Lower-Income Households Shouldn’t Pay More for Solar. Congress Can Fix It.

Originally published by the Union of Concerned Scientists, Eq.
By John Rogers

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

The answer is it shouldn’t. Energy burdens – the portion of income that households spend on energy bills – are much higher for lower-income households, and solar power is a ready tool to help many of them tackle this.

Congress has an opportunity to reform the federal portion for now, by amending Section 25D, the United States law that governs those tax credits. We should not let this opportunity slip from our hands.

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 energy, including by homeowners, through the Solar Investment Tax Credit (ITC). I bought a solar system, and then when the next tax return season came, I reported the purchase on my federal tax form, and got a 30 percent credit of the purchase price. It worked wonderfully for me.

But what if you don’t earn enough to get that discount? If you don’t owe enough federal taxes, your credit will be reduced. Under the current system, you cannot get more back than you owe. Plus, a lot of families don’t earn enough to pay federal taxes at all, which means they’ll get it zero Once again to buy like that.

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

“About 7 in 10 American taxpayers will not have enough annual tax liability to receive the full ITC 25D benefit, according to 2018 data from the IRS. More than 4 in 10 Americans will have no federal income tax obligation at all. zero benefit.”

This is a lot of families.

There is plenty of money left on the table for families who can’t take advantage of it. According to Lawrence Berkeley National Laboratory, the average size for a residential system installed in 2020 was 6.5 kilowatts, and the average price per watt was $3.8. Even with the tax credit dropping to 26 percent in 2020, anyone who buys such a system, at a price close to $24,700, would be eligible for a $6,400 tax credit, at a net price of $18,300. Someone unable to take advantage of this credit—or even the corresponding amount for a more modest system—would have had a net price thousands of dollars higher.

Denying the families with the highest energy burdens access to a tool that could help many of them relieve these burdens seems… wrong.

Stand in the way of fair solar energy

Tax policy isn’t the only bump on the road to solar for low- and middle-income families, even if they have their own roofs (i.e. they’re not renters and they don’t live in multifamily buildings). Low- and middle-income communities may have fewer solar energy service providers, for example, and service providers operating locally may not have the economies of scale which is another important factor for reducing costs. Households may not have easy access to credit, which, even with the dramatic decline in solar energy costs over the past decade, remains key to making solar energy available. And many people don’t live in states that have their own programs to encourage solar energy adoption, including tax credits.

Federal tax policy should not be another obstacle.

The data show that all of these factors combined make a big difference in terms of disparities based on income and race, as RMI notes:

“While low- and middle-income (LMI) residents made up 43 percent of the US population, only 21 percent of residential solar installations benefited these communities in 2019. Moreover, nearly half of Communities with a majority black population have not installed a single solar system.”

How Congress Can Fix the Federalist Piece Now

Correcting these disparities will take action on a range of fronts and at different levels. But the federal piece? This fix should be easy, and a copy of it is almost in the bag.

The best option for low-income families in terms of this type of solar energy subsidy is the so-called direct payment. Under direct payment, customers will get a discount when they purchase the system, rather than having to wait for tax time. Customers still have to put up the rest of the system price, but at least that part will be taken care of right away.

The second best would be an addition recoverability for politics. With refundability, families can get a full refund for that portion of their purchases at tax time the following year, even if they don’t have enough in taxes.

As it happens, the most recent version of the Budget Adjustment Bill known as the Better Rebuilding Act proposes such an amendment to Section 25d: expanding eligibility by adding recoverability. While direct payment would be a better option, and it has a lot of support on Capitol Hill, either one would be really important for expanding access, especially when combined with efforts to remove other barriers to solar ownership.

Congress could make the federal change more successful by not waiting until 2024 to implement recoverability, as the latest bill suggests doing so. There is no good reason not to take effect this change ASAP. That’s why allies are pushing for the actual date to be 2022, which is exactly what the previous draft of the bill included.

This concerns us all

Scaling up solar is important for people who will be able to enjoy the direct benefits of solar energy, but also for all of us who care about addressing grievances in the energy sector, and who are interested in maximizing the contribution of solar energy to reducing pollution from the energy sector.

My colleague Paula Garcia told me:

“The evidence is clear that making solar energy more accessible – especially for those with limited financial resources – will reduce emissions, make electricity more affordable, clean energy more equitable, and improve the health of communities. It is about helping catalyze greater and more equitable adoption of residential solar and bring us closer together. of a sustainable future.

Yesenia Rivera, equity director at Solar United Neighbors advocacy organization, echoed those sentiments: “If we continue to leave people out of the equation, we will never achieve … true justice, and tackle climate change.”

Increasing access to home solar energy by increasing access to home solar tax credits should be an easy fix for Congress. Which has powerful implications for spreading solar energy, increasing equity, and tackling the climate crisis. It’s time to get this right.

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