Selected National Policies that Impact Renewable Energy
Section 201 Solar Tariffs
In January 2018, The Trump Administration Placed Tariffs on Imported Solar Cells and Modules.
Here’s What It Means.
On Jan. 23, President Trump signed a proclamation that placed tariffs on imported solar cells and modules for a period of four years. This decision came on the heels of a nearly 9-month case before the U.S. International Trade Commission (ITC) after two solar manufacturers, Suniva and SolarWorld, filed a petition seeking tariffs. The final tariff will have significant negative impacts on the entire solar industry, from manufacturing and distribution to installation and finance.
The effective date of the tariffs is February 7, 2018.
The tariff level was set at 30%, with a 5% declining rate per year over the four year term of the tariff.
The proclamation included a 2.5 gigawatt exemption for cells per year, which does not include any sub-quotas for individual countries.
The only countries excluded from the tariff are those that the U.S. government deems “GSP-Eligible” developing nations. However, The Phillippines and Thailand are not excluded, even though they are GSP-Eligible.
Timeline and Review
Based on the Section 201 statute, the tariff is subject to a mid-term review, which in the case of the solar tariff, would take place in January 2020. The ITC would likely begin the process of collecting information in Summer of 2019, in advance of delivering a report to the President.
In every other safeguard case established in the United States, a foreign country has filed a challenge with the World Trade Organization (WTO). The U.S. has never won one of these cases.
Solar Investment Tax Credit (ITC)
The solar Investment Tax Credit (ITC) is one of the most important federal policy mechanisms to support the deployment of solar energy in the United States. SEIA successfully advocated for a multi-year extension of the credit in 2015, which provides business certainty to project developers and investors. The ITC continues to drive growth in the industry and job creation across the country.
The ITC is a 30 percent tax credit for solar systems on residential (under Section 25D) and commercial (under Section 48) properties.
The residential and commercial solar ITC has helped annual solar installation grow by over 1,600 percent since the ITC was implemented in 2006 – a compound annual growth rate of 76 percent. (See more solar industry data.)
In 2015, the Omnibus Appropriations Act (P.L. 114-113) included a multi-year extension and phasedown of the residential and commercial ITC and changed the previous “placed-in-service” standard for qualification for the credit to a “beginning of construction” standard for projects completed by the end of 2023.
In December 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), a comprehensive tax reform bill that modified many aspects of the U.S. tax code. The commercial and residential ITC (as amended by the 2015 Act) were maintained under this legislation.
The long-term extension of the ITC through 2021 provides market certainty for companies to develop long-term investments that drive competition and technological innovation, which in turn, lowers costs for consumers.
What is the Solar Investment Tax Credit?
The Investment Tax Credit (ITC) is currently a 30 percent federal tax credit claimed against the tax liability of residential (Section 25D) and commercial and utility (Section 48) investors in solar energy property. The Section 25D residential ITC allows the homeowner to apply the credit to his/her personal income taxes. This credit is used when homeowners purchase solar systems outright and have them installed on their homes. In the case of the Section 48 credit, the business that installs, develops and/or finances the project claims the credit.
How does the Solar Investment Tax Credit Work?
A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. Both the residential and commercial ITC are equal to 30 percent of the basis that is invested in eligible property which have commence construction through 2019. The ITC then steps down to 26 percent for projects that begin construction in 2020 and 22 percent for projects that begin in 2021. After 2021, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent.
Commercial and utility projects which have commenced construction before December 31, 2021 may still qualify for the 30, 26 or 22 percent ITC if they are placed in service before December 31, 2023. The IRS issued guidance (Notice 2018-59) on June 22, 2018 that explains the requirements that a taxpayer must meet to establish that construction of a qualified solar facility has begun for purposes of claiming the ITC. See SEIA’s webpage on “Commence Construction” for further details on the requirements set forth in the guidance.
In December 2018, Congress passed the Tax Cuts and Jobs Act, a comprehensive tax reform bill that modified many aspects of the U.S. tax code. The commercial and residential ITC were maintained under this legislation.