Extend investment discounts (ITC) and production tax credits (PTC) to 2050 for renewable electricity generation increases annual US solar generation by 10%, according to our alternative policy analysis, Annual Energy Forecast 2022: Cases of Extended and Obfuscated Tax Credits. Long-term availability of federal tax credits provides an incentive for more small-scale operations distributed generation in residential and commercial buildings, as well as utility-scale electricity generation from renewable sources, especially solar photovoltaics (PV).
Data source: US Energy Information Administration, Annual Energy Outlook 2022 and Monthly Energy Review, June 2022
Federal ITCs and PTCs offset the installation costs for renewable technology from utilities and the installation costs for distributed generation technologies in commercial and residential buildings. These credits are gradually reduced or end completely, also known as sunsetdepending on the sector and technology.
In the Sunset Credit case, abolishing tax credits by 2023 – which is just a few years earlier than in the Reference case – cuts projected annual solar generation by 4% by 2050. Solar generation accounts for 21% of the total electricity generation in 2050, an increase of nearly 1.0 trillion kilowatt-hours over the projection horizon.
The earlier abolition of these tax credits has the greatest effect on the commercial sector. We project 11% less solar PV generation in the commercial sector by 2050 in the Sunset Credit case than in the Reference case. Removing these incentives for renewable energy reduces long-term investments in large-scale and building-based distributed solar power generation.
Data source: US Energy Information Administration, Annual Energy Outlook 2022
In the Extended Credit case, annual solar generation will account for 25% of electricity generation in all sectors of the US by 2050, an increase of 1.2 trillion kilowatt-hours from 2021. Across all sectors, in the cases Reference, Sunset Credit and Extended Credit, solar power generation will become the largest source of renewable generation by 2050, surpassing both hydropower and wind.
Our analysis also examines how earlier termination or extension of policies may affect long-term electricity generation and capacity from combined heat and power (CHP), wind, hydro, geothermal and biomass sources, all of which are also eligible for the ITC. In the commercial and industrial sectors, CHP capacity and generation is growing fastest in the case of Extended Credit, and natural gas is in all cases the largest fuel source for CHP generation.
Our full report examines the effects of several policy adjustments, including extensions and policy terminations such as energy efficiency incentives, as well as the ITC and PTC. Otherwise we keep assumptions about the weatherhousing stock and commercial floor space growth, macroeconomic activity and other energy drivers in line with the reference case.
Featured chart data source: US Energy Information Administration, Today in Energy
Main Contributor: Courtney Sourmehi
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