Recent Legal Developments with Solar Tax Credits

Experienced Business & Trial Lawyers

The solar industry has experienced remarkable growth over the last decade, with innovations in technology making solar panels more efficient and affordable. Governments worldwide recognize the value of solar power in mitigating climate change, and many have implemented tax incentives to encourage its adoption. In this blog, we will delve into the recent legal developments surrounding solar tax credits.

1. Background on Solar Tax Credits
Solar tax credits are incentives offered by governments to reduce the cost of installing solar energy systems for individuals and businesses. By offering tax credits, governments hope to encourage more entities to adopt solar energy, which can reduce a nation’s carbon footprint, enhance energy security, and stimulate job growth in the renewable energy sector.

2. U.S. Federal Solar Investment Tax Credit (ITC)
Historically, one of the most significant solar incentives in the U.S. is the Federal Solar Investment Tax Credit (ITC). The ITC was established in 2006, allowing homeowners and businesses to deduct a percentage of the cost of their solar panel system from their taxes.

Recent Developments:
• Extension: Initially set to expire in 2016, the ITC has been extended multiple times. In December 2020, the U.S. Congress passed a bill that provided a two-year extension for the ITC. Thus, solar projects that started construction in 2021 and 2022 can still qualify for a 26% tax credit. In August 2022, Congress passed an extension of the ITC, raising it to 30% for the
installation of which was between 2022-2032. (Systems installed on or before December 31, 2019 were also eligible for a 30% tax credit.) It will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. The tax credit expires starting in 2035 unless Congress renews it.

3. State-Level Incentives
Many U.S. states also offer solar tax credits and incentives that can be combined with the federal ITC. These incentives vary by state and can significantly reduce the payback period of solar installations.

Recent Developments: Several states have revamped their renewable portfolio standards and solar incentive programs to account for the decreasing cost of solar technology and to encourage further adoption.

4. Global Developments
Around the world, countries are recognizing the importance of solar power. Many have established aggressive renewable energy targets and provide tax credits, feed-in tariffs, and grants to achieve these goals.

Recent Developments:
• European Union: The EU continues to be at the forefront of green energy adoption. As part of
the Green Deal, many member states have revisited their solar incentives to align with the bloc’s
goal of carbon neutrality by 2050.
• Asia-Pacific: Countries like India, China, and Australia have made significant strides in their
solar energy policies, with several new incentives introduced to bolster their renewable energy

5. Implications for the Solar Industry
The extension of tax credits and the introduction of new incentives have provided a boost to the solar industry, leading to increased installations, technological innovations, and job growth.

However, as solar technology becomes more affordable and prevalent, there’s an ongoing debate on how long these incentives should continue and if they might be better directed towards emerging renewable technologies.

6. Looking Ahead
It’s essential for homeowners, businesses, and solar industry professionals to stay informed about these legal developments. As the renewable energy landscape continues to evolve, staying updated ensures that individuals and entities can maximize the benefits they receive from these incentives.

Solar tax credits have played a pivotal role in the growth of the solar industry. Recent legal developments have further strengthened the sector, solidifying solar energy’s role in our transition to a sustainable energy future.

The attorneys at Fortis LLP at its Orange County Office have experience in working with a number of solar power developers and have helped a number of its clients in this space take advantage of the investment tax credit (ITC), as a tool to reduce the income tax liability.

DISCLAIMER: This blog is intended solely for educational purposes and contains only general information. It should not be construed as legal advice and should not be treated as such. You must not rely on any information contained herein as an alternative to legal advice from your attorney or from other professional legal service providers. If you have any specific questions,
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