Government can incentivize solar energy investments by awarding a tax credit to specific installations. These incentives could be tax credits, tax exemptions, or other benefits. Lowering investment capital and interest rates are also effective ways to encourage solar energy investments. Government can also reduce regulatory oversight and create uniform standards for different types of solar installations while maintaining consistency throughout the market.
There is a cost associated with incentive programs. Still, these costs are typically negligible compared with the overall cost savings related policies have on consumers’ energy bills and taxpayer finances over time. Incentives are essential for achieving sustainability goals and increased economic development in emerging markets through green job creation.
For example, to subsidize the installation cost of residential solar panels, the government could offer a tax incentive in either a tax credit or tax exemption. Residential electricity consumers then pay lower electricity bills than those who do not have solar panels installed on their rooftops. The cost associated with this subsidy results from the revenue loss incurred by the federal government through granting this tax incentive. However, in many instances, these costs are relatively minimal compared to private and public sector investments. When weighing up incentives against taxes that would be collected if such incentives did not exist, such subsidies would likely be considered worthwhile investments.
Government can also reduce regulatory oversight to incentivize companies to innovate in solar energy advancements. For example, to reduce the regulatory burden for companies that install solar energy systems, the government can reduce the product classification of such products to make it easier for companies to install new solar installations. The government could also make their information on efficient power management available to encourage companies in this field.
Incentives are effective strategies for raising energy efficiency and decreasing pollution. However, they may only be effective strategies if they induce consumers and investors to over-invest inefficient technology or investments. In some cases, consumer and investor incentives may also create inequities or waste by creating shortages in funding isolated geographical areas with low consumer market demand while simultaneously creating demand in high consumer markets with little incentive to invest.
Incentives are only effective if they result in a positive change. In this case, taxpayers, consumers, and investors may find that their motivations could be better as there is no real change in the energy market or overall sustainability goals.
The federal government is interested in increasing growth within the solar energy sector and increasing the number of green jobs. For example, the Obama administration has created the Advanced Manufacturing Tax Credit (AMT) with an annual allocation of $2.3 billion to incentivize U.S. manufacturers to mass produce technologies that promote clean energy generation and use as well as new manufacturing processes that reduce pollution and greenhouse gas emissions by using sustainable energy sources such as solar power.
The National Renewable Energy Laboratory estimates that these tax credits have created thousands of jobs in the solar energy field. However, due to the nature of these tax credits and their focus on producing goods rather than producing goods and services, critics claim that this policy could be more effective and efficient for promoting green job growth.
Solar energy subsidies can be implemented through a feed-in tariff, quota purchase or premium payment systems. One of the critical challenges with implementing solar energy incentives through net metering is that it can lower the motivation for governments to create feed-in tariffs, quota purchases and premium payments, which can achieve higher rates of green job creation at a similar level as net metering.
A feed-in tariff requires utility companies to pay a fixed rate for solar electricity produced by qualified individuals and companies. If the national average cost of solar electricity decreases, the government can lower the rate that utility companies must pay for qualifying solar electricity. This subsidy can also be effective in greening up the energy grid. A key challenge with implementing feed-in tariffs is that they can increase costs to consumers and taxes on electricity bills if they are not properly structured.
A quota purchase requires utility companies to purchase solar power generated by qualified individuals and companies. If the national average cost of solar electricity decreases, utility companies can buy more solar electricity at the lower rate. This subsidy can also be effective in greening up the energy grid, but it has similar challenges to feed-in tariffs in that they can increase costs to consumers as well as increase taxes on electricity bills if not properly structured.
A premium payment is an incentive that pays a higher rate for solar electricity than the market price for conventional energy sources. This type of incentive requires utility companies to pay a higher rate for solar electricity than the market price for conventional energy sources. Utility companies can afford to pay such a premium rate because the government provides financial assistance in the form of the premium payment. However, if the government does not provide enough financial assistance, utility companies will be able to sell their solar energy at market prices, thereby reducing incentives for individuals and companies to install solar equipment and increasing costs on any resulting revenue shortfall. This effect is less likely if the government provides support through a feed-in tariff instead of a premium payment because utility companies can then sell electrical energy at market prices which would result in a lower price for consumers on their electricity bills.
The federal government has created financial incentives in the form of tax credits to encourage the use of solar energy installations. For example, companies that install solar power systems can claim a 30% investment tax credit (ITC), while individuals who install their own solar power can claim a credit of 10% of their total installed costs, including labor and material costs. However, these tax incentives have been criticized for being narrowly targeted, inequitable and inadequate for achieving the solar energy goals.
In response to these criticisms, there have been proposals to reform such credits as well as new proposals to introduce additional incentives to promote green jobs in the solar energy sector. One of the key proposals is to reform solar energy tax credits by creating a new solar energy tax credit that can be claimed by both individuals and companies. Individuals who install their own systems and companies who install their own systems would also receive a solar energy tax credit in the form of an individual or company investment accelerated depreciation.
An example of this type of subsidy would involve an individual installing a solar power system that generates 4-megawatt hours per year and claiming a 30% ITC. For this scenario, the government pays for the installation costs up to $20,000. At $20,001 per kilowatt, the government pays for all subsequent installations up to $15,000 each ($ 10 million). This subsidy can be effective in achieving the solar energy goals and green job creation as it is scalable, equitable and achieves a similar rate of green job creation as net metering but at a lower cost. An alternative to this proposal is that the government pays for 80% of the installation costs up to $20,000, then pays for all subsequent installations up to $15,000 each.
Another proposed policy for creating a new solar energy tax credit is to create an investment tax credit (ITC) that involves the government directly paying a subsidy for the installation of solar power systems.
){kind=link}