Low-income households shouldn’t pay more for solar power. Congress can fix it.

Originally posted by Union of concerned scientists, The equation.
Through John rogers

When I bought solar panels for my house not too long ago, I got a 30% discount, courtesy of the federal government. Too many people, however – people who earn less than my family – cannot get this discount. This means solar costs them more – thousands of dollars more per household. Why should someone who earns less than me pay Following for something we need a lot more?

The answer is they shouldn’t. Energy charges – the share of income that households spend on energy bills – are much higher for low-income households, and solar power is a ready tool to help many of them solve this problem.

Congress has the opportunity to correct the federal coin now, by amending Article 25D, the US law that governs these tax credits. And he must not let this opportunity pass by.

Tax credits work wonders for some, not at all for others

Here’s the deal: For years, US tax policy has encouraged the adoption of solar power, including by homeowners, through solar power. Investment Tax Credit (CII). I bought a solar system, then when the next tax reporting season came, I reported this purchase on my federal tax form and got a credit worth 30% of the purchase price . Worked great for me.

But what if you don’t earn enough to get this discount? If you don’t owe enough federal taxes, then the credit is taken from you. Under the current system, you cannot be reimbursed for more than what you owe. Additionally, many households do not earn enough to have to pay federal taxes, which means they would get zero back for a purchase like this.

Here’s how Ryan Shea and Russell Mendell of the Rocky Mountain Institute (RMI) recently explained the numbers:

“About 7 out of 10 According to 2018 data from the IRS, U.S. filers would not have to pay enough tax to receive the full ITC 25D. And the more than 4 in 10 Americans who don’t have any federal income tax payable at all would see zero benefit to. “

That’s a lot of households.

And that’s a lot of money left on the table for households that can’t take advantage of it. According to Lawrence Berkeley National Laboratory, the median size of a residential system installed in 2020 was 6.5 kilowatts and the median price per watt was $ 3.8. Even if the tax credit had fallen to 26% in 2020, someone who would buy such a system, with a price tag of almost $ 24,700, would have been entitled to a tax credit of $ 6,400, for a net price of $ 18,300. Someone who could not have taken advantage of that credit – or even the amount for a smaller system – would have had a net price several thousand dollars higher.

Denying households with the highest energy costs access to a tool that could help many of them reduce these costs simply seems… false.

Obstruct fair solar

Tax policy is not the only slowdown on the solar road for low and moderate income households, even if they have their own roofs (i.e. they are not tenants and do not live not in multi-family buildings). Low and moderate income communities may have fewer solar energy suppliers by serving them, for example, and suppliers who work locally may not have the economies of scale which are another important factor in reducing costs. Households may not have easy access to credit, which, even with the incredible decline in solar costs over the past decade, is still key to making solar accessible. And many people don’t live in states that have their own programs to encourage the adoption of solar energy, including tax credits.

Federal tax policy shouldn’t be another obstacle.

The data suggests that all of these factors together make a big difference in terms of disparities based on income and race, as the RMI points out:

“While low and moderate income (LMI) residents constitute 43 percent of the US population, alone 21% of residential solar installations have benefited these communities in 2019. On top of that, nearly half communities with a majority of black residents did not have a single solar system installed.

How Congress Can Fix the Federal Coin Right Now

Addressing these disparities will take action on various fronts and at various levels. But the federal coin? This fix should be easy, and a version of it is almost in the bag.

The best option for low income households in terms of this type of solar support is the so called direct salary. Under direct salary, customers would get a discount as soon as they bought the system, instead of having to wait until tax time. Customers would still have to offer the rest of the system price, but at least that part would be taken care of immediately.

The second best would be to add refundability to politics. With the refund, households could get full refund of that part of their purchase at tax time the following year, even if they don’t owe enough taxes.

In this case, the last version of the budget reconciliation bill says Rebuild Better Act is proposing just such an amendment to section 25D: extend eligibility by adding refundability. Although direct compensation is a better option and has a lots of support on Capitol Hill, either would be really important in expanding access, especially when paired with efforts to remove other barriers to solar ownership.

Congress can make federal change even more successful by not waiting until 2024 to implement the rebate, as the latest bill proposes. There is no good reason not to make this change effective as soon as possible. This is why the allies are to push that the effective date be 2022, which is exactly what the draft bill included.

It matters to all of us

Expanding the reach of solar power is important for people who will be able to reap the direct benefits of solar power, but also for all of us who care about fighting injustices in the electricity sector and who care about maximizing the contribution of solar energy to reducing pollution in the electricity sector.

My colleague Paula García told me this:

“It is clear that making solar energy more accessible – especially for those with limited financial resources – will reduce emissions, make electricity more affordable and clean energy more equitable, and improve the health of communities. It’s about helping encourage greater and fairer adoption of residential solar power and moving us closer to a sustainable future.

Yesenia Rivera, director of equity for the advocacy organization Solar United Neighbors, echoed these sentiments: “If we continue to exclude people from the equation, we will never achieve … real equity and fight climate change.”

Increasing accessibility to solar home energy by increasing accessibility to solar home energy tax credits should be an easy fix for Congress. And it is one that has powerful implications for the diffusion of solar energy, increasing equity, and tackling the climate crisis. It is high time to do it right.

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