North Carolina’s 35% tax credit for solar and other renewable energy projects officially died December 31, delivering a fairly decent blow to the rapidly growing solar market in the state. How did we get here? More importantly, how can NC solar companies move forward with their expansion plans despite this expired credit?
Background
North Carolina routinely provides various renewable-energy tax credits that address nearly all renewables, providing relief for the cost of equipment and associated design; construction costs; and installation costs by a taxpayer and placed into service in North Carolina during the taxable year. The credit is subject to various ceilings depending on sector and the type of renewable-energy system. For solar, that limit was $2.5 million.
Without a doubt, the 35% credit has been an important incentive in the solar boom in North Carolina. Since the credit was put into place, the state has skyrocketed from no significant amount of solar power produced to ranking fourth in the nation. North Carolina is now second in large, utility-scale projects, trailing only California. The boom in solar power has had a positive secondary effect on farm owners, as companies lease farmland for solar-panel arrays, providing a much-needed boon to rural areas of the state.
The solar industry in the Tar Heel State has simply loved this tax credit. The NCDOR previously reported tax filers took $127 million in credits that were processed in 2014.
What happened?
Given its success, it may seem improbable that the tax credit expired at all. Proponents argued hard that the tax credit was an overall economic win for the state. For every $1 spent on the credit, they claimed, states and local governments have received $1.53 in new revenue. Further, ending the credit would benefit one of the most heavily subsidized and monopolistic businesses in the economy – electric utilities. Opponents, on the other hand, argued that ending the tax credit would save taxpayers and utility customers money (even though the power is sold to utilities at mandated rates designed not to increase charges for power). Additionally, and more than anything, the increasing financial success of solar companies indicates that it’s time for the industry to stand on its own. Despite an initial vote to extend the credit in September, and under pressure from senators opposed to incentives, renewable energy and the like, the House reversed itself and agreed to let the credit end.
So what now?
The repeal of North Carolina's tax credit on renewable energy equipment investments doesn't mean that break is completely over.
Softening the blow, the General Assembly approved a phased-out repeal that allows incomplete solar (and hydroelectric and biomass) projects to get the 35% credit if taxpayers applied by Oct. 1 and the projects were substantially completed Jan. 1. So if your company’s application was already in process, you can relax for the moment. NCDOR reported last week it had received over 200 applications totaling $938 million in credits. You may still recognize a tax credit this year, even if substantially reduced due to an incomplete project.
Keep in mind also that the solar industry in North Carolina has been expecting this credit to end for some time. While it would have preferred a “later rather than sooner” passing, it is something that can (and should) be overcome. Solar development costs continue to drop, making it possible to build projects affordably even without the tax credit. The industry may not grow as fast as it has over the past few years, but there’s no reason to assume it should die out completely. The future of solar is still bright in North Carolina.