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Why Republican Tax Bills Could Undermine Rooftop Solar Growth

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Over the last two decades, more than 5 million U.S. households, stretching from California to Georgia and Maine, have installed solar panels on their rooftops, harnessing solar energy and cutting down on electricity costs.

However, this progress may be abruptly halted.

A recent domestic policy bill approved by House Republicans aims to cut tax incentives for homeowners and solar leasing companies, which have significantly contributed to the rise in rooftop solar adoption, by the end of this year. Analysts and industry experts warn that if this legislation is enacted, it would result in an immediate slowdown in installations.

Ben Airth, policy director at Freedom Forever, one of the largest residential solar installers in the country, stated, “This is setting us back.” He remembers a time when solar installations were primarily undertaken by wealthy environmentalists preparing for retirement.

According to an analysis from energy data firm Ohm Analysis, residential solar installations could decline by 50% next year if the House bill is enacted. Without tax credits, homeowners would take an average of 17 years to recoup their solar investments. A more pessimistic forecast from Morgan Stanley predicts an 85% decrease in rooftop solar demand by 2030.

Republicans also seek to limit tax breaks for other renewable energy technologies, such as wind turbines and large solar farms, but the repercussions for rooftop solar could prove to be even more drastic. Rooftop solar costs 2-3 times more per unit of power than large solar arrays installed on agricultural land and in deserts, making the residential sector more susceptible to subsidy alterations.

The Senate is currently drafting its version of the domestic policy bill, while solar industry executives are lobbying in Washington for more progressive energy credit initiatives. They emphasize that the solar sector currently employs around 300,000 workers and that rooftop systems significantly reduce homeowners’ electricity expenses.

Nonetheless, some conservative Republicans are explicitly opposed to any restoration of renewable energy tax incentives.

Texas Republican Chip Roy criticized, stating, “We’re devastating our energy infrastructure, wrecking our grid, ruining our landscapes, and compromising our freedoms.” He added, “I don’t support that.”

The existing uncertainty is jeopardizing an industry that is already grappling with high tariffs and soaring interest rates. Last week, Solar Mosaic announced it would provide loans for homeowners to install rooftop panels, following its bankruptcy declaration. Recently, Sunnova Energy, one of the largest rooftop solar providers in the U.S., followed suit.

Experts suggest that even if rooftop solar ultimately becomes unsubsidized, rising electricity prices nationwide could still make solar energy more financially appealing. Nevertheless, the transition may be challenging, likely resulting in increased bankruptcies and layoffs.

Zoe Gaston, a leading analyst for residential solar at Wood Mackenzie, mentioned, “But that market will inevitably be smaller.”

For the past 20 years, Congress has provided tax credits for the installation of solar panels on rooftops. However, these subsidies faced major reductions through the 2022 Inflation Reduction Act, which allocated hundreds of billions of dollars toward technology aimed at tackling climate change.

The legislation has extended the residential solar credit, allowing homeowners to recoup 30% of their solar system costs until 2032. It has also broadened the Investment Tax Credit for businesses constructing low-emission power sources like solar and battery technologies.

These changes have led to a surge in solar leases, allowing homeowners to avoid upfront costs for rooftop systems that can exceed $30,000. Instead, the solar company owns the panels and applies for tax credits, while homeowners lease the equipment and ideally save money through lower utility bills.

Currently, over 50% of residential solar systems are financed in this manner, making rooftop solar more attainable for schools, hospitals, and small businesses.

The House Republican bill seeks to eliminate the solar tax credit for residential properties by the end of 2025, meaning immediate qualification for investment tax credits will not be permitted.

Moreover, the House bill forbids businesses from claiming tax credits if they utilize components sourced from China, which dominates the solar supply chain. Many companies have expressed that the legislation is written so broadly that it would inhibit their ability to claim credits effectively.

Gregg Felton, CEO of Altus Power, which develops solar projects for rooftops and parking lots, remarked that the House bill “adequately represents the industry’s impact.”

If Congress significantly cuts support for renewable energy, experts predict that companies will still invest in large solar arrays, as they frequently represent one of the most cost-effective methods to increase energy generation, even without subsidies. Conversely, rooftop solar remains more expensive, requires more labor, and carries greater risks.

Kenny Plannenstiel, COO of Big Dog Solar, an Idaho-based installation firm, noted that rooftop solar has gained traction in emerging markets like Montana and Idaho.

“There is substantial interest among those wanting to take control of their energy future, as well as among those concerned about grid reliability,” Pfannenstiel added. With the tax credit in place, “the financial argument for these customers installing solar and battery systems has become much stronger,” he explained.

