Post-Election FAQs: What now for solar?
Now the 2024 Presidential election has passed and some of the important questions have been answered, there is still plenty of uncertainty relating to solar for businesses and nonprofits, so here is an attempt at condensing those questions most frequently asked of us into small, helpful bite-sized chunks.
1. Will Tax Credits be Eliminated or Reduced by New Administration in 2025?
With a new administration incoming, a shift in environmental policy and an appetite to undo parts of Biden’s Inflation Reduction Act are likely to mean the current 40% tax credits available for businesses and nonprofits going solar will be reduced or eliminated.
At the very least, it appears the 10% Energy Communities Tax Credit will be eliminated, and the long-standing 30% Solar Investment Tax Credit will be threatened depending on who gets the keys to the Treasury.
Furthermore, it is worth noting that signing a solar agreement in 2024 also allows you more flexibility with the 40% ITC in that you can use it dollar-for-dollar against your 2024 taxes even before your project is completed or anytime you need it for the next 20 years.
2. What is likely to happen to Direct Pay for nonprofits?
The Inflation Reduction Act initiated a program where nonprofits could claim the full 40% tax credits as if they were a tax-paying entity, but this seems to be low-hanging fruit if the new administration intends to make heavy cuts to public spending.
3. What effect will upcoming tariffs have on solar equipment?
Tariffs on imported solar equipment are set to bite in early 2025, which will drive up equipment costs for new installations by approximately 12.5%. Sunistics has purchased inventory in advance of the increases but this stock will only cover a set number of projects before prices go up.
4. Interest Rates Have Dropped for the Second Time in Two Months
Interest rates have been cut by the Fed in September (0.50%) and now November (0.25%), adjusting the target range to 4.5% to 4.75%, in a further boost to businesses and nonprofits looking to finance the solar investments before the end of 2024 while other costs remain low and 40% tax credits are guaranteed.
5. What is projected to happen to utility rates in 2025?
Utility rates have increased by more than 100% in California since 2019 and there is no indication it’s going so slow down, at least for most utilities. SCE has requested to increase rates by 23% in 2025 and SDG&E has asked the California Public Utilities Commission for permission to increase rates by 17.6%. These figures are not yet approved, but provides an indication that high and rising utility rates are continuing to accelerate.
6. How does going solar in 2024 support fiscal year-end tax planning and effective budgeting?
Going solar before year-end means organizations can capture the 40% tax credit and potentially accelerate depreciation, resulting in significant tax savings for 2024. It also locks in predictable energy costs, providing greater budgeting accuracy for 2025 with a payback period of as little as two years. Solar's long-term savings allow the effective allocation of resources across other business priorities.
7. Can we guarantee the tax credits will be honored even with the new Administration?
Yes; Securing and creating a safe harbor for the current solar savings in your proposal can be done by starting your project in 2024. “Starting” by IRS definition is a signed Solar Project Agreement and a payment of 5% of the gross cost of the project.
8. When are we going to see changes from the election take hold?
Exactly when and which changes we’re going to see specifically is hard to say, but based on almost 15 years’ experience, we know that cutting green tax credits will be one of the priorities and locking in the current benefits before the end of 2024 is advisable. Rolling back some or all of the public spending via the Inflation Reduction Act is seen as a priority by many prominent Republicans, which adds to the feeling that solar is not going to be as lucrative for businesses and nonprofits as it is right now for a number of years to come.
Key Sources: Politico, Utility Dive, Reuters Tax, SP Global, California Public Utilities Commission (CPUC)