan for solar now – before the ITC sunsets.
The United States government is incentivizing businesses all over the country to install solar photovoltaic (PV) panels and maximize their energy strategy by powering their facilities with clean, efficient electricity. It is doing so by providing a generous tax credit, known as the Business Investment Tax Credit (ITC), that reduces the upfront costs of investing in solar, allowing businesses to enjoy a shorter payback period as a direct result of leveraging this credit.
While the ITC is applicable to other technologies like wind, geothermal, and microturbines, it has proven to be one of the most important federal incentives directly responsible for the growth of solar energy adoption in the U.S. Described as a “tax policy success story” by the SEIA, the ITC has resulted in 52% average annual growth in the U.S. solar industry since it was enacted in 2006 – helping the industry to grow by 10,000% since 2006, according to the SEIA. As a result of its extension in 2015, solar pricing continues to fall as the technology becomes more efficient and more solar PV systems are installed throughout the country.
How does the ITC work? And what impact could it have on the operational efficiency of your business as you plan your energy strategy?
The ITC is a federal tax credit that has made solar an affordable renewable energy option by granting a dollar-for-dollar reduction in the tax liability that a business claiming the credit would otherwise pay the federal government.
The ITC is based on the amount of your investment in commercial solar. The deduction is currently equal to 26% of the total cost of eligible solar PV systems that have commenced construction through 2022. Planning for solar can provide a powerful business advantage. It could potentially mean tens – even hundreds – of thousands of dollars that you can use to reinvest in your business instead of pay as part of your business tax liability.
You claim the credit by filing IRS Tax Form 3468 when you file your yearly federal tax return. If you don’t have enough tax liability to claim the entire credit in one year, you can roll over the remaining credits into future years for as long as the tax credit is in effect.
When utilized with other solar incentives like net metering and SRECs, the ITC can reduce the total cost of your solar PV installation, cutting your payback period and significantly boosting the ROI of your solar investment.
You are essentially receiving funding from the government to install solar – funding that will help reduce your organization’s energy costs, boost efficiency and sustainability, and even generate an additional source of revenue.
It’s critical to ensure that you meet the requirements to claim the ITC. This solar incentive is available for the following eligible sectors:
• Cooperative utilities
• Investor-owned utility
Eligible properties have installed solar PV technology for the purpose of generating electricity. The business that installs, develops and/or finances the solar PV system – in other words, the business who “owns” the system – is eligible to claim the credit. If you lease your solar PV system or acquire your solar energy with a Power Purchase Agreement (PPA), you unfortunately do not qualify – the party who owns the solar PV system will receive the credit.
In the next installment of this series, we will cover all qualifications needed in order to be eligible for this time-critical incentive.
As we mentioned in the previous installment of this series, solar energy incentives “incentivize” early adoption and are constantly changing – so it’s important to take advantage of them when they are available, as there is no guarantee that the level of incentive will remain the same or that the incentive will even be available to leverage.
This is the case with the ITC. It is scheduled to remain at 26% of all solar PV system expenditures until the end of 2022, but it will ramp down over the next couple of years, eventually landing at 10%.
This is why it’s important to include solar in your planning now in order to secure the best level of incentive and maximize your energy budget. Leveraging the ITC makes good business sense – why pay full price for your solar installation when the federal government is providing a generous incentive that lowers the upfront costs of investing in solar power?
Talk to Centrica Business Solutions for more detail on how to navigate this opportunity for your business and take advantage of this incentive before it sunsets.