If the credits disappear, some customers may still desire solar panels, Pfannenstiel noted, but the market will “shrink significantly.”

The repercussions could be far-reaching. If a solar leasing company goes under, there may be no one left to service the solar panels, resulting in job losses for thousands of installers and electricians.

In recent years, over 30 solar plants have commenced operations in the U.S., but a slowdown in demand could lead to their closure.

Freedom Forever, a California-based solar installer, noted that two years ago, none of their components were sourced from the U.S.; now, approximately 85% are, including inverters manufactured in Texas and Florida. This shift is driven by the Inflation Reduction Act, which provided extra credits for utilizing domestic components.

Without these credits, Airth cautioned, “the industry will revert to relying on the lowest-cost components, often produced overseas.”

The fight for tax credits in Congress is not the sole hurdle for rooftop solar. While the technology remains favored by homeowners, certain states are starting to retract support amidst considerable backlash.

Electric utilities and some analysts argue that rooftop solar users increase costs for everyone else, as solar households pay lower monthly utility bills but depend on the grid for backup power. This shifts the cost of grid maintenance onto other households, often those with lower incomes. (Supporters of solar disagree, claiming utilities overlook the many benefits of rooftop installations, such as avoided transmission expenses.)

The conflict has been particularly intense in California, the nation’s leading rooftop solar market. In 2022, regulators significantly decreased the compensation that new solar households could receive for the electricity they generate. As a result, rooftop installations plummeted by 85% statewide, affecting installers, manufacturers, and distributors.

Currently, some officials advocate for a reassessment of the existing solar grant program’s impact on Californians who may not afford solar panel systems, as stated by Democratic state legislator Lisa Calderon.

Rising interest rates have further complicated the affordability of rooftop solar systems, making it costlier to secure funding for new equipment. Additionally, both the Trump and Biden administrations have imposed increased tariffs on solar products from China.

Some stakeholders within the rooftop solar sector argue they have to focus on cost-cutting measures.

Not only is rooftop solar pricier than large utility-scale solar farms, but the price of a U.S. home solar installation is three times that of a similar system in Australia. Some analysts attribute the difference to the regulatory challenges.

“Eventually, our industry may function without tax credits,” stated Chris Hopper, co-founder of Aurora Solar, a software company specializing in home solar systems. “I believe we can navigate these credit phase-downs over a reasonable timeframe.

“However, sudden changes would be devastating,” Hopper emphasized. “Rapid adaptation is simply not feasible.”

Ivan Penn Contribution report

Source: www.nytimes.com

Republican Proposal to Eliminate EV Tax Credits May Impact GM and Ford Negatively

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In recent years, the popularity of electric vehicles has surged, fueled by a $7,500 tax credit from the federal government aimed at making purchases more affordable.

However, the budget bill unveiled by House Republicans on Monday suggests eliminating this tax credit. This proposal also introduces new limitations on other tax incentives that motivate automakers to invest significant sums into establishing new battery facilities in the United States.

Starting next year, the legislation is set to abolish the $7,500 tax credit for new electric vehicle buyers, as well as a $4,000 credit applicable to used car and truck acquisitions.

If signed into law, these changes could lead to a spike in electric vehicle sales in the near term, as consumers rush to take advantage of tax credits before they vanish. Nonetheless, analysts predict that sales may drop or slow drastically once the credits are no longer available.

“This will undoubtedly slow down the adoption rate significantly,” remarked Stephanie Valdez Streaty, director of industry insights at Cox Automotive.

Cox anticipates that electric vehicles will comprise 10% of all new vehicle sales this year. If Congress does not alter the tax credit, that figure is expected to increase by nearly a third by 2030, according to their estimates.

However, if Congress eliminates the credits, Valdez Streaty projects that electric vehicles could make up only 20-24% of new car sales by 2030.

Eliminating these credits would further financially burden automakers who are already dealing with increased costs stemming from a 25% tariff on imported cars and auto parts established during the Trump administration.

The Republican tax proposals could adversely affect numerous automakers striving to launch new models, particularly General Motors and Ford, both of which have made substantial investments in their manufacturing facilities and supply chains with the goal of producing millions of electric vehicles annually.

GM has inaugurated two battery plants located in Ohio and Tennessee, developed through a joint venture with LG Energy Solution. Ford is currently constructing three battery plants, including one in Michigan, in collaboration with two South Korean firms, SK-ON, in Kentucky and Tennessee.

Both Detroit-based automakers are also investing in mining operations to secure domestic lithium supplies, which is crucial for battery production.

Tesla, the leading electric vehicle seller in the U.S., is also facing challenges. Its sales have decreased in recent months due to consumer backlash against CEO Elon Musk, associated with the Trump administration, coupled with the absence of a new affordable model.

