Debt Ceiling Threatens Solar Tax Credit

The current debt ceiling standoff between US House Republicans and the Biden White house could have devastating impacts on the federal solar tax credit (aka Invest Tax Credit, or ITC). A bill passed by House Republicans on April 26 would gut the Inflation Reduction Act (IRA) and threaten the 30% solar tax credit that is crucial to the US solar market.

What does this mean for the solar projects now and in the future? And should homeowners and business interested in installing solar panels be concerned? Let’s find out.

In This Article:

• What Is The Debt Ceiling Standoff?
• How Will Debt Ceiling Impact Solar Tax Credit?
• How Will Debt Ceiling Impact The Solar Market?
• Should You Install Solar During Debt Ceiling Standoff?

WHAT IS THE DEBT CEILING STANDOFF?

The debt ceiling standoff between US House Republicans and the Biden White House is a political battle over whether to raise the debt ceiling and allow the government to continue borrowing money. The debt ceiling is a statutory limit on the amount of debt the US government can accumulate. Congress sets a limit on the amount of debt that can be issued, and the current limit is set at $28.4 trillion.

The Biden administration has asked Congress to raise the debt ceiling, arguing that failing to do so would have catastrophic consequences for the US economy. If the government cannot borrow money to pay its bills, it could lead to a default, which could trigger a recession or even a depression.

However, House Republicans have refused to vote in favor of raising the debt ceiling, arguing that the government must first address its spending habits. Republicans have criticized the Biden administration’s proposed spending plans, which include a $3.5 trillion budget reconciliation package, as excessive and unsustainable.

The standoff has led to a tense political battle, with both sides accusing the other of playing politics with the debt ceiling. The White House has warned that a failure to raise the debt ceiling would have dire consequences for the US economy, while Republicans have accused Democrats of engaging in reckless spending.

The Biden administration has urged Republicans to put aside their political differences and vote to raise the debt ceiling, arguing that failing to do so would harm the American people. However, Republicans have remained steadfast in their opposition, setting the stage for a potentially devastating outcome if the debt ceiling is not raised in time.

HOW WILL DEBT CEILING IMPACT SOLAR TAX CREDIT?

As passed by the Republican-controlled U.S. House of Representatives on April 26, the “Limit, Save, Grow Act” would eliminate the 30% solar tax credit and drastically roll back other renewable energy initiatives within the Inflation Reduction Act (IRA). This would have a devastating impact on the solar market in the US.

If the 30% solar tax credit is eliminated, it would make installing solar panels much more difficult. It would mean homeowners and businesses could no longer claim a tax credit for the cost of their solar panel install and greatly increasing the overall cost and payback period of the solar panel system.

For now, the 30% solar tax credit is one of the largest and most reliable solar incentives available across the country. The tax credit has no maximum limit and covers the entire cost of a solar panel installation. This has made solar panels more affordable and accessible to homeowners and businesses. It has also allowed consumers to drastically reduce or eliminate their energy bills, saving them billions of dollars in utility costs over the decades.

The solar tax credit was also expanded with the Inflation Reduction Act to include the cost of installing battery backup with or without solar panels. This has allowed homeowners and businesses to have backup power in case of power outages, reduce Time-Of-Use (TOU) energy costs, and charge their electric vehicles (EVs). Not only have these battery backup systems kept those families and business safe, it has also provided significant savings in the form of reduced downtime for businesses and reduced energy and fuel costs.

If the solar tax credit and other renewable energy incentives were eliminated, it would mean a dramatic increase in the cost of solar panel and battery backup systems. It would also increase the payback period of those systems and significantly stall the development of a cleaner, safer, more resilient energy grid.

HOW WILL DEBT CEILING IMPACT THE SOLAR MARKET?

The debt ceiling standoff could impact the solar market in a few different ways. First, if the government defaults on its debt, it could lead to a recession or even a depression, which could reduce demand for solar energy projects. This could result in fewer projects being developed and fewer incentives being offered.

Second, if the government is unable to borrow money, it may have to cut funding for programs, such as tax credits and other incentives for solar energy. This could make it more difficult for homeowners and businesses to afford solar energy projects.

Finally, the debt ceiling debate could lead to inflation, which could increase the cost of solar energy projects. This could make solar energy less affordable for many people, which could slow the growth of the industry.

As fewer and fewer solar projects are started, solar companies across the country will be unable to stay in business. Many smaller, local solar companies would be hit hardest and have to close their doors, leading to fewer local and reliable solar options. It would also mean less business competition, allowing larger solar company that survive to increase prices and reduce quality in the less competitive environment.

SHOULD YOU INSTALL SOLAR DURING DEBT CEILING STANDOFF?

It’s difficult to predict the exact impact that the debt ceiling standoff will have on solar prices and the solar energy industry. However, there are some steps that homeowners can take to protect themselves in case the standoff drags out and talks fail.

First, homeowners should take advantage of existing solar energy incentives as soon as possible. This includes federal tax credits and state-level incentives. By installing solar energy systems now, homeowners can lock in these incentives and protect themselves from potential changes or reductions in the future. It will also protect them from constant energy price inflation in the years ahead.

Second, homeowners should consider installing battery storage systems along with their solar energy systems. This can provide backup power during power outages, which could become more common if the debt ceiling debate leads to disruptions in the energy grid.

Finally, homeowners should work with reputable solar energy companies that have a track record of success. This can help ensure that their solar energy systems are installed properly and will provide the expected benefits.