However, Tesla enjoys several advantages. While most manufacturers still incur losses on electric vehicles, Tesla has been profitable for over a year, allowing the company to lower prices to stimulate demand if credits are eliminated. Additionally, Tesla relies less on imported components compared to other U.S. manufacturers.

Many large automakers are racing to catch up with Tesla in the electric vehicle landscape, particularly in states with a significant number of Republican lawmakers, by establishing numerous new factories.

Toyota has constructed a battery facility in North Carolina, while Hyundai is set to begin electric vehicle production at its Georgia site, which will also house battery manufacturing. Stellantis, along with its partners, is currently developing two battery plants in Indiana, with the local economies relying on the jobs these plants will create.

Should tax regulations undergo significant changes, automakers may reconsider, scale back, or postpone their plans.

“If the government wishes for the U.S. to effectively compete with China and the rest of the world in the expansive EV sector, as well as encourage GM and Ford to make considerable long-term investments in EV development and domestic production, we must enhance the tax credits instead of causing whiplash,” Valdez Streaty stated.

China dominates global electric vehicle production and is a primary supplier of essential materials for batteries and electric motors, such as processed lithium and rare earth minerals. The elimination of the tax credit would significantly hinder the U.S. automotive industry’s ability to keep pace.

“This could adversely impact our global standing and the competitive capabilities of the U.S. automotive sector,” Valdez Streaty remarked. “It’s likely to slow us down when we are already trailing China.”

Neither Ford nor Stellantis had comments to share, and neither did the policy group, the Automotive Innovation Alliance.

The federal government initially introduced $7,500 in credits during President Barack Obama’s administration, maintaining this incentive throughout President Trump’s first term. These credits were subsequently updated and expanded under the Inflation Reduction Act, enacted by President Joseph R. Biden Jr.

Given the higher costs of electric vehicles compared to traditional combustion engines, such credits have been vital in encouraging consumer purchases.

The credits are applicable to sports utility vehicles and pickups priced under $80,000, as well as sedans priced below $55,000. The vehicle must be assembled in North America, with the battery meeting specifications based on the country of origin for its materials. Additionally, to qualify, individual buyers must earn less than $150,000 per year, while joint filers must earn under $300,000.

Many of these criteria do not apply to leased vehicles. However, tax credits for cars and trucks are typically transferred to leasing companies, which are divisions of automakers. Many leasing firms have passed on their savings to customers, contributing to the notable increase in electric vehicle leases.

According to Valdez Streaty, approximately 595,000 electric vehicles were leased in 2024, a significant rise from roughly 96,000 in 2022, prior to the availability of leasing incentives.

Source: www.nytimes.com

Republican Budget Proposal Seeks to Halt the IRA Clean Energy Surge

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In the United States, there are at least 24 factories manufacturing electric vehicles that meet credit qualifications. According to research by Atlas Public Policy.

Hyundai has invested $7.5 billion in a factory near Savannah, Georgia, to produce some of its most sought-after electric vehicle models. Local officials, who have lobbied for Hyundai’s establishment in the area for years, are worried about potential legal changes.

“For a company, it’s challenging to commit to an area and then face changing conditions,” noted Bert Brantley, CEO of the Savannah Regional Chamber of Commerce. “Our perspective is that stability is beneficial, especially when companies are making significant investments.”

Nevertheless, Brantley expressed hope that Georgia can maintain its position as a frontrunner in electric vehicle production, regardless of any alterations to the tax incentives. “This is a long-term strategy. We hope to be engaged in this for an extended period,” he remarked.

Over the last three years, the federal government has backed a variety of emerging energy technologies that are still in the developmental stage, including low-carbon hydrogen fuels suitable for trucks, innovative methods to manufacture steel and cement without emissions, and carbon dioxide extraction technologies.

Many of these initiatives could benefit from tax reductions under the Inflation Reduction Act. Additionally, several are funded by billions in grants and loans from the Department of Energy.

In western Minnesota, DG Fuel aims to construct a $5 billion facility to generate aviation fuel from agricultural waste. Meanwhile, in Indiana, cement producer Heidelberg Material is working on capturing the carbon dioxide it generates and storing it underground. In Louisiana, a company is set to produce low-carbon ammonia for use in fertilizers.

New Orleans, a key center for natural gas exports, has experienced a surge in new industries like carbon capture and hydrogen, which may help mitigate future emissions. “We are very diverse,” stated Michael Hecht, chairman of Greater New Orleans and the Southeast Louisiana Economic Development Bureau.

Source: www.nytimes